Specifically, there is a guide to help you as you face the decision of when to apply, called the Social Security Claiming Guide.  This electronic booklet provides you with all the background information you need – as well as answering some of the common questions that arise with this process.

The other publication of note at this website is called the Social Security Fix-It book.  In this guide you’ll find a review of the overall Social Security system, what’s presently wrong with it and what the future looks like, as well as several alternatives that could be put in place to fix the system.

Happy reading!

Photo by Photos8.com

Post from: Getting Your Financial Ducks In A Row

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).

My thanks for Natalie Choate for analyzing and pointing out the following information.  Ms. Choate is truly a rock star in the world of IRA law, and much gratitude is owed to her by those of us in the financial community for her thorough analysis and commentary that she provides on such matters as this.

If you live long enough, you’re liable to see just about anything… the following is an example of the most extreme example I’ve ever heard of for using the tax law to your own advantage, deliberately flaunting the law for purposes of evading tax.

The Facts

If you intentionally over-fund your Roth IRA, above the amount that you’re allowed to contribute for the tax year.  The tax law allows you to remove the excess contribution by October 15 of the year following the year of contribution.  If you do not remove the excess contribution (and the gains associated with it) by that point, you will be subject to a 6% excise tax on the excess contribution until the situation is rectified.

The situation can be rectified by either crediting the excess contribution to a future years’ contribution, or by withdrawing the excess amount prior to the deadline for the following year.  Each year that you do not rectify the over-contribution you will be subject to the excise tax.

The Anomaly

If you do not remove the excess contribution and the growth associated with it by October 15 of the year following the year of contribution, once you’ve been assessed the excise tax, your rectification is only required to the extent of the excess contribution – not the growth associated with it.  The growth is no longer considered (under present tax law).  In other words, you can rectify the excess contribution at that point by simply removing the excess, but the growth doesn’t have to be removed.

If you’re following the way this is working, you’ve probably figured out the gist of the “idea” we’re talking about here.

The Terrible, Terrible Idea

Here’s an example of the bad idea in play:

Let’s say you have no Roth IRA at all, but you have $20,000 that you’d like to invest.  Furthermore, you don’t have compensation that would make you eligible to contribute anything to a Roth in the first place.  Ignoring all convention, you open an IRA and contribute the $20,000, investing it in the latest hot stock.  October 15 the following year rolls around, and your hot stock has doubled in value.  (It should be noted that if your hot stock didn’t do so well, such as losing money, you could pull it out now and walk away with no consequence.)

Under the normal conventions, you could withdraw the entire $40,000 (your contribution plus your gain), but you’d have to pay ordinary income tax on the gain of $20,000.  Doing this, you’d avoid the excess contribution 6% excise tax, $1,200.

However, in this terrible, terrible idea, you decide to wait until after October 15, and pay the excise tax on the over-contribution.  Now you have three choices:

• If you’re otherwise eligible for contributions to the Roth in the current year, part of the excess contribution can be used (credited) as a regular contribution.  You would then be subject to the excess contribution tax on the remainder of the over-contribution until it’s been used up by future credits (this is one of the right things you could do).
• If you’re not eligible for the contributions, you could withdraw the excess contribution at this point, along with the growth in the account, paying ordinary income tax on the growth.  This is the other right thing you could do.
• If you’re up for a challenge (and possibly jail time), you could withdraw only the excess contribution and leave the growth in the account to grow tax free for the rest of your life.  It probably won’t do you a lot of good in Alcatraz, though.

The Reason This is a Terrible Idea

The IRS is never in favor of kooky tricks like this that don’t work as the law intended.  So what might happen?  Well, the IRS could review your IRA account and disqualify it completely, on the basis that the custodian should never have allowed the excess contributions in the first place.  In this manner, you’d be subject to tax on the growth in the account and the whole account would be null and void.  Your IRA custodian is likely to be in hot water as well, as this would be a violation of the basic rules of IRAs.

Since the entire concept of the ability to withdraw the excess contribution is designed to help taxpayers resolve an honest mistake, abusing this provision is likely to be soundly disallowed.  If the facts were known, (which they would be discovered eventually), the IRA is likely to be disallowed completely, and the abuse is likely to carry with it severe penalties.

The IRS doesn’t presently have remedy for the situation – and in the case where you honestly make a mistake and elect to leave the funds in the account (crediting against the current year, as in the first bullet point above) – it wouldn’t be too much of a leap for the IRS to disqualify distributions from the gains.  This would become especially so if the activity I’ve described becomes a rampant abuse.

