Tax Free Municipal Bonds

When searching to buying municipal bonds, an individual should comprehend how tax exempt benefits operate. If tax bracket grows, the benefits consequently grow either. If investors are supposing to purchase a six percent municipal bond at a rating and they are in the twenty eight percent tax bracket, the tax free benefit is higher than six percent.

There are two common kinds or approaches a municipal government can assure or back its bond. One approach is through the taxing power of the municipal government. This can be called a General Obligation Bond. The second bond is a Revenue Bond. Revenue Bond utilizes particular profit sources to make the issue safe. General Obligation Bonds are the most general and actually the higher rated issues. A state increasing finances and backing the bond issue with bigger profit or sales tax would be supposed to be a General Obligation Bond. An educational institution field increasing finances through a broker company on a municipal bond and guarding the bond investors with school or property tax revenue is supposed to be a General Obligation bond either. Since taxes are the safest option for finances at the present time and in the future, some investors use them over most profit issues.

Revenue Bonds Issues that count on the profit generating capability of an opportunity or from the issuer through other alternative are considered as Revenue Bonds. There are some kinds of issuers. These kinds of bonds are offered frequently by municipal government for a range of industrial businesses, containing the construction, renovation, advancements, remodeling, of the dissimilar industrial projects. The bonds can be issued in bulk and should work within forty years from their dates. Nevertheless, there is no responsibility on the interest or principal of the establishment offering the bonds. Municipal government would also be liable for setting, collecting, and changing profits for the specific objectives.

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Unless you know how to invest in the best bond funds for 2012 don’t invest in bond funds at all. For thirty years these funds were a great way to earn higher interest with only moderate risk, but the game has changed. Invest in the wrong funds now and 2012 and beyond could be a financial disaster waiting to happen.

Our Government has driven interest rates down to levels not seen in over 50 years, in an attempt to stimulate a struggling economy. This makes what used to be the best bond funds for safety a poor investment today. These funds invest in U.S. government securities: notes and bonds. If you invest in these funds today you will be lucky to earn 2% in interest income, and could end up losing money for years as the share price of these funds lose value. Let’s look at how to invest for higher income for 2012 and beyond with less risk.

There are three ways to invest in bond funds to increase your interest income, and two of them involve higher risk. The first way to get higher interest income is to invest in long term funds that invest your money in debt securities (bonds) that mature in 20 to 30 years. This is the riskiest thing you can do today, because long term funds will take a beating when interest rates eventually turn around and go back up. This is called “interest rate risk”, and above all else you want to control this, because this is the primary risk facing bond funds today. When interest rates go up bond prices fall, and long term issues get hit MUCH WORSE than shorter term securities and the funds that invest in them.

The first key to how to invest in the best bond funds for 2012 is to avoid the high risk of long term funds, and go with INTERMEDIATE term funds that invest in debt securities maturing in 5 to 10 years. Remember, interest rate risk is by far the greatest risk for bond investor for 2012 and beyond.

The second key to how to invest in bonds for 2012 is to avoid funds that invest in the highest grade or safest debt securities, especially those that invest in U.S. Treasury securities. At today’s interest rates you won’t even earn 2% interest (before expenses) in these intermediate term funds. The best bond funds to invest in to significantly increase your interest income without significantly increasing your risk: funds that invest your money in medium to high quality corporate bonds. Corporate America is in good financial shape, so there is little risk of default when you own a small part of a large diversified portfolio of these securities.

The third and best way to increase your interest income from bond funds in 2012 and for years to come involves no extra risk whatsoever. Every dollar you can cut from fund costs and expenses translates to money in your pocket. You can pay sales charges (loads) of 3% or more to invest with yearly expenses of more than 1% every year, plus additional charges and fees if you invest in the wrong funds. That doesn’t make much sense when you are simply trying to earn 3% or 4% (before expenses). The best bond funds charge zero in sales charges and less than ¼% a year for expenses. They are called NO-LOAD funds, and are offered by some of the biggest and best fund companies in America. The simplest key to how to invest in bond funds is to always keep your cost of investing at a minimum.

