Go to Jeff Salisbury LWGate Home Page.From: persfin-digest <owner-persfin-digest@shore.net>
Subject: persfin-digest V4 #75
Date: Mon, 18 Aug 1997 08:53:13 -0400 (EDT)
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persfin-digest Monday, August 18 1997 Volume 04 : Number 075
IN THIS ISSUE:
ADVERTISEMENT: MCI CONNECT FOR CC:MAIL [Oppenheimer Software <Connect-Sa]
Re: Limit Order Strategy? ["Louis J. Schwarz, CFP, RFC" <sfc@clark.net>]
Roth IRA vs regular IRA? [Endy Junan <endy@bigfoot.com>]
Re: Home Loan Potential of Roth IRAs? ["Lester M. Levy, MD" <llevy@hoflin]
Re: Limit Order Strategy? [Rich Carreiro <rlcarr@animato.pn.com>]
Re: Efficiency of New vs. Used Home Appliances? [Avrum Lapin <avrum113@c]
Re: Restrictions on Marriage of Canadian Citizen to US Citizen? [Avrum La]
Re: Bid & Ask sizes: what do they mean? [Rich Carreiro <rlcarr@animato.pn]
got it wrong-don't you? [krupa@hanatc.akron.oh.us]
Why Don't Stock Prices Ever Decline? [Michael E Kurela <mk87+@andrew.cmu.]
Step-Up in basis on joint property? [Gregory Bunger <73174.377@compuserve]
*Rolling back* into a 401K [dan_devries@MENTORG.COM (Dan Devries)]
NASDAQ (OTC) BID, ASK, spread.... [Stephen Brodeur <sbrodeur@draper.com>]
Re: Collection Agency and Fraud? [Avrum Lapin <avrum113@cyberg8t.com>]
Estate Planning with Revocable Living Trust? [David Chaille <davec2@ptcon]
Costa Rica trip? [eric <eric_marcus@compuserve.com>]
Any experience or observations of MW vinyl siding by K-Designers? [Fred D]
Best Affinty Credit Cards? [jphoebus@shore.intercom.net (John K. Phoebus)]
Site for Cost of Living Differences ["Mangiero, Susan" <MangieroS@sacredh]
Taxing Corporations Fairly [JONESW@CCSUA.CTSTATEU.EDU]
Re: VUL insurance [JONESW@CCSUA.CTSTATEU.EDU]
Re: Monitoring my Credit Card Charges When I Travel [georgene@secular.org]
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Date: Mon, 18 Aug 1997 08:31:05 -0400 (EDT)
From: Oppenheimer Software <Connect-Sales@mcimail.com>
Subject: ADVERTISEMENT: MCI CONNECT FOR CC:MAIL
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------------------------------
Date: Mon, 18 Aug 1997 08:32:06 -0400 (EDT)
From: "Louis J. Schwarz, CFP, RFC" <sfc@clark.net>
Subject: Re: Limit Order Strategy?
During my past 13 years as stockbroker, most of my clients prefered the
specific price, usually 25 cents to one dollar lower than the current
quotation. I would say approximately 25 percent of those limit orders
finally were transacted within a few days to few weeks, but the rest of
them never succeeded just because the prices went up and up. It is part
of game to decide the best price to buy or to sell.
However, I tell clients if they really want those stocks, they should
buy on time rather than to wait just to save a few bucks, ie., if 100
shares at one dollar less than the quote costs only $100 less - compare
to its future potential of increasing more dollars per share within the
time frame (short or long). Otherwise - DON'T buy it!
- --
Louis J. Schwarz, CFP, RFC TTY 301-587-5996
Schwarz Financial Concepts FAX 301-587-5997
814 Thayer Avenue, Suite 301 Voice Relay 800-735-2258
Silver Spring, Maryland 20910-4500 Mailto:sfc@deafcfp.com
------------------------------
Date: Mon, 18 Aug 1997 08:32:59 -0400 (EDT)
From: Endy Junan <endy@bigfoot.com>
Subject: Roth IRA vs regular IRA?
