The Jacobs Financial Group

Buying Used is Smart in Any Economy

Even with hopes for a better economy in 2012, some habits learned in tough times could stand to become permanent ones. A good one might be continuing – or starting – to buy particular categories of merchandise that are used but still in good condition.

If it makes you feel better to use the term “pre-owned,” by all means do so. Expertise in a particular product category can matter a little or a lot. But here are some types of merchandise where buying used can be a very good idea:

Cars: Granted, used cars are not for everybody. Mechanical skills are a plus if you have to evaluate whether your driving habits would be best-served by an older model with some mystery under the hood. But a low-mileage, well-maintained car coupled with dealer guarantees or access to car knowledge (or at least a really good, honest mechanic), can pay big dividends in the long run. First, depending on the model and age, you might be able to pay cash. Second, the right used car can be an extraordinary value when compared to a new car treated with similar kid gloves. Third, as second vehicles primarily used for short trips, a good used car can’t be beat.

Books: Granted, the world is moving into the age of the e-book, but there’s plenty of old-fashioned reading material that can be had for a song. Public libraries often sell both donated hardback and softcover books to raise funds at extraordinarily low prices, and retail chains have surfaced that actually sell used books at a fraction of the cover price. Certain Internet retailers also carry used books right alongside new copies of the same title.

Recorded music: Whether you prefer your music in CD or vinyl form, you can scout Internet retailers, flea markets and half-price stores for titles to add to your shelves or your Mp3 player. As long as you’re willing to wait a few weeks or months for a desired title to come out, you’ll find great bargains, and if you’re simply looking to replace favorite old albums that have gone to their reward, used is always a good idea.

Furniture for the home and office (particularly the office): Solidly built furniture is always an attraction – you can always call it an antique. But one of the best deals you can get in a down economy is office furniture, particularly if you check local resale shops or classified listings in print newspapers and online. It’s also easy to post specific requests for dimensions and features online as well. And even if you end up buying scuffed-up or dusty chairs, you’ll be stunned at what a little automotive tire cleaner can do to renew the look of office furniture made from rubber or plastic.

Toys and clothes for infants and toddlers: As long as you can clean them properly, these two categories of must-haves for kids are just fine bought second-hand. First, kids of any age outgrow clothes quickly, but used toys can work particularly well for younger kids simply because they haven’t become totally hooked on commercials. Until the pull of consumerism takes over – and for as long as you can manage afterward – buy used as long as the items are safe and can be thoroughly cleaned. Also, buying used is not a bad first money lesson for kids to adopt – encourage them to buy used toys and games as a way to get more out of their chore and allowance money. That’s a good habit that can last a lifetime.

Precious jewelry: Most of us don’t own the kinds of precious metals and stones that increase in value. In fact, most retail jewelry is sold at huge markups that rarely come back to the owner when they sell. The smart thing is to buy used and to get over any aversion you might have to shopping pawnshops or resale shops. Ask the vendor if they will return your money in 24 hours if a certified appraisal doesn’t satisfy you. Keep in mind you can buy used stones and settings as well.

Sports equipment and musical instruments: Whether your kid is learning to golf or play guitar at 10 — or if you’re trying it for the first time at 40 – always start with used equipment that can last a year. If you or your son or daughter proves to be the next big rock star or champion of the PGA Tour, you can always upgrade to newer, high-quality equipment later. But lots of money can go down the drain between the words “I want this!” and “I hate this!” – so by all means, buy used first.

Game consoles and electronics: Doesn’t it seem like the latest camera, game system or other hot gadget becomes obsolete every few months? Depending on your interest, that can be very true. So the trick is to consider whether you can live with a year-old Wii or a digital camera with last year’s technology. A lot of people can’t and put nearly-new equipment up for sale. Their addiction to the newest and hottest can work out very well for you.

February 2012 — This column is produced and is provided by The Jacobs Financial Group. (01-11)

Five Reasons to Make an IRA Part of Your Planning Strategy


IRAs typically give investors access to a wider range of investment options than workplace-sponsored plans, such as a 401(k).

