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What Happens to My Retirement Assets in the Event of a Divorce?

2011-07-11T15:41:08Z

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Federal law requires that participants in employer-sponsored retirement plans designate their spouse as their beneficiary unless the spouse waives this right in writing. Assuming that you and your spouse adhered to this practice, a document known as a Qualified Domestic Relations Order (QDRO), which is part of a divorce settlement, specifies how retirement assets are divided.

A QDRO specifies the amount or portion of a plan participant's benefits that are paid to a spouse, former spouse, child, or other party. A QDRO typically governs assets within a retirement plan such as a pension, profit-sharing plan, or a tax-sheltered annuity. Benefits paid to a former spouse typically are considered income for tax purposes. If you contributed to your retirement plan, a prorated share of your investment is used to determine the taxable amount.

Former spouses on the receiving end of a lump-sum distribution mandated by a QDRO may be able to roll over the money tax free to a traditional individual retirement account or to another qualified retirement plan. Following such a transfer, assets within the plan are subject to rules that would normally apply to the retirement plan. If you transfer assets within a traditional IRA to your spouse as part of a divorce decree, the transfer is not considered taxable and the assets are treated as your former spouse's IRA.

Procedural Issues

QDROs are governed by rules established by the U.S. Department of Labor. In most instances, a judge must formally issue a judgment or approve a settlement agreement before it is considered a QDRO. The fact that you and your soon-to-be-former spouse have signed an agreement is not adequate for a QDRO to take effect. Also, following an order issued by a judge, the administrator of the retirement plan affected by the QDRO must determine whether the court order qualifies as a QDRO according to the rules of the labor department.

Note that retirement assets are part of a broader financial picture that may include your home, taxable investments, personal property, and other assets. It is not mandated that your spouse receive a portion of your retirement assets in the event of a divorce. You and your spouse may negotiate another type of arrangement that permits you to retain your retirement assets while granting other assets to your spouse. In addition, a prenuptial agreement, depending on its provisions, could potentially limit your spouse's rights to your assets.

You may want to consult a divorce lawyer and your financial advisor to determine whether federal laws relating to retirement accounts apply to your situation.

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July 2011 — This column is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by Troy Jones, a local member of FPA.

Five Strategies for Tax-Efficient Investing

2011-07-11T15:36:22Z

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Key Points

As just about every investor knows, it's not what your investments earn, but what they earn after taxes that counts. After factoring in federal income and capital gains taxes, the alternative minimum tax, and any applicable state and local taxes, your investments' returns in any given year may be reduced by 40% or more.

For example, if you earned an average 8% rate of return annually on an investment taxed at 28%, your after-tax rate of return would be 5.76%. A $50,000 investment earning 8% annually would be worth $107,946 after 10 years; at 5.76%, it would be worth only $87,536. Reducing your tax liability is key to building the value of your assets, especially if you are in one of the higher income-tax brackets. Here are five ways to potentially help lower your tax bill.¹

Invest in Tax-Deferred and Tax-Free Accounts

Tax-deferred accounts include company-sponsored retirement savings accounts such as traditional 401(k) and 403(b) plans, traditional individual retirement accounts (IRAs), and annuities. Contributions to these accounts may be made on a pretax basis (i.e., the contributions may be tax-deductible) or on an after-tax basis (i.e., the contributions are not tax-deductible). More important, investment earnings compound tax deferred until withdrawal, typically in retirement, when you may be in a lower tax bracket. Contributions to nonqualified annuities, Roth IRAs and Roth-style employer-sponsored savings plans are not tax-deductible. Earnings that accumulate in Roth accounts can be withdrawn tax free if you have held the account for at least five years and meet the requirements for a qualified distribution.

Pitfalls to avoid: Withdrawals prior to age 59½ from a qualified retirement plan, IRA, Roth IRA, or annuity may be subject not only to ordinary income tax, but also to an additional 10% federal tax. In addition, early withdrawals from annuities may be subject to additional penalties charged by the issuing insurance company. Also, if you have significant investments, in addition to money you contribute to your retirement plans, consider your overall portfolio when deciding which investments to select for your tax-deferred accounts. If your effective tax rate -- that is, the average percentage of income taxes you pay for the year -- is higher than 15%, you'll want to evaluate whether investments that earn most of their returns in the form of long-term capital gains might be better held outside of a tax-deferred account. That's because withdrawals from tax-deferred accounts generally will be taxed at your ordinary income tax rate, which may be higher than your capital gains tax rate (see "Income vs. Capital Gains").

