Monthly Archives: March 2013

Definition of an Annuity Contract

The definition of an Annuity Contract is a drafted agreement between and insurance company and a customer that explains the obligations of each party, such as the structure of an annuity-variable or fixed, any inherent penalties for early withdrawal, specific provisions for the spouse and more.

Definition of an Annuity Contract

An Annuity is a financial product that is designed by financial institutions and is supposed to accept funds and grow them. Funds accepted from an individual, once they reach annuitization, are paid back as an income stream at a later point in time. Annuities hence become a mean to secure a steady cash flow for a person during their retirement years.

Annuity contracts exists under a 403(b) plan. They are referred to as ‘tax sheltered annuities’ or ‘tax-deferred annuities.’

An annuity contract is important for the individual investors because it legally binds the insurance company to provide a guaranteed periodic payment as soon as the annuity reaches maturity. The structure of the contract must be studied to ensure that risk free retirement income.

In the United States, a contract is created when an insured party pays an insurance company a single premium or a lump sum that will be paid back in installments over a stipulated period.

The annuity contact therefore guarantees a steady payment over time paid through fixed payments, until the death of a person or persons named in the contract.

Some annuity contracts can also provide clients with the leeway to accumulate funds free of income and capital gains tax and later to take lump sum withdrawals without using the guaranteed income stream opportunity. Most clients find this approach better and have adopted this method as the way forward.

Annuity contracts are usually defined by the Internal Revenue Code and thereby regulated at individual state level. Annuity insurance and hence annuity contracts can only be issued by life insurance companies. It is also a new practice though for donors to arrange finance to non-profits to reduce tax.

Based on state legislation, insurance companies may provide various annuity contracts between donors and non-profits to reduce taxes. As a result, some contracts may be available in some states that are not available in others. An annuity contract can be structured so that is has two possible phases, the deferral phase where the customer deposits accumulates money into an account and the income phase where customer receives a steady stream of income.

The Best AARP Retirement Calculators

The web has plenty of AARP retirement calculators that are supposed to help one in understanding the best financial options out there. But what are some of the reliable AARP calculators today? We have some options listed below that you can check out.

AARP Retirement Calculators

The AARP Calculator

This calculator is developed by the American Association of Retired Persons. Users get easy questions that even laypeople can answer with no need for too much prior knowledge. The calculator also shows you whether as a single retiree or as a couple, you will get a shortfall when attempting to meet your goals and whether your will be required to adjust your lifestyle.

The AARP retirement calculator can also allow you to figure out the amount you need to pay regularly to retire at say an age of 65 years and the adjustments that need to be done on the current payments given current rates.

The AARP retirement calculator assumes that the husband will pass on at the age of 87 and the wife at 90. Adjusting the survival rate to 95 increases the amount to be saved from 17.4% of net pay to 19.4%.

CNN Money

The CNN Money AARP retirement calculator asked some questions that assumed prior a knowledge of financial procedures. One of these questions is the estimation of the expected annual salary and current marginal income tax rates.

Another question that requires filing is how the 401 (k) assets are invested but in this case, different sample sets are provided for easy recognition.

Finally, the calculator provides the expected annual rate of return at the percentage of income, for a sample case, at about 11.35%. One additional feature that this AARP calculator provides is the probability that this will happen.

FINRA

This AARP retirement calculator is a little difficult for an average person to use because it requests for various information that is not common knowledge for an average person to provide including current and future tax rate, expected earnings on savings and expected inflation rates. It lacks the option of calculating the expected returns for couples and results in contributions that are as high as 5 times compared to the original AARP retirement calculator.

Schwab and SmartMoney

These two calculators were also easy to use for the layman. The Schwab indicated that the couple or singles should wait until 82 to retire, while the SmartMoney was more optimistic setting the retirement at 62 years.

