Money Matter$

In the spirit of what’s not in SFM’s best interest, we are going to suggest you consider the idea of investing in rental real estate—from which we do not collect an advisory fee; and which may take a down payment from funds currently under our management. With the Federal Reserve Bank effectively printing $85 billion a month, and setting interest rates at zero, investors are being “forced into risk assets” like stocks & real estate. Don’t believe me? Check your local bank for CD rates on $100,000 for five years. Yep; 1.5%—if you’re lucky. There are three ways that your household finances can be improved by investing in rental real estate:

There is currently an initiative on the November ballot in Oregon to repeal Oregon’s estate tax. This Death Tax Phase-Out Act (Measure 84) would reduce the existing tax each year until 2016, when it would reach zero. The tax currently applies to the amount of an estate over $1 million - which, coincidentally, is the minimum amount many financial experts say that baby boomers should possess in order to not outlive their assets.

Joyce’s article about the estate tax initiative here in Oregon prompted me to think about ways to earn and invest money responsibly, while still avoiding increasingly overburdening taxes. There does happen to be one place where the IRS allows you to deduct money that you contribute here on your income tax return, and doesn’t then tax you upon withdrawal of those funds. This in effect gives you the anomaly of truly tax-free money: The one...the only...the Health Savings Account (HSA).

The 529 College-Savings Plan is a neat planning vehicle, but I want to highlight another legacy building idea: the Roth IRA for children. We have one business-owner client that has been able to contribute to their son’s Roth IRA since he was born (A young Roth IRA account owner can only contribute up to 100% of ‘earned income’, or $5,000, whichever is less). We are eager to see the value of his account at age 59.5, after which he can take TAX-FREE withdrawals.

With some bit of fanfare, 2010 began a new era in regard to Roth IRAs for high income earners. While those single income tax filers earning more than $122,000 and couples earning more than $179,000 are still not eligible to contribute to a Roth IRA, anyone is eligible to convert existing Traditional IRA dollars into a Roth IRA.

I was thinking the other day about how the federal government and the Federal Reserve Bank continue to discuss stimulating our ailing economy with plans such as QE3 and another round of fiscal stimulus. Why is it that some central body (government) thinks they can “create jobs” with policy? The reality is that businesses create jobs; government can only assist with regulation and tax policy. Fiscal stimulus and the printing of money are two temporary ways to “create jobs”. Once the stimulus is spent, the jobs created don’t have 100% sticking power. With quantitative easing, the money supply must be contracted at some point to avoid hyper-inflation, meaning quantitative easing is simply—by design—a temporary creator of jobs as well. Keynesian governments assume that a temporary lift is all we businesses need to get the ball rolling.