Ever been stuck at a cocktail party with a blowhard who’s leaning in a little too close? Just launch into a monologue on the relative merits of title insurance and even the most booze-fogged windbag will go running for cover.

Title insurance.  How boring.

How boring, indeed, until two days before closing on the purchase of your first home, and your attorney calls saying that your mortgage has been approved, the former tenants were removed by the sheriff, the radon’s been remediated, and oh, by the way, do you want title insurance?  “Huh?”, you say.  “What tenants?  I thought those were the owners?  And what was that about insurance?”

What is Title Insurance? Continue Reading »

This is the fourth post in a series on local, preferably non-governmental, initiatives to improve a community.

I was pleased to read today that the city of Boston is offering coupons that turn $10 of food vouchers into $20 to spend at the local farmers’ market.  What a great idea to support local farmers and to improve access to healthy foods for low-income people.

Boston will join more than a half dozen communities across the country with similar double-voucher programs, including Atlanta, San Diego, Providence, and Holyoke.

The funding includes $30,000 from the Mayor’s Fresh Food Fund and three $10,000 grants from Project Bread, Farm Aid, and Wholesome Wave Foundation, which has helped other communities launch similar double-voucher programs since 2007.

I love fresh-air markets and the way they connect consumers to good food and to the people who produce it.  I spent a few of my school years in Madison, Wisconsin, home to the world’s best farmer’s market, IMHO.  I spent many a glorious Saturday morning strolling the Capitol Square with a morning bun and a coffee, filling my shopping bag as I walked.  The entire city turns out — students, couples pulling kids in red wagons, whacky hippies, professors — it’s fabulous.

Now I live in the suburbs north of Boston.  I don’t know of any farmers’ markets in the area (though there must be one somewhere), but we do go to roadside stands.  I especially like honor stands where you just leave your money in a box.  It makes me feel like I’ve moved to Mayberry.  And I love to go to pick-your-own farms with my family.  Every year we pick a bucket (or two) of blueberries.  We freeze some, but we eat most fresh.  It’s unbelievable how many berries we’ll eat if the supply seems limitless.

Other posts in this series on Creative personal economic stimulus:

• Creative personal economic stimulus: Local scrip
• Creative personal economic stimulus: Roger Babson
• Creative personal economic stimulus: Danny Cottrell

Didja’ ever notice that how you measure something sometimes changes the outcome?

In the 1980′s CEO’s compensation changed from a salary-and-bonus plan to being directly tied to the stock price, and voila, stock prices rose.  The companies weren’t necessarily managed any better, but since stock price was suddenly the important metric, it improved.

A similar effect can be seen in Massachusetts schools which are ranked by statewide tests (MCAS).  An increase in the scores, doesn’t necessarily mean that the students are any smarter, but they are doing better at passing the exams, leading to much discussion about “teaching-to-the-test.”

Likewise, many financial advisors are paid by a percentage of assets under management.  The rate is typically 0.5-2.0% per year, where the low end of that range is for account values north of $1M.  If you have $200,000 in an advised account that charges 1.5%, you pay $3,000 per year for that advice.

Not only do I think that’s an awful lot of money, it isn’t judging the right metric.  Sure, I want my investments to grow, but what I really want is my net worth to grow.  Designing the advisory fee around just one aspect of your net worth focuses their activity around just your investment — typically brokerage — accounts. Continue Reading »

One of the most interesting posts I’ve read recently is Frank Curmudgeon’s* The Roth Segregation Conversion Strategy.

Before we launch into Frank’s strategy, let’s cover the basics.

Recharacterization is the ability to move money that you put into your Roth IRA this year, into a traditional IRA instead.  It was created to enable people to correct their mistakes, such as funding a Roth IRA when their adjusted gross income is too high.  Recharacterization enables correction without penalty.

The basic Roth recharacterization tax-avoidance strategy goes like this:

• At the beginning of the year, you convert your IRA into Roth,
• At the end of the year, you recharacterize the Roth back into the IRA,
• If the Roth earns money during the year, you only have to recharacterize the amount put in at the beginning of the year, leaving the earnings in the Roth forever tax-free.
• If the Roth loses money, you only have to move back remaining amount into the IRA.  And you can try again next year

Mr. Curmudgeon takes it one step further,

• At the beginning of the year, you take your IRA, and divide it into two halves.
• Invest one half long and one half short (e.g. S&P 500 ETF’s), each in a Roth IRA.
• At the end of the year, one investment will be up x%, and the other will be down x%.
• Then you recharacterize both back into IRA’s.
• For the Roth that made money, you need only recharacterize the amount you originally put in, letting you leave the x% in the Roth, forever tax free.

