We have great news for people making charitable gifts this year! Thanks to the American Taxpayer Relief Act of 2012 (ATRA), IRA owners can once again make a qualified charitable distribution (QCD) from an IRA to a qualified charity of their choice.

For those who are charitably inclined, a QCD can really maximize the effectiveness of charitable gifts.

Here’s how it works:

For this year, IRA owners who are 70 ½ or older and would otherwise have to satisfy a required minimum distribution from an IRA may donate any portion up to $100,000 of the required distribution directly to a qualified charity(ies). Additionally, the IRA owner can exclude the amount of the QCD from his or her gross income on their 2013 tax return. The amount of the QCD excluded from the gross income is not included when determining any deductions made to qualified charitable organizations.

As with many IRS provisions there are a number of fine print items to keep in mind.

• You are only eligible to make a QCD if you are 70-½ or older.

• Contributions can only be made to 501(c)(3) charities and 170(b)(1)(A) organizations.

• Donor advised funds and 30% public foundations are not eligible to receive the QCDs.

• The QCD must be made directly from your IRA to the desired charity, meaning that the check issued from your IRA must be payable to the charity. If the check is made payable to you, then it counts as taxable income and will be considered a normal IRA distribution.

• The QCD can be made from any IRA. SEP and SIMPLE IRAs are only eligible if they are not receiving employer contributions in the same year as the QCD is made. You cannot make the QCD from any employer retirement plans, such as a 401(k), 457 or 403(b), etc.

• The QCD cannot be a split-interest gift, meaning that 100% of the gift must go to a single charity and the gift cannot be shared with the donor or any other designee of the donor. The donor cannot receive any economic benefit as part of the gift.

At this time, the QCD provision is only extended through the end of 2013. We do not know if the provision will be renewed in years beyond. If you are interested in making a donation directly from your IRA to a charity, reach out to your advisor to get started and make 2013 a year of giving!

The article “All in the Family” by Barron’s ranks mutual fund families across several asset classes and time periods. A stellar 2012 for the DFA Value Portfolio helped it earn first place for the US equity fund category. Its three year performance was also very respectable. DFA took 16^th place overall for 2012 and 33^rd for five-year performance. This article substantiates our use of DFA in client portfolios. The funds served clients well in the short term, but more importantly for the long term. Investing is, after all, a marathon, not a sprint.

Every year, we update some of our core articles.

The 2013 update of The ultimate buy-and-hold strategy, which includes performance information through 2012, is now available in our Best of Merriman library.

It’s no surprise that women tend to live longer than men. Therefore, it should be no surprise that women tend to need long-term care more often than men. In fact, Genworth Financial, a leading provider of long-term care insurance (LTCi), estimates that two-thirds of their benefits paid go to women. However, up until recently, insurers were not allowed to charge different rates based on gender. That may all change in April, when Genworth is allowed to restructure new policies to incorporate gender-distinct pricing, which may increase the rate for single women by as much as 40 percent. Genworth was the first carrier to win approval from state insurance commissions to raise rates on new policies for single women, but it is expected that other carriers will soon follow suit. Long-term care insurance will become much more expensive for this segment of the market.

What should you do? If you are a single woman considering LTCi, you should consider making a move soon. If you are unsure whether LTCi makes sense for you, talk to your financial advisor or a licensed insurance agent as soon as you can.

For more information on these upcoming changes to LTCi, see For Women, Reduced Access to Long-Term Care Insurance.

Client review meetings always give me something to look forward to. Not only do they present an opportunity to ensure we are on track for meeting the client’s financial goals, they also give me a chance to find out what is new in the client’s life.

I especially love hearing about the travel adventures of my clients – everything from the destination and local sights to the food and the culture. For me, it is a great opportunity to learn about new places and always gives me new ideas for my own dream vacation list. I only wish I could share this information with other travel seekers. Fortunately for my clients, I am busy working on their financial plans, and putting together an archive of travel information is not something I have time for. The good news is there are plenty of websites that have already taken care of it.

Frommers is a great place to start. The website has an interactive map of the continents which lets you narrow in on specific destinations. Once you’ve found the place you’re looking for, it offers an array of helpful information, including suggested itineraries, organized tours, and suggestions for restaurants and hotels.

TripAdvisor is another great resource to consult in addition to Frommers. The thing that makes TripAdvisor stand out is its ability to create community around travel. There are thousands of reviews covering everything from activities to restaurants and hotels. There are also forums that allow you to interact with other travelers who can help answer your questions. This site will help you cut through the weeds and create a trip worth remembering.

Once your trip is mapped out,  make sure your itinerary is organized. The last thing you want to do is miss a flight or be late and lose out on a hotel reservation. This is where TripIt comes into play. Simply email your confirmation emails to TripIt it will build your itinerary for you to print or access from your mobile devices.

A few other quick mentions:

1) Travel blogs: Once you have a destination in mind, search for blogs that cover it. You can sort through older posts and be alerted when new content is posted. All in all, it is a great way to get “in the know” on your destination.