Hi,
I have a question that I hope somebody here can clarify.
If both IRA has a $2000 limit, wouldn't it be better to contribute
$2000 post-tax as opposed to $2000 pre-tax? For someone in 28% bracket,
that's like contributing ~$2777.78 pre-tax. Am I missing something?
regards,
Endy Junan
endy@bigfoot.com
------------------------------
Date: Mon, 18 Aug 1997 08:34:38 -0400 (EDT)
From: "Lester M. Levy, MD" <llevy@hoflink.com>
Subject: Re: Home Loan Potential of Roth IRAs?
In persfin-digest V4 #74, Brian James <bjames@rocketmail.com> wrote:
Subject: Home Loan Potential of Roth IRAs
<<Unless i am mistaken, can't the new Roth IRAs be uses as a vehicle to
sock away money tax-free provided that it is held for five years and
the proceeds used for paying off a home?
I'm no CPA, so can anyone tell me the pitfalls of this? My girlfriend
and i are currently house-hunting, and i'm in charge of researching
ways to finance us. We make roughly $64,000 (before tax) and have
nothing but student loans ($14,000 apiece) to pay off. Could a Roth be
a good option for us?>>
The Taxpayers Relief Act would seem to provide two benefits for you:
(1) The Roth IRA (and other IRA's) offer penalty free withdrawals up to
$10,000 (lifetime) for first time homebuyers. With the Roth IRA, no
income tax would be due on withdrawal, and it would seem to be an
excellent vehicle for completely sheltering the earnings. Each of you
could put $2000 in your own Roth plans for five years, withdraw $10,000
at the end of five years, for a downpayment of $20,000 and keep the
remaining funds for your retirement.
(2) For your student loans, there will be a deduction of upto $1000 in
1998, $1500 in 1999, $2000 in 2000, and $2500 thereafter for the
interest on qualified student loans for the first 60 months of required
payments. The deduction is very valuable since it is "above the line"
where you calculate AGI, and does not depend on itemized deductions.
There is a phaseout of the deduction when the modified AGI is between
$60,000 and $75,000 (married filing jointly), and $40,000 to $$55,000
for single filers.
There is also a provision allowing tax forgiveness of student loans
after August 5, 1997, in exchange for certain public service... but this
probably does not apply to you since your loans are already in place.
- --
-Lester M. Levy, MD llevy@hoflink.com
------------------------------
Date: Mon, 18 Aug 1997 08:35:13 -0400 (EDT)
From: Rich Carreiro <rlcarr@animato.pn.com>
Subject: Re: Limit Order Strategy?
>Since we are talking about spreads, can someone explain to me exactly how
>that works? All the literature I have been able to find says only that it
>is the difference between the bid and asked prices. Who is doing this
>bidding and asking?
As you said, the spread is the difference between the bid price and the
ask price. The bid price is the highest price that any buyer is willing
to pay. The ask price is the lowest price that any seller is willing to
pay. Obviously, for a trade to occur, a price has to be reached that is
simultaneously acceptable to both a buyer and a seller.
>If I place a market order to buy, does that mean that I am going to have
>to pay the asked price?
In all likelihood, yes. And a market order to sell will probably execute
at the bid price.
>And if I just paid the asked price, then didn't I just raise the bid?
Yes and no. For a split second the bid rose to meet the ask, the trade
happened, and then the spread reappeared until the next trade.
>system instead of fractions so the spread would be minimal. I have also
>read where there is some resistance to this from people who make money off
>the spread. Who would that be?
The specialists on the exchanges and the market-makers on the Nasdaq. They
make their money by working the spread.
Go to a bookstore or library and check out the current edition of _How
to Buy Stocks_. It has a good discussion of now trading works on both
the exchanges and the Nasdaq market.
