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Subject: persfin-digest V4 #95
Date: Tue, 21 Oct 1997 22:23:19 -0400 (EDT)
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persfin-digest Tuesday, October 21 1997 Volume 04 : Number 095
IN THIS ISSUE:
ADVERTISEMENT: domainTNG
RE: Roth IRA vs. Traditional
RE: Interested in a certified financial planner career
Re: W2 or 1099 consultant
Re: W2 vs 1099
Re: tax brackets for tax-year 1997?
salary calculator
New IRAs
Recommended US Budgetary Allowance (USBA)
Self Employed Retirement Plan Options
Towing insurance... - Worth The Cost
Whether to be a 1099 or W-2 consultant.
Stock Game For Children?
Dilbert Comics - Dogbert's Starting a Mutual Fund
Does 3/8=.375 or .37 1/2 ?
Yet another Roth IRA question.
Online Banking For Mac?
Pay an extra $100/month on a 30 Year, $200K Mortgage?
Medical Insurance for Playing Sports at School?
Wade Cook / Bob Staton?
Interest rate question
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Date: Tue, 21 Oct 1997 21:24:04 -0400 (EDT)
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------------------------------
Date: Tue, 21 Oct 1997 21:25:13 -0400 (EDT)
From: Steve Foulks <steve_foulks@up.bresnan.net>
Subject: RE: Roth IRA vs. Traditional
>ANDREA WELCH wrote:
>In PersFin Digest #89 Rich Carreiro wrote in response to a prior
>post by Steve Foulks regarding the new Roth IRA:
>
>>>Steve Foulks:
>>>Some people say that we need to consider the tax rates now
>>>versus the tax rate when you retire, but I can't imagine being
>>>so bold as to predict the future direction of tax rates. I
>>>always assume they are the same.
>
>>Rich Carriero:
>>Well, if you make that assumption, a regular IRA and a Roth will
>>have exactly the same value after all taxes are paid.
>
>I've performed some pretty simple spreadsheet calculations with
>Excel. Using the same tax rates applied to both the Traditional
>and Roth IRA, they do not have "exactly the same value after all
>taxes are paid". In fact, no matter what tax bracket, comparison
>period, rate of return, etc. I plug in, the Roth comes out ahead
>when all things are created equal.
Actually, Andrea, it much easier to prove Mr. Carriero wrong by using some
simple algebra, rather than numeric examples.
Assuming that taxpayers wish to maximize IRA contributions, and TAX RATES
REMAIN UNCHANGED the following equations must be true, according to Mr.
Carriero:
Roth IRA accumulation = regular IRA accumulation
using spreadsheet algebraic notation:
I*(1+i)^t =(I*(1+i)^t)*(1-T) +I*T*(1+i*(1-T))^t
Where:
I= investment or $2,000
i= rate of return
T= tax rate
t= investment period
The regular IRA accumulation side (right side) of the equation needs a
little explanation:
The first term represents the value of the IRA accumulation at time "t".
Since it does really cost "I" to put $2,000 into a regular IRA (It costs
(1-T)*$2,000), what happens to the tax savings (T * $2,000)? Well the tax
savings must be invested on an "after tax" basis {i*(1-T)}. The second
term represents the "after tax" accumulation of the tax savings.
If Mr. Carriero had simplified the above algebraic equation he would have
found that:
(1+i)^t does not equal (1+i*(1-T))^t
unless T = 0%. I don't think Mr. Carriero is alleging a 0% tax rate.
Steven M. Foulks, CPA, CFP, PhD
Professor of Accounting & Finance
Northern Michigan University
www.nmu.edu/instruct/business/sfoulks/
------------------------------
Date: Tue, 21 Oct 1997 21:26:17 -0400 (EDT)
From: Steve Foulks <steve_foulks@up.bresnan.net>
Subject: RE: Interested in a certified financial planner career
>From: "David W. Vaughan" <david_vaughan@ibm.net>
>Subject: : RE: Interested in a certified financial planner career
>
>>From: Jeff Morgan <Morgajs@parsec.com>
>>Subject: RE: Interested in a certified financial planner career
>>
>>College For Financial Planning
>>(National Endowment for Financial Education)
>>4695 S. Monaco St.
