If you are considering opening a new IRA or Roth IRA or other retirement account, you are taking a significant step toward saving for a financially secure retirement. But as with any long-term investing initiative, there are some critical questions to ask before you open a new retirement account. Getting the answers to these questions can help save you money, avoid potential tax pitfalls and ensure the underlying investments you choose are the right ones for you.
Question One: How Much Does It Cost to Open and Maintain This Account?
Some costs are associated with opening and maintaining a retirement account. They can include a financial adviser’s compensation, if you are using one; administrative fees charged by the custodian, such as the bank, mutual fund company or brokerage firm with whom you are placing the account; and the cost of any underlying investments such as trading costs or the expense ratio of a mutual fund.
While a good financial adviser’s counsel can be very helpful, you need to understand how and how much an adviser gets paid for that counsel. Financial advisers are typically paid through a wrap-fee, an annualized fee based on the total assets you invested with that adviser, or with up-front and/or ongoing commissions. Custodial fees vary by firm but are usually nominal, such as under $100 per year; however, they can be higher for lower-balance accounts.
Make sure you understand the fees associated with the underlying investments you choose. If you invest in individual stocks and bonds, you pay a commission when you buy and sell; how much depends on whether you use a full-service broker or a discount broker, and the amount of the trade. If investing in mutual funds, keep an eye on a fund’s expense ratio – the annualized, asset-based fee all investment managers charge their mutual fund investors. Expense ratios for actively managed funds vary widely between fund families and are a function of an individual fund’s asset class and style. For example, stock funds are more expensive than bond funds, and an emerging-market stock fund typically costs more than a domestic stock fund. Passive strategies, such as index funds, are the least-expensive options.
Question Two: What Investments Are Appropriate for My Retirement Account?
Make sure you fully understand the underlying investments in your retirement account. Are they individual stocks/bonds or mutual funds? Do they represent a conservative or aggressive investment posture, and taken together, do they reflect a sufficiently diversified portfolio? Know the answers to these questions even if you are working with a financial adviser.
Question Three: Can I Withdraw Money from This Account While I am Still Working?
When it comes to withdrawing money from a retirement account, you need to understand the IRS rules and any fees you might have to pay to exit your underlying investments. IRS rules allow you to withdraw money at any time from your regular IRA; the catch is you have to pay taxes on the money withdrawn, because you used pre-tax dollars to fund the account. The amount you take out gets added to your ordinary income for the year in which you take the withdrawal. If you are under age 59 ½, your withdrawal may be subject to a 10% tax penalty unless you meet some limited exceptions. You can also withdraw money from your Roth IRA at will, and while you do not pay income tax on the amount, you could also be subject to the 10% tax penalty.
Question Four: Do I Have to Withdraw all My Money From My IRA After I Retire?
Beginning at age 70 ½, you must begin taking required minimum distributions from your regular IRA account; this is not required for Roth IRAs. The amount of your annual required minimum distribution is calculated using special IRS life-expectancy tables and is a function of your account balance. Failure to take required minimum distributions can result in significant monetary penalties. You can always withdraw more than the minimum required amount at any time.
For the past six years, Eliza Cross, a professional blogger and freelance writer in Denver, has put herself on what she calls a “money diet.”
Not that she coined the phrase. “Money diet” is a term that’s been around since at least the 1980s. For a stretch of time, maybe a week and often a month, you spend no money, except on essentials like groceries, gas and medicine. Unlike a food diet, where you want to lose pounds, the goal is to gain money. And if you do it right, Cross says, you should have more money than usual at the end of the month, and you may gain better financial habits as well.
Cross has been putting herself on a money diet every January, for all 31 days. She writes about it and commiserates with her readers on her blog, HappySimpleLiving.com.
And while Cross does it every January – “it’s a good time of year when we’re motivated to make changes in our lives, and a lot of us have been spending a lot over the holidays,” she says – you can obviously go on a money diet any time. That said, some parts of the year are probably more challenging than others, such as the middle of summer, when you may want to do things like go on vacation, visit an old-fashioned ice cream parlor or take the kids to the water park.
It will help your cause if your family embraces the idea of a money diet. Cross is divorced and her oldest child is a grown-up, so that makes it easier for her than someone with an uninterested spouse and seven teenagers (although that hypothetical family would need the money diet more). Cross has a 13-year-old son, Michael, but so far, she says he has hardly noticed the extra-frugal periods.