2013 Roth IRA Income Limits

2013 Roth IRA income limits are issued by the US government and are of particular interested to anyone who is looking to contribute a part of this year’s earnings to their retirement fund. This article describes the dynamic of changes in these limits over the years and the current situation, which is slightly different from the previous year.

2013 Roth IRA Income Limits

What is a Roth IRA?

Roth IRA is a retirement plan that allows you to redistribute a part of your income into a non-taxable retirement fund. Unlike most other tax advantaged retirement plans, it grants tax breaks when withdrawing from the fund, not upon your contribution.

This allows non-taxable growth and relieves all worries about future tax rates. Due to these extremely attractive terms, the US Congress has also placed various Roth IRA income limits in place to prevent high-income taxpayers from sheltering their income from taxes this way.

What Are Roth IRA Limits?

That’s why you can only contribute money to Roth IRA if your gross income for the year is under a certain government-issued threshold. In addition, the size of the contribution cannot exceed a certain amount.

The particular terms change from one year to another, so you need to be aware of the latest Roth IRA income limits in 2013 to see if you are still eligible and know how to go about your contributions.

The New Roth IRA Income Limits in 2013

So, what are the Roth IRA income limits in 2013, compared to the previous year? The eligibility threshold has increased from its 2012 value both for married couples and singles, allowing more people to take advantage of the unique tax advantages offered by Roth IRA.

The cut-off point is now $178,000 to $188,000 for married couples and $112,000 to $127,000 for individuals. This means that if you file individually and your gross income in that year exceeds $127,000, you won’t be given access to the terms of a Roth IRA plan.

Roth IRA Income Limits for Contributions

When it comes to your contributions, the Roth IRA plan specifies different limits for people aged 49 or less and those who are 50 years or older.

If your age is 50 years or more, the 2013 Roth IRA income limit in your case is $6,500. People who are younger than that will only be able to contribute $5,500 this year.

Both values have also moved up $500 since last year, making the contributions slightly more appealing in 2013.

You should be aware that the terms for 401K and other retirement plans have also gone through some changes. If you are interested in any of them and would like to see how they relate to the 2013 Roth IRA income limits, you should look up their updated values as well.

Other Terms

Please note that the deadline for making your contribution to Roth IRA for the year 2013 is in April 15th of 2014. You can only put money into your retirement fund until that date.

Now that you know the 2013 Roth IRA income limits, you can evaluate whether this retirement plan is going to work in your situation or you should look into other options, such as 401K.

Investing In Penny Stocks

Penny stocks, also known as cent stocks in some countries are stocks of small public companies that trade at low prices per share. These are usually below $5 per share.

investing in penny stocks

Investing in penny stocks is easy, as long as the investor understands what they are doing and the fundamental market drivers to look out for.

Getting the Right Stock Broker

Before beginning, it is important to choose the right stock broker. Investors choose stock brokers who charge low commissions, provide platforms that are easy to use and provide other investment options such as stocks, bonds and mutual funds. Opening an account with a stock broker includes depositing money into an account that allows you to start trading. The platform an investor chooses should also provide financial news and information in real time.

Use a Virtual Money Account

Based on the broker an investor chooses, access to an online virtual account can provide the needed training ground before investing in real money. This allows investors to understand how the platform works and how to trade in the penny stocks market. Only after trading in a virtual environment should investors put in real money? Investors should take their time to get a feel of the market conditions and learn the needed disciplines of money management and risk mitigation.

Start Small

The trick behind trading penny stocks in to understand how to manage and grow a small portfolio. If a trade can successfully grow their account and to their principal. Additionally, newbies are usually advised to only trade money that they are comfortable losing in case anything goes wrong with their trading strategy. In case you lose money on your first trades, it is not advisable to keep increasing money into your account. It may be advisable to go back to the virtual account until you are confident to trade profitable again.

Avoid emotional trading

Investors new to trading penny stocks should use the tips that they get from their analysts to dictate the way they trade rather than the emotions of greed and fear. Successful investors get past these emotions to make successful trading decisions.