Rich Carreiro
rlcarr@animato.pn.com
------------------------------
Date: Mon, 18 Aug 1997 08:36:02 -0400 (EDT)
From: Avrum Lapin <avrum113@cyberg8t.com>
Subject: Re: Efficiency of New vs. Used Home Appliances?
>
>I'm buying an old house that has built in appliances plus a
>refrigerator the owners are leaving. It also has a central air
>conditioning unit. All of these are 20 to 25 years old.
>
>I've been pricing new appliances and I know they are much more
>energy efficient than old models, but does anyone know of a way
>to tell how MUCH more efficient they are than ones 20 years
>old?
>
>
>How much electricity will I save by replacing each thing?
>I plan to replace them all eventually but I want to base
>which one I replace first on the energy savings I should realize.
>
>Am I better off from a expense/savings standpoint waiting
>until they die to replace them?
>
>The appliances in question are a Windsor 17 cu ft refrigerator,
>a drop in electric stove, and a builtin dishwasher, plus the
>air conditioner. I estimate replacement costs at $800, $500, $400,
>and $1700 respectively.
>
Measuring Power Consumption. Without a watthour meter its tough. You can
determine the number of watts by mutiplying the number of amps (usually on
the nameplate) by the number of volts. The problem is how many hours the
refrigerator and A/C are running since they "cycle" on and off.
If you live in AZ then changing the A/C will pay off faster than it would
in VT The refrigerator will pay off faster if you open the door a lot.
When we replaced our 1963 drop in range top, (with visible coils) with a
1990 one with a "solid" burner my wife had to adjust her cooking. She is
still unhappy with the way our 1990 built in oven heats
In 1993 I assumed that our 1963 3 Ton central air had a SEER of 6 (SEER is
approximately BTUs divided by watts) and figured that a unit with a SEER of
11 would save about $819 /year. - I estimated that my old A/C was costing
me $1800/yr. A SEER of 12 (best available then) would save $900 year. At
that time the cost differential between an 11 and a 12 had a 10 year
payback. (this assumes a marginal rate of 14c/kwh in Southern California's
Inland Empire.
Assume that a new refrigerator is twice as efficient as the old one. The
labels on new 20 cu ft units say that annual costs are are $55 with a given
( Iforgot) rate of electricity used.
The rest is up to you.
Avrum Lapin
Upland, CA
------------------------------
Date: Mon, 18 Aug 1997 08:36:35 -0400 (EDT)
From: Avrum Lapin <avrum113@cyberg8t.com>
Subject: Re: Restrictions on Marriage of Canadian Citizen to US Citizen?
>
>my fiance and I want to be married in the Niagara Falls, NY area... I hope
>you can provide the information we need to do this... She is a Canadian and
>I am a U.S. citizen... we don't know what restrictions there are (if any)
>or what documentation or tests or waiting period... and so on...
>
In 1964, I, a Green Carded Canadian, married an American in Reading
PA. There were no special restrictions but it allowed me to apply for US
Citizenship 3 years after marriage which was sooner than 5 years after
Green card. (I'm still married to her).
A Canadian married to an American can probably get an Immigration
Visa, Green Card or work permit faster that one not so married.
Having said that, don't wait until the last minute to apply for
your marriage license. You never know what some clerk will require.
Avrum Lapin
Upland, CA
------------------------------
Date: Mon, 18 Aug 1997 08:37:01 -0400 (EDT)
From: Rich Carreiro <rlcarr@animato.pn.com>
Subject: Re: Bid & Ask sizes: what do they mean?
>Every time when you read stock quotes, you will see last trade,
>current bid and ask, you will also see bid size and ask size.
>What do these bid and ask size mean? And most importantly how
>do they impact the direction the particular stock is heading?
Bid size is the number of shares currently being solicited to be
purchased at the bid price. Ask size is the number of shares
currently available for sale at the ask price.