It’s best to follow the rules as intended and leave well enough alone.

Photo by CarbonNYC

Post from: Getting Your Financial Ducks In A Row

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).

Six Tax Benefits for Job Seekers

Many taxpayers spend time during the summer months updating their resume and attending career fairs.  If you are searching for a job this summer, you may be able to deduct some of your expenses on your tax return.  Here are six things the IRS wants you to know about deducting costs related to your job search.

1. To qualify for a deduction, the expenses must be spent on a job search in your current occupation.  You may not deduct expenses incurred while looking for a job in a new occupation.
2. You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation.  If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.
3. You can deduct amounts you spend for preparing and mailing copies of your resume to prospective employers as long as you are looking for a new job in your present occupation.
4. If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses if the trip is primarily to look for a new job.  The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.
5. You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.
6. You cannot deduct job search expenses if you are looking for a job for the first time, or if you are looking for a job in an entirely new occupation or career.

In addition to all that…

It’s important to know that you have some other job-related tax breaks which you can take advantage of…

Moving Expenses – if you move to a new home for your employment, either a new job or just being transferred in your current job, you might be able to deduct your moving expenses if:

• the move is closely related to your start of work in the new location
• your new work location is more than 50 miles farther away from your old home than the distance from your old home to the old work location.  In other words, if your old workplace was 7 miles away from your old home, your new workplace must be at least 57 miles away from your old home.
• you must continue to work in the new location for at least 39 weeks during the 12 months after the move.  If you’re self-employed you must also work in the new job for 78 weeks during the 24 months following the move. (There are exceptions for disability, layoff, transfers, and other situations.)

You may include the cost of transportation and storage of your household goods for up to 30 days, as well as travel and lodging from the old home to the new home (only one trip per person).

Unreimbursed Employee Business Expenses – certain expenses related to your job that are not reimbursed by your employer can be deducted.  Some examples are:

• Dues to professional associations and chambers of commerce if work related and entertainment is not one of the main purposes of the organization.  Any part of the dues that is related to lobbying or political activities is not deductible.
• Educational expenses related to your work.  These expenses must be required to maintain your current job, serving a business purpose of your employer, and not part of a program that will qualify the taxpayer for a new trade or business.
• Licenses and regulatory fees.
• Malpractice insurance premiums.
• Office-in-home expenses (subject to quite a few qualifications)
• Phone charges for business use (but not the cost of basic service for the first phone in a home)
• Physical exams required by the employer
• Protective clothing and safety equipment required for work, as well as tools and supplies required for your job
• Uniforms required by your employer that are not suitable for ordinary wear
• Union dues and expenses

This is not an exhaustive list – you can find more information by going to the IRS website at www.IRS.gov.

Photo by Richard Croft

Post from: Getting Your Financial Ducks In A Row

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).

I didn’t tell the complete the story in that article though:  there are a few items that you need to keep in mind with regard to this tactic.  I’ll finish the story below.

More Information

Affordable Annuity. This tactic is called the Ultimate “Do Over” because it represents an extremely affordable annuity.  By this I mean that, by going through the process of re-setting your benefit after repaying, you can effectively increase your benefit for an extremely low cost.

For example, if you filed and collected Social Security at age 62, and then at age 70 paid it all back – approximately $160,000 (no interest, just the payments!).  When you restart your benefit at age 70 your new payments are increased by roughly $1,400 per month.  In order to achieve the same income ($1,400 per month) with inflation adjustment, it would cost you a minimum of $230,000 (based on popular internet-based calculators).  And that doesn’t include survivor’s benefits.  Pretty much any way you figure it, this is a great deal.

Payback Includes Every Payment Received. When you figure out the amount that must be paid back, you have to include not only the amount you have received on your own account, but also any amounts others have received based upon your account – including your spouse, children, other dependents, and any ex-spouses who are taking benefits based on your record.

Each of these folks must consent, in writing, to the payback and subsequent stoppage (and restartage) of benefits.  This might be problematic, especially if we’re dealing with an ex-spouse with whom there might be a contentious relationship.

For the administrivia-concerned:  the payment must be made via a money order or cashier’s check.

There’s a Downside. You also need to know that there’s a downside to this tactic.  While you’re collecting your benefit prior to enacting the “Do Over”, if you should happen to die, your spouse’s Survivor Benefit will be based on the earlier age benefit that you took before.  This can result in a dramatically-reduced Survivor Benefit – which can be exactly counter to what you were intending to accomplish when you considered this tactic in the first place.