Income vs. Capital Gains

Generally, interest income is taxed as ordinary income in the year received and qualified dividends are taxed at a top rate of 15%. A capital gain (or loss) -- the difference between the cost basis of a security and its current price -- is not taxed until the gain or loss is realized. For individual stocks and bonds, you realize the gain or loss when the security is sold. However, with mutual funds you may have received taxable capital gains distributions on shares you own. Investments you (or the fund manager) have held 12 months or less are considered short term, and those capital gains are taxed at the same rates as ordinary income. For investments held more than 12 months (considered long-term), those capital gains are taxed at no more than 15%. The actual rate will depend on your tax bracket and how long you have owned the investment.

Consider Government and Municipal Bonds

Interest on U.S. government issues is subject to federal taxes but is exempt from state taxes. Municipal bond income is generally exempt from federal taxes, and municipal bonds issued in-state may be free of state and local taxes as well. An investor in the 33% federal income-tax bracket would have to earn 7.46% on a taxable bond to equal the tax-exempt return of 5% offered by a municipal bond, before state taxes. Sold prior to maturity or bought through a bond fund, government and municipal bonds are subject to market fluctuations and may be worth less than the original cost upon redemption.

Pitfalls to avoid: If you live in a state with high state income tax rates, be sure to compare the true taxable-equivalent yield of government issues, corporate bonds, and in-state municipal issues. Many calculations of taxable-equivalent yield do not take into account the state-tax exemption on government issues. Because interest income (but not capital gains) on municipal bonds is already exempt from federal taxes, there's generally no need to keep them in tax-deferred accounts. Finally, income derived from certain types of municipal bond issues, known as private activity bonds, may be a tax-preference item subject to the federal alternative minimum tax.

Look for Tax-Efficient Investments

Tax-managed or tax-efficient investment accounts and mutual funds are managed in ways that can help reduce their taxable distributions. Investment managers can employ a combination of tactics, such as minimizing portfolio turnover, investing in stocks that do not pay dividends, and selectively selling stocks that have become less attractive at a loss to counterbalance taxable gains elsewhere in the portfolio. In years when returns on the broader market are flat or negative, investors tend to become more aware of capital gains generated by portfolio turnover, since the resulting tax liability can offset any gain or exacerbate a negative return on the investment.

Pitfalls to avoid: Taxes are an important consideration in selecting investments but should not be the primary concern. A portfolio manager must balance the tax consequences of selling a position that will generate a capital gain versus the relative market opportunity lost by holding a less-than-attractive investment. Some mutual funds that have low turnover also inherently carry an above-average level of undistributed capital gains. When you buy these shares, you effectively buy this undistributed tax liability.

Put Losses to Work

At times, you may be able to use losses in your investment portfolio to help offset realized gains. It's a good idea to evaluate your holdings periodically to assess whether an investment still offers the long-term potential you anticipated when you purchased it. Your realized losses in a given tax year must first be used to offset realized capital gains. If you have "leftover" losses, you can offset up to $3,000 against ordinary income. Any remainder can be carried forward to offset gains or income in future years, subject to certain limitations.

Pitfalls to avoid: A few down periods don't mean you should sell simply to realize a loss. Stocks in particular are long-term investments subject to ups and downs. However, if your outlook on an investment has changed, you can use a loss to your advantage.

Keep Good Records

Keep records of purchases, sales, distributions, and dividend reinvestments so that you can properly calculate the basis of shares you own and choose the shares you sell in order to minimize your taxable gain or maximize your deductible loss.

Pitfalls to avoid: If you overlook mutual fund dividends and capital gains distributions that you have reinvested, you may accidentally pay the tax twice -- once on the distribution and again on any capital gains (or underreported loss) -- when you eventually sell the shares.

Keeping an eye on how taxes can affect your investments is one of the easiest ways you can enhance your returns over time. For more information about the tax aspects of investing, consult a qualified tax advisor.

Points to Remember

¹This information is general in nature and is not meant as tax advice. Always consult a qualified tax advisor for information as to how taxes may affect your particular situation.

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How Can I Tell Whether It Is a Good Time to Refinance My Mortgage?

2011-07-11T15:27:27Z

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It may be worthwhile to refinance if you can lower your monthly payment by a significant margin and you plan to stay in your home long enough to recoup the cost of refinancing.