Want to give it a try? Here’s how to get yourself on a successful money diet.
Food means strictly groceries. You have to eat. But in the spirit of your money diet, you want to watch where you eat even more than what you eat.
“We don’t pay extra for restaurant meals, takeout or pizza delivery,” Cross says.
You’ll also want to avoid buying a can of soda at the gas station. Try not to make eye contact when you pass kids selling candy bars for school. You also really shouldn’t be going out for a cocktail with friends during a money diet, unless your pals are paying.
Visit your library. Before you yawn at what sounds like obvious advice, listen to Mike Catania, COO of the retail website PromotionCode.org. He is noticing a trend in which libraries allow you to check out things beyond books, CDs and DVDs.
For instance, Catania says, in California, “The Oakland Public Library lets you check out tools for DIY projects.”
In fact, some libraries lend pretty unusual items. The Arlington Public Library, in Arlington County, Virginia, lends American Girl dolls out for a week. The Ann Arbor District Library in Michigan actually has a website titled, “Unusual stuff to borrow,” and offers patrons the chance to check out things like telescopes and home-improvement tools like an indoor air-quality meter.
Even if your library doesn’t offer anything unique to check out, you can get access to a lot of free entertainment.
Take on some part-time work. Or ask for extra hours. Or put in extra hours if you’re on salary, assuming those hours will help you get ahead.
What’s the rationale for working harder during your money diet? Well, you have less time to spend money.
Lamar Dawson, an account executive at a public relations firm in New York City, says he took on a part-time job on weekends in January 2014 to pay off student and credit card debt. First, he picked up cash by working in a Spider-Man costume for a toy store in Times Square, and then he became a host for an Italian restaurant, where he still works. And while he killed off his debt by December 2014, Dawson says the extra work inadvertently put him on a money diet.
“I found that it helped me save money because I wasn’t at brunch with my friends, who were group texting me to come out for endless mimosas,” he says.
Mystery shop. This is only practical if you plan, since mystery shopping gigs often take at least a few weeks to get set up. Nevertheless, what a great way to “cheat” and still completely be within your money diet.
Judy Williams, who works for an emergency fire and water restoration company in Saint Francis, Wisconsin, had what she and her husband called a “no-spend” month a couple of years ago.
During their money diet month, Williams was a mystery shopper, which is a part-time gig in which you’re hired to go to stores or restaurants and pose as a customer (you make purchases, but the company hiring you reimburses you and often pays you a little extra).
“Not only did we get to eat out for free, I got paid to do so,” Williams says.
Shop at home. Mystery shopping and working more is fine, but really, a money diet is more about notgoing out, since that can make you feel deprived if the temptation to spend is great. Instead, a money diet is a good way to get to know your home a little better.
You probably own a lot of things you never use, and this is a great time to start utilizing them, Cross says. “Use up the things we tend to hoard in our pantries, garages, medicine cabinets and closets,” she says.
Did you discover that you have run out of soap or shampoo during your money diet? Those are essentials, and you can buy them without feeling guilty, but Cross points out that you might want to check first and see if you have some hotel soap or fancy shampoo that someone bought you a while back.
You can even grocery shop at home, Williams points out. During her money diet, she and her husband used many items they had stockpiled in the freezer.
Holly Wolf, based in Chester Springs, Pennsylvania, and the chief marketing officer at Conestoga Bank in Philadelphia, says she lives a frugal lifestyle and often does her grocery shopping at home.
“That mango barbecue that you had to have, figure out how to use it,” she suggests. “Ditto for the pickled onions, the 10 pounds of ground chuck that was such a bargain, the frozen strawberries and the soup you froze a few months ago.”
One of the side benefits of shopping in your own pantry or freezer, Wolf says, is that it should curb yourimpulse-buying the next time you’re tempted to purchase something offbeat that you’re not actually likely to eat.
And just as it’s fun to window shop and find something you never would have dreamed of buying, you may end up making a similar “purchase” in your own home.
“One year, in my own house, I found a kit for insulating windows, and so I used that, and I wound up saving money on my energy bill,” Cross says. “During a money diet, it’s all about getting creative and using what you already have.”
