Traditionally, life insurance has been viewed as a safety net in the event the family breadwinner dies. To be sure, life insurance in the pre-retirement years can help cover the needs of your survivors, which may include replacing lost income and funding education costs or other financial goals. Yet for those near or in retirement, the need to replace income may become less pressing, while the desire to preserve and protect wealth for retirement needs and pass wealth efficiently to the next generation gains greater importance. There are a variety of innovative insurance solutions that can help meet your needs and also provide a way to help you achieve some of life’s extras, including taking steps to ensure a family legacy.

Keep your legacy intact with life insurance solutions

You may not realize it, but retirement plan income from an inheritance may trigger a tax bill for your heirs that can significantly eat into the amount you leave behind. If you should die, the distributions your beneficiaries take from certain retirement assets such as Traditional IRAs, 401(k)s, non-qualified annuities, and non-qualified deferred compensation is considered Income in Respect of Decedent (IRD) and subject to income tax.  The tax on IRD assets is in addition to estate taxation and thus can result in double taxation. Unlike estate taxes, these taxes are typically paid by the beneficiary and not by the estate. Additional taxable income from an inheritance can cause a host of potential income tax problems, from bumping the beneficiary into a higher tax bracket, to phasing out personal exemptions and itemized deductions and erasing certain tax credits.

One way to make up for the IRD tax bite is to take out a life insurance policy with a value equivalent to the anticipated tax bill. With beneficiary proceeds that are generally exempt from estate and income taxation, the life insurance policy can help replace the amount of your legacy that is lost due to income taxation on IRD assets.

Diversify with a variation on traditional life insurance

A traditional life insurance policy provides an income-tax free benefit, often with limited growth opportunity and flexibility. There are other life insurance options that offer the potential for growth and an income-tax free benefit. These options also build “cash value” and have the added benefit of flexibility to access cash for unforeseen events. These policies can contain fixed rate investments, or provide access to a range of variable rate investments.

For example, Variable Universal Life (VUL) is a type of policy that offers the opportunity to build cash values. A VUL policy can add diversification to your retirement portfolio. As a form of permanent life insurance, VUL provides financial protection against unexpected events. Because the cash value within the policy can be invested in separate accounts, a VUL introduces investment diversification. A VUL also offers some flexibility regarding taxes. You can use after-tax dollars to pay premiums in the VUL now for the potential to accumulate cash value tax-deferred and  receive tax-free supplemental income during retirement. Your financial advisor and tax professional can help you determine whether a VUL would benefit your circumstances.

Ask questions and explore protection options with a financial advisor

Take time to review your financial plan with a qualified financial advisor to help assess whether a life insurance product can help you achieve your financial goals in retirement. To determine what kind of policy would best suit your needs, and the amount of the policy, ask yourself:

• How much of your present living expenses will remain after death?
• Will survivor Social Security benefits offset these expenses?
• Will your tax rate change?
• Will the investment risk tolerance of your surviving spouse change?
• What is the life expectancy of the survivor?

An important consideration when purchasing life insurance is cost. Most policy premiums increase with the policyholder’s age, and variable products may have other flexible premium options that affect their cash value. Review your cash flow to ensure you will have sufficient funds to pay your premiums for the duration of the policy. Your life insurance needs will fluctuate over the course of your lifetime as your needs, goals and circumstances change and should be reviewed annually.

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This information is being provided only as a general source of information and is not intended to be used as a primary basis for investment decisions, nor should it be construed as advice designed to meet the particular needs of an individual investor. Please seek the advice of your advisor regarding your particular financial concerns.

Neither Ameriprise Financial nor its affiliates may provide tax or legal advice. Consult with your tax advisor or attorney regarding specific tax issues.

Variable life insurance is a complex investment vehicle that is subject to market risk, including the potential loss of principal invested. Before you invest, be sure to ask your financial advisor about the variable life insurance policy’s features, benefits, risks and fees, and whether the variable life insurance is appropriate for you, based on your financial situation and objectives.

Financial planning services and investments offered through Ameriprise Financial Services, Inc. Member FINRA & SIPC.