To Refinance or Not

Consider this example: If you had a $200,000, 30-year mortgage with an 8% interest rate, your monthly payment would be $1,468. If you refinanced at 6%, your new monthly payment would be $1,199, a savings of $269 per month. Assuming your new closing costs amounted to $2,000, it would take eight months to break even. ($269 x 8 = $2,152) If you planned to stay in your home for at least eight more months, then a refinancing would be appropriate under these conditions. If you planned to sell the house before then, you might not want to bother refinancing.

All Mortgages Are Not Created Equal

When considering whether to refinance, don't choose a mortgage based only on its stated annual percentage rate (APR), because there are many other important variables to consider.

• The term of the mortgage Shorter terms can result in significantly reduced interest costs over time. On the other hand, they may require higher monthly payments.
• The variability of the interest rate An adjustable rate may be lower initially when compared with a fixed rate, but adjustable rates are likely to move upward over time. With a fixed rate, there is greater certainty regarding your monthly payment over the life of the mortgage.
• Points Also known as origination fees, points are paid to a lender or mortgage broker at closing. One point usually equals one percent of the loan's value. Mortgages described as "no-cost" or "zero points" do not carry this upfront cost but may charge a higher interest rate, which may add to the long-term cost of the loan.
• Other mortgage-related fees When you refinance, you may pay a mortgage broker fee (assuming you do not go directly to a bank or other lender), a title insurance premium, a commitment fee, attorney or settlement fees, an appraisal fee, and other costs that add up quickly.

The amount of money you may save and how long you plan to live in your home are key variables that influence whether you should refinance your mortgage.

How Much Could You Save by Refinancing?

A homeowner with a 30-year, $200,000 mortgage charging 8% interest would pay $1,468 each month. This table illustrates the potential monthly savings and the various break-even periods (assuming $2,000 in closing costs) that would result from refinancing at different rates.

Source: ChartSource, Standard & Poor's. Months to break even rounded up to the next highest month. Does not consider the impact of taxes. (CS0000215)

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Emerging Market Investments

2011-07-11T15:18:32Z

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Key Points

Characteristics of Emerging Markets

Asia: Profile of an Emerging Market

Emerging Market Capitalization

Lessons From Asia

Risks and Rewards of Emerging Market Investments

Points to Remember

The rapid development of the emerging stock markets, both in terms of size and activities, is one of the most exciting stories in today's financial markets. These relatively untapped markets promise potentially high long-term investment returns and opportunities to further diversify an investment portfolio.¹

Annual foreign direct investment in emerging markets totaled an estimated $478 billion in 2009, up from $7.5 billion in 1980, according to the United Nations Conference on Trade and Development. Most of this investment has gone to markets in Asia and Latin America, regions that have had rapid economic development over the past decade. In turn, this influx of investment capital has further fueled economic growth in these countries.

Characteristics of Emerging Markets

Emerging markets are those of lesser-developed countries, which are beginning to experience rapid economic growth and liberalization. Examples of emerging market countries include China, India, and Mexico. Generally, these countries are described by a growing population experiencing a substantial increase in living standards and income, rapid economic growth, and a relatively stable currency.

Often, emerging market countries impose strict limits on foreign investment in an attempt to limit foreign ownership of domestic companies. Investors may be prohibited from owning more than a fraction of any one company, and they may also be restricted from repatriating profits from investing activities.

Asia: Profile of an Emerging Market

The potential rewards -- and risks -- of emerging market investing can be readily seen from the experiences of investors in Asia from late 1997 to 1999.

A major collapse in emerging markets began with Asia in July 1997, when the Thai government was forced to dramatically devalue its currency, the baht, after failing to defend it in the face of a very large currency account deficit, foreign debt, and a government budget shortfall. The result ricocheted throughout Asia as currencies in the Philippines, Malaysia, and Indonesia came under attack from speculators. Meanwhile, financial panic would seep into emerging markets throughout the world, from Latin America to Russia, as financial difficulties surfaced in those nations as well. Despite measures including a "rescue package" directed at Thailand by the International Monetary Fund (IMF), and promises of dramatic economic reform from Indonesia's government, investor confidence failed to return to most emerging markets until 1999. That's when signs of economic recovery began to appear in some of the troubled emerging markets, while others were boosted by deals with the IMF to help improve financial and economic conditions.

Emerging Market Capitalization
Emerging Market Capitalizaton (in $ Billions)
1990		1995	2010
Brazil	16	148	709
Korea	111	182	718
Mexico	33	91	204
South Africa	138	280	352
Taiwan	101	187	638
Source: Standard & Poor's.