Reinvest in Penny Stocks

To grow your portfolio and make even bigger margins, investors should put off taking out their profits and rather invest into the program. Having additional funds allows investors to diversify into new stocks over time.

How to Find the Value of a Savings Bond

Savings bonds were first created to finance World War 1. Originally called liberty bonds, they are now sold as series EE and Series I savings bonds. Financial institutions stopped selling paper based savings bonds on January 1st, 2012.

value of a savings bond

Series EE

Series EE bonds reach maturity after 20 years from the date of issue. They are usually liquidated at twice the face value and make for great investment vehicles. They can however continue to earn interest for a total of 30 years. The interest on Series EE bonds is calculated monthly and is paid when the holder cashes the bond. For bonds that were issued before May 2005, the rate of interest is usually computed after six months and is calculated at 90% of the average 5 year treasury yield set from the preceding six months.

For bonds that were issued after May 2005, pay a fixed interest rate of 0.20%, based on the life of the bond. At the rate of .20%, a bond that costs $100 at face value would be worth $105 just before 20 years and would be adjusted to $200 at exactly 20 years, giving it an effective rate of 3.5%. The bond would then continue to earn the fixed interest rate for another 10 years after maturity.

Within 10 years, the interest rate for new bonds in 2009 dropped by over 5% to settle at 0.7% for new bonds.

EE paper bonds were issued with a face value of double their purchase price. A $100 bond could be bought for $50 but would be worth $100 at maturity.

Series I Bonds

On the other hand, Series I binds have a variable interest rate that is based on the rate of inflation. Series I binds have a variable yield based on Inflation and is based on two components. The first is usually a fixed rate that remains constant during the lifetime of the bond. The second part of the bond is usually reset every six months through the lifetime of the bond to take into account the current inflation rate.

The new rates are usually published very 1st of May and 1st of November of every year. The fixed rate which is usually determined by the Treasury department remains at 0% from 1st of November 2012. The variable interest rate for the Series I bonds is usually calculated based on the consumer price index or CPU-I.

The Six Best Websites for Retirement Help

It is now possible for retirees to find help on various topics using retirement tools available online. Six of the best places to find retirement help are below. Some are common like the AARP’s homepage and some are not places you would commonly look like the New York Times. Check out the list below and please share any of your favorites in the comments below.

retirement help

AARP.ORG

The first place for many retirees in aarp.org. This website has various tools including calculators, videos and articles that are intended to better the lives of people who are 50 year olds or more. Some of the online resources include information on social security and Medicare, housing, food and nutrition, care giving and more.

MyMoney.Gov

This website created by the U.S. government is geared towards helping Americans of all ages to correctly handle their finances. Already, 20 federal agencies and bureaus provide information on this website so that you can make smart financial choices. Specifically, the website gives enough information on how to plan for retirement. Information available includes how to apply for social security retirement, how to take advantage of work and social security benefits at the same time and how to detect and avoid fraud and protect oneself from victimization.

MyMoney.gov provides various links to different government websites allowing retirees access to information they need to apply for social security and learn the various laws that protect retiree benefits in the event of a job loss.

Fidelity

Fidelity helps many to plan for their path to retirement. Despite the age one starts planning fidelity provides information divided into the initial stage of planning, getting ready to retire and planning on how to live through retirement. As the initial step in planning for retirement, Fidelity guides you through the prioritization process. Specifically targeting how to spend less than you earn, pay off debt, invest and choose the right investments.

Vanguard

Vanguard provide educative resources that assist people in planning for their retirement. Included in their live webcasts, opinions and information from experts can quickly guide retirees in the right direction when it comes to choosing the right plans. Also included on their website are a retirement income calculator and educational and news information.

NY Times

The New York time provides useful tips including how to protect accounts from creditors, how to plan for retirement in regard to spending and investing and other how-to articles.