Photo by mikebaird

Post from: Getting Your Financial Ducks In A Row

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).

One source of funds that you may not have considered is within your non-IRA investment accounts – especially if you have inherent capital gains and losses (even moreso if you have carried-over capital losses that wouldn’t otherwise be utilized readily).

Offsetting Gains With Losses To Produce Cash

Here’s how it works: You sell your “loss” positions, establishing a capital loss for tax purposes.  Then you can sell your “gain” positions in like amounts, giving yourself a tax-free source of cash, since the loss will offset the gain for taxation purposes.

For example – imagine that you have a $100,000 IRA that you’d like to convert.  Running the numbers, you’ve come to realize that the conversion will cost $25,000 to complete.  In addition to the IRA, you also hold some non-IRA money, in the form of two investments.  One of these investments has an inherent loss of $20,000, and the other has an inherent gain of $30,000.

By selling out of the “loss” position completely and selling just enough of the “gain” position to offset the tax loss you’ve realized, you have effectively created a tax-free source of income in the amount of $20,000.  This still leaves $5,000 if you’re planning to convert the entire amount.

After you’ve finished with your conversion activities (and after 30 days has passed so that you don’t run afoul of the wash sale rules), you can re-invest the leftover money in those same investments, keeping your allocation at least similar to what it was before.

At this stage you have three choices, assuming you don’t have an extra $5,000 laying around:

1. You can choose to only convert a portion of your IRA – the amount that you can generate tax-free money to pay tax upon.  In our example, this would be $80,000.
2. You can use more of the cash that you freed up from the sales of your non-IRA gain and loss holdings.
3. You can convert the entire amount and take distribution of the additional $5,000 to pay the extra tax.  Actually you’d need to pull out $5,500 in order to pay the penalty on that amount that you’re distributing.

Of these three, I’d recommend option 2, which is the outcome where you complete the conversion of the entire amount without having to pay additional tax or penalty on the money that you’re using to pay the tax on the conversion.  Yeah, that last sentence belongs in a museum.  Happy converting!

Photo by NOAA Photo Library

Post from: Getting Your Financial Ducks In A Row

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).

The recent stock market activity has given us plenty of opportunities to experience extremes of emotion… but then again, you can pretty much choose any time period and make a similar statement.  There are quite a few studies that have recently brought to the forefront several things that we need to understand about ourselves and how emotion could impact our decision-making process.

Loss Aversion – as investors in general, we feel the impact of a loss approximately twice as much as we experience the good feelings from a gain.  It has further been estimated that as we approach retirement, this ratio increases to a factor of five times more pain for a loss as opposed to the joy we experience for a gain.

This seems to be true no matter whether the loss is realized or simply on paper.  The problem is that, in stock market investing, short term losses and gains are simply normal market activity, and we need to temper our emotions to keep things in perspective.

We Want Control… or Do We? – it would seem to follow the train of thought that, if we are feeling pain in our investing activities that we’d appreciate some guarantees and protection of some sort in our choices of products.  However, guarantees come with a cost – that of giving up control.  And as investors we prefer control (or the perception of control) over guarantees, studies have shown.

On the other hand, other studies tell us that a guaranteed income from an investment is preferred over an assured return on investment over time.  These studies show that, given a choice between an annuity with a monthly income and an investment portfolio structured to provide the same sort of returns over time, if we’re near retirement we choose the annuity seven times out of ten.

This means that we value the concept of income, that of receiving a check every month over the excess costs and lack of control that an annuity represents.  At the same time, we prefer to feel like we’re in control of our investing activities.

Lack of Understanding of the Numbers – when presented with the outcome of financial calculators, many of us consider whatever calculations were done in the background to be tantamount to magic.  For example, the very concept of inflation and its impact on our future finances is a mystery to us – we work best when calculations are discounted to present values.

Even though it’s been decided that it was politically incorrect, one popular baby-boomer who is now age 51 once admitted that math is tough (Barbie, of the doll fame, who actually admitted that “Math class is tough”).  There’s no shame in admitting that fact – for a lot of us, math can be very tough.  And as we get older (some say by age 53) our understanding of mathematical numeracy begins to decline dramatically, making math even tougher.

This can lead to distrust of the very calculations that could help you make good decisions in your financial life.

So What Does All Of This Mean?

Mostly this just means that we’re carrying with us a lot of preconceived notions and emotional preferences that we must take into account as we make financial decisions.  “Know Thyself” means that we should understand how these various notions can paint our perceptions of situations, and if we understand these things, we can recognize when our own limitations are working against us and take actions to consider things in a new, less biased, light.