In summary, the best bond funds to invest in for 2012 and beyond are NO-LOAD, MEDIUM to HIGH QUALITY CORPORATE, INTERMEDIATE TERM bond funds. That’s your best way to invest and earn a respectable interest income without taking on more risk than most folks want to accept.

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As long as there has been government, there has been a system of land ownership. Historically, many people lived under a feudal system in which the king or a noble owns the land and the people rent it from them. In the United States, we have an allodial system. Under the allodial system, the government grants rights of land ownership to the people but retains the right to tax to meet the public needs of the government.

The government has four powers inherent to the allodial system, which are taxation, escheat, police power, and eminent domain. Under the Fifth Amendment of the United States Constitution, the government reserves the right to acquire private property for public use. This is called eminent domain. This applies to all levels of government, including local municipalities. If a government wants to acquire private property under eminent domain, they will first attempt to negotiate a sale.

A well-informed property owner knows if the government is attempting to take private land, they are willing to spend a significant amount of money, whether it is $500,000 on the property or $300,000 on the property and an additional $200,000 in court costs. With that said, the best way to deal with eminent domain is to negotiate for a significantly higher price and sell. However, if the property owner does not want to sell the government can still take the land after following a condemnation proceeding.

Depending on the owners’ estate in the land, eminent domain may prove to be too large of a headache for the government. The condemnation proceeding must demonstrate that the land is for public use, that the owner is getting just compensation, and that the owner has been afforded due process. Due process in this case refers to a two-step process. Firstly, the government must demonstrate that their acquisition of the land serves a legitimate purpose for the public good. Secondly, the legitimate purpose may not be vague or overbroad.

The procedural process followed after the government has given due process involves three steps. Firstly, the property owner must be given notice of the government’s intent of acquisition. Secondly, the property owner must have an opportunity to be heard. Thirdly, the property owner must be heard before an impartial tribunal.

Sometimes, government action can render a property valueless or make it otherwise inhabitable. In these cases, the property owner may file an inverse condemnation lawsuit. Under an inverse condemnation lawsuit, the property owner sues the government to force them to acquire the private property and afford the owner compensation. For example, if a city constructs a sewage plant in a residential neighborhood, resident may file an inverse condemnation lawsuit to receive compensation in exchange for their properties. This compensation is called consequential damages.

In some cases, the government may want to take a portion of private property for the public good instead of the entire property. For example, the expansion of a road may require taking an amount of land from each front yard. Since it is difficult to put a dollar amount on a few square feet of yard, property owners can negotiate for higher compensation. If a property owner receives compensation exceeding the value of the land, it is called severance damages.

The government may take private property through another means called escheat. Depending on a state’s laws of intestate succession, which determine a citizen’s heirs in the absence of a will, escheat can revert a property into the state’s possession. A state’s police power may dictate how private property can be used. An example of this would be a zoning board or any environmental protection statute.

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For people with high blood pressure, medication sometimes is not sufficient to lower it to healthy levels. Consequently, they have to find additional ways help lower their blood pressure. Uncontrolled and prolonged high blood pressure can lead to serious complications; including, kidney failure, heart attack, and stroke. That is why you need to do every little bit you can to bring it under control. Here are some natural ways to lower your blood pressure that are easy to incorporate into your daily routine.

1. A Piece Of Dark Chocolate Will Keep The Doctor Away.

According to recent report in the Hypertension: Journal of the American Heart Association, eating a small piece of dark chocolate everyday contributed to chemical changes in the body that help dilate blood vessels and lower blood pressure. Several research point to the conclusion that the antioxidant-rich compound found in dark chocolate known as flavonoids, have a healthy effect on blood vessels as well as glucose metabolism.

