BIDaWIZ Blog » PERSONAL FINANCE

What Should I Do With My Life Insurance Policy?

The BIDaWIZ Team — Wed, 04 Feb 2015 20:05:24 +0000

If you have a life insurance policy that you purchased years ago and borrowed against it, you may now not have a need for it. If this is the case, you have a few different options to explore. Find out what makes the most sense for you.

Loans against life insurance
It’s important to first note that any loans against your policy reduced the cash value. This is important to note as any withdrawals in excess of your tax basis in the policy will be taxable at federal income tax rates. Having said that, you have a few options:

1) Initiative an IRC Section 1035 Tax-Free Exchange: It appears as though you would like to mitigate the amount of taxes paid as a result of the withdrawal. This provision allows the policyholder to transfer a life insurance policy for another one or a life insurance policy for a annuity. The annuity option may be appealing to you as it generally has a more beneficial investment component than life insurance policies. This option will allow you to avoid all taxes.

2) Withdraw the funds and offset the liability by contributing to an IRA or 401(K): This strategy can help you to offset any tax liability for the withdrawal, while also providing you with an investment opportunity.

3) Withdraw the funds and pay the taxes: This option is not going to be tax-friendly. However, if you need the money, then there’s really no other way around it.

In summary, we would recommend that you explore option 1 and possibly option 2.

More Questions? Browse Answers or ask your life insurance questions online.

What Will Lower Oil Prices Mean For You?

The BIDaWIZ Team — Fri, 17 Oct 2014 21:11:45 +0000

The price of oil continues to drop due to concerns of a global economic slowdown coupled with an apparent boom in US oil production. Even more, the recent 20% price drop over the past month is showing no signs of stabilizing. Having said that, consumers and certain businesses stand to benefit as a result of the big drop in oil prices.

How much will the price of oil drop?
Many economists are forecasting that the price of oil will continue to decline into the low to mid $60 range. They attribute much of this forecast to a continued global economic slowdown as well as a surprising boom in US oil production.

How will this impact prices at the pump?
Generally speaking, a $10 decrease in the price of oil will result in a $0.20 to $0.30 drop in the price of gas. With the price of crude oil currently at $80, a $10 decrease to $70 would cause gas prices on average to decrease below $3 per gallon. However, we should point out that 30% of the price is impacted by other other costs such as state taxes, marketing and distribution, refining and of course deflation, which is now an economic risk.

What does this mean for consumers?
Most consumers will benefit from an increase in purchasing power. Specifically, for every one-penny decrease in gas prices, US households will have over $1.5 billion more in annual household cash flow. Thus, if prices drop another 20 cents, US households will have $30 billion in additional household cash flow that they weren’t expecting.

Which businesses will benefit?
Given that US consumers will have more money in their pockets, we expect many big box retailers and other holiday season businesses to benefit. Holiday spending forecasts have already been revised upward or closer to 4% growth year over year. However, that forecast may be conservative if oil prices continue to fall.

Separately, there are many businesses in the transportation space that benefit from lower oil prices. Companies such as Fedex, UPS and other trucking companies will see improvements to their bottom-line as a result of lower fuel costs.

More Personal Finance Questions? Browse Answers or Ask a Financial Advisor Online.

What Is The Health-Care Insurance Penalty?

The BIDaWIZ Team — Sat, 04 Oct 2014 00:04:21 +0000

This will be the first year that the health-care changes passed in 2010 will have an impact on those that opt out of coverage. Specifically, under the Individual Shared Responsibility Provision, individuals that are subject to the penalty will have to remit payment with their 2014 tax returns on April 15th. The penalty will not apply to those that obtain health insurance coverage through their employer or a state sponsored exchange. Still, there are certain groups that will pay hundreds and in some cases thousands in penalties.

Who will be subject to the health-care penalty?
It’s likely that very wealthy families that want to self-insure or utilize a nonconforming policy will be subject to the penalty. On the other end of the spectrum, there will be healthy younger individuals that would rather pay the penalty than monthly health insurance premiums. Independent contractors in their 20s and 30s are likely to represent the largest segment of this group.