There could be an important tool already in your portfolio that can help you save more for retirement. It’s your IRA.

Nearly 50 million American households own an IRA, but it is often an overlooked component of most investors’ financial planning strategies. In fact, over the past two years, only 15% of households that were eligible to contribute to an IRA did so.1

Have you forgotten your IRA? If you don’t have one, should it be part of your overall investment plan? Here are some compelling reasons why this vehicle can help you plan for your future.

1. Tax deferral: Traditional IRAs allow your investment earnings to grow tax-deferred until withdrawn, typically at retirement. For 2011, the maximum contribution is $5,000, but for those aged 50 and over, the limit is $6,000. The limits are the same for a Roth IRA, but to be eligible to fully contribute, an investor must have a 2011 modified adjusted gross income of less than $107,000 for singles and $169,000 for married couples filing jointly. Singles earning up to $122,000 and couples earning up to $179,000 are eligible for partial contributions.
2. Deductibility: If you are a single taxpayer who doesn’t participate in an employer-sponsored plan and you earn less than $56,000 in 2011, you can deduct your contributions to a traditional IRA off your income taxes. Couples earning under $90,000 are also eligible for a full deduction. Partial deduction limits also apply, up to $66,000 for singles and $110,000 for couples. Note that Roth IRA contributions are not deductible.
3. Investment flexibility: IRAs typically give investors access to a wider range of investment options than workplace-sponsored plans, such as a 401(k). Depending on the financial institution you use to open your account, you can invest in a broad array of mutual funds, ETFs, individual stocks and bonds, CDs, annuities, even commodities and real estate.
4. Convertibility: Traditional IRA holders can convert to a Roth IRA to enjoy some of the additional benefits listed below. But before you decide make a switch, be sure to investigate the tax consequences of such a move.
5. Portability: If you have assets in an employer-sponsored plan and you leave your job, you can easily roll over those assets into an IRA. Rolling over your assets can make sense, particularly if you change jobs frequently and don’t want to devote too much time to coordinating and tracking your accounts.

Additional Benefits of Roth IRAs
Qualified tax-free withdrawals: Since Roth IRAs are funded with after-tax dollars, your withdrawals are tax free, as long as you have held the account for at least five years and are over age 59 1/2.
No RMDs: Unlike traditional IRAs, Roth IRAs are not subject to required minimum distributions (RMDs) once the accountholder reaches age 70 1/2.

Contact your financial professional to discuss a strategy for your IRA or to see if investing in an IRA makes sense for you.

February 2012 — This column is produced and is provided by The Jacobs Financial Group. (03-11)

Estate Planning: The Rules Change Again

The federal government isn’t making it easy for Americans to feel confident about their estate plans. In the past four years, the estate tax exemption has performed a jitterbug — jumping from $2 million with a 45% top tax rate in 2008, disappearing completely in 2010, and ratcheting up to $5 million with a 35% top rate in 2011.

The $5 million/35% threshold will remain in place through 2012, but after that, all bets are off. The current law expires at the end of 2012, and unless Congress acts again to extend or change it, the exemption may revert down to just $1 million, while the top tax rate could rise to 55%.

Estate Taxes: A Moving Target

With so many changes over the years and so much uncertainty for the future, it’s a good idea for anyone with an estate in excess of $1 million (both individuals and couples) to meet with a financial and tax professionals to map out their estate planning needs.

Gift Tax Exemption: Act Before It’s Gone?
As part of the new tax act, the gift tax exemption has increased from $1 million to $5 million. Couples can transfer $10 million. But, as with the estate tax exemption, this “gift” is set to expire at the end of 2012.

One important item of note: While the current estate and gift tax exemptions render certain trust arrangements redundant for many, be sure to consider state tax considerations when drawing up your estate plan. Currently, nearly 20 states impose their own estate tax exemptions that can differ widely from federal law. For example, New Jersey allows an exemption of only $675,000. Be sure to check with your advisors to see if your state imposes taxes on estates and if a trust may still be applicable to your situation.