Even better news for chocolate lovers is the fact that dark chocolate contains more flavoniods than any other food; including green tea, red wine, and blueberries. A little dark chocolate is good for you, but a lot of it is not because chocolate is high in calories. Also, to obtain the blood pressure lowering effect of dark chocolate, you need to look for one that has at least 70 percent cocoa content. Dark chocolate is delicious but sometimes, it may be a bit bitter so, you may have to try different brands until you find one that you really like.

2. Potassium: A Magic Mineral.

Potassium is a key nutrient in maintaining the electrolyte balance which regulates heart and muscle contraction. It also plays an important role in maintaining proper fluid exchange. A study conducted at Duke University shows that daily intake of Potassium supplements can significantly reduce high blood pressure. African-Americans showed the biggest drop. Their blood pressure went down almost 20 points, causing the speculation that this sub-group might be particularly sensitive to the blood pressure lowering effects of potassium.

It is recommended that you try to get your potassium from food. Dietary sources of potassium include apple juice, apricots, avocado, bananas, legumes, beets, cantaloupe, carrots, oranges, pears, white and sweet potatoes, raisins, salmon, sardines, watermelon, and winter squash.

3. Water: Nature’s Miracle Medicine

When your body is in a state of dehydration, your blood pressure will increase dramatically. In fact chronic dehydration is the cause of chronic high blood pressure. Dr. Bathmanghelidj, the author of You’re Not Sick, You’re Thirsty, says that when the body is lacking water, it attempts to hold on to the available water supplies by retaining salt. When the body starts to retain water instead of letting it flow normally, blood pressure rises. However, this increased water retention is simply a preventive measure the body uses to protect the vital cells within it from becoming totally dehydrated. Water is one of the most effective ways to lower blood pressure.

Adequate water intake, and a bit of good pure natural salt such as Himalayan Crystal salt, will balance the fluid intake inside and outside the cells. This may sound contradictory to what you havebeen told, but salt is essential for life, we cannot live without it. However, there is a big difference between the common processed salt most people are accustomed to, and pure natural Himalayan salt which contains 85 trace minerals that your body needs. Intake of Himalayan Crystal salt will regulate the water content throughout your body, and promote a healthy PH balance.

Make drinking adequate amounts of water a daily habit. Not only will you be lowering your blood pressure, but a lot of other body functions will improve. You will feel more alert and energetic, less depressed, your skin will glow, and those nagging aches and pain will go away.

4. Breathe Deep For Your Heart

New research indicates slow breathing may lower blood pressure, even if practiced for only a few minutes per day. Take a slow deep breath, expanding the diaphragm, and the abdomen then, exhale even slower making sure you empty all the air from the lungs. The goal is to develop a rhythmic slow, and deep breathing pattern of less than 10 breaths per minute.

At first, you may find it difficult to develop a rhythmic pattern, but as you continue to breath in, and out slowly, you will eventually develop a healthy breathing pattern. Breathing that slowly for a few minutes several times throughout the day is another way to lower blood pressure that many people find very effective.

5. Walking Is Good For You

Many of us live a very sedentary lifestyle. We sit down all day at work and then, we spend our time at home sitting down. Over time, this inactivity can lead to many health complications caused primarily by excess weight. The ongoing day-to-day strain that excess weight puts on the entire cardiovascular system is what causes blood pressure to reach dangerous heights. Exercise plays a key role in lowering high blood pressure; however, many people find it difficult to engage in a regular exercise program because of lack of time. The good news is that you’re not required to do prolonged, and strenuous exercise to benefit from it.

A recent study published in the Journal of Epidemiology and Community Health revealed that as little as 30 minutes of walking three times a week, even if it was broken into 10-minute walks throughout the day, was enough to have a significant effect on lowering blood pressure, and weight loss.

The above 5 approaches are proven ways to lower blood pressure. However, consistency is the only way to benefit from them long term. Make them part of your daily lifestyle routine for a healthy heart, and normal blood pressure.

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Early retirement is something that we would all like. But few are willing to do the work now, so that they can relax later. In order for you to retire early, you need to either make a lot of money, or create multiple streams of income that will keep paying you for life.