How much is the penalty?
The penalty is equivalent to the greater of 1% of your household income or a flat amount. The flat amount is equivalent to $95 per adult and half that for children under 18 with a cap of $285. Unfortunately, the flat amount increases significantly to $325 in 2015 and $695 in 2016 per adult and half that per child with a maximum of $975 in 2015 and $2,085 in 2016. In addition, the percentage of household income rises from 1% in 2014 to 2% in 2015 and 2.5% in 2016.

How will the IRS enforce the penalties?
It will be difficult for the IRS to enforce a penalty in the 2014 tax year as the IRS will only be privy to a limited amount of information. However, for the 2015 tax year, insurers and employers will be required to send the IRS plan participant data that can be matched against the individual tax returns.

Are any groups exempt from the penalty?
Yes, certain religious groups, Indian tribes, those covered by Medicare, illegal immigrants as well as prisoners are exempt from the penalty.

More Questions? Ask your health insurance tax questions or find a cpa online.

What The New Mortgage Environment Means For You

The BIDaWIZ Team — Fri, 25 Apr 2014 19:56:59 +0000

Last summer’s rise in mortgage rates has begun to impact the lending environment. The major bellwether mortgage lenders (J.P. Morgan & Wells Fargo) reported 28% declines in mortgage origination in the first quarter of 2014 as compared to the prior quarter. Moreover, the lending market at a whole is down 58% year over year. While mortgage rates have remained stable of late, they are still at 4.5% as compared to 3.6% a year ago. This trend could hamper continued progress in the housing recovery.

Why has mortgage lending decreased?
The demand for mortgage refinancing has changed dramatically over the past few months. We believe that much of this decline is related to less individuals refinancing their homes. In comparison, loans that were used to purchase new homes were actually flat year over year. However, the environment overall has changed and new mortgage applications were down in recent weeks. It may be that the 25 year credit boom ended and now we need to get use to the new normal.

When demand falters, lender requirements ease
The lending market will become even more competitive in the coming months. There will be a lot of lenders chasing very few prime mortgage borrowers. The result will be that many sub-prime borrowers may become eligible to obtain a mortgage. Several banks have begun to accept applications from borrowers with lower credit scores and down payments than in the recent past.

What does this mean for you?
It varies by region, but generally we expect lending to continue to decrease throughout the year. It’s important to note that there has been a surge in all-cash purchases to more than 40%, which has kept housing prices rising. That may change going forward. Even so, mortgage rates are still relatively low on a historical basis, thus we don’t believe housing growth will fall off of a cliff; just more muted.

More questions? Browse answers or get help with your mortgage questions online.

What Should You Do If You Have A Large Medical Bill?

The BIDaWIZ Team — Fri, 04 Apr 2014 16:27:16 +0000

Many health insurance providers will not cover the entire cost of a hospital visit. Your coverage will vary by provider, but in many cases you can expect 60-80% of the medical bill to be covered by your insurance. This can result in a medical bill in the thousands. Fortunately, there are ways in which you can get relief.

Understanding the fee structure
Many hospitals and health-care providers will provide a medical bill detailing the nature of the visit and procedures performed with a total bill. This amount is derived by the providers own fee schedule and lack a detailed listing of the itemized expenses. It’s important to note that by accepting the services of the medical provider, you agree to pay their bill no matter what it is and whether or not an insurance company covers the expense.

Ask for a bill with the itemized expenses
We still would recommend that you contact the billing department and request an itemized bill. Errors occur and it’s not totally uncommon for expenses to be double counted and services to be listed that were never performed. The administrative department will need to create hundreds and sometimes thousands of invoices each week. If you do identify the mistake, contest it with the medical provider.