Debt is a four-letter word of the bad kind, according to some people. The type of thing that shouldn’t even be considered by responsible adults. However, not all finance professionals agree debt is something to be avoided.
“Not all debt is created equal,” says Gary Poch, vice president of global consumer services for Equifax. “There may be some types of good debt.”
Specifically, experts told U.S. News it may pay to go into debt for one of the following four reasons.
Reason No. 1: To Buy a House
For many people, home ownership is only possible through debt in the form of a mortgage. The average cost of a home sold in November 2015 was $374,900, according to the U.S. Census Bureau. That price makes it impossible for many U.S. families to pay cash for property, unless they save for years or even decades.
That’s not something people should have to do, says Finder.com CEO Fred Schebesta. “I’m a big believer in saving money, but it’s better to do some things while you’re young,” he says. Rather than waiting until the kids are grown and there is cash in the bank, taking out a mortgage at a younger age can improve a family’s quality of life.
Beyond that, a house is an appreciating asset that will grow in value over time. As a bonus, interest payments made on a mortgage can be included in itemized deductions for federal income taxes. Together, these factors add up to mortgages being a smart debt choice for many people.
Reason No. 2: To Get an Education
Despite chatter in some circles about a looming student loan crisis, many experts still say debt for educational purposes can be smart. “It’s an investment in human capital,” says Eric Meermann, a certified financial planner and portfolio manager with Palisades Hudson Financial Group in Scarsdale, New York.
Meermann has personal experience with this type of debt. He took out loans to cover the entire cost of his education at the Stern School of Business at New York University. The debt has since been repaid, and it was money well-spent in Meermann’s mind since it opened up the opportunity for greater income.
Data from the Bureau of Labor Statistics backs up the assertion that higher education equates with higher income. The following are average weekly incomes by education level for adults ages 25 and older in 2014, the latest year for which numbers are currently available:Less than a high school diploma: $488
- High school graduate with no college: $668
- Some college or an associate degree: $761
- Bachelor’s degree only: $1,101
- Bachelor’s degree and higher: $1,193
- Advanced degree: $1,386
Even Schebesta, who isn’t sold on the idea that everyone needs a degree, says debt for training or a technical course can be a good investment if it will unlock greater earning potential.
Reason No. 3: To Start a Business
Schebesta feels confident that taking out a loan for business purposes can pay off. “I saved my first company by borrowing $50,000 to cover payroll,” he says. He was in his early 20s at the time, and the move allowed him to regroup and later sell the business.
When small businesses need an inflow of cash, they typically either go into debt or raise equity through private investors. Although going into debt can be risky, particularly if the lender requires the business owner to be personally liable for payments, it can be an easier option than looking for investors who essentially become co-owners in the venture.
Reason No. 4: To Take Advantage of Low Interest Rates
The final reason why it might pay to go into debt is also a point of contention among financial experts. That reason is to take advantage of the current low-interest market.
“If you want to buy a new purse and are thinking about putting it on a credit card with 15 to 20 percent interest, that’s probably not a good decision,” says Brandon Moss, certified financial planner and vice president of United Capital in Dallas. However, it may make sense to get a car loan at 2 percent rather than pulling cash from investments that are earning 6 to 8 percent.
Meermann agrees it can be a smart move to take out a low-interest loan in order to let investments grow, but Poch isn’t so sure. “I don’t know that I agree with that advice,” he says. Poch advises people to consider the term of the loan, the value of the car and how quickly it will depreciate before making a decision to finance.
Using Debt as an Investment
While these financial experts disagree on the details, they all agree that debt can be a useful tool, so long as it is used in a way that will generate cash.
“What are the things that are going to create wealth over time? What are the things that are going to deplete wealth?” Meermann asks. Going into debt for the former – for houses that appreciate or a degree that could land a higher-paying job – can be smart while debt for the latter can be bad news.
Still, people should carefully consider their financial situation before going into debt. A high debt-to-income ratio can reduce a person’s credit score and may make it difficult to repay obligations. As Poch notes: “All debt can be bad if you don’t pay on time.
One of the main reasons business owners form holding companies in other countries is for the tax advantages. Many countries, such as Switzerland, exempt holding companies from paying federal taxes on capital gains or income. There are several European countries that offer tax benefits and other incentives to businesses to form holding companies, but there are several things besides tax incentives to consider when choosing a location for your holding company.