Creating multiple streams of income is definitely the way to, because if you make a lot of money, you will simply spend it. Unless of course you save it, but that too may eventually run out. So your goal is to create streams of income that will sustain you today, as well as tomorrow. This way the money will never run out, and you can enjoy life for as long as you want.

What is Residual Income

Residual income is basically where you do the work once, and get paid for it for life. This means that if you set up a website or a blog today, that it will continue to make you money for the rest of your life. The only thing however, is that you need to continue to drive traffic to it. But, once your traffic is established, you will only need a few hours a week to maintain that traffic, and you can easily hire someone to do this for you.

What Are Multiple Streams of Income

Multiple streams of income are just the same as multiple sources of income. This means that you do not just want to set up one website or blog, but you want to create several. You can even go into different markets as well, so that if one market fails, the other markets will sustain you.

There are a lot of different ways that you can create residual income. I already mentioned building websites and driving traffic, but you can also write books, if you are an artist you can record music, and the list goes on. Whatever it is that you are passionate about, you can find a way to earn residual income so that you can retire early.

Early Retirement

You may think that early retirement is something that you would enjoy. But if you create an online business that you enjoy taking part in, it may be difficult to leave it behind and just go on vacation for the rest of your life. This is perfectly normal for people to feel this way. You may not think that this applies to you, but once you find yourself in a situation where you do not need to work anymore, you realize that work can actually be very satisfying if you do what you enjoy doing.

So what do you do? Well, make early retirement a possibility, then you can do whatever you want. If you want to continue working, then do so, but if you want to stop working, then you have the choice that you can do so, and still be financially free.

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Bond premiums

If you buy a bond that pays an interest rate over and above the market interest rate, implicit in your purchase price is something called the bond premium. The bond premium is just the market’s way of adjusting the price of a bond that pays too high of an interest rate.

Bond premiums, unfortunately, present nightmarish difficulties for your record keeping.

Theoretically, what you should do is amortize the amount of the bond premium over the life of the bond. In effect, this premium allocation lets you chop up the amount of the premium and allocate it over the period that the bond pays its interest, thereby reducing the bond interest. For example, if you implicitly pay $100 of bond premium for a bond that will pay interest over ten years, it would make sense, roughly speaking, to reduce the amount of bond interest you actually record by $10 a year. The $10 amount equals 1/10th of the $100 bond premium. We say “roughly speaking” here because actually the calculations are more complicated than a simple straight line

allocation. You should use an effective interest rate to adjust the annual bond interest to an amount so that the interest rate stays equal to the bond’s yield to maturity. But that discussion is really beyond the scope of this book.

Because of this complexity, we recommend that you simply ignore the bond premium. By ignoring the premium, you will overstate the interest you will earn over the years that you hold the bond, meaning that you will pay more in income taxes on the bond interest over those years. (At the end of the bond life, you will show a capital loss on the bond equal to the bond premium that you didn’t record, but should have.) This strategy of ignoring the premium until the very end and then counting the bond premium as a loss, or better yet, as an adjustment to the bond interest paid in the final year, makes your record keeping much, much simpler.

NOTE The IRS allows U.S. taxpayers to ignore the bond premium in annual bond interest calculations. This makes sense because by ignoring, or postponing, the bond premium, you overstate the interest you earn on the bond investment.

Bond Discounts

Bond discounts work in a fashion similar to bond premiums-except bond discounts occur when a bond pays an interest rate that is lower than the interest rate the market requires.

Theoretically, if you buy a bond at a discount, you are supposed to allocate the bond discount over the years that you hold the bond as additional bond interest income. For example, if you buy a bond for $900 but will receive $1,000 upon redemption, the $100 profit you make amounts to interest. This interest is essentially like that paid by a zero coupon bond.

