Education Tax Credits are Hard to Figure Out, But Worth Taking a Look At!

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What prompted me to write this article is that I helped an employee save $1,900 on her 2009 taxes. Why? Because she wasn't aware of the American Opportunity Credit for the money she spent on college education last year.

There are 3 Federal education credits in 2009, the new American Opportunity Credit, the Hope Credit and the Lifetime Learning Credit.  Of course, you can also claim a tax deduction for education costs (in lieu of credit), but most people will benefit more from a tax credit (particularly a refundable tax credit) than a tax deduction.

American Opportunity Credit ("AOC")

  • AOC is a new tax credit applicable to years 2009 and 2010 that modifies the Hope Credit (we'll touch on later).  However, at this point it is temporary....will be gone in 2011.
  • The AOC is a tax credit of up to $2,500 per eligible student. Up to 40% of the credit can be REFUNDABLE and the remainder is limited to taxes due (nonrefundable).
  • The credit is based on 100% of the first $2,000 and 25% of the next $2,500 spent on qualified education expenses.
  • "Qualified" expenses include tuition, enrollment fees and course-related books, supplies and
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New Rules for Roth IRAs in 2010

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New Rules for Roth IRAs

Presented by Bradley Bronk, CFP®

Roth IRAs, despite their attractive features, have yet to match the popularity of traditional Individual Retirement Accounts (IRA).  One reason Roth IRAs constitute such a small percentage of total retirement assets, just 5%, is that many wealthier individuals, who potentially stand to benefit the most from them, have been ineligible either to contribute to one or to convert their existing traditional IRAs to a Roth IRA.  As of year-end 2008, over $3.5 trillion was invested in traditional IRAs compared with a mere $165 billion in Roth IRAs.1

The Tax Increase Prevention and Reconciliation Act of 2005 changed tax laws regarding the conversion of a traditional IRA to a Roth IRA.  The act specifically allows anyone to convert their traditional IRA to a Roth IRA regardless of their adjusted gross income (AGI), beginning January 1, 2010.  This is a unique opportunity that was not available to everyone in the past.

What is a Roth IRA?

A Roth IRA is a retirement investment vehicle in which all earnings are tax free when distributions are taken. Other benefits include eliminating the need to take minimum distributions after age 70½ and avoiding the early distribution penalty on certain withdrawals.

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Credit Cards that Help You Pile Up Frequent Flier Mileage and Points!

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This is a guest post from Mr Credit Card of www.askmrcreditcard.com. Mr Credit Card is going to take a leaf from his best credit card recommendations section and list some cards that will be useful for folks who want to earn frequent flyer miles or points.

Based on the east coast, Mr. Credit Card will be highlighting credit cards for certain airlines that fly east coast to west coast (and vice versa), including United, Continental, Frontier, American Airlines and US Airways.

Frequent Flier Miles/Points credit cards can be sorted into two groups. The first group is cards that allow you to earn points that can be transferred to multiple airline frequent flyer programs. The second group consists of cards that have their own reward program and allow you to use them for travel expenses. So below are my recommendations.

Cards for those with multiple frequent flyer memberships

Starwood Preferred Guest Credit Card - The Starwood Credit Card is probably the highest rated card for frequent flyers. Why? Aside from having a great frequent guest program, the SPG Starwood Preferred Guest allows you to transfer points on a one on one ratio (mostly) to over 30 airlines. Furthermore, they will give you 5,000 bonus miles when you actually transfer 20,000 points into air miles. This is one card frequent flyers have in their pockets.

American Express Gold Card - Another card to consider earning air miles is the American Express Gold Card. The Membership Rewards program has over 17 airline partners that fly from the East Coast to Los

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Yikes! Just Two Weeks of Year-End Tax Planning Remain!!

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2009 is nearly over! Time to start planning now for year-end tax savings!  Here are some last minute ideas.

Load up the 401k

If you are employee with a 401k plan and can increase your contributions, last minute, consider doing so if you can spare the $$.  This is a very simple way to decrease your 2009 taxable income while saving for retirement.  Maximum is $16,500 or $22,000 if you are 50 or older.

Time Your Expenses

If your income is higher than normal this year (or even if it ain't that high), consider the following to decrease your 2009 taxable income:

Property Taxes - Many of you paid the first half of your 2009-2010 property taxeslast week.  The remainder is due in mid-April 2010.  If you want to lower your taxes this year, consider making that additional payment by December 31st.

Mortgage Payments - Pay your January mortgage payment in December!  More interest expense to include in your itemized deductions.  This is a no brainer!

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Is the Dow Jones Industrial Average Still Useful?

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This was originally posted in February 2008.  I decided to move it back up to the top of the list given that the DJIA is being changed again.  This time Citigroup and General Motors are being removed from the list, effective June 8, 2009, to be replaced by Travelers (insurance carrier and previously a division of Citigroup) and Cisco Systems.

PREVIOUSLY POSTED FEB 2008:

The Dow Jones Industrial Average (DJIA) is an index of 30 of the largest blue-chip American companies.  It was created as a list of 12 stocks in 1896 and grew to 30 in 1928.  The editor of the Wall Street Journal is responsible for periodically changing DJIA components in an effort to better match the average with the overall economy.  Yesterday it was announced that two companies on the list, Altria Group and Honeywell, would be replaced with Bank of America and Chevron.  The changes will take place next Tuesday, the 19th (2008).