Effectively managing outstanding debt is the first step on the road to financial freedom. You’ve set yourself a budget, you’ve stuck with the plan, and you’ll soon be debt free. Now what? Take what you’ve learned and begin working towards a richer future.

Follow these six steps and you will soon be well on your way to easy street:

1.  Know Your Situation: Take the time to understand exactly where you are at financially. What is your total income? What are your debts? How much is left over after you pay bills? Using a spreadsheet or other type of software tool to map these numbers out in a “Personal Finance Sheet” makes it much simpler to identify how much you need for monthly expenses, and how much you can afford to put away for future investments or savings.
2. Set Goals for Your Future: Clearly define both your short- and long-term goals. Want to pay buy a $25,000 car in the next two years? How about retiring by 55 with $1 million in savings? The key here is to capture your goals somewhere and refer back to them periodically. Keep in mind that any goals you set should be realistic, specific, measurable, set within a certain timeframe, and actionable.
3. Explore Alternatives: No one is saying you need to continue down the financial path you are currently on, so what’s the harm in taking a look at alternative routes? When exploring your options you can choose to do one of four different things; stay the course, expand your strategy, modify your strategy, or adopt an entirely new strategy.
4. Evaluate: Now that you’ve identified the alternative strategies, evaluate the feasibility of each one and how it fits into your personal finance plan. The important thing here is to identify which options you can believe in and work towards.
5. Act: Now that you have your strategy mapped out it’s time to act. Begin by implementing the first actions identified in your goals, and go from there. If you find you cannot act on your chosen strategy for financial or other reasons, it may be time to take a step back and reevaluate the situation.
6. Measure: In order to know where you are at with your goals and to make projections for the future, you need to know how your financial strategy is working. Failure to measure your results frequently can cause you to lose sight of the goals you set up at the beginning of your planning.

Keeping a keen eye to the future through the use of these six steps will ultimately lead you to greater financial security. With a little work on your part, you can soon be living the good life — golf clubs and Cadillacs.

 

This article is for informational and educational purposes only.  It is not intended to provide legal, tax or financial analysis.  Please consult your attorney, accountant or tax advisor if you have legal, financial planning, or tax related questions.

Now that you have your financial problems well in hand and are nearly to the point of being debt free, it is a good time to begin thinking about your financial future. You have made sacrifices, changed your lifestyle, and allotted a significant portion of your monthly income to settling your outstanding credit card debts. With the lessons you have learned, and your new ability to budget and save on a monthly basis, you can begin structuring a retirement plan to guarantee financial independence into your golden years.

One great way to begin saving towards retirement is to set up a Roth IRA personal retirement account. Roth IRAs (or Individual Retirement Accounts) allow you to set aside after-tax income up to a specified amount each year. Earnings on the account are tax-free, and tax-free withdrawals may be made after age 59 and a half. Funds are used in much the same way as traditional investment programs, and can either be managed by your selected investment manager, or managed personally, whichever suits your individual needs.

 Setting up a Roth IRA account is fairly simple and straightforward. The first step in the process is to identify exactly where you should open your account. Many financial institutions offer IRAs, each with its own strengths and weaknesses. It’s important to search for a company that suits your needs. Questions to keep in mind when researching IRA offerings include the following:

•  Is there a minimum initial investment? Minimum contributions?
• What sorts of fees are assessed to the account?
• Does the company offer automatic contributions?
• What investment options are available? Can you invest in stocks? Mutual funds? Real estate?
• How reputable is the provider?

 If you already work with a financial advisor, they can assist you in selecting an appropriate financial institution to work with. A good starting point is the three leading American investment institutions — T. Rowe Price, Fidelity, and Vanguard. These large investment firms have more investment options than smaller institutions, and can support both aggressive and conservative investment plans.

 Actually setting up the Roth IRA account involves little more than filling out a detailed application (similar to a credit card application). You will need your social security number, banking information, and funds to cover an enrollment fee and initial investment into the account. Automatic fund transfers can also be selected to automatically transfer funds from your bank accounts into the Roth IRA each month, making investment that much easier.

 The only thing to do now is to sit back and watch your investment grow.  

 

 This article is for informational and educational purposes only.  It is not intended to provide legal, tax or financial analysis.  Please consult your attorney, accountant or tax advisor if you have legal, financial planning, or tax related questions.