When dealing with a bond discount, you do need to record accrued interest. The amount of the accrued interest equals the amount of the bond discount that is allocated to the year. Earlier in the chapter, we described how to record accrued interest on a zero coupon bond. The recording of accrued interest for a bond discount works in the same way. (The accrued interest for a bond discount is actually called amortization.)

Although the IRS requires U.S. taxpayers to amortize bond discounts, there is a loop- hole that might save you from the necessity of doing so. When a bond discount results in a very small change in the effective interest rate paid by a bond, you might be able to skip recording the amortization of the bond discount. If you have more questions about this, consult your tax advisor.

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Wealth management companies can be your best financial planners.

One of the most important aspects of anyone’s life is finance. All of us work really hard to earn money. But today, managing our money is as important as earning it. You will be able to manage your money effectively by planning your finance properly and making clever investments. This process of finance planning and making good investments is called wealth management. You can make use of the numerous finance planning tools like asset management, legal resources, personal banking, real estate investment etc.

BBC news reports on its website that the studies conducted by DTI or Department of Trade and Industry revels that the number of bankruptcy is increasing exponentially. These reports show that the situation is alarming. You will definitely need the help of a wealth management organization or company to deliver the right guidance you require in this economic environment.

You can get ample help from a wealth management company in your efforts of financial planning and making investments. The advice from the experienced and efficient professionals of the wealth management company will help you achieve profit in the long run. They will provide services including investment management, portfolio management, private management, portfolio rebalancing, financial solutions and tax advice. These companies will be able to give you answers to all your questions regarding any financial investments.

Wealth management by an established company is always better than your wealth management because these companies work very professionally. They analyze your financial plans like insurance plan, investments etc and will give you an idea about the risks involved in them. You can also get benefits from these companies if you are looking to make some fruitful investments.

Moreover such companies will work with the aid of financial tools including stock trading, stocks, and structured investments. property management, mutual funds and so on. Such tools can really help your money grow and will also provide investment benefits in the longer term. So it is always worthy to work with a money management company to make an excellent wealth management plan that to work it out yourself.

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Apart from your home and your car, retirement investment is probably the biggest fund you will ever create. Though retirement investment planning seems like a very dull subject especially if your retirement date is still at a distant horizon-it is really important. As retired life is going to be around one third of your life and you have to have a plan for it. Even seemingly small difference now can make a big difference in your coming life. So, it’s never early to start planning for your retirement and it’s worth spending some time to do your own research and getting your details right.

Most people reach their retirement years without enough money to support them and their lifestyle. So, they have to scale back on their plans for retired life or worst still continue working just to survive. Would you like to be one of those people? If not than spend some time doing your research and start your retirement investment planning. Which investment plans are best tools to get you to your final goals? Well it defers from person to person..

Many investors have made money investing in many different fields like real estates, stocks etc. which one is right for you? The best way is to pick something of your interest or consult with some reputed consultants. Wise decision will be not to put all your money in one bag as no investment is 100% secured. Even if you decide to stick to one sector, for example let’s say you invest in stocks, if so make sure to invest in lot of different stock options and always take professional help.

One of the most important things about retirement investment planning is to be consistent. If you are investing in stocks don’t take pension holidays when your funds are blooming. Whether you invest in stocks or something else consistency is as important as choosing the right fund to invest in. Now there is this theory of cost averaging: when the stocks are cheaper you buy more shares than when they are expensive as a result you get an average on price over the time. So, if you are not a consistent on your savings you end up waiting for the time when things improve as a result not saving enough. Consistency is by far the best way to help your funds grow as much as possible.

And by far the most important thing is to re-examine your plans regularly. It’s easy to forget about your investment plans after setting it up and that is a big mistake as things change. New options become available and with better returns but many firms will not give you these new rates. You have to be on top of it to get the best rates or else it will affect your final retirement fund. So, you have to have a solid retirement investment planning if you want to enjoy your retired life.

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Giving away your financial assets can be more complicated than just writing a check. If you want to engage in lifetime gifting of some of your assets, you should be aware of certain rules. For instance, in 2008, the maximum annual gift tax exclusion amount is $12,000 per person. The lifetime federal gift tax exclusion amount is currently $1 million, and it will remain at that level through 2009.

