Determining Which Term Life Insurance Policy Makes the Most Sense

Term life insurance is used primarily for pure income replacement (i.e., your human capital). When you apply for term life (non-permanent) insurance, you have to choose the amount of coverage you want ($50,000 to more than $2,000,000) and the term of the policy – usually a 10-, 15-, 20- or 30-year policy. The coverage amount and term depend on your specific needs, such as taking care of young children, or paying off the mortgage if you pass away unexpectedly.

Since term life insurance policy premiums stay level, i.e., the same, your premium does not change during the term. This causes the premium to be higher for longer terms. At the end of the term, you either lose life insurance coverage or apply to obtain a new policy with a different term, conditions and premium costs.

How the Premium Is Determined
Your premium is determined by your age, gender and health rating, multiplied by a stated factor for the term and coverage amount you’re applying for. The health rating component requires an insurance physical exam where a nurse visits you at home or at work, or you can go to a doctor’s office.

When deciding how much insurance to get, consider the costs of raising a child and potential college tuition, plus the mortgage, funeral costs and any other potential debt. For lower coverage amounts, such as under $250,000, many companies offer simplified issue insurance, which you usually receive advertisements for by mail from your mortgage lender or homeowner’s insurance company. This type of life insurance doesn’t require a medical exam and can be approved in just a couple of days. read more…

Why Unrealized Gains/Losses Isn’t the Best Way to Look at Performance

When trying to figure out your own performance, it’s common to look at your unrealized gain and loss first on your statement (Charles Schwab, Fidelity, TD Ameritrade). The problem with trying to evaluate performance based upon the gain and loss column alone is that it doesn’t reflect your total return and the impact of rebalancing.

Rebalancing entails selling assets that have grown beyond your target and buying assets that have fallen below your target, meaning, selling overvalued securities to buy undervalued securities. When rebalancing occurs, the assets sold likely had a large unrealized gain. Once sold, that gain is wiped out and the proceeds are re-invested in an asset that may show an unrealized loss or a much smaller gain. Rebalancing helps avoid your portfolio drifting too far from your target allocation of stocks, bonds and specialized investments to reduce your risk if the stock market were to decline. Furthermore, rebalancing takes advantage of the shift over time in which assets are in or out of favor.

Total return takes into consideration changes in the price of the asset (unrealized gain/loss), dividends, interest and capital gains distributions received. For many investments, such as more income focused mutual funds, most of the return comes from the components of total return that are not reflected in the unrealized gain or loss column on the statement. Below is the formula to calculate total return. read more…

Carter & Carter Wealth Strategies Joins Us as New Merriman Office in Eugene, Oregon

On July 1, 2017 we welcomed Carter & Carter Wealth Strategies to the Merriman team, continuing to expand our Pacific Northwest presence with a new Merriman office in Eugene, Oregon. We work with clients across the country, and are now able to provide in-person service from this location as well as our Seattle and Spokane, Washington offices.

The Carter & Carter team, led by Charlene Carter and Jenny Hector, has long provided a similar comprehensive wealth management service and shares Merriman’s commitment to serving in the best interest of our clients.

“We are excited to welcome the Carter & Carter team. Together, we will draw on our decades of experience in wealth management to enhance our combined client service offering,” – Jeremy Burger, Merriman CEO

For more information, click here to read an article on the merger, published in Eugene’s local newspaper, the Register-Guard.

Ask Merriman: SIPC Coverage

Q: Brokerage houses have additional insurance that covers certain events relative to my deposit. Should I be concerned when the funds on deposit at a major brokerage exceed the insurance limits?

Let’s assume this refers to SIPC coverage brokerage firms use. While loosely similar to the more familiar FDIC insurance to cover bank deposits, SIPC insurance is much more limited in scope.

Essentially, SIPC insurance provides coverage from loss due to the brokerage firm going out of business. It provides up to $500,000 of protection on securities and up to $250,000 in cash in excess of what is recovered. It does not provide coverage from a decline in the value of investments.

To help visualize an example of when SIPC would come into play, let’s use an example of a $5 million client account:

· Assume the brokerage firm fails, resulting in $5 billion of client claims on assets.

· Assume 90% of clients’ assets ($4.5 billion) are recovered. The actual historical recovery rate is 98.7% according to SIPC.

· The client in this example holding $5 million in SIPC eligible assets would receive $4.5 million from recovered assets and $500,000 from SIPC. The loss to the $5 million client account would be zero.

It’s exceedingly rare for a client to be entitled to recover damages under SIPC and not be made whole because of the $500,000 limit.

Also, most large brokerage firms purchase “excess of SIPC” insurance, which insures clients for any losses above the $500,000 limit.

Ultimately, clients do not need to be concerned when funds at a brokerage exceed the coverage limits.

More detailed information about SIPC coverage can be found here.


 

Do you have a question about investments, taxes, retirement or insurance? Send it to “Ask Merriman” and one of our financial advisors will help you find an answer.

How to report a backdoor Roth IRA contribution on your taxes

In practice, the process of making a backdoor Roth IRA contribution is straightforward, but the documentation and reporting at tax time may be confusing. Whether you work with a professional tax preparer, use tax software such as TurboTax or complete your taxes by hand, understanding the mechanics of the money movements can help ensure you file your taxes correctly.

Let’s say you make a contribution to your Traditional IRA. If your income is too high to qualify for a deduction for the IRA contribution, the contribution is considered non-deductible. Your advisor doesn’t let the custodian (such as Charles Schwab, Fidelity or TD Ameritrade) know whether the contribution is deductible – you report it at tax time on IRS form 8606, Nondeductible IRAs. You use the form to keep track of basis in your Traditional IRA, and basis in this sense means after-tax contributions, to make sure you don’t pay tax on those exact dollars twice.

After you make the non-deductible IRA contribution, it’s converted, i.e., transferred from your Traditional IRA to your Roth IRA account. From that point on, those dollars are now Roth IRA assets and aren’t subject to future tax on earnings. If the conversion is never made, you’ll have basis, i.e., after-tax contributions in your Traditional IRA that you’ll need IRS form 8606 to keep track of. This ensures you aren’t subject to income taxes on withdrawals of that basis in the future, such as in retirement.

Around tax-time, you’ll receive a 1099-R from your custodian showing the distribution from your Traditional IRA that was converted to your Roth IRA the previous year. After tax time, closer to May, you’ll receive an information reporting Form 5498 that shows the contribution you made to the Traditional IRA, and the amount that was converted to Roth IRA for purposes of reconciliation and recordkeeping.

Let’s walk through the reporting process for a backdoor Roth IRA. read more…

Things to Remember Around Tax Time if You’ve Made a Qualified Charitable Distribution

Form 1099-R is issued around tax time to report distributions you took during the previous year from a retirement account. Among other things, this form tells you and the IRS how much was withdrawn in total, how much of the distribution was taxable and whether there was any withholding for federal and state income taxes.

For those who gave part or all of their required minimum distribution directly to charity through making a qualified charitable distribution (QCD), this amount is still included in the taxable portion of your total distribution on form 1099-R. As you’ll see, the QCD is included in your gross distribution (box 1) and taxable amount (box 2a); however, the box for “taxable amount not determined” (box 2b) will be checked. Whether you work with a professional tax preparer, use software like TurboTax or prepare your own taxes by hand, it can be easy to forget that the QCD portion of your distribution should not be included in your taxable income on your tax return. It’s important to keep a record of any QCDs made during the year and hold on to the receipts or letters that you receive from the charities confirming receipt of the funds. read more…

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