The stock market has prompted many Americans to seek safer quarters for at least some of their life savings. But, instead of stuffing a mattress with dollar bills, some find security in money market accounts, certificates of deposit or fixed annuities. Each of these saving alternatives has unique features, benefits and drawbacks.

Money market account

People typically house surplus cash in a money market account when they want to earn a slightly higher rate of interest than a checking or savings account. A money market account may restrict cash withdrawals each month, but in general, it usually offers enough liquidity to ensure access to your money when needed. Some money market accounts issue checks to facilitate withdrawals.

Before you open an account, check bankrate.com for the best money market rates. It’s not enough to simply compare the Annual Percentage Yield (APY); you need to consider the frequency of compounding interest. For example, interest that is compounded daily will grow more quickly than interest that is compounded monthly, quarterly or annually, so your yield will be higher as a result.

The FDIC has temporarily increased insurance on FDIC-insurable funds, including money market accounts, from $100,000 to $250,000 per depositor, per insured bank until December 31, 2013. After that date, the amount will revert back to $100,000.

Certificate of deposit

A certificate of deposit (CD) is a savings vehicle that ties up your money for a set period of time, ranging from three months to six years. In exchange for “lending” your money for the fixed period, you earn a fixed or variable amount of interest. When you purchase a CD with a fixed rate, you have the advantage of knowing exactly how much money you will earn when the CD matures.

In general, the more you invest in a CD and the longer the timeframe, the higher the earned interest rate. Bankrate.com publishes rates to help you sort through your options. Before you buy, check out the frequency of compounding and whether the interest earned is rolled into the CD or paid to you by check during the holding period.

You can buy CDs directly from a bank or credit union, or you can buy them from a brokerage. Note that a CD purchased from a brokerage may be considered “callable,” meaning the issuing bank can drop the CD if interest rates fall.

Help increase your interest earnings and keep at least some of your savings accessible with “laddering,” a strategy that involves purchasing multiple CDs with staggered maturity dates. As each CD expires, roll the money into a new CD of the longest duration. Eventually, you will own continually maturing CDs that also earn the best rates.

Like money market accounts, CDs are covered by FDIC insurance. If you withdraw from a CD before the maturity date, you may be subject to a penalty.

Fixed annuity

A fixed annuity is another savings option that offers principal protection. A fixed annuity provides a set amount of interest income at regular intervals. It is usually purchased in a lump sum, which is forfeited by the buyer in exchange for guaranteed income over a predetermined interval. For example, you can purchase an annuity that provides payments for the rest of your life or until a certain dollar amount is reached.

A fixed annuity is a tax-deferred investment, meaning you pay no taxes on the income until your money is withdrawn. However, earnings from an annuity are subject to ordinary income tax, which tends to be higher than the capital gains tax applied to other forms of investment income.

Annuities are sold on commission and can be costly because of the variety of fees attached to them. If you expire before the annuity does, the money is gone unless you purchased a special death benefit rider. If you decide to cancel your annuity after purchase, you may be hit with a stiff surrender fee. Because of the complexity of annuities, make sure you understand all the fees and restrictions of the product before you sign on the dotted line.

As an insurance contract, an annuity is not guaranteed by the FDIC. You can check the strength of the issuing insurance company with a rating agency such as Moody’s or Standard & Poor’s.

Save trouble by seeking expert advice

If you need a safe place to put your money outside of the stock market, talk to a qualified financial advisor for professional advice. A financial advisor can help you evaluate your savings options and make decisions that support your overall financial plan.

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This column is for informational purposes only. The information may not be suitable for every situation and should not be relied on without the advice of your tax, legal and/or financial advisors. Neither Ameriprise Financial nor its financial advisors provide tax or legal advice. Consult with qualified tax and legal advisors about your tax and legal situation. This column was prepared by Ameriprise Financial.

Fixed annuities are long-term insurance products.  Before you purchase, be sure to ask your financial professional about the annuity’s features, benefits, and fees, and whether the annuity is appropriate for you, based on your financial situation and objectives.

Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA & SIPC.