The top federal gift tax rate is 45% for 2008(the maximum that your heir may need to pay on your gift). In 2010, the top gift tax rate will equal the top individual income tax rate (currently 35%). Any portion of the gift tax exclusion used will reduce dollar-for-dollar your estate tax exclusion available at death. In light of all this, you may want to consider some creative lifetime gifts. For one, charitable trusts can offer you several financial benefits, including the potential deferral of capital gains taxes, as well as possible gift and estate tax savings. They may also serve as effective vehicles for transferring wealth.

A Charitable Remainder Trust is a tax-exempt way to distribute income from the trust to beneficiaries for a period of time after which remaining assets are distributed to charities of your choice. You determine the time frame of the trust-it can last a lifetime or for a fixed term of up to 20 years-as well as the amount of annual payouts. There are some requirements that you should know about. First off, the annual payout for the length of the trust or the life expectancies of the beneficiaries (which would be you or your spouse) cannot exceed 50% or be less than 5% of the value of the trust. And a private foundation or donor-advised fund may be named as the charitable remainder beneficiary.

Highly-appreciated assets owned by the trust can also be sold without an immediate capital gain, which may allow for an increase in current income as well as income tax deduction. However, the type of assets gifted and the type of charity receiving the gifts, as well as your adjusted gross income, are all taken into consideration in determining your charitable income tax deduction. What’s more, there may be income tax due on your annual payouts from the trust.

Charitable Lead Trusts are funded with assets that are, preferably, expected to appreciate. The charity of your choice receives a fixed annual payout from the trust, and the remainder goes to your family members at the end of the charity’s payout term.

Unlike charitable remainder trusts, charitable lead trusts are not tax-exempt. However, tax implications differ between a grantor CLT and a non-grantor CLT. With a grantor CLT, you are treated as the trust’s owner for income tax purposes and are responsible for paying taxes on the income generated. However, there is the potential to receive an immediate charitable income tax deduction for a portion of your contribution to the CLT.

In the case of a non-grantor CLT, on the other hand, no upfront charitable deduction is allowed for income tax purposes. However, the CLT itself receives a charitable income tax deduction each year for the qualifying distribution it makes to charity. The primary benefit of a CLT lies in its potential gift-tax advantages. The value of the donor’s initial gift to the trust is determined by three factors: a government-set interest rate, the length of the trust and the payout to charity. When the government-set interest rate is low, the value of the donor’s gift is reduced for gift tax purposes. So CLTs are particularly attractive in periods of low interest rates.

The Grantor Retained Annuity Trust

A Grantor Retained Annuity Trust allows you to pass assets you believe will appreciate in value to family members at discounted levels. You contribute assets to a trust and receive a fixed annuity payment stream for a specified period of years. At the end of the trust term, the remaining assets and their appreciation (if any) are distributed to your beneficiaries. Since the value of the gift is reduced by the present value of the annuity payments, you could structure a payment schedule and payout amount that could result in a minimal gift-tax value. However, if you die before the end of the specified term, some or all of the remaining trust property would be included in your estate and subject to estate taxes.

Life Insurance

You could use life insurance to help replace your estate and gift tax liabilities. Life insurance often provides a substantial benefit for relatively small costs. A life insurance policy may be used by itself to increase the size of your estate, or it may be used for cost-effectively paying estate taxes. Plus, the proceeds of life insurance are typically income-tax free to the beneficiary. And with careful planning, these proceeds may also be received estate tax-free.

The Limited Liability Company or Family Limited Partnership

A Limited Liability Company or Family Limited Partnership may help reduce the size of your estate for transfer-tax purposes. The LLC or FLP is made up of managing or voting interests and nonvoting interests, and you could gift the nonvoting interests to your children and grandchildren . Since the non-voting interests gifted to your children and grandchildren lack voting rights and are not readily marketable, they might be discounted for gift tax valuation purposes .