Contact your insurance provider too
Insurance companies can also make clerical errors (wrong diagnosis code, missing modifiers), which may be why you weren’t fully covered. The medical provider can send additional evidence supporting why the visit and procedure was necessary for your well-being. If your insurance company will not budge and your claim has merit, you can send an appeal to your state insurance commissioner.

Options of last resort
If you appeal without success, then you should consider any payment plan that is offered by the medical provider. They will typically try to work with you on a monthly payment that you can manage. If you can’t afford this option, then you can ignore the debt and let it go to a collection agency, which takes time. However, if you’re unable to make payment over time, you may need to file for bankruptcy.

More Personal Finance Questions? Browse Answers or Ask Personal Finance Experts Online.

Should I Apply For a Personal Loan Or Use My Credit Card?

The BIDaWIZ Team — Fri, 28 Mar 2014 22:45:47 +0000

Unlike a mortgage or a auto loan, a personal loan can be used for almost any purpose. It’s set up for a specific length of time at a fixed interest rate which is typically lower than most credit card APRs. Many banks and credit unions offer personal loans and now there is a whole new market of peer to peer lending networks established by companies like LendingClub and Prosper.

Do I need collateral to get a personal loan?
Typically, personal loans are unsecured, so no collateral is necessary. But that also means interest rates are higher than those on secured loans, like mortgages. Some financial institutions do offer secured personal loans, so you can use items like your savings account or certificate of deposit with that financial institution as collateral. Having a secured personal loan might garner a lower interest rate than that for an unsecured loan.

What else is required?
Even if you apply for a secured loan, it’s likely your bank or credit union will want you to provide information about your employment status and monthly income. With an unsecured loan, financial institutions generally focus on a person’s credit score and credit history, as well as their employment and income, to determine the loan’s interest rate. Some also take your other assets into account, while others don’t consider them.

The alternative lending platform such as LendingClub and Prosper offer many compelling reasons as the rates can be as low as 6.03% if you’re a high quality borrower and the loan can be funded in days. However, don’t consider these options if you have a low FICO score or have a debt to income ratio the exceeds 25% (excluding a mortgage). It’s also not recommended to send in multiple applications for loans as that can hurt your credit.

Compare to credit cards
Regardless of whether you apply for a secured or unsecured personal loan to get your hands on quick cash, the interest rate will typically be cheaper than that of a credit card cash advance. Some credit card companies offer low- or no-interest cash advances for a short period of time, but charge a transaction fee that is often 3 percent to 4 percent of the amount borrowed. Unless the cash advance is paid off within a few months, the interest rate soars.

More Financing Questions?

The Rules For Reverse Mortgages Have Changed For The Better

The BIDaWIZ Team — Fri, 28 Feb 2014 02:03:55 +0000

Seniors that have hit hard times may be forced to make a difficult decision. Do they sell their investments to stay afloat or should they tap into their home equity? If they are considering tapping into their home equity, the rules regulating reverse mortgages have recently changed for the better. Find out if a reverse mortgage is an option you should consider.

What is a reverse mortgage?
This type of home equity loan provides the homeowner with a lump-sum cash payment or a credit line that adds to the principal of outstanding debt, but does not need to be repaid until the borrower dies or sells their home. Unlike a traditional home equity loan, in which the interest and principal payments must be paid on a monthly basis, a reverse mortgage allows the borrower to defer payment until a triggering event. It’s important to note that the existing mortgage must be fully paid off to obtain a reverse mortgage as it’s a first lien loan product. If you’re worried about taxes, reserve mortgages are only taxable to the holder if they don’t repay the mortgage.

What are the new rules?
Most of the new changes require the lender to conduct a more thorough analysis of the applicant’s income/assets. This includes a review of the applicant’s current income or assets, current employment status, credit history, the monthly payment for the mortgage (based on the highest interest rate if it’s an ARM) and their monthly debt payments (including the mortgage) compared to their monthly pre-tax income. The applicant will need a debt-to-income ratio of less than 43% to obtain a qualified mortgage. The term of the loan cannot exceed 30 years, and the points and fees paid by the borrower cannot exceed 3 percent of the total loan amount. Qualified mortgages also cannot have risky features such as an interest-only period, when the borrower pays only interest without paying down the principal.