Financial and Economic Infrastructure
When considering where to form a holding company, it is important to choose a country with a solvent financial infrastructure. If the banking system has had problems, then you won’t want to put your money into the system and risk losing it. In addition, the telecommunications system, including Internet accessibility, should be modernised with widespread availability throughout the region where your business is located.
A country that is politically stable is also important because instability can affect the economy and the ability to make agreements in other countries. Switzerland is seen as one of the most desirable countries in which to form a holding because it is very stable politically, socially, and financially. You should consider forming a Swiss company holding from Co-Handelszentrum because they offer several services that will help you to commence doing business in Switzerland.
Some countries have very favourable business rules and regulations that allow business owners to keep more of the money that they make instead of paying a large amount of it in taxes. It can be easy to form a holding company in many of these countries because they don’t require a huge influx of cash and will allow foreigners to start businesses right away if they have the money to do so. It is important to study the business regulations when choosing the location that best fits your needs.
Language and Culture
For most industries, English is the language of business and you need to be in a country in which English is one of the languages that most people speak. This will not only make it easier for you to understand transactions, but it will allow you to do business around the world when looking for companies and assets to acquire. A culture that is welcoming to foreign business owners and a population that is bilingual are other reasons that Switzerland is a favourable country for forming holding companies.
A well-educated workforce should be another consideration when choosing a country in which to do business. Since business trading and acquisitions can be complicated, it helps to have access to intelligent people who understand the business or can learn the information quickly. Switzerland has a highly educated populace, which is another reason it is considered a great place to do business by foreign business owners.
While tax incentives are certainly an important consideration when choosing where to start a company, they are only one of the many things you need to take into account. Protect your investment into a country by using this list of considerations.
When was the last time you really looked in your glove box and thought about what’s in there? You really need to make sure that you’re carrying everything you need in case you get pulled over but also in case you’re broken down and need to do something about it. How are you going to take care of yourself if your car breaks down? Do you have the tools that you need?
You need to have registration for your vehicle if you get pulled over. That registration says that the vehicle belongs to you and that you have proper documentation regarding that. This is something you’re going to get as soon as you buy your vehicle, whether you do that with bad credit auto loans or any other way.
You need to have car insurance when you’re driving as well so you want to make sure that you’re getting a copy to put in your glove box as well. This is another piece of paper that you need to have to give to the police if you get pulled over. It’s also going to be important if you get into a car accident so you can let others know where they can contact if they need repairs for their vehicle.
Another important piece of paper is one that you should write up for yourself. You want to make sure that you have a piece of paper with all of your emergency contact names and numbers as well as any important allergy or medical information. Think about if your entire family was in the car and you were in an accident but couldn’t talk. What would you want first responders to know? All that information should be on a piece of paper in your glove box.
This doesn’t mean actually cleaners but it does mean things like tissues and some hand sanitizer and maybe a few napkins as well. You want to be prepared in case of a mess. That way you’ll be prepared to clean up when necessary and you’ll also be able to keep your car looking a whole lot better. These things don’t take up much space but they can make it a whole lot easier for you to keep up the car.
If you have kids especially it’s probably going to be very important to have a couple snacks in the glove box in case you are stuck somewhere. Hungry kids are definitely not going to be fun to be around so you want to make sure that you are careful to always be prepared.
Your glove box isn’t that large, but there are definitely some things that you can put in it to make sure that your next trip is going to be a whole lot easier, even if you’re not necessarily going for a long trip. You want to be prepared for anything that might be going on including keeping your car in the best shape possible.
Being in debt can be very stressful, especially if you have creditors constantly trying to call you about the money you owe them. Having large amounts of credit card debt along with a mortgage, car payment, and other bills can make it difficult to pay your bills on time. One way to get control of debt is to take out a debt consolidation loan.
Getting Out of Debt
It can take years to get out of debt, especially if you owe money to several credit card companies. If you just make the minimum payments, you may not be able to reduce your debt for several years because you will be mostly paying the interest that accrues and not the principal amount that you owe. Instead of putting up with constant collection calls, you should contact Debt Negotiators to help you come to a repayment agreement with your creditors so you can finally get out of debt.
After negotiating agreements with creditors, you can pay them all off by taking out a debt consolidation loan. In most cases, you will reduce the amount of money you’re paying on your debts each month. In addition, you won’t have to keep up with several accounts because you will only be making one payment every month to the loan company.
