Inherited IRA Problems

Natalie Choate on Interited IRA Problems

Question: Father died in 2008 leaving his IRA to son, who is age 50. Son began taking a life expectancy payout from the inherited IRA. Now mother has died in 2012, and she also left her IRA to son. Since both accounts have the same beneficiary, and son is going to take a life expectancy payout from both accounts, can he combine them? It would be much easier for him to have only one inherited IRA and take only one annual minimum distribution than juggle two inherited IRAs and make two annual minimum distribution calculations.

Answer: Unfortunately, he can't do it. The IRS has decreed that, for minimum distribution and income tax purposes, an IRA inherited from one individual cannot be combined with an IRA inherited from a different individual--even if it's the same beneficiary who now owns both accounts.  Read more...

Morningstar's Adam Zoll: Don't Overlook the Value of Low Fees

Question: I keep hearing how important it is to watch fees associated with my mutual funds. Because fees are incorporated into performance, isn't my bottom-line return what really matters?

Answer: Although you're right that bottom-line return is ultimately what matters most to investors, don't overlook the role fees play in that return. Many investors look at expense ratios charged by funds, see a small number--often less than a percentage point--and assume it hardly matters whether a fund charges a quarter of a point or a full point. But although this small difference might not look like much in percentage terms, over the long haul it can make a dramatic difference in the amount of fees you pay and, ultimately, your bottom-line return, as we'll see in a moment.

How Funds Charge Their Customers
First let's talk about how fees work. Companies that run mutual funds and exchange-traded funds charge investors for their services by imposing a fee on the percentage of assets held in the fund. So, for example, if you hold $5,000 in a fund that charges 1% in fees, the fund company is essentially charging you $50 a year to cover its costs and, in most cases, have enough left over for a profit.  

Read full article

The Portfolio Well-Check

Melissa Rudy and I have collaborated on an article for Morningstar.com, describing the steps that investors should take to monitor the health and well-being of their investment portfolios, using the extended metaphor of a well-baby check-up.  Melissa writes on a wide range of topics, and I have found that she does a terrific job of capturing complex concepts in language and ideas that are easily understood.  You can read the full article here. 

A Goof-Proof Plan

Christine Benz interviews Stacy Francis, president of Francis Financial in NY, about how to create a financial plan that will be clear and transparent for your spouse and children.  Ensuring that your loved ones have full information and understanding is the most important aspect of any plan, and a key benefit of working with a professional advisor.  Watch the full video for more insights, or read the transcript.

 

NorCap Return Box - 2001 to 2011

Take a look at the NorCap Return Box - a pictorial summary of major asset class returns, stacked high to low, for each year from 2001 to 2011.  Blue shades are equity, green shades are fixed income.  The grey boxes represent a 50-50 portfolio of equity and fixed income, in the approximate allocation sub-weights of our global fixed income and global equity models.   Contact us if you would like a downloadable version.

 

Periodic_table_of_returns-2011

Copyright 2012.  Data provided by Morningstar.  Calculations and estimates provided by North Capital.

Retail Municipal Bonds

Matt Tucker, CFA, a portfolio manager at Black Rock in the iShares ETF division, recounts his personal experience trying to purchase a municipal bond for his own account. His story highlights the absurd markups and lack of transparency that pervade the retail bond brokerage business. I have personally had virtually the same experience, except that my broker was embarrassed and seemed genuinely surprised by his own dealer's total lack of regard for clients.