Sounds like a great idea.  I can see why he enjoyed working in a hedge fund.  If you start with $200k, the market moves 10% in a year, and you’re in the 28% tax bracket, you’ll save $2800 in income tax, less transaction costs.  That’s only a 1.4% return on your investment, but it is risk-free.

Towards the end of his post, Frank gets cranked-up and starts optimizing the strategy through winner-take-all strategies.  You can minimize taxes by dividing your IRA investment into 37 Roths and (somehow) bet each on a different number on one spin of a roulette wheel.  One Roth will win, and it ends up with roughly 37 times its original amount, tax free.  All the other Roths are worthless.  The net result is to transfer the original sum into a Roth, tax free.  There’s the little problem that roulette bets are not a legitimate IRA investment option, but a reader proposed an option, if you’re interested.

I thought this all sounded quite interesting but just a little too good to be true.  Why would the IRS let me recharacterize only the original amount?

I began searching the IRS website.  The original IRS Code 408A(d)(6)(B)(i), clearly states that if you recharacterize, you must include the earnings.

If so, that blows the whole scheme.

There are legitimate uses of recharacterization, but use them sparingly to avoid the unpleasant glower of the IRS.  I think I’ll leave the roulette wheel to Frank.

* I love the nom de plume.

Image credit:  Flickr

If Barack Obama was gay, he would have just signed a presidential memorandum giving himself, a federal employee, some additional benefits.  Let’s see how that might change the lives of Barack and, well, Michael.

The new benefits include:

• Barack can now sign up Michael for long-term care insurance.
• Barack can now use his sick leave to care for Michael and Michael’s dependents.  (I’m not sure how many sick days a President is allowed — I imagine it’s as many as he needs.)
• If Barack is assigned to move overseas,* Michael can be included when determining family size for the housing allocation, and he will be able to use the overseas medical facilities.  In the event of an emergency, Michael will eligible to be evacuated.

That’s it.  Nothing more.

Michael will still not be able to:

• Have health insurance provided through Barack’s employer,
• Benefit from his pension should Barack pre-decease him,
• Visit his partner or his partner’s children if hospitalized when traveling to any of the more than forty states that do not recognize his marriage to Barack,
• Travel safely with Barack when visiting Saudi Arabia or Iran or any other county in which homosexuality is punishable by death, or
• Have any of the other 1,138 US federal benefits identified by our General Accounting Office (GAO) which are contingent upon his marital status.

One more thing is wrong with this scenario: if Barack Obama was gay, he would never have been elected president.  I’m very proud that my nation elected an African-American to be president, and honestly, I think he’s doing a terrific job with the mess that he was left by the previous administration.  But I cannot suspend my disbelief long enough to imagine that blue-and-red America could vote a gay man into the White House.  We had a hard enough time envisioning Bill Clinton as First Gentleman, let alone Michael.  Perhaps that day will come, someday.

For today, I believe that Mr. Obama, with a stroke of his pen, gave as many rights as he was legally empowered to grant to federal employees.  I hope that the next few years bring many more days of equality for all citizens

*Granted, not likely for a president.

Dana at Mombian pointed out that Quicken is offering some deep discounts to lure soon-to-be-former Microsoft Money users.  I’m a big fan of Quicken.  I’ve been using it since 1996 and can track every investment blunder I’ve ever made.  And the successful ones, too.

The official Microsoft announcement attributes the end of Money to the plethora of online personal finance programs.  It couldn’t possibly have anything to do with reviews that gave Quicken a 9 (out of 10) to Money’s 7, now could it?

Photo credit: Elvis Payne at Flickr.

My post on the Monte Carlo estimator for retirement planning was included in this week’s Carnival of Personal Finance.  LAL is the host this week at LivingAlmostLarge and she did a great job compiling the list and included a line or two about every article.  Kudos to you, LAL, for going the extra mile.  Some of your comments are pretty on target, too.  I especially liked the comparison of credit to booze.  It’s true that some folks can’t help themselves and would be better off abstaining.

The carnival had a number of other intersting articles including:

• AskMrCreditCards’ article discussing Can Credit Card Companies Go After You If You Leave The Country?, including the legal, moral, and practical implications of leaving without paying.
• Rohit from eMoneyLog wrote a two part Complete guide to emergency funds, which in general is quite good.  I disagree, however with his statement that certificates of deposit aren’t a good place for Emergency Funds.  I think a CD is a great place to stash the cash, because it’s just hard enough to get money out that you won’t be tempted to spend it on that shiny new set of golf clubs you’ve been wanting.  And Ally bank offers a no-penalty CD with a pretty good rate.
• Mr. GoTo from GoToRetirement wrote on how to Create a Free Financial Plan, listing two online programs and two stand-alone software programs — all free.  I’ll be checking them out, and I’ll be reading more of his well-written blog, too.

Photo credit:  Robert C at Flickr.