© 2009 Ameriprise Financial, Inc. All rights reserved.

In today’s environment, selling a house is a lot more difficult than in the recent past. The housing crisis that has seen the sales of existing homes decline the past two years creates a dilemma for many homeowners who want or need to change addresses.

What can you do if you have already purchased another home, need to relocate to a different city and are no longer able to occupy your existing home? If selling hasn’t worked out, consider the option of renting your home instead. It can help you cope with the financial challenge of keeping up with the costs of multiple dwellings. But, you also need to be prepared to take on the role of landlord.

Dealing with a harsh reality

The bursting of the so-called “housing bubble,” when average home prices shot up dramatically and then collapsed, has put many homeowners in a difficult position. In much of the country, home values have taken a significant hit and there are fewer buyers on the market due to the struggling economy.

According to the National Association of Realtors, sales of existing homes fell by approximately 13 percent from 2006 to 2007 and again from 2007 to 2008. The average sales price of an existing home nationally declined from $221,900 in 2006 to a low of $166,600 in April 2009.

Renting is a financial alternative

If you choose to rent your home, study the market in your area to determine a fair asking price. If your home is in good shape and in a favorable location, it may be easier to find renters in today’s market. Your primary goal is to try and generate enough in monthly rent to cover your expenses, such as the mortgage payment, insurance and property tax that you must continue to pay as the owner of the property. You must consider, however, that you are constrained by what the current rental market will bear, so it may not necessarily match your ongoing costs.

There are other factors to consider as well when you rent your home:

•     Maintenance – for tasks like mowing a lawn or shoveling sidewalks, you may want to strike an agreement with the renter. If the home needs repairs (fixing a leaky roof, hiring a plumber to deal with a clogged drain, etc.) that cost is the responsibility of you, the property owner.

•     Tax considerations – income from rent is taxed as ordinary income, typically a higher rate for individuals than the capital gains tax rate. There are some ways depreciation methods can be used to reduce the current tax burden, but that also creates more complications when you sell the house.

•     Wear and tear on the property – will a renter care for your property as much as you do? The motivation to do so often isn’t there, so renters can take a toll on a home that you hope will once again be attractive to buyers when the housing market recovers. On the other hand, a vacant house can be more difficult to sell than one that is occupied, even if the owner does not live there, so renting the home can also have advantages.

However, the biggest factor in determining whether to choose the rental option is whether you can sell your home in a timely manner and for the price you want given the realities of today’s market.

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 Neither Ameriprise Financial nor its affiliates or representatives may provide tax or legal advice.  Consult your tax or legal advisors concerning your situation.

 Financial planning services and investments offered through Ameriprise Financial Services, Inc. Member FINRA & SIPC.

 ©2009 Ameriprise Financial, Inc. All rights reserved.

File # 90709

(10/09)

With the New Year nearly upon us and your debt settlement program nearing completion, it is a good time to begin thinking about living a debt free New Year. You are starting a new chapter in your life. You will soon be free of the leash credit card debt has put on you, and the future is truly bright if you remain responsible with your finances.

 The lessons you have learned and the skills you have implemented while settling your debt are the keys to living a debt free New Year. Here’s how:

1. Use What You’ve Learned: From developing a strict monthly budget to paying yourself first each month, take what you have learned while enrolled in the DMB debt settlement program and continue to effectively manage your finances. Knowing exactly how much is coming in and going out will make it much easier to stay on top and avoid future debt problems.
2. Continue Responsible Spending Habits: Avoid the temptation to slide back into your old spending habits. Use cash for everything you can, and carefully evaluate possible credit card use prior to making the purchase to make sure it is absolutely necessary.
3. Establish an Emergency Fund: Make sure to place at least 3-6 months worth of living expenses aside to cover future emergencies such as auto and home repair, medical costs, and unemployment. This will eliminate the need to rack up debts on your credit cards when life throws these little curve balls your way.
4. Save! Save! Save!: Clipping coupons, decreasing your homes energy usage, and getting rid of unused items at yard sales or online are all great ways to put some extra money back in your pocket and avoid credit card debt. Think of ways you can continue to reduce your monthly expenses and save money; chances are you will be able to think of quite a few!