T.Rowe Price

T.Rowe Price is a global financial firm that offers retirees investment management and guidance. As a retirement planning advisor, T.Rowe Price can help retirees get a sure footing into their retirement through a commendable investment approach.

Savings Bonds for Kids

Given that fact that savings bonds take 20 years to mature, they are a great way to invest in the future of children. Series EE bonds were originally offered in July of 1980 to replace Series E savings bonds. Series EE bonds form reliable, low risk government backed savings products that can be used as the cash investment to finance children’s education.

savings bonds for kids

Series EE bonds are now issued in electronic form, from the 1st of January, 2012, a departure from the previous paper based savings bonds. They reach maturity after 20 years and double in value. For instance, EE based bonds issued with a face value of $100, are sold for $50, and are usually worth $100 at maturity.

Series EE savings bonds can be purchased in amounts of $25 or more with some common denominations including $50, $75, $200, $1000 or $5000. Electronic EE savings bonds are usually purchased at face value so that a face value $200 electronic EE bond is purchased for $200. The minimum purchase of an electronic EE is $25 while the maximum purchase of electronic EE savings bonds annually is capped at $10,000.

Savings bond are great as gifts or as secure investments that can be redeemed in the future. Though they are redeemable after 20 years from issuance, Series EE bonds can continue to earn interest for a total of 30 years. The interest earned monthly is paid when the holder cashes their bond. For bonds that were issued before May 2005, the rate of interest is usually recomputed every 6 months at 90% of the 5 year average treasury yield calculated based on the preceding 6 months. For bond issued in or after May 2005, the fixed interest rate based on the life of the bond is 0.20%.

Other U.S. savings bonds are the Series I bonds. These are variable yield based bonds whose interest rate is calculated based on the inflation rate. The interest rate of these bonds is calculated based on two components, a variable rate reset every six months on the 1st of May and the 1st of November each year, and a fixed rate which remains constant over the life of the bond.

Savings bonds are a flexible investment tools that offers a fixed or guaranteed rate of return for the person bearing the bond. For children, this is a great way to secure the future by providing a safe financial position that is adequate to meet the future needs of the child.

Where to Trade Stocks Online

Before jumping into stocks, it is important to figure out which platform offers the best solution for trading stocks online. There are some key things to consider.

trade stocks online

Traders new to stock trading online can be exciting, and can free the savvy trader to financial independence.

Commissions

Profitable trades get charged a certain margin by the broker as do the losses. This margin should be as slim as possible. Choose a platform that charges low commissions. As the trading volume increases, the cost of trading also increases and the best broker should lower their margins even further.

Financial Market News

The best online brokers in the business provide streaming news and real time price updates for stocks and options. As long as customers get the most up-to-date information on their platform, they can easily enter into profitable trades. Timely information can mean profitable trades consistently and platforms that offer information regularly should be preferred.

Stock Portfolio

It is important to have access to a large number of stocks and trading instruments so that you never miss the action in any part of the market. When choosing an online stock broking platform, check the number of financial instruments in terms of stocks and options that are available on the platform and other competing platforms. Investors can choose platforms based on the various online reviews available.

Various Accounts Available

Investors should check if the broker provides the type of accounts that you need in case you want specific accounts such as IRA. Some online stock brokers do not offer such options and it would be important to ask or check online before making a commitment.

Payment Method

Finally it is important to check whether you can deposit funds into your account using a visa check card or other card that you use.

Here are the top 5 trading platforms for 2013:

TD Ameritrade

Ranked the top stock trading platform online, the platform offers among other advantages, and easy to use platform loaded with great tools.

E*TRADE

E*TRADE is easy to use, offers various tools on its platform and is available in a mobile version. It also offers great investment advice.

TradeKing

Apart from the attractive low trading commissions, TradeKing is also a darling for the thousands of investors on it who provide trade ideas and research.

OptionsHouse

Options House also has low trade commissions from as low as $3.95 flat fees. Additionally traders get 150 free trades for every new account.