What is the biggest drawback for getting a reverse mortgage?
One of the biggest drawbacks of a reverse mortgage is the price the borrower has to pay. This includes a large upfront payment that can be well over $5,000 to $10,000. In addition, interest rates are typically higher than for a traditional home equity loan since the borrower doesn’t pay interest until a triggering event occurs.

Does a reverse mortgage make sense for retirees?
There may be several instances in which a reverse mortgage can be very useful for a retiree with limited cash flow. Typically, it’s best used in cases when the borrowing costs are low and the market falls. This can be very attractive when considering the alternative of selling 401(K) or IRA investments and paying taxes for those sales while also bumping up your adjusted gross income.

More questions? Ask your reverse mortgage questions or find an accountant online.

Should I Be Worried If I Don’t Recognize The Phone Number?

The BIDaWIZ Team — Fri, 14 Feb 2014 00:43:41 +0000

There have been an increasing number of scammers that have been using automated processes to place unsolicited calls. You may have recently received a call from a number you didn’t recognize, but you still picked up the phone. If this wasn’t a person you knew that was simply calling from a different number or a telemarketing service, chances are that no one was on the other end of the line. You may have just hung up or decided to call the number back. You may be asking yourself, “What is the point of calling only to hang up after one ring?” There is actually logic behind this scheme.

Why are scammers calling and hanging up?
While it may seem pointless to you for a scammer to call and then hang-up, there’s actually some logic behind it. The scammer is using an automated process to get you to pick up the phone or at least to get your attention. The scammer wants you to call back the number so that they can charge you. This is how it works. Many of the numbers appearing on your Caller ID are connected to a chat line or premium service that charges a flat international fee plus a per minute fee in excess of $10. Although you probably won’t stay on the line for more than a few seconds after calling the number back, the flat fee charges can certainly add up. Please note that the charges will appear on your phone bill.

The other purpose for scammers to call your cell-phone is to gain access to your information and then to sell it to others. Most individuals provide their full name and sometimes additional information in their voicemail. Many robots call cell-phones to gain access to voicemail data that they can sell to others. There’s still a limited amount of data detailing cell-phone numbers with their respective owner’s personal information, so scammers are doing everything they can to gain access to this information.

What should you do if you receive a call from an unknown number?
If you do want to pick it up to make sure, you can, but then immediately hang-up. Do not call the number back under any circumstances. If you’re very curious, you can Google the number. There are many services now that index scam calls, so chances are that if you received a hang-up, others did as well. If you do happen to call the number back or did so in the past, review your phone bill for any unauthorized charges. Many of the phone companies will credit your account if you report the issue in a timely fashion. If that doesn’t work, you can always file a complaint with the Federal Trade Commission and Federal Communications Commission.

More Personal Finance Questions? Browse answers or ask personal finance questions online.

Common Mistakes When Choosing a 529 College Savings Plan

The BIDaWIZ Team — Fri, 24 Jan 2014 20:53:02 +0000

A 529 college savings plan offers many parents and future college students with an attractive option for socking away funds for tuition expenses. While the plan offers many benefits, the account holders don’t always understand the mechanics of how the plans work and how they can be used effectively. Find out if you understand the complete capabilities and limitations of these plans.

What’s a 529 college savings plan?
Contributions to these state sponsored educational savings plans grow tax-deferred, and distributions to pay for the beneficiary’s college costs are tax-free. Expenses for the plan can be used for tuition, fees, books, supplies, and equipment. Room and board are also covered by the plan as long as the beneficiary is a student for at least half of the school year.

What if I withdraw the funds and pay the tuition the next year?
The 529 plan is part of the Internal Revenue Code. As such, the timing for withdrawing funds from the account and using them to pay for tuition must occur in the same tax year. This means that if you withdraw funds from a 529 plan at the end of 2013, they must be used to pay 2013 tuition bills. Otherwise, you may have to pay taxes on what was supposed to be tax-free earnings.