Although the DJIA is arguably still the most watched market index, a number of points can be made that the index is outdated:

1. The index is somewhat arbitrary.  DJIA components don't necessarily accurately represent the broader market.  Why hasn't Bank of America been on the list before?  Disney, McDonald's, Coca-Cola and Home Depot are on the list, but Apple, Google, Cisco and Starbucks are not.  How come?  Even Warren Buffett's Berkshire Hathaway, a Fortune 20 company, is not on the list.

2. The index is price-weighted.  This means they simply add up the stock prices of the 30 components and divide it by a factor that takes into account stock splits, changes in the index, etc.  As a result, a change in a $100 stock is treated the same as in a $20 stock. 

As an example, let's say IBM is at $100 and Intel is at $20 per share.  IBM is down $5 today while Intel is up $5.  The DJIA doesn't change because the +$5 is offset by the -$5.  However, if you owned $100 worth of each stock (1 share of IBM and 5 shares of Intel), you would be up by $20 (IBM down by $5 and Intel up by 5 shares x $5).  So you are up 10% on your investment but using a price-weighted average says you are break-even.

3. Why just 30 stocks?  30 stocks may have been adequate 80 years ago, does it really represent a reasonable cross-section of the 11,000+ stocks currently traded in the U.S.?  Seems to me that the S&P 500 and other major market indices better reflect our economy.

4. The DJIA ignores dividend payments.  This is not unique to the DJIA average but certainly is an important aspect to investing in stocks.  According to Stanford researchers, DJIA dividend payments have averaged nearly 5% since 1928, ranging from under 2% to nearly 10%.  The DJIA does not give a complete reflection of total shareholder returns as a result.

Still, I will continue to check out the day to day gyrations of the DJIA out of sheer habit and interest as will most of you!

What to Do With Old Cell Phones and Other Electronics

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We have 3 cell phone users in our house and a bunch of old cell phones lying around.  The kids get tired of playing with them and they are basically non-functional (though they do work successfully as paperweights).  Are they worth anything?  For the most part, no.  So the best bet is to take them to a recycler that has been approved for taking e-waste.

If you prefer to rid yourself of these items via mail, the USPS is piloting a recycling program, where they provide postage-paid plastic envelopes for recycling old cell phones, PDAs, MP3 players, digital cameras and up to 4 inkjet cartridges.  Call your local post office at 800.ASK.USPS to see if they have these bags.  I know they carry them at 2150 Pickwick Drive, Camarillo as I plan to use a few myself.

So does your old cell phone and other old electronic equipment have any value?  You could spend time on eBay and try to sell your old equipment.  But you could also check out Gazelle.com, which allows you to type in information about your equipment and they tell you how much they will pay you for it. I found out that I could fetch a whopping $17 for my 6 month old LG phone while my old Nokia has no value.  But they also buy old laptops, gaming consoles, digital cameras, MP3 players, etc.  I found out our ancient Nintendo 64 also has no value :<

Click this link:  Get Cash For Your Gadgets at gazelle.com! so that Conejo Joe gets credit if you do happen to sell something to Gazelle.  Whatever I make I will donate to local charities!  Go on, start uncluttering your house of old electronic stuff!

Where Do I Invest Money When Interest Rates are So Low?

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My mother is retired and is doing her best to live off of her retirement savings and Social Security payments.  She prefers to invest in conservative CDs and bonds as she doesn't have a lot of money and doesn't want to risk losing money.  However, the rates are so low today she is wondering what to do.  CDs are earning a measly 1.5% to 2.5% depending on duration.  Corporate bonds aren't much better.

The April 2009 issue of Kiplinger's Finance has some good alternatives for those willing to put some money in stocks that pay decent dividends.  While investing in stocks certainly has downside exposure as we've all experienced recently, if you are investing for the long haul, consider some of the following:

  • Altria (Symbol: MO) at its current price of $17 generates a 7.9% yield (I don't like smoking but I don't mind profiting from those who do).
  • BP plc (BP) at $38 has an 8.8% yield! Nice!
  • Aflac (AFL) at $15 has a yield of 7.5% (though the stock price has been completely hammered down 80% over the past year...not for the faint of heart)
  • Eli Lilly (LLY) at $31 has a yield of 6.5%
  • GlaxoSmithKline (GSK) at $29 yields 6.8%
  • Nicor (GAS) at $29 has a yield of 6.4%
  • Merck (MRK) at $27 (was $24 yesterday) yields 6.3%
  • H.J. Heinz (HNZ) at $33 yields 5.1% - ketchup on some nice dividends!
  • Kraft Foods (KFT) at $23 yields 5.2%
  • Coca-Cola (KO) at $41 yields 4%

Other stocks that I like for their dividends and what I believe to be are solid future prospects are:

  • AT&T (T) at $24 a share yields 6.7%
  • Verizon (VZ) $28 yields 6.8%
  • Southern Co. (SO) at its current low point of $27 yields 6.3%
  • Johnson & Johnson (JNJ) today is at $51 and yields 3.8%
  • Kimberly-Clark (KMB) of Kleenex, Huggies and Depends fame at $46 yields 5.3%
  • Microsoft (MSFT) at its current low price of $17/share yields 3.1%
  • Bristol-Myers Squibb (BMY) at its current $21 price yields 6%
  • Even Procter & Gamble (PG) at $47 is now yielding 3.5%
  • I also like the iShares Investment Grade Corporate Bond ETF (LQD) which invests in high yielding corporate bonds and currently yields 5.8%

These yields look good now but things can change...both dividend payments and stock prices can drop (case in point...GE and all the financial stocks).  But stock prices have already dropped so much that I'm willing to take my chances on many of these.