For example, it’s natural to feel the pain of losses.  But as explained in the article The Lost Decade and What It Means, the activity of investing, especially in the stock markets, is a long-term activity and short-term losses, even over a few years, are temporary in the scheme of things.  Keep this in mind before making any rash investment decisions – you’re likely to regret emotion-driven decisions.

Photo by Wikimedia

Post from: Getting Your Financial Ducks In A Row

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).

The Spousal Coordination Rule of Thumb

First of all, we have to make some assumptions:  we assume that the spouses are the same age (within a year); we’re using the rate of inflation as the rate to discount future money to present value; we assume that any money received in Social Security benefits is offset by not taking that same amount from your savings; in order for the rule to work, your savings must earn at least 1% more than the rate of inflation; and lastly, we are not making a “guesstimate” of the date of death for either spouse.

So here’s how it goes:  if the lower Primary Insurance Amount (PIA) is greater than 1/3 of the higher PIA, then the lower earner should take benefits on his or her own record at age 62.  Then the higher earner takes advantage of the Spousal Benefit upon reaching Full Retirement Age (FRA).  Finally, the higher earner takes his or her own benefit at age 70, maximizing his or her lifetime benefit (and his or her spouse’s Survivor Benefit).  If appropriate, that is to say, if the amount of the lower earner’s benefit is less than 50% of the higher earner’s benefit upon taking it at age 70, the lower earner should also take the Spousal Benefit at that time.

On the other hand, if the lower PIA is less than 1/3 of the higher PIA, once again the lower earner begins taking his or her own benefit at age 62, as soon as eligible.  The higher earner files and suspends at FRA, providing a base for the lower earner to begin taking the Spousal Benefit at that time.  And finally, the higher earner takes his or her own benefit at age 70, again maximizing the lifetime and Survivor’s benefits.

I won’t go into the details of all the specific calculations required for these two tactics to work their magic – because as with all rules of thumb there are bound to be specific differences in your own situation that will impact the outcome.  Use these rules as a guide to help you think about the options, but put a pencil to the actual figures for your situation and make sure that they make sense for you.  And if you need help – well, you know where to find me, right?

Photo by Tony the Misfit

Post from: Getting Your Financial Ducks In A Row

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).

As you know (if you’re read the article about Penalties for Changing SOSEPP) it can be costly to you if you make a change to your SOSEPP once you’ve set it up.  The good news is that a Roth Conversion is NOT considered a “distribution for purposes of determining whether a modification”, and therefore in itself will not trigger a loss of the penalty-exempt status of the SOSEPP.

What does happen then, in such a circumstance?  Well, that’s when things go into the “it depends” category, followed closely by a whole lotta “no guidance from the IRS”.

If you have converted the entire balance of your IRA that is subject to the SOSEPP to a Roth IRA, you will be required to continue taking your series of payments from the new Roth IRA just the same as if they were still coming from the traditional IRA.  If you don’t, you will most likely be subjected to recapture of the penalties on the earlier SOSEPP distributions, unless you’ve reached the end of the distribution requirement period – five years or age 59½, whichever is later.

On the other hand, if you’ve only converted a portion of the traditional IRA to a Roth IRA, this is where it gets murky.  The IRS has not provided definitive guidelines on exactly how you handle the SOSEPP from here… it is abundantly clear that you must continue your series of periodic payments until the end of the distribution period.  What’s not clear is if you must continue taking the payments from the remainder of the traditional IRA, or from the Roth IRA, or proportionately from both accounts, or in any amounts you choose from either account, as long as the amount is proper to fit the bounds of your SOSEPP.

The best way to deal with this situation would be to convert the entire account if that’s feasible.  If it’s just not feasible, then you should ask for a Private Letter Ruling from the IRS – especially if we’re talking about sizeable amounts (you be the judge).  If the possible tax and penalty is relatively minor, I’d suggest taking proportionate amounts from the trad and Roth IRAs until the SOSEPP distribution requirement period ends.  Make sure that you keep documentation on all of these transactions – you’ll need it if the IRS comes a-callin’.

Photo by aldenjewell

Post from: Getting Your Financial Ducks In A Row

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).

(In case you are confused by the headline: a principle is a rule, and pollex is an obscure term for thumb. Therefore, this on-going series is all about financial Rules of Thumb.)