Claiming the state tax deduction properly
Most states also offer a state tax deduction for contributing to the plan. For instance, a married couple filing jointly with a New York State sponsored plan, could deduct up to $10,000 of their contribution; married filing separate filers would be able to deduct up to $5,000 per year. Please note that in most states like New York, the 529 plan account holder is only allowed one deduction per year even if they own another 529 plan account. In addition, if a grandparent or third party wants to contribute to a 529 plan and claim the state tax deduction, they would have to open a separate 529 plan account from the parent.

Take into account scholarships and educational tax credits
You need to plan ahead when considering how much money you should withdraw from the 529 plan when it’s time to pay for tuition. If you withdraw enough to cover all of tuition for the year and later find out that the student qualifies for a partial scholarship and/or an educational tax credit, you may not be able to use all of the 529 plan distribution tax-free. You cannot combine 529 plan distributions to cover the same expenses that are covered by a scholarship or tax credit.

If you do happen to withdraw too much from the 529 plan, you could always rollover the excess amount into another 529 account within 60 days. Please note that you’re only allowed only one rollover for each 529 account you own within any 12 month period.

More tax questions? Browse answers or ask your 529 plan questions online.

What The Latest Target Data Breach Means For You

The BIDaWIZ Team — Sat, 11 Jan 2014 00:31:49 +0000

During the holiday season, Target publicly announced that 40 million credit and debit cards were stolen by hackers. Now, new details released by Target indicated that personal details of up to 110 million customers were also obtained by hackers. Given that this hack represents more than 35% of the US population and it’s likely to impact many more, we thought it would be wise to learn how you can protect your personal information.

How many people are impacted?
Target released a statement indicated that as much as 110 million customer phone numbers, email addresses, mailing addresses and names were stolen by hackers. This figure continues to rise so we have to assume that it’s likely to increase. It’s also important to keep in mind that while you may not be part of this list, any company can fall victim to a data breach.

Be prepared to be contacted?
It’s highly likely that hackers and con-artists will begin to contact you by email, mail or phone. There’s one caveat, the hackers will begin contacting those individuals that have the most valuable personal information. For instance, if you have contact information that indicates you live in Beverly Hills, chances are thieves will use most of their resources to gain access into your finances. Those living in lower income areas are at less risk because the potential reward is smaller.

If you are contacted, ignore it. If it appears to be coming from a legitimate party, verify it by going to the source. For instance, if someone calls you warning about the Target breach from you bank, hang up. Instead, call your bank directly and ask them to verify the call. The same logic applies for unsolicited emails that you receive.

Change your usernames, passwords and email addresses
Due to the advent of technology and web-based banking, we all need to associate our financial accounts with login information and an email address. You should make certain that you do not use the same email address for your online banking that you use for anything else. We understand that it is most convenient to use one username, password or email address combination for everything but, the most confidential information you have online (i.e. banking) should not be linked in any way to another service. We suggest you start to get secure today by setting up unique username, password and email addresses for your online banking. It’s very easy to create a new Gmail account.

Review recent charges
Scan your bank and credit card statements for recent charges. If anything seems suspicious, contact your provider immediately. It would also be wise to contact your bank or credit card provider in advance if you know that you are a Target customer. Target has also setup an option for customers to obtain free credit monitoring for up to a year. Obviously, you will want to contact Target as well about changing your card and pin if you would like to continue to be one of their customers.

Elect to direct deposit your tax refund
If you are due a tax refund this year, you are at less risk if you elect to direct deposit the refund into your bank account than if you receive it via mail. Thieves are known to go through mail boxes during tax season to try to steal and deposit tax refunds. They may have obtained your latest mailing address information as a result of this breach.

More Personal Finance Questions? Browse answers or ask personal finance questions online.