The Dynasty Trust

A Dynasty Trust could allow you to establish a source of funds for multiple generations. Here’s how it generally works: You would fund the trust with an amount up to your and your spouse’s lifetime gift tax exclusions. The trust assets, including any growth, will remain free of federal transfer taxes (i.e., estate, gift and generation-skipping transfer taxes) for as long as they remain in the trust. In certain states, such as South Dakota, the trust may theoretically last forever. And the plan could be designed so that any distribution from the Dynasty Trust would be free of gift- and generation-skipping transfer taxes.

Income or principal from the trust may be distributed to your children, grandchildren and great grandchildren as specified in the trust document. The provisions could tie those distributions to incentives, such as maintaining gainful employment, and permit distributions for funding businesses or purchasing homes for the use of beneficiaries or other activities. There also may be provisions in the trust document to gift a percentage of the assets directly to a charity or family foundation. Assets remaining in the trust are protected from creditors and divorce judgments.

Create Your Estate Plan

Discuss your estate planning objectives and concerns with your Financial Advisor and your tax and legal advisors. Together, you can develop an estate plan that best addresses your financial and family situations.

Graeme H. Patey is a Financial Advisor located in Cleveland, Ohio and may be reached at 216-523-3015.

Life insurance is medically underwritten. You should not cancel your current coverage until your new coverage is in force. A change in policy may be subject to additional insurance and investment-related fees as well as increased risks, and may also require a medical exam. New surrender charges may be imposed with a new contract or may increase the period of time for which the surrender charges apply. Surrenders may be taxable. You should consult your own tax advisors regarding tax liability on surrenders.

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As part of the Emergency Economic Stabilization Act of 2008, Congress allowed an important window of opportunity to remain open-one that enables IRA owners age 70 1/2 or older to directly transfer up to $100,000 tax-free to charity in both 2008 and 2009. Because this provision applies to every individual IRA holder, a husband and wife who both meet the minimum age threshold could effectively move $400,000 out of their taxable estate over the next two tax years.

Is Transferring Money from Your IRA to a Charity Right for You?

The ability to transfer money tax-free from your IRA to contribute to a charity can be an excellent way to advance both your philanthropic and estate plans. While you will not receive a charitable deduction for a transfer from your IRA to a charity, the amount of your transfer will never be included in your gross income.

If you fit any of the following profiles, we encourage you to contact your financial and tax advisor before year-end to help determine if this provision is appropriate for you.