When you do meet with your estate planning professional, you should also ensure your overall plan includes the following pieces:

The information in this article is not intended to be tax advice and may not be applicable to your situation. Please contact your tax advisor for information relevant to your own situation.

February 2012 — This column is produced and is provided by The Jacobs Financial Group. (02-11)

A One-Year Checklist to Retirement

One of the biggest lessons of the recent economy is that many people who thought they were financially ready for retirement…weren’t.

The amount of money, investments and government support you’ll need to retire comfortably is as individual as you are. Some people plan to work in retirement. Others have health issues or other financial responsibilities – kids’ college bills, financial support for a senior relative — to juggle with the everyday living expenses they’ll face in retirement.

However, one thing is true for every potential retiree. It makes sense to get customized advice from qualified financial, tax and estate planning professionals at least one year before a retirement date is set. Here are some preparatory steps to take before you seek that advice and finally set a retirement date.

Figure out where the money is: The days of single-employer careers have been over for decades. And nearly 30 years into the world of widespread IRAs, 401(k) and other self-directed retirement plans, many potential retirees can’t reliably state where all their retirement resources are. Start pulling together all available paperwork tracking personal, government and employer-based retirement assets get them into order. It’s OK if you don’t know immediately whether you have enough to retire – experts can help you with that. What’s important right now is to identify everything you have so you can properly evaluate alternatives.

Identify debt: If you have significant home or consumer debt, that’s a tough burden to take into retirement because most retirees find their income will be somewhat or significantly lower. That also goes for big car payments, tuition debt, medical debt or elder support. Debt is the first major reality check on retirement for most people.

Adopt a downsizing budget: Too many people wait until retirement to learn how to live like retirees. If you have a budget, review it for unnecessary spending that could mean anything from cutting back on lattes to selling a bigger, more expensive car and going with public transit or a used vehicle. If you’ve never made a budget, now’s the time. Budgeting for retirement doesn’t mean cutting out every treat and luxury – it simply means extinguishing debt, setting priorities and determining which current expenses can be cut or eliminated. As the real estate market recovers, you may want to plan to sell your current home in favor of a smaller one that can be bought for cash or minimally financed, or possibly you might decide to rent. You might want to try “going smaller” with vacations, cars, clothes and other needs or wants that can move to a lower price point. Do this while you’re still working, bank the money you save and you’ll have excellent training wheels for retirement.

Evaluate your support from the government: A good rule of thumb is, “If you need Social Security or Medicare to retire, it’s best to keep working.” While both of these programs remain enormous help to many retirees, there’s always a chance of significant change in these programs, not to mention the continued discussion of moving the official retirement age well past 65. Definitely evaluate your government benefits, but do so in the context of what you’ve accumulated privately so you can maximize your government benefits when you need them.

Consider healthcare and long-term care NOW: If you’re lucky, your health is in great shape. But family history and events out of the blue may change that. If you retire before age 65, you won’t qualify for Medicare unless you are officially disabled. That means that you’ll have the responsibility to maintain private insurance that adequately meets your needs without huge financial risks that can come from uninsured care or procedures.  Even as healthcare reform adds certain protections for under-65 policyholders, it’s more important now than ever to give attention to health matters and whether your current insurance strategy is adequate. As for long-term care, many Americans still forget that the bulk of home-based and nursing home care must be paid out of pocket. While long-term care insurance exists, age and health needs can potentially make it very expensive, so this is another important financial planning issue.

Find out if your dream retirement really works: It’s important to test your retirement dream. While many people dream of moving to a particular place, it’s important to vet that choice for financial and lifestyle repercussions. A particular location might have cheap housing and great healthcare options, but what about cultural attributes and tax issues? There are literally dozens of factors that should enter into your post-retirement lifestyle decision, and to jog your thought process, Nolo provides a checklist that might help.

February 2012 — This column is produced and is provided by The Jacobs Financial Group. (01-11)