To some degree one would expect the price to move in the direction of
largest size, as that would ostensibly indicate excess buy or sell
demand. However, given the wide availability of the size numbers, if
there was any system that could consistently take advantage of those
numbers, it will have been figured out by the big-money pros and used,
thereby wiping out its own effectiveness.
Rich Carreiro
rlcarr@animato.pn.com
------------------------------
Date: Mon, 18 Aug 1997 08:37:33 -0400 (EDT)
From: krupa@hanatc.akron.oh.us
Subject: got it wrong-don't you?
Dave,
your statement: "And over the years I have been amused
by the relentless shift to
the conservative of my long-haired, pot-smoking,
licentious college
acquaintances who once so ardently believed that
government would save us
all. - seems to be off target.
As I recall, the vast majority of college students were
anti-establishment, anti-government, and anti-Nixon, not
to mention anti-war.
Correct me if I am wrong.
Dennis
------------------------------
Date: Mon, 18 Aug 1997 08:38:38 -0400 (EDT)
From: Michael E Kurela <mk87+@andrew.cmu.edu>
Subject: Why Don't Stock Prices Ever Decline?
It makes you wonder, then, how the price of the
stocks ever decline if we are always paying
above the ask. I've had a bid out 2/32 under
the ask for almost a week now in a fluctuating
market and have not found a seller yet. Do the
brokers also influence the selling price of the
stocks ?
- --mk
> From: "Satish Kethineni <satishk@paul.rutgers.edu>"
> Subject: Spread between the ask and the bid...
>
> There was a question as to what the difference between the
> ask and the spread is; I was reading in a book that, the market
> makers (brokers on the trading floor) are the people who really
> profit from the difference between the ask and the spread.
>
> The broker buys from the seller (you) at the ask price and sells
> to the buyer at the bid price, he then pockets the difference between
> the two, this way he always make money in a up or down market.
------------------------------
Date: Mon, 18 Aug 1997 08:39:41 -0400 (EDT)
From: Gregory Bunger <73174.377@compuserve.com>
Subject: Step-Up in basis on joint property?
Several digests ago someone asked whether property held as joint tenants
with rights of survivorship would receive an automatic step up in basis of
50% when one owner dies.
Like virtually everything else having to do with the IRS, the answer is
complicated. If the owners were married, then there is an automatic step
up in basis of 50%. (There are several exceptions to this including living
in a community property state.)
If the owners were not married, the IRS requires that you prove what
percent the deceased person contributed to purchasing the property (called
the consideration furnishment test). So if the deceased owner contributed
25% towards the purchase of the property then 25% of the basis is stepped
up, and 25% of the value of the property at the date of death is included
in the gross estate. One obvious problem is what happens if one person
only contributes 10% of the down payment but pays 50% of the mortgage,
taxes, insurance, etc. Also, if there are no records for who contributed
what, the IRS may try to claim that the deceased person contributed 100% so
that the entire value of the property will be included in the gross estate.
This may actually be good for the co-owner as it will result in a 100%
step up in basis.
The best advice is to keep good records.
Greg Bunger
73174.377@compuserve.com
------------------------------
Date: Mon, 18 Aug 1997 08:40:42 -0400 (EDT)
From: dan_devries@MENTORG.COM (Dan Devries)
Subject: *Rolling back* into a 401K
Greetings Persfin'ers!
As a long time lurker, I have read here about the benefit of keeping
401k money rolled into IRA's segregated from other IRA money. Over the
years,
I have indeed been careful to do this, and now the time has come for me
to take agvantage of the ability to roll this money back into my
employers 401k plan to allow me to borrow against it.
When I talked to the benefits person at my workplace, she stated that I
had to prove that all money had come from qualified plans. She suggested
1099 forms as a method of proof. There's the rub...