>>Denver, CO 80237
>>(303) 220-1200
>>What is the relationship of the College to the National Endowment?
>>They offer a CFP curriculum via both onsite courses and self-study
>I think I read somewhere recently that the CFP training had been
>sold to the University of Phoenix, which is apparently a for-profit
>university which is a pioneer in offering online education. Do you know
>what is the actual situation here?
> TIA!
Are you guys looking to get sued<g>?
The CFP designation has nothing to do with the College for Financial
Planning in Denver. It is owned by the Certified Financial Planner Board
of Standards, Inc., also in Denver, and unaffilited with the College for
Financial Planning. The reason why I asked the question is because the CFP
Board is very, very particular as to how you use the designation - CFP.
There are many colleges which give the necessary courses to qualify for the
big 2 day exam offered by the CFP Institute to allow one to use the CFP
designation.
The address below will tell you everything you need to know:
http://www.icfp.org/
Incidently the college that I teach at has a CFP program where I spend half
of my time teaching. The address for our cheesy homepage is:
http://www.nmu.edu/college/cob/bacperfi.htm
Steven M. Foulks, CPA, CFP, PhD
------------------------------
Date: Tue, 21 Oct 1997 21:27:24 -0400 (EDT)
From: Avrum Lapin <avrum113@cyberg8t.com>
Subject: Re: W2 or 1099 consultant
>From: garg@IMPACT.xerox.com (Sanjiv Garg)
>
>I'm going to leave my full time job and
>start consulting soon. A consulting agency
>which I am working with asked me if I want
>to be a W2 or 1099 consultant.
>
>Does anyone have any experience with this and
>can note the pros and cons of each type.
>
>The agency seems to be pushing the W2 type.
>They indicated that the per hour payrate would
>be the same for both.
>
>Sanjiv
I'm a W-2 consultant (no choice). My agency pays the employer's share of
FICA etc, handles witholdings and re-imburses travel and per diem expenses
subject to me not being greedy (must fly coach, drive mid-size cars etc).
I don't have to bother with estimated taxes.
If I were a 1099 consultant I would need to file for estimated taxes, pay
FICA at the self employed rate (15.3%) but would get to deduct my T&PD
expenses. However I might be able to rent Lincolns and perhaps get to
stay in 4 star hotels etc.
Not sure which looks better on a resume but a W-2 might look better to a
home loan lender than a 1099.
Avrum Lapin
Upland, CA
------------------------------
Date: Tue, 21 Oct 1997 21:28:00 -0400 (EDT)
From: Stephan <stephan@mail.org>
Subject: Re: W2 vs 1099
Sanjiv asked about merits of W2 vs 1099...
I would add to the other comments that the IRS has definite tests
for 1099 status including how many clients, who determines your schedule,
who determines office hours and location, billing arrangements, elegibilty
for "employee" benefits like training, parking, subsidies, administrative
assistance; it's the If it Looks Like a Duck theory...
IMHO, we're all self-employed and may as well manage Me,Inc. along those lines
and reap the many benefits.
Success to You,
Stephan
- ------------------------------------
at http://www.tpw.com/mi/siscoe
- ------------------------------------
------------------------------
Date: Tue, 21 Oct 1997 21:29:56 -0400 (EDT)
From: Rich Carreiro <rlcarr@animato.pn.com>
Subject: Re: tax brackets for tax-year 1997?