Along with reducing your repayment amount, a debt consolidation loan can help revive your credit rating. Late payments and high debt amounts will lower your credit rating, which will make it difficult to get approval for mortgages or car loans. However, if you are faithful in making your loan repayment, your credit rating will start to improve, which will help you rebuild your credit so you can get approved for loans when you want to buy a home or if you need to replace your car.
By paying your creditors with a debt consolidation loan, you can avoid filing for bankruptcy if your debt is out of control. While bankruptcy may be beneficial in certain circumstances, it can affect your credit for several years. However, bankruptcy has serious consequences that you may not be aware of including restricting your ability to travel, affecting your ability to get a new job, and not deferring all of your debt.
If you file bankruptcy, you may be required to sell some of your assets to pay off some of your debt. In addition, some of your debt may not be included in the bankruptcy, so you may still owe some creditors after filing. Also, landlords and potential employers examine credit histories as part of doing background checks and if you have a bankruptcy, they may see you as a bad risk and it can cost you a great job or a home.
Instead of dealing with creditors yourself, contact a debt solution company to help you negotiate settlements with the companies you owe money to and take out a debt consolidation loan to get back on track with your credit.
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It is interesting to learn about the gold business that is taking part actively in every generation. Many business techs in share market and trade business would have explained about the expenditure to gold business in the global marketplace. Market trend is going peak in all countries, some of the nations that have more nature wealth produce more gold and earning more profit through this way. Gold, diamond, platinum is considered to be the rarest metals that are very expensive. Development of technology spoiling the nature wealth and over population all affects the nature thus its wealth is getting reduced day by day.
Hence these metals are hard to get nowadays thus hike its money value largely. Every people wish to own gold, ornaments made in this metal attracts everyone to wear. Both men and women are eagerly purchasing gold ornaments to enhance their appearance.
Generally those who wear more gold ornaments considered to be the richest people. Once background status is decided by the quantity of gold they own currently. It has more value even it become old or damaged. If your gold ornaments have been broken, you can exchange it for money or new ornaments based on its current value. It helps lot of the middle class people during money crisis problems. Great business men also invest their shares on gold and its related business so that your share value will increase when gold value increase in the market. Many countries are developing other wealth, environment and other fields by exporting expensive metals to other countries.
Earn money for real gold
Anyone who wants to improve their economic status can invest their money on gold buying process. Getting pure form of gold and selling it to jewelers or pawn shops gain you more profit. Central Business District gold buyers shops have the highest competition, and hence have introduced many gold buyers policies where you can profit a lot more than in local areas, many will offer the exact current price for buying gold. Gold always has value in the market even after several generations. Many people are following this trend and making more money with simple business tactics.
Even though the price value rise, people are purchasing ornaments eagerly for their dear ones to celebrate any occasion and home function. According to current statistics some of the countries are importing gold in maximum range than any other essential products for the people. Hence countries that are rich in gold production make lot of money by raising its market value in the international market. Before involving into the business understand the tricks and cheats used by fake sellers. Some might offer low quality gold mixed with some other metals for high rate. Hence before purchasing check the quality importantly using advanced machines.
In current trend, people update their self about recent happenings through internet. Reliable connection is enough that will employ all information in fraction of time. You can learn more information about gold business in every country easily in fraction of seconds. Everyday money value will change it may either fall or raise hence one should select profitable option while purchasing gold or selling gold to other hand.
HowGood is a research organization and food rating company focused on informing consumers about sustainable food options in the United States. Over the course of nearly 10 years, the company has developed a database of more than 137,000 branded food products. It has rated each product according to more than 60 criteria related to sustainability and social responsibility in ingredient sourcing, food production and business operation. The database supports HowGood’s proprietary supermarket labeling system, which provides immediate information about the relative status of competing products in the HowGood system, enabling shoppers to make informed decisions about the products they buy.
Brothers Arthur and Alexander Gillett founded HowGood in 2007 in Brooklyn, New York. HowGood won early funding for its basic research from a grant program under the American Recovery And Reinvestment Act of 2009. In 2012, HowGood implemented its rating system on a trial basis in a supermarket for the first time. In September 2014, the company completed a $2 million round of seed funding. It launched its labeling service in supermarkets across 25 states in the same year.