First off, this IRA was funded from 3 separate dispursements over a 10 year
period. Further, the IRA has been held with 3 separate trustees over the
years, and the current trustee has never received a dispursements from a
401k.
In each case, I had the monies transferred directly from the qualified
plan into the trust without ever taking possesion of the funds. Likewise,
the trustee transfers were handled directly.
I do not think I ever received 1099 forms, and if I did I cannot locate them.
I may be able to find some of them, but the first dispursement was so long ago
that I am sure any documentation is long gone. I suspect that failing to prove
any of the amount effectively "taints" the entire account. (true?)
The money is held in an IRA account labled "rollover" (its at fidelity) and
at each transaction, the trustees were informed about the rollover status,
and presumabily verified this fact.
I would appreciate any advise that the group could provide regarding what the
"real" requirements are to allow a "roll back" and perhaps recommendations for
what documentation must be kept in the future. This may be a discussion of
interest to others with this type of long-term investment.
Anyone else had this kind of problem?
Regards,
Dan DeVries
------------------------------
Date: Mon, 18 Aug 1997 08:42:18 -0400 (EDT)
From: Stephen Brodeur <sbrodeur@draper.com>
Subject: NASDAQ (OTC) BID, ASK, spread....
These trading terms and mechanics are important and fundamental when
learning to deal with the stock market. Let's keep the thread going. Tell
me where I'm wrong.
As "Satish Kethineni <satishk@paul.rutgers.edu>" pointed out:
>The broker buys from the seller (you) at the ask price and sells
>to the buyer at the bid price, he then pockets the difference between
>the two, this way he always make money in a up or down market.
(NOTE: Actually, you sell at the (lower) bid price, and buy at the (higher)
ask price- see below.)
This applies to the NASDAQ market, where the market makers advertise prices
at which they are willing to buy or sell a stock (along with how many
shares at that price). I believe the sizes are quoted in 'round lots' of
100 shares. So a 10x10 means that the market maker is willing to sell or
buy up to 100 shares of the stock at the quoted prices. The market maker
is only REQUIRED to honor the quote for up to the posted size, although I
believe they may choose to accept and fill orders for more than that size.
Market makers profit by the price spread between the ASK (they are asking
for to sell to you) and the BID (the price they are bidding to purchase
stock from you). There are several market makers for the same stock, each
providing bid/ask prices; this is supposed to create price competition.
Additionally, your broker charges a commission for his services, which is
usually based on a flat fee, or the size and dollar amount of the trade,
but independent of the market maker's spread. That way your broker also
makes money in an up or down market because the commission if charged on
both sales and purchases. In fact, if you "trade" (sell one stock and use
the proceeds to buy another), you pay commissions twice- once on the sell
transaction and once on the buy. If your brokerage also 'happens' to be a
market maker in the stock, they can profit twice from the same transaction,
via spread and commission.
Up until recently, if you wanted to buy or sell a stock between the BID and
ASK, you were pretty much out of luck. Basically you waited until a market
maker's published offers met your price criteria before your order would
get filled. Recently, there has been a rule added that requires a market
maker to display offers that fall within the spread. If the quote on a
stock is 20 bid, 20.25 ask, and you place a limit order to buy 100 shares
at 20.125, the market maker is obligated to expose your order to the
market.
If someone else then wishes to sell at 20.125, your order will be
filled and you will save $12.50. [Also, you have the psychological
satisfaction that the $12.50 stayed in your pocket instead of transferring
to the market maker.] But, if nobody bites at 20.125 and the stock starts
to go up, your order will remain unfilled and you will have missed it at
20.25. So you have the potential to SAVE $12.50 (reducing cost by ~0.5%)
while running the risk of not getting the stock and LOSING the price climb.
Note also that a 0.25 spread on a $2.50 stock is 10% of the cost, but a
0.25 spread on a $100 stock is only 0.25%.