>where can i find information on the income limits for each tax-bracket
>for the tax-year 1997 (and each year after that). i need the exact
Form 1040ES (for figuring estimated tax) has the bracket cutoffs for
the tax year the form refers to. The current form is 1040ES for 1997,
which will give you the bracket cutoffs for Tax Year 1997. Since the
bracket cutoffs (and std deduction and personal exemptions and...) are
indexed to inflation, there is no way to give them ahead of time (once
the govt fiscal year ends on 9/30, the inflation numbers can become
known and are then applied to the relevant parts of the tax code so
that Form 1040ES can be printed up late in the current calendar year
or early in the next calendar year), though one could make assumptions
about inflation and apply those assumptions.
>somebody mentioned that he won't be eligible for a deductible IRA but
>his wife would be. does that mean having to file separate returns?
Nope. In fact, filing separately basically guaranteed that you'd be
ineligible for an IRA deduction, under the old law. What allows it
the new tax law, which removes the "taint" from a spouse not covered
by a qualified plan but is married to someone who is so covered.
Before Tax Year 1998, the deductibility income tests apply to both
spouses even if only one is covered. On and after 1998, the income
test doesn't apply to spouses who are not personally covered by a
qualified plan.
------------------------------
Date: Tue, 21 Oct 1997 21:30:48 -0400 (EDT)
From: Rod Bustos <bustos_ra@Mercer.EDU>
Subject: salary calculator
In response to Ricky in LaVerne, CA who is considering a job offer in
Moscow:
Check out the salary calculator available at http://homefair.com/home/
It lets you see what salary you would need to make in another location to
maintain your current standard of living. They don't cover all cities,
but I checked and saw that Moscow is included.
Hope this helps.
Rod
Rod A. Bustos Voice: (770) 986-3281
Public Services Librarian Fax: (770) 986-3270
Mercer University - Atlanta Internet: bustos_ra@mercer.edu
------------------------------
Date: Tue, 21 Oct 1997 21:31:25 -0400 (EDT)
From: Peter & Karen Diamond <diamond@vsi.net>
Subject: New IRAs
Hello everyone,
There has been alot of discussion about the new IRA laws. Here is another
issue to consider:
With the current legislation it was generally preferable to keep stocks
and other long term gain generating investments outside of a tax deferred
plan and keep bonds and other income generating investments in the plan.
As I see it this is even more true now. With the reduction in CG rates
the tax differences are even wider and it makes even more sense to keep
income investments in IRAs (Roth or not) and CG investments out of tax
deferred plans.
Is this the case?
Peter Diamond
------------------------------
Date: Tue, 21 Oct 1997 21:32:43 -0400 (EDT)
From: ktjensen@juno.com
Subject: Recommended US Budgetary Allowance (USBA)
Just like the Food & Drug Administration came up with a recommended
United States Dietary Allowance for nutritional content of food (I think
they are the source for that one). I would like to start discussion
about putting together a recommended USBA (United States Budgetary
Allowance). Below is a starting point for the discussion. They are
obviously not correct. I need feedback to adjust them for a balanced
approach that could be recommended to every american. That is the goal,
something that can be "recommended" to every american.
Here it is: VERSION 1.0
Auto (Repairs, Insurance, Registration, payments,
taxes) 8.4%
Housing (Rental, repairs, mortgage,
taxes) 23.8%
Entertainment/Recreation 3.5%
Clothing 3.5%
Healthcare (Insurance, dental, medical, life
Insurance) 7.0%
Miscellaneous 3.5%
Food 8.4%
Debts 3.5%
Savings (Emergency short term
account) 3.5%
Investments (Long term retirement) 5.6%
Taxes (Medicaid, Social Security, Local Income, State,
Federal) 20%
Charity or Tithe 10%
Ther is no way that I am even close to these percentages, but I think it
is a great way to set goals for every individual.
Here is what it comes out for individuals with $25,000 yearly income, and
$50,000 yearly income.