2) For privately-owned accommodations: try Airbnb and VRBO

Our job at Merriman is to help you invest wisely, freeing up your time so you can focus on living fully.

Happy Valentine’s Day!

Instead of giving your sweetie another trinket they will forget about within a week, why not give them the most thoughtful and caring gift you can give your spouse: A conversation about your finances. I realize this is not the most romantic gift, your spouse will thank you some day.

If you are like most married couples, you have divided up the household chores. This makes sense; it’s both efficient and keeps the peace. Unfortunately this often means that one member of the relationship takes over the banking, investment and retirement plan duties and the other pays little to no attention to that part of the household duties, as they have plenty on their plate as well. This may work out just fine for you as a couple, but what happens when one of you is not around anymore or incapacitated? As we all know, this can happen overnight with no warning, no matter what your ages.

I have worked with several clients who have lost their spouses to heart attacks, strokes and even accidents in the blink of an eye. The surviving spouse often times has no idea where all the investment and bank accounts are held, what the online passwords are or even how to log on to their home computer accounts.

They are in the midst of grieving and may have no idea how to free up cash for a funeral, where the copies of the wills are and who the current beneficiaries are on their retirement accounts.

Unfortunately this is not just limited to losing a spouse or partner. My brother and I went through this process following my father’s death. We had no idea if he had a will and if so, where it was kept. We found odd-looking keys at his home and wondered if they were for a safety deposit box or some other lock (we never did find out). It was a very challenging process both mentally and physically to grieve and try to sort out an estate with little to no information to go on. (To read more on this, please see my new eBook: The Transparent Legacy)

So this Valentine’s Day (or at least this month), be extra caring and give your loved one the gift of peace of mind and knowledge about your wishes, your finances and your passwords. But just to be sure you aren’t spending the month sleeping in the garage; you might want to also pick up those chocolates and that card.

Medical insurance can be a major expense for retirees.

The government segments Medicare plans into four categories: A-D, which I will explain at a high level below. There are also standardized supplemental plans available, known as Medigap policies.

Understanding the Medicare program in its entirety can save you money and ensure you are well taken care of.

A – Hospital Insurance

This portion of Medicare is free if you or your spouse have paid into Social Security through employment for at least 10 years.

What’s included in Part A?

- Inpatient hospital services, along with some skilled nursing and hospice care.

Important info about Part A

- Most people do not have to pay a premium. However, deductibles and co-pays will apply.

B – Medical Insurance

This supplemental plan is an optional program, with a monthly premium that can be deducted from your social security check.

What’s included in Part B?

- Doctor’s services, diagnostic tests and outpatient care.

Important info about Part B

- You may have coverage for Part B through your employer if you are still working.

- If you don’t sign up at age 65, your premium increases and will remain elevated for the rest of your life.

- A premium, deductibles and co-insurance will apply.

C – Medicare Advantage Plans

In its simplest sense Part C aggregates Part A with Part B. They are private plans that may provide more coverage than the first two parts would independently.

What’s included in Part C?

There are two coverage options:

1) Medical only

2) Medical with prescription drug coverage

Important info about Part C

- Most states allow for pre-approval if you sign up within six months after you turn 65.

- Monthly premium and fixed co-pays will apply. Certain plans also have a deductible.

Medigap, Medicare Supplement Plans – Alternative to Part C, Medicare Advantage

Medigap is a group of 10 standardized plans available through the private market that assist with out-of pocket expenses.

What’s included in Medigap?

- Medigap covers the gaps in Medicare Parts A and B.

- Drug coverage requires the addition of a stand-alone prescription drug plan, just like Medicare Part C medical only coverage.

Important info about Medigap

- Unlike Part C, it does not aggregate with Parts A and B. Rather, it serves to fill in the gaps of A and B.

- Monthly premium will apply. Copayments and co-insurance are plan dependent.

D – Prescription Drug Coverage

There are two ways to obtain Part D coverage: 1) through a Medicare approved stand-alone plan or 2) Through a Part C Medicare Advantage Plan with prescription drug coverage.

What’s included in Part D?

-Each plan maintains its own list of covered drugs.

-There is a “donut hole” in the program. The hole begins when your total retail cost of drugs (your cost plus Medicare Part D’s contribution) reaches $2,970. It ends when your actual out-of-pocket costs reach $4,750. Note: these are 2013 figures, which are subject to change.

Important info about Part D

-Monthly premiums and co-pays are plan dependent.

Doing your homework can save you money or enhance your coverage for the same price. A good place to start is with the Medicare Plan Finder, found on Medicare’s website.

For many Merriman clients, getting investments right is only part of achieving their financial goals. I am often asked what else people can do to help improve their financial outlook, and I always answer that being financially disciplined is just as important as investing wisely.