If you expect to make all your profit on a price move of $2/share or less,
you can see that the spread can eat deeply into your potential profits. If
you are looking for bigger swings (growth!) in price, the spread will have
a smaller impact.
Different stocks can have different spreads, and the same stock can have
different spreads at different times. It is common to see a 1/4 spread
(good for the market makers!) or a 1/8 spread (better for the traders!).
Thinly traded stocks, especially with few market makers, can have huge
spreads. So be especially wary of the exotic stock tip and the penny
stocks- the spread can eat up a big piece of that 150% gain from
$0.50/share to $1.25/share!!!!
The NYSE (and the AMEX) work on a different system that does not involve
BID/ASK quotes, or spreads.
But that's a topic for another post. I've rambled enough for today! OK,
experts, how'd I do? ;)
sbrodeur@draper.com
standard disclaimer. just me. opinion, not advice.
------------------------------
Date: Mon, 18 Aug 1997 08:43:41 -0400 (EDT)
From: Avrum Lapin <avrum113@cyberg8t.com>
Subject: Re: Collection Agency and Fraud?
>
>I am being harrassed by a collection agency about a bad check to
>Dominoes Pizza for $30. After some research and getting a copy of the
>check, I found that it was against a credit union account I used to
>have with my ex-wife of 2 years. The account had been closed for a
>better part of that two years and I guess she had some old checks.
>Yesterday, after about three weeks, I got another notice from
>them about collecting -- Final notice, in fact -- and that they would
>take all kinds of action, Credit Agency filing -- District Attorney
>and such -- against me if I didn't pay. So, I called and asked to
>speak with a supervisor and demanded they find the letter -- they
>didn't bother looking, they just said, "Pay or else" -- nothing
>else.
>
>To all of you, Do I have anything to worry about?
>
Not a lawyer, this advice is worth what you paid for it.
According to my favorite radio lawyer (Bill Handel on KFI in LA) there
have been successful lawsuits against collection agencies for falsly
ruining one's credit.. He implied that there are "ambulance chasers" who
do these suits on a contingency basis. You might want to see if you can
get a free consultation.
You might want to send a letter (certified) to who ever sent you the notice
stating the facts and warning them of the consequences.
Avrum Lapin
Upland., CA
------------------------------
Date: Mon, 18 Aug 1997 08:44:57 -0400 (EDT)
From: David Chaille <davec2@ptconnect.infi.net>
Subject: Estate Planning with Revocable Living Trust?
An attorney-friend of mine drew up a revokable living trust (with backup
will, and power of attorney for medical care) for my dad and me a few
years ago. I understand that the trust avoids significant probate costs.
As my dad gets older, I am starting to wonder exactly what I do when he
passes away. The house we own in the trust is valued around $225,000. He
had a small insurance policy ($25,000), a rollover IRA ($30,000), CD's
($20,000) and small pensions which probably will have little or no
value. I assume therefore that the estate is valued well below the
$600,000 exclusion level.
I'm in California and would like some advice on what I would need to do
to settle the estate. Any books that you can recommend? I haven't a clue
as to where I would start. I'd rather start learning now than have to
figure it out during an emotionally draining time.
Thanks.
------------------------------
Date: Mon, 18 Aug 1997 08:45:19 -0400 (EDT)
From: eric <eric_marcus@compuserve.com>
Subject: Costa Rica trip?
Any of you savy readers used the "Costa Rica Connection" company? Or,do any
of you recommend going to San Jose and arranging trips from there?
------------------------------
Date: Mon, 18 Aug 1997 08:45:44 -0400 (EDT)
From: Fred Decker <deckerf@ucs.orst.edu>
Subject: Any experience or observations of MW vinyl siding by K-Designers?
Does anyone have copmments on work, quality, or costs of siding
applications by Montgomery Ward contractor K-Designers? Just e-mail me
direct. Thanks, Fred
------------------------------
Date: Mon, 18 Aug 1997 08:47:14 -0400 (EDT)
From: jphoebus@shore.intercom.net (John K. Phoebus)
Subject: Best Affinty Credit Cards?