25K 50K
Auto 2100 4200
Housing (Rental, repairs, mortgage,
taxes) 5950 11900
Entertainment/Recreation 875 1750
Clothing 875 1750
Healthcare (Insurance, dental, medical, life
Insurance) 700 1400
Miscellaneous 875 1750
Food 2100 4200
Debts 875 1750
Savings (Emergency short term
account) 875 1750
Investments (Long term retirement) 875 1750
Taxes (Medicaid, Social Security, Local Income, State,
Federal) 5000 10000
Charity, or Church Tithe 2500 5000
------------------------------
Date: Tue, 21 Oct 1997 21:33:11 -0400 (EDT)
From: Mike Morehouse <mikemore@rocketmail.com>
Subject: Self Employed Retirement Plan Options
I am a 45 year old male who has recently lost his job due to
a company bankruptcy.
For probably the next 6 months, I will be doing some consulting
work for both a business enterprise and a non-profit social service
agency.
My wife works for a small company but she has no retirement plan.
We have IRA's in both our names and other investments in my
old 401-K (not yet distributed to me after my layoff) and
taxable mutual funds.
My questions are these. What options do I have for setting up
a retirement plan in addition to the $2000.00 annual IRA limt.
I may again go to work for a company as a full time employee
but for now I guess I am considered self-employed. I have read about
Keogh plans, SEP-IRA's, etc. Which do I qualify for and which
options may the best to maximize my contribution limits.
Does anyone know of a comprehensive document that could advise
me especially regarding, social security taxes I need to pay,
estimated tax payments due, etc. This self-employed stuff is
all new to me.
Also, I have the choice of being either a consultant to the
social service agency paid by the hour or as a part time employee
of the agency (no retirement benefits). Would one way or
the other be better for me regarding retirement options.
Thanks in advance for any advice you could give me.
Mike Morehouse
mikemore@rocketmail.com
Opelika, AL
Ephesians 2:8-9
------------------------------
Date: Tue, 21 Oct 1997 21:34:03 -0400 (EDT)
From: Jon King <kingjo@CS.ORST.EDU>
Subject: Towing insurance... - Worth The Cost
> I am caught up in a insurance issue here. I bought a new car a
> few days back and called up an insurrance agent (Farmers) to get
> a quote. The following was decided on :-
=> 1000 deductible Collision
=> 500 deductible comprehensive
=> No towing and road side assitance.
May I make a suggestion from personal experience... towing insurance is
*well* worth the cost. For $6/6 mo, we don't have to worry about paying
towing bills. Period. For the sake of argument, if you assume the
average tow costs about $60, you would have to go "towless" for 5 years to
make up the difference. From personal experience, we typically have to
get a tow about once every 2 years or so. Couple of months ago it was a
timing belt. Time before that it was a clutch cable. Who knows! But
it's worth the money...
Jon
------------------------------
Date: Tue, 21 Oct 1997 21:35:47 -0400 (EDT)
From: eric <73354.3477@compuserve.com>
Subject: Whether to be a 1099 or W-2 consultant.
If you choose to be a "1099'er" and if several YEARS later the IRS
determines that you really should have been a "w-2'er" there will be lots
of back taxes and trouble-- not to mention a subsequent audit by your own
state Unemployment dept and tax dept. I, unfortunately, have been there!
Get the IRS guide to Independent contractors to determine if you really
have a choice.
------------------------------
Date: Tue, 21 Oct 1997 21:36:16 -0400 (EDT)
From: Bob & Debbie Gerace <gerace@mindspring.com>
Subject: Stock Game For Children?
Does anyone know of a game -- say, like Monopoly, but instead of real
estate, a game that teaches frugality, saving, and investing in the stock
market. My 7 year old son is soon bored with financial matters, and could
care less about dividends, gains, etc.
However, he will play chess, checkers, etc. for hours. Why not a game about
stocks?
Thanks!