Here are five things I think everyone should do to simplify their financial situation and become more disciplined with their finances:

1. Consolidate your accounts. If you have an inactive 401(k) with an old employer, transfer it into an IRA. Often, 401(k)s have limited investment options, and you can take advantage of diversification and management benefits by moving your old 401(k) into an IRA account held elsewhere.  Likewise, if you have several IRAs in your name, consider consolidating them into one. There is no real benefit to maintaining multiple accounts, and it can be a headache to manage them all.
2. Get a handle on what you are spending. There are dozens of apps and websites that can simplify the process of tracking expenses. Mint.com is a great example – it is free and anyone can use it. If you own an Apple device, go the App Store and search for “budget.” Find the app with the highest ratings and download it. Knowing how much money you spend and what you are spending it on is important, both before and after retirement.  You cannot, for instance, know how much you are going to need in retirement unless you know how much you typically spend.
3. Put your savings on auto-pilot. If your employer matches contributions to your 401(k), you should contribute at least enough to max out that matching and take advantage of that “free money.” If you can afford more, all the better. Don’t forget that saving is not limited to company-sponsored retirement accounts. Saving toward your emergency fund in a bank account or your child’s education in a 529 college savings plan is just as important.  As with your 401(k), you can set these types of accounts up for automatic contributions. Ideally, you would work with a Certified Financial Planner™ to figure out the exact percentage you need to contribute based upon your specific set of circumstances.
4. Limit the number of credit cards you own.  The more cards you own, the more complicated it becomes to manage them. If you have several cards with outstanding balances, consider transferring balances to consolidate your credit card debt at a lower interest rate and save yourself a substantial amount in interest payments.
5. Use an auto-pay service to manage and pay your bills. I have a Schwab checking account that allows me to pay thousands of vendors directly from my account. It also alerts me when I have a bill due. If you do not bank with Schwab, don’t worry – most banks now offer a similar service. Ask your local branch for help in getting this set up.

Some of these steps may sound daunting, but are actually quite easy to complete. I know you’ll be glad you did it. Ultimately, these steps will allow you more time to focus on the things that matter most to you.

There are many things in short supply, but uncertainty is not one of them. Three economists1 have compiled an index of uncertainty, which is comprised of newspaper coverage of policy-related uncertainty, expiring federal tax code provisions and disagreement among economic forecasters. You can see the trend in Figure 1 below. The index peaked with the debt ceiling imbroglio in late 2011, fell in the early part of 2012 and then rose again.

Throughout the year there has been a great deal of focus on a number of worrisome issues, including the U.S. deficit, debt ceiling and the fiscal cliff, high unemployment, and the European debt situation. Reflecting all this angst, investors through November withdrew a net $88.9 billion from actively-managed U.S. stock mutual funds (net of inflows into U.S. stock exchange-traded funds).2 Yet for 2012, stocks were up nicely.

How could stocks have gone up while uncertainty increased? While many people naturally worry about the past and still feel burned by previous sharp plunges in stock prices, the stock market is forward looking, incorporating the perceptions of millions of investors. While national economies are still relatively sluggish, actions taken by the U.S. and European central banks to combat economic weakness are having a positive impact.

Housing, while not rosy, is seeing some welcome improvements, with 6.9% of U.S. consumers planning to buy a house in the next six months, the most since August 1999.3 Confidence among U.S. homebuilders reached a 6 ½ year high in December.4 U.S. sales of previously occupied homes increased to their highest level in three years in November.5 And home prices rose 4.3% in the twelve months ending October 2012 in the S&P/Case-Shiller 20-City Composite.6

Another positive, with major longer-term implications, is the widespread development of hydraulic fracturing (or fracking, the process of extracting oil and natural gas from shale rock). The International Energy Agency projects the U.S. will become the largest global oil producer by around 2020, and a net oil exporter by around 2030.7 While there are important environmental issues associated with fracking, including potential contamination of local water supplies and massive use of water in the process, electricity produced by natural gas gives off 43% less carbon dioxide versus coal. Due to a combination of increased use of natural gas, the weak economy and more fuel-efficient cars, America’s emission of greenhouse gases has fallen to 1992 levels and is expected to continue to fall.8 So, like any energy source, there are costs and benefits. Cheaper energy will lead to more manufacturing being done in the U.S., which is good for the economy. One analyst estimates the U.S. will add three million new jobs by the end of this decade due to the natural gas industry.9

Waiting for that perfect time to invest when there is no uncertainty could lead to cash unproductively sitting on the sidelines. Investing only after good news also means buying stocks after they have gone up. A good example of this is the S&P 500 going up by 2.54% on January 2, the day after the fiscal cliff legislation passed. Another example is the MSCI EAFE index of developed countries in Europe, Australasia and the Far East, which increased 6.57% in the fourth quarter, reflecting the relative lack of bad news, and some stabilizing events, in Europe.

While uncertainty is an uncomfortable fact of life, it is easier to handle by following a well-formulated diversified investment plan that invests in stocks and bonds, the allocation to which incorporates your risk tolerance and long-term needs.

The American Taxpayer Relief Act, passed by Congress on January 1, 2013, contains many far-reaching tax provisions. In addition to extending many tax items that had expired or were due to expire, the act also made permanent many provisions of previous tax acts. The tax features of this act are too numerous to list here, but the most comprehensive description of these changes I have found is this Journal of Accountancy article.

I highly recommend you read this article or consult a qualified tax professional to assess the impact of this act on your personal situation.