I'm currently shopping around for a new credit card, not out of any
dissatisfaction with my current one (FirstCard Visa), but because I'm
looking for a credit card that offers bonuses based upon how much you
charge. I use a credit card only for convenience, paying off my balance in
full each month. I read somewhere recently (Washington Post) that credit
card companies have been scaling back their "affinity" deals where you earn
points or miles or whatever based upon how much you charge because they are
losing money on the deal. (e.g. GM just cancelled its affinity program
offering cash toward a GM car.)
I'm wondering if any persfiners know of credit cards which still offer
worthwhile affinity programs.
John Phoebus
(Editor's Comment - Is this happing with the Macintosh or Ford related
credit card rebates? -IK)
------------------------------
Date: Mon, 18 Aug 1997 08:47:37 -0400 (EDT)
From: "Mangiero, Susan" <MangieroS@sacredheart.edu>
Subject: Site for Cost of Living Differences
Your readers might find the following site of interest, especially
since I know some people have queried you on cost of living
differences for cities/states.
Http://www.homefair.com/home/realhomepage.html
------------------------------
Date: Mon, 18 Aug 1997 08:50:09 -0400 (EDT)
From: JONESW@CCSUA.CTSTATEU.EDU
Subject: Taxing Corporations Fairly
Billy Barrington says, "Why should a company (as a separate taxable entity)
also pay income tax? Why not tax at the individual level "only" and do away
with the hidden consumption tax (corporate taxation)...and eliminate the double
taxation of corporate earnings."
He refutes his own implicit assertion. Taxing corporate earnings is not
double taxation (of the shareholder's profits), because it is actually a
consumption tax (as he implies).
That is, the corporate income tax adds to the price of the goods and
services sold by the corporation, by being passed along to the consumer,
instead of subtracting from the income of the shareholder. It cannot be
both, and my opinion is that it is a consumption tax on customers, thus
not an income tax on shareholders.
The effect of the corporate income tax is to raise the corporation's
prices to consumers and therefore make smaller (unincorporated) businesses
more competitive with corporations. You might think that this is unfair
to corporations, except that obviously they seem to be able to dominate
the market in spite of this apparent disadvantage. So one could deduce
that, without this consumption tax (the so-called corporate income tax),
small businesses would be much more endangered. That is IMNVHO an
excellent argument for keeping this tax. Eliminating it would not give
you a dime more as a stock shareholder. It would cut your prices on
purchases from corporations and raise your personal income taxes.
Come to think of it, one could turn Billy's question around and ask, "Why
not tax at the corporate level only and do away with taxes on
individuals?" That would certainly help the cause of small unincorporated
businesses, because then they would pay no taxes at all (and it would
eliminate the so-called "double taxation" that Billy worries about). What
a great idea!
Bill Jones
------------------------------
Date: Mon, 18 Aug 1997 08:50:57 -0400 (EDT)
From: JONESW@CCSUA.CTSTATEU.EDU
Subject: Re: VUL insurance
Cal Lester pointed out the one "error" in my previous post, namely, where I
said, "$75,000 which I believe is the minimum death benefit you have to keep in
the policy." He says that "the minimum for most companies...is $10,000." So my
belief was in error.
I described two scenarios in that post (I use $X instead of either 10K or 75K
in the summary below). Cal did not contradict the conclusions in either of
these two scenarios, although he recommended a third scenario as what he
thought of as a superior choice.
Scenario #1: You want to take out all you can at age 65 while leaving a Death
Benefit equal to the Cash Value (thus effectively eliminating the life
insurance aspect). Then you have to leave $X that you cannot take out.
Scenario #2: You want to take out all you can at age 65 while leaving a paid up
policy for the minimum Death Benefit of $X. Then you have to leave something
like 40% to 50% of $X that you cannot take out (the company's home office can
"calculate the exact amount" required).