Buying a car is such a common activity that many folks don’t give much effort to following any “rules” around this purchase.  I’ve often suggested a couple of rules that you may find useful or interesting…

The Decision to purchase a car in the first place

You need to be certain that your decision to purchase is based on a real need.  Too often we get caught up in our desires and “keeping up with the Jones’s” when it comes to auto purchases.  If your current car is providing you with service and isn’t beginning to fall apart, you should consider delaying a purchase until it actually makes sense for you.

The reason I say this is because a car is a depreciating asset – except in certain cases where you use your car to make money, such as in a delivery business, a car only costs you money – it doesn’t make money for you.  And the cost of the car itself isn’t the only cost you’ll incur, you also need to consider additional insurance costs… if you buy a new car, you’ll need to carry full coverage for the replacement of a much more expensive item than your current, depreciated value, vehicle.

But here’s a rule of thumb that you might use to determine the overall cost of owning a vehicle – to get an idea of the total cost of ownership, including insurance, maintenance, and all, double the price and divide by 60.  This is a rough guess of the cost, but you can probably do much better by going to a website like Edmunds.com and using their “Cost to Own” calculator.

Suggestions if you’re buying a new car

If you’ve chosen to purchase a new car, here are a few suggestions that will make your choice a better option for you in the long run:

Buy with cash.  You should save up and purchase your auto with cash if you can do it.  This way you are doing two things for yourself – 1) you’re able to negotiate specifically on the price of the new car and your trade-in’s value; and 2) you aren’t paying someone else for the use of the money.

There are exceptions to this rule, of course.  The first is if you don’t have the cash available… which means one of two things, either you will need to delay the purchase or borrow the money to buy.  Delaying is a good choice if your present auto still meets your needs (see my comment above regarding the decision to purchase a car in the first place).

Don’t finance for more than four years.  In today’s world it’s possible to finance a car for up to 72 months, or six years – but if that’s the only way you can afford to make payments, you’re taking on more than you can really afford.  This is because of the fact that a vehicle reduces in value dramatically over the first two or three years, and if you finance for much longer than three years, by the time you’ve reached the point where the car is starting to cost a lot of maintenance money (and therefore you’re thinking of trading for a newer model), it is worth much less than you still owe.  This is known as being “upside-down” with regard to the financial value of the vehicle.

Put at least 20% down.  This rule of thumb is helpful to ensure that you aren’t financing more than necessary.  This will also help you to follow the four-year rule above, all the while keeping your payments lower.  Just the same as in the “buy with cash” recommendation, if you can’t put at least 20% down in payment at the purchase, you should delay your purchase until you can do so.

Buy a used car

Another, possibly the best, rule of thumb with regard to auto purchases is to buy a used car, and drive it until it literally drops from exhaustion.  It may not be glamorous (what sound financial advice is?) but this is one of those recommendations that has passed the test of time, and has been a part of some of the world’s greatest financial success stories.

According to Stanley and Danko’s seminal book “The Millionaire Next Door”, in the chapter called “You Aren’t What You Drive” – the average millionaire doesn’t put much value on having a brand-spanking new car.  In fact, more than 37% of the millionaires that were surveyed purchased a used car most recently, and even if they bought it new, they held onto their car for a good while before trading:

Those purchasing motor vehicles accounted for 81% of the sample of millionaires; those leasing accounted for 19%.

Photo by houdoken

Post from: Getting Your Financial Ducks In A Row

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).

If you look at the article Creditor Protection for Retirement Plan Assets, you’ll see that IRAs in general have protection from creditors in the case of bankruptcy, up to $1 million.  On the other hand, separated rollover assets from a 401(k) or other ERISA-protected account enjoy indefinite protection from creditors.

Rolling over the ERISA-protected funds into an account that contains contributory IRA funds (that is, an IRA that you have made deductible or non-deductible contributions to) automatically removes the ERISA protection and therefore the indefinite protection from creditors.

So it may make sense for folks who could be impacted by this protection (or rather the removal of the protection) to maintain separate accounts for rolled-over ERISA funds.  This would be anyone whose total IRA account is (or may become) over $1 million – and regardless of whether or not you think bankruptcy is a possibility.  In today’s sue-happy world, unusual circumstances could creep up on you at any moment and put you in the position where you might need this protection.

It’s very important to note that this protection only applies to actual bankruptcy – if you’re merely being sued by a creditor and you haven’t declared bankruptcy, your protection depends on federal non-bankruptcy law and state law.  The article mentioned at the outset includes links to state law information with regard to these kinds of situations.

Photo by arnold | inuyaki

Post from: Getting Your Financial Ducks In A Row

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).