Bob Gerace
------------------------------
Date: Tue, 21 Oct 1997 21:37:36 -0400 (EDT)
From: Peter & Karen Diamond <diamond@vsi.net>
Subject: Dilbert Comics - Dogbert's Starting a Mutual Fund
Hello everyone,
For the next few days, starting today (10/20/97), the Dilbert comic strip
does a short segment with Dogbert starting his own mutual fund. You can
look in the Archive if you miss any of them. Check it our at
http://www.unitedmedia.com/comics/dilbert/
Peter
------------------------------
Date: Tue, 21 Oct 1997 21:47:53 -0400 (EDT)
From: dmak@tma-net.org
Subject: Does 3/8=.375 or .37 1/2 ?
A peculiarity that's been bothering me for years:
The Washington Post has always been quoting fractions strangely in
articles (not in the tables): for example, 3/8 is printed as
$0.37 1/2 rather than $0.375. It follows the same custom for 1/8s
(.12 1/2), 7/8s (.87 1/2), etc.
Is $0.37 1/2 mathematically (or whatever else may apply) correct?
(Editor's Comment - The editor responsible for that should read Innumeracy
by John Henry Paulos. Great book about mathematical illiteracy. -IK)
------------------------------
Date: Tue, 21 Oct 1997 21:48:25 -0400 (EDT)
From: Jeff Morgan <Morgajs@parsec.com>
Subject: Yet another Roth IRA question.
The folks at Strong funds recently informed me that when I transfer
deductible contributions from a regular IRA to a Roth IRA, the taxes
due can be paid out of the principal in the IRA, by virtue of a
premature withdrawal of principal which would not be subject to a 10%
penalty.
True? False? Too early to tell? Comments, please.
- --
Jeff Morgan - morgajs@parsec.com
------------------------------
Date: Tue, 21 Oct 1997 21:48:49 -0400 (EDT)
From: Ken Stone <krstone@mindspring.com>
Subject: Online Banking For Mac?
Does anyone know of a regional New England bank that allows online banking
with a Mac interface? I currently use Fleece (er, Fleet) Bank but when I
last inquired, their software was only for Windows.
Thanks,
Ken
------------------------------
Date: Tue, 21 Oct 1997 21:55:55 -0400 (EDT)
From: KATHLEEN OWENS <ACE.KOWENS@MEMO.ACEHARDWARE.COM>
Subject: Pay an extra $100/month on a 30 Year, $200K Mortgage?
Hello,
Does anyone recommend paying an xtra $100.00/month on a 30 year
mortgage for $200,000? I have heard pros/cons so I would
appreciate any input on this......
(Editor's Comment - You should definitely do it. It's a totally risk free
"investment" in increasing your net worth. -IK)
------------------------------
Date: Tue, 21 Oct 1997 21:56:51 -0400 (EDT)
From: Energo Ed <energo@fwa.cioe.com>
Subject: Medical Insurance for Playing Sports at School?
Can schools require that students need to take out an extra medical
insurance when participating in sports, even though our family medical
insurance will adequately cover the child. Hmm... I wonder if these school
officials have a financial interest in these insurance companies.
Ed
------------------------------
Date: Tue, 21 Oct 1997 21:57:22 -0400 (EDT)
From: JAY <bushman@telepath.com>
Subject: Wade Cook / Bob Staton?
I read alot of finance related self-help books. I've read almost
everything Bob Staton every wrote, (how to become a millionaire on $50 a
month). I've recently been hearing alot about Wade Cook. Is anyone
familiar with him or any books he has written.
jay
------------------------------
Date: Tue, 21 Oct 1997 21:58:52 -0400 (EDT)
From: "Stan J Finkelstein" <SFinkelstein@SprintMail.com>
Subject: Interest rate question
This is more philosophical question, so if it is not suitable for this
list, I'm sorry about it
It is known that with increase in interest rates stock market usually
declines (at least in a short run) because bonds become more attractive
and cash flows from stocks to bond. Could someone explain why in Japan
interest rates are below 2% and the stock market keeps go down. They
certainly don't have an inflation (based on their interest rates).
Thank you.
Stan J Finkelstein
------------------------------
End of persfin-digest V4 #95
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