Cal says, "You CAN get it ALL out, EXCEPT for $1.00 without paying any
taxes. The example that I gave earlier illustrated that. However, let's
take YOUR example above. IF you were interested in taking it ALL out @ 65, (
which is probably NOT a good idea ), then you would REDUCE the Death benefit to
the MINIMUM amount, which would normally be $10,000 above the remaining Cash
Value Account. However, the software ( or the Home Office ) will calculate the
EXACT amount that would be required to stay in the policy, to EARN sufficient
interest to maintain the policy to a Certain Point in time ( either age 95, 100
or 105 as you determine). The IRS will NOT impose any Income Taxes on anyone,
as long as there is $1.00 of NET DEATH BENEFIT paid at the insureds death."
This appears somewhat inconsistent. If your policy requires a Death Benefit of
at least $10,000, that is a heck of a lot more than $1. When you ask the home
office to calculate the exact amount at age 65 that would be required to stay
in the policy, you will therefore get an answer of around $4000 to $5000 (maybe
a little more or less). That is the part that you cannot get out.
Of course Cal meant that the IRS does not require more than $1 of Death
Benefit; the insurance company itself will require much more. One VUL policy
that I know of requires a Death Benefit of at least $75,000. That means that
you have to leave around $30,000 or more of cash benefit in the policy IF your
desire is to remove all you can at age 65 and do nothing else with the paid-up
policy thereafter (scenario #2 above).
But in any case, each VUL policy has M&E surcharges and premium taxes that
generally add up to over 30% of the dollars you put in the VUL beyond what you
need for the life insurance protection itself. That means that, even though you
can take most of those dollars out tax-free, the 30% in surcharges costs you
more than the taxes would (at a 28% federal tax rate, let alone at a 15% rate).
So being tax-free does not help; you still come out behind.
In light of all of this, I must agree with Cal that "Life Insurance is designed
to provide a specific number of dollars at a specific point in time, AT DEATH.
Life Insurance is NOT designed as an Investment Vehicle ( even though some
people feel that it is )." Thus hardly anyone younger than 50 should purchase
any life insurance policy other than a term life policy that is GUARANTEED
RENEWABLE AND GUARANTEED CONVERTIBLE to whole life at any time before age 65 or
70. Then, if you die before you retire, the life insurance accomplishes its
purpose of providing dollars at death without any investment aspects. If you
live until you retire, you can decide at that age whether you wish to continue
life insurance until you die, at which point you can convert the term policy to
regular whole life insurance without a health exam.
In particular, a VUL is a bad idea for most people, because it is an attempt to
add an investment vehicle to term life insurance, to make it comparable to a
variable annuity. And as Cal says, life insurance should not be compared with a
variable annuity; you should just keep the two concepts separate and in
separate contracts.
I certainly hope that this finishes the thread.
Bill Jones
------------------------------
Date: Mon, 18 Aug 1997 08:52:00 -0400 (EDT)
From: georgene@secular.org (Georgene Harkness)
Subject: Re: Monitoring my Credit Card Charges When I Travel
>Did you ask if they check over the charges to look for
>suspicious ones? I'd imagine that if they _don't_ make
>checks like that, then it would do them no good to know
>that you are travelling.
Yes, I asked, but they said that they would monitor the account "if I
requested it." Obviously I am not going to request them to monitor
the account for unusual charges if I am planning to make some, so in
essense, the answer is no, they don't monitor the accounts.
As you pointed out, though, since they didn't ask for identifying
information, I could have been a credit card thief, and as long as the
victim didn't notice the theft, I'd be all set for a nice little
spree.
Incidentally, I am a week and a half into my trip and have used my
credit card in 6-10 different cities in Oklahoma, Indiana, Ohio and
Virginia, and so far have had no trouble.
------------------------------
End of persfin-digest V4 #75
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