The HowGood Rating System
HowGood began development of its rating system by partnering with farmers, grocers, scientists, regulatory agencies and others to establish a detailed model of the U.S. food system, including every stage of production from the farm to the supermarket shelf. It then continued research into common practices at each production stage, distinguishing sustainable, socially aware practices from those that produce environmental externalities and other identifiable social costs. The company identified more than 60 individual criteria on which to rate individual food products.
HowGood relies on its own research staff and more than 350 data sources from government agencies and non-governmental organizations to produce a final rating for each product in its database. The company assigns one of three ratings to qualifying products. A Good rating identifies products that rank in the top 25% of all food products in the United States. A Better rating goes to products in the top 15%, while a Best rating goes only to those products in the top 5%. Products ranking below the top 25% do not receive any rating.
As of 2016, the HowGood database includes rating data for almost half of the 300,000 food products found in supermarkets nationwide. HowGood offers consumers access to the entirety of its rating database through a free mobile app. Using the app, consumers can browse or search thousands of products and ratings or scan product barcodes in the supermarket aisle to check ratings while shopping.
How Does HowGood Make Money?
HowGood makes money with a proprietary labeling system for supermarkets. Supermarkets using the system can create standard-size shelf tags with regular product ID, pricing and barcode information alongside a HowGood rating graphic for products qualifying as Good, Great or Best. With the labels in place, customers can easily identify and compare rated products while they shop. As of May 2015, the reported cost of the system is $200 per month for each store location.
According to CEO Arthur Gillett, the labeling system produces substantial changes in shopping behavior. Products with a Best rating experience a 31% increase in sales on average after introducing the labels. Although not always the case, highly rated products are often pricier and have a larger markup than similar unrated products. As a result, supermarkets that have implemented the HowGood labeling system have seen a 4% increase in spending per checkout as consumers substitute toward higher-priced HowGood-rated foods.
As a privately held company, HowGood does not release financial results or detailed information about its sales efforts. By May 2015, the company had reportedly implemented its labeling system in 78 store locations across 26 states.
Change is inevitable. In fact, the only thing that is certain is uncertainty. Therefore, it’s important to forecast and prepare for the financial changes that have the potential to impact everyday life. Below is a list of the top three financial issues that are likely to affect life in 2016.
1. Low Short-Term Oil Prices
Crude oil prices hit a historic low in December of 2015, falling to an average of $38 per barrel, representing the lowest cost in more than 10 years. Analysts expect crude oil prices to remain low in 2016. OPEC (Organization of the Petroleum Exporting Countries) producers have made it clear that they plan to continue increasing oil inventories, increasing supply in an already high-supply environment and putting downward pressure on oil prices.
The United States Energy Information Administration (EIA) expects oil prices to average $40 per barrel in 2016, up a grand total of $2 from the previous year. Regarding the increase, experts expect average prices to remain below $40 until well after April 2016, as most OPEC companies build their inventories predominantly in the first half of the year.
The EIA also predicts volatile crude oil prices throughout 2016. The organization cites unknowns such as Iranian oil volume, the speed of oil consumption growth and the response of non-OPEC production to low oil prices as the reasons for oil’s increase in volatility in 2016.
The everyday consumer can expect gas and other products that use petroleum in production to have low prices throughout 2016. Low oil prices should keep the average cost of living down and help increase savings, investments and consumption.
2. The Rising Cost of Health Care
The Centers for Medicare & Medicaid Services expects the cost of an average health plan under the Affordable Care Act (ACA) to increase by 7.5% in 2016. Further, many expect volatile changes to the premiums listed on the Healthcare.gov website. Of the 37 states represented on the site, analysts expect some to see average premiums increase by more than 30%, while they expect other states to see average premiums decline by more than 10%.
The issue here in 2016 is that the average cost of premiums is increasing across the board. Experts expect the average premium for a typical employer-sponsored health plan to increase by more than 4%, meaning that even those not receiving health care under the ACA are likely to experience cost increases. For everyone who has, or expects to have, health care in 2016, it’s important to factor these increases in costs into a health insurance budget.
3. The Potential for Further Increases in Interest Rates
The Federal Reserve made news in 2015 when it increased interest rates for the first time since the 2008 financial crisis. The hike was small, increasing interest rates from 0.25% to 0.5%, but it’s a sign that the Fed may impose a second increase in 2016.