The Rollings Stones edition of the Best of Money Carnival at Wealth Pilgrim chose my post on a Monte Carlo estimator for retirement planning as the #3 post for the week.  Thank you for your confidence in my code.

And, yes, I know my post title is a reference to the magazine and not the group.

I also enjoyed the #2 post on Save Money (and Water!) With a Rain Barrel from fivecentnickle, especially after watching “Extreme Bathrooms,” last weekend on the Travel Channel.  My five-year-old son and I both loved it!  One of the featured bathrooms used collected rainwater to flush the toilets — a great idea — and I started scheming on how to collect the rainwater (typically at ground level) and pump it up to be above the second floor.  Of course you could use an energy-guzzling electric pump, but I thought of the recumbent exercise bike I bought when I was pregnant.  I could reconfigure the bike to pump water from ground level to a storage tank in the attic, right?  I ran the idea past my better half, who rolled her eyes and gave me “the look.”  I have to admit that it wouldn’t make a lot of sense to install such a system in Massachusetts where the thermodynamically stable state of water is solid almost half the year.  After all, it’s the middle of June, and I’m wearing a sweater.

Back in March I wrote a post on the marriage penalty — the fact that two working people tend to pay more in tax if they are married rather than stay single.  It received a comment from Terry Neese suggesting a terrific solution that I’d like to elaborate on.  Terry is a Distinguished Fellow at the Family Policy Center where she advocates on behalf of family-friendly initiatives and legislation.

Her simple proposal is to allow people to choose their filing status for income tax; that is, if a couple is married, but they would save income tax by filing as singles, let them file as individuals.*

How brilliant is that?

Simple. What could be simpler than checking off a different box on your tax form?  Not so simple: figuring out each year which filing status to choose, but isn’t that what Turbo Tax is for?

Flexible. You can change it from year-to-year, as your personal situation changes.  For example, you may decide to leave the workforce to stay home with your children or to return back to work as they grow up.  You could change your filing status, as best fits your current situation.

Universal. Applies to everyone, in any type of family situation.

Inexpensive. Well, inexpensive to implement; but someone needs to do a tax study on the impact to the Federal revenue stream.  I found several studies on the impact to individuals, but haven’t found one yet on the impact to Uncle Sam’s wallet.

Marriage is a societal institution worth supporting, even subsidizing.  If Pat and Alex formally agree to care for each other in sickness and in health, then that’s two fewer people who will need support from the government.  As a taxpayer, I like that.

It’s the same reason I support tax subsidies for homeowners (e.g. tax deductions for property tax and mortgage interest).  Communities are more stable when citizens are landowners rather than tenants.  I think Pat and Alex should get the homeowner’s tax break and the tax discount for marriage, too.  However, if marriage means higher taxes for them, I don’t want to discourage their public commitment.

Note that I didn’t specify whether Pat and Alex are one man and one woman, or two men, or two women.  It shouldn’t matter.  It’s not about their personal lives.  This proposal can be viewed strictly as a societal and financial benefit.  Every change that separates the sacred meaning of marriage from its secular ramifications is one step closer to a tolerant society that lets each citizen live a full and happy life.  There should be a different label for the state of being I associate with the person whom I have shared my life for sixteen years (married), from the state of being required to get discounted joint membership at Costco (married).

Any change that can be supported by both a liberal, like myself, and the relatively conservative, pro-family Family Policy Center must be good for America, right?

*Note that this is not the same as “Married filing separately.”  The best use of that category is for divorcing couples who are unsure about the legality of their soon-to-be-former spouse’s business.  You don’t want to put your signature on a joint return, if you think the numbers don’t add up.

Image credit: Flickr

The 208th Carnival of Personal Finance is now up at Money Under 30. The host included my post on Who Benefits from Employee Benefits?.

I also enjoyed the post on Balance Transfer Credit Card Tips, Facts and Traps at The Digerati Life. 

PennyJobs points out in Should I Stop My Mortgage Escrow? that some states have laws allowing you to opt out of escrowing your taxes and insurance, after you’ve had the mortgage a few years.  I’ve always negotiated out of having my insurance premiums escrowed, but I’ve never tried to remove my taxes.  I think that’s worth pursuing, as I could collect more interest than the miserly 0.10% paid by my current mortgage company by using a savings account of my choice.  Thanks for the tip!

The theme for this week’s carnival was the Maine celebration of the Lobster Roll.  While I commend you on your culinary creations, I’d also like to congratulate the LGBT community of Maine on the recent legislation giving them the right to marry.   So for all you LGBT folks in Maine who might have questions about the legal and financial implications of getting hitched, I recommend you check out Queercents, a personal finance blog for our community.  This might be filed under “shameless self-promotion,” as I do write for Queercents, but seriously, they have a lot of good advice collectively among their many writers.