Are you 70 1/2 and already receiving your required minimum distributions (RMDs)? Any IRA holder who has reached the age of 70 1/2 is eligible to make the tax-free transfer of funds from his or her IRA to a public charity. Also at 70 1/2, the IRA holder starts to receive the taxable required minimum distributions (RMDs) from his or her IRA. Accordingly, at year-end, many charitable-minded IRA holders with excess RMD amounts would prefer to use these funds for charitable contributions. The 2006 Pension Act permits an IRA holder to distribute either a portion or all of his or her RMD tax-free directly from his or her IRA by transferring any amount up to a total of $100,000 to a favorite qualified public charity. The IRA holder reduces his or her taxable income by the amount distributed and the charity receives a contribution.
Do you have a large IRA that likely will be subject to estate taxes at death? IRA assets are subject to estate taxes and estate beneficiaries may have to pay income taxes on IRA assets they inherit. Using the IRA charitable distribution provision permits an IRA holder to reduce the size of his or her estate, thereby reducing the total amount of taxes imposed.
Do you take the standard deduction when calculating your taxes or do you itemize? Many retirees take the standard deduction when calculating their income-tax liability because they don’t generate enough deductible expenses or income to make itemizing worthwhile. As a result, they could be losing out on the tax advantages of deducting their charitable donations. An IRA holder who uses the tax-free IRA charitable-distribution provision as a way to make charitable contributions will be able to obtain the tax benefit of the contribution without having to itemize his or her deductions.
Are you collecting Social Security? An IRA holder who collects Social Security is also required to receive the RMD from his or her IRA at age 70 1/2. The amount of the RMD could increase income to a level where a portion of your Social Security benefit is taxable. By using the IRA charitable distribution provision, the IRA holder may reduce total income and thereby reduce the taxes imposed on Social Security benefits.
Are you interested in donating more than 50% of your annual income in 2008 or 2009, or both years? Typically, a donor may only deduct a cash contribution to a charity up to 50% of his or her adjusted gross income (AGI) in any given year. Any excess charitable contribution deductions are carried over to the following five years. By using the tax-free IRA charitable-distribution provision to transfer money directly from an IRA to a charity, the donor effectively “skips” the 50% AGI charitable deduction limitation. Therefore, an IRA holder may donate up to $100,000 per year in 2008 and 2009 from his or her IRA without having to worry about the 50% AGI charitable deduction limitation. An IRA holder who has a large IRA may use this method to reduce its size during his or her lifetime leaving less exposed to income and estate taxes at death.
Did you wish to complete a gift to a charity for a particular purpose? Charitable-minded individuals may have in mind ambitious programs such as underwriting a research project or sponsoring a scholarship program at their alma mater, but had been hampered from making any contributions by current tax laws such as the 50% AGI charitable contribution limitation for cash contributions discussed in the previous paragraph. The IRA charitable-distribution provision may be an ideal strategy that would enable an IRA holder who wishes to make a substantial donation in 2008 or 2009 to fulfill these charitable goals in a tax-advantageous manner.
Do you live in a state with unfavorable tax rules for charitable deductions and RMDs? The ability to make a tax-free transfer to charity from an IRA could be especially appealing to residents in states that impose state income tax on IRA distributions and don’t allow any offsetting charitable deductions. The 2006 Pension Act permits the IRA holder to make the charitable contribution directly to a qualified charity from his or her IRA and not have to treat the contribution as a taxable IRA distribution, thereby avoiding any state or local tax imposed on IRA distributions.
Additional Requirements

Any IRA holder who takes advantage of the tax-free IRA charitable distribution must send a letter to the qualified charity informing the charity of the donation. Here are some important points to keep in mind:

You must be 70 1/2 on or before the date of the charitable transfer.
Contact us before making a donation to arrange for the proper transfer of funds from your IRA to the charitable organization.
You may not write a check to the charity from another account into which you transferred your IRA funds. Doing so would eliminate the tax-free treatment and would cause the amount distributed to be included in your taxable income.
Donor advised funds and most private foundations are prohibited from receiving IRA rollover gifts.
You cannot receive anything of value in return for your donation. For example, you cannot get tickets to a charitable event for your donation.
The transfer must come from a traditional or a Roth IRA. Transfers to a charity from other retirement plans, such as a SEP or SIMPLE IRA, or from a 401(k) or 403(b) plan will not qualify under this provision. It may be possible, however, to roll over funds from these accounts into a traditional IRA or a Roth IRA and then make an eligible transfer to charity.
A qualified charitable distribution is treated as coming first from deductible contributions and earnings. If you have made non-deductible contributions to your IRA, have your tax advisor determine how much of the donation is considered tax-free under this provision.

After the IRA Charitable Distribution: Written Documentation Requirement

Cash donations, regardless of whether the contributions are made from an IRA or another source, must be backed up by “proper” records, such as a check, bank copy of the check, electronic funds transfer record, credit card or credit union statement, payroll stub or W-2 (in the case of a payroll deduction). These must show the name of the charity, the donation amount and the date paid or transaction posting date. A written acknowledgment from the charity showing that information also will suffice.

Graeme H. Patey is a Financial Advisor located in Cleveland, Ohio and may be reached at 216-523-3015 or www.fa.smithbarney.com/graemepatey.

Smith Barney does not provide tax or legal advice, and it is important to consult with a tax or legal advisor before investing.

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