The Federal Reserve increases interest rates when it decides that the economy is doing well and expanding. It decreases interest rates when it sees the economy slide into a recession. So, while the Fed may increase interest rates in 2016, this will depend largely on the performance of the overall economy. The Fed considers unemployment numbers, market volatility and the rate of inflation when deciding whether or not to increase interest rates.
For the average person, this can mean a variety of things in 2016. If rates increase, it entices people to hold more cash and invest less in stocks and bonds that may give lower returns. Further, it increases the cost of corporate borrowing, reducing the profits of large companies, making cash more attractive. Finally, any person with a variable interest rate on debt sees that interest rate increase, so those in such a situation should make sure to pay off variable interest rate debt as quickly as possible.
The Department of Labor (DOL) has put together a proposal that, if passed, will have far-reaching effects on the retirement planning industry in several respects. One of the key issues that it addresses is the concept of fiduciary duty, which requires those who are bound by it to act in the best interests of the client without regard to possible conflicts of interest. This adjustment will result in radical changes to how annuities are sold and marketed, and the way that advisors will get paid for doing so.
The Fiduciary Standard
There are two separate fiduciary standards in the financial industry. One of them is defined under the Investment Company Act of 1940, and this definition allows advisors to disclose any possible conflicts of interest to their clients and still function within the law as long as these conflicts are “managed” satisfactorily. The ERISA definition of fiduciary unconditionally prohibits all advisors from having conflicts of interest in any form, and also prohibits them from earning commissions in any capacity. (For more, see: How Likely is a New Fiduciary Rule in 2016?)
The DOL is seeking to make all retirement advisors into the latter type of fiduciary in its proposal. One of its main motivations behind this change is to curb the sales of annuity products in retirement plans and accounts, because it feels that many advisors recommend these products as a result of the large commissions that they pay and that do not have to currently be disclosed to the client. The DOL feels that many retirement plan participants and individual investors would be better off in other types of investments such as exchange-traded funds (ETFs) or mutual funds instead of annuity contracts that often come with substantial back-end surrender charges and annual contract and maintenance fees.
Choices for Advisors
If the DOL proposal is passed into law in its current form, retirement plan advisors will have two basic choices as to how they operate. The first choice is that they can work as straight fiduciaries under the ERISA provisions and charge their clients either a flat fee, an hourly rate or a percentage of assets under management as compensation. The other model will allow them to earn commissions for their services under the Best Interest Contract Exemption (BICE) rule, which will require them to completely disclose any and all commissions or other incentives that they and their companies receive for recommending a given product or service. The annual cost in dollars that the client will pay must also be disclosed. All commissions will have to be “reasonable” in nature, and all possible conflicts of interest will have to be reported as well. Advisors will also be required to execute a contract with each client that stipulates that the recommendations that the advisor provides are not biased in any way. Advisors who violate this contract will leave themselves and their firms open to breach of contract lawsuits. (For more, see: What the DoL’s Fiduciary Policy Means for Advisors.)
Advisors who wish to take the safer and more conservative route will most likely opt for the first of the two choices listed above. The rules for this option will most likely be clearer and more straightforward than under BICE. Conservative practitioners who want to stay well inside the lines of compliance will be able to run a fee-based business without having to worry about potential legal tripwires.
The BICE model will be much more complicated, although it will allow advisors to continue functioning in the current capacity for the most part. But the definitions of “unbiased” advice and “reasonable” compensation will most likely be ultimately determined by court decisions over lawsuits that stem from the new rules. And these rules will likely have a profound impact upon the commission structure of annuity contracts of all types. (For more, see: What the Fiduciary Proposal Means for Annuities.)
The current up-front structure of annuity commissions may give way to a smaller amount being paid up front and then a larger amount of trailer income so that this form of compensation more closely resembles the fee-based model. The no-load annuity market may become much larger as fee-based advisors use these platforms in their practices and then there could be one or more low-load models that pay brokers varying amounts depending upon the business model being used. But advisors will likely have a much easier time defending a commission of 2%-3% up front than one that pays them two or three times that amount, even if there are trailer fees involved.
The Bottom Line
Time will tell whether the Department of Labor’s current proposal will be enacted in its present form or whether it will be derailed in Congress or halted by industry lawsuits. But changes in some form are most likely coming for the annuity industry. They may appear this year if Congress ratifies the DOL’s proposal. (For more, see: Fiduciary Designations for Financial Advisors.)
Overdraft fees can seem inescapable. Most banks charge a median fee of $35 whenever you spend or withdraw more money than is available in your checking account. Since 61% of banks’ revenue from consumer checking accounts comes from overdraft fees, according to the Consumer Financial Protection Bureau, financial institutions haven’t exactly been clamoring to eliminate them.
In fact, according to The New York Times, many banks use a practice called “reordering,” in which – instead of processing checks in the order they are received – they process the largest ones first. This allows them to maximize overdraft fees.
Here’s how reordering can hurt you: You take $100 out of the bank and the ATM says you still have $62 left in your account. However, the bank decrees that you were actually overdrawing your account. How can the bank do this when the machine said you had funds? It reorders how it processes your checks: For example, it first charges against your account a big rent check that arrived after your withdrawal. This check eats up your $62 balance and leaves you overdrawn when your $100 withdrawal is processed.
While it can be a challenge to avoid those sudden extra charges on your bank statement, there are strategies for keeping your hard-earned money where it belongs: in your pocket.
1. Opt Out of Overdraft Coverage
When a bank offers you overdraft coverage, it means you’ll be able to make a purchase with your debit card or withdraw from an ATM even if you don’t have the full amount available in your account. That can save you embarrassment at the lunch counter, but you’ll incur an overdraft fee – or run up interest if your bank offers you an overdraft line of credit to cover the charge until you pay it back.
A 2010 Federal Reserve rule prohibited banks from automatically providing overdraft coverage to their customers. (See Bank Overdraft Changes: What You Need to Know.) Now, you must opt in to have your debit card purchases or ATM withdrawals covered by your bank, or they’ll be declined. If you prefer the possibility of a rejected debit card over a one-time fee, contact your bank and choose to forego overdraft coverage on your checking account. But be warned that even when you opt out, most banks will allow paper checks and automatic bill payments to go through. You’ll be spared the headache of a bounced check or an unpaid utility bill, but you’ll be charged a pesky overdraft fee on those transactions.
2. Choose a Checking Account with No Overdraft Fees
If you don’t want the hassle of having to opt out of overdraft protection, switch to a checking account that prides itself on eliminating overdraft fees altogether. (To find one, read Top Checking Accounts With No Overdraft Fees.) Mobile apps like Simple and Moven have a user-friendly online banking interface and budgeting tools, and several banks including Capital One and Bank of America offer fee-free checking options. In most cases, the bank will decline to cover the attempted charge or ATM withdrawal instead of collecting a fee. There are some tradeoffs: Most no-fee checking accounts don’t accrue interest and few offer the option to bank at brick-and-mortar branches.
3. Keep Money in a Linked Account
Many banks offer overdraft protection, or the option to link your checking account with another bank account so that any time you overdraw, the payment will be covered by your own funds. You’ll avoid the bigger overdraft fee, but banks usually charge a transfer fee ($10 is common). Some banks will also let you link your credit card to your checking account to serve as the cushion for overdrafts. But if you go that route, you’ll incur an interest charge on top of the transfer fee, unless you pay off your credit balance each month.
4. Set Up Daily Account Balance Alerts
Knowledge is power when it comes to your bank account. If you know ahead of time that your balance is dangerously low, you’ll be able to transfer funds into your account or just skip over that impulse debit card purchase until your next paycheck comes through. Most banks with online or mobile banking capabilities will allow you to set up an email or text alert when your balance drops below a threshold – $200, for instance – that you define. You can also choose to get an alert whenever a deposit or withdrawal posts to your account so you know when your balance is in flux. Even better, opt for a daily email that shows your current balance. It won’t protect you completely against “reordering,” but you’ll have a clearer picture of how closely you should be eyeing your spending.
The Bottom Line
Overdraft fees can be a serious strain on your pocketbook. Banks charge consumers an average of $260 a year for overdrawing their accounts. Those who can least afford it are often hardest hit. Young adults, for instance, are almost four times more likely than people 62 and older to have 10 or more overdrafts a year. But with a little extra vigilance – and the right checking account – you can be fee-free and make the most of your money.