Lessons From Asia

After the Asia crisis, many investors now realize there's no "free lunch" on Wall Street -- the high return of emerging markets investing comes with high risk, and many factors can trigger trouble. For example, the Thai baht's collapse began with lack of regulation among Thailand's real estate companies, causing a host of financial problems for that nation's government. The banks of both South Korea and Indonesia were practicing unsound lending practices. And in Brazil, a growing federal budget triggered doubts by potential investors that the nation could ever repay its debts.

It's especially important to note that the fortunes of one nation can increasingly affect those of another, as trading ties become tighter between most nations. As one nation devalues its currency, others may be forced to do so in order to keep their exports competitive, as some nations did when Thailand devalued the baht.

When Asia's troubled economies cut their oil purchases, energy-producing nations such as Russia and Ecuador also suffered from falling petroleum revenue. Currency risk can present another risk factor for emerging market investors. As the currency exchange rate fluctuates, so does the value of your investment in U.S. dollar terms. Fortunately, many emerging countries have their local currencies pegged to the dollar, which can result in a relatively constant exchange rate.

Risks and Rewards of Emerging Market Investments

Emerging markets can be volatile; therefore, they are considered appropriate only for long-term investors with an investment time frame of 10 or more years.

With such high risk potential, why invest in emerging markets, which are the underlying support for any country's financial market? One possibility is that emerging economies have the potential to achieve high levels of economic growth. In 2010, for example, emerging economies cumulatively grew approximately 7% while developed economies grew approximately 2%, according to the International Monetary Fund. Consider also that emerging stock markets alone represent only 13% of the capitalization of the world's equity markets.²

Along with high potential returns, emerging markets also offer potential diversification benefits. Because these markets may not to move in tandem with those of developed countries, they may be rising while other markets are falling. Hence, they may help reduce the overall risk of a portfolio.

Based on these factors, long-term investors may want to consider allocating between 3% and 10% of their stock portfolio to emerging markets, depending on their investment goals and tolerance for risk.³

How to Invest in Emerging Markets

Be aware that emerging markets in general tend to be volatile, sometimes even when no serious problem presents itself in a specific market. Investors in emerging markets are therefore advised to potentially reduce risk through diversification among many different markets, and to maintain a long-term view.

Probably the best way an individual can efficiently invest in emerging markets is through a mutual fund. Emerging market funds concentrate on investments in these markets around the world or in a specific country or region. Some global and international funds may also hold a small percentage of their portfolio in emerging markets.

Also keep in mind that some funds that invest in stocks of emerging market companies may also invest in bonds issued in that country. In general, these funds may contain a greater mix of different types of securities than a domestic fund.

Mutual funds offer the advantage of diversification and professional management. Because emerging market investment management may require extensive and expensive on-site company research, annual fund management expenses associated with these investments may be higher than for other types of mutual funds.

Points to Remember

Emerging market investments can offer higher potential returns to long-term investors.
Allocating 3% to 10% of your stock portfolio to emerging markets may help add a degree of diversification.³
Emerging market investments entail higher political and liquidity risks than domestic investments and, as such, may be more volatile.
Currency risks also affect emerging market investments. If the value of the dollar declines against the currency of the emerging market country, your return will be lower. The currencies of some emerging market countries are pegged to the dollar and usually do not fluctuate wildly.
Risk can be reduced by holding emerging market investments among different countries and regions of the world.

¹Investors in international securities are sometimes subject to somewhat higher taxation and higher currency risk, as well as less liquidity, compared with investors in domestic securities. Past performance does not guarantee future results.

²Source: S&P Global Broad Market Index, December 31, 2010.

³These allocations are presented only as examples and are not intended as investment advice. Please consult a financial advisor if you have questions about these examples and how they relate to your own financial situation. The investor profile is hypothetical.

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Integrity in the workplace is important in Oklahoma and elsewhere

2011-06-20T16:26:13Z

http://www.newsok.com/article/3578422?highlight=%5B%22restoring%22%2C%22credibility%22%5D

Ugandan Nurse Says Health Initiatives Need Education

2011-05-26T17:36:39Z

NEWSOK

BY PAULA BURKES

Published: May 25, 2011

Earlier this month, I wrote about a nationwide contest to see which U.S. city over the next three years can show the greatest increase in college degrees granted per capita. The percentage of adults with degrees, I learned, is a city’s best chance for success, as measured by per capita income.

That story serves as a disparate backdrop to a talk I heard last Wednesday by a Ugandan nurse who visited Oklahoma on her way to the Rotary International convention in New Orleans this week. For the 33 million residents of landlocked Uganda in East Africa, education — past grammar school — is their best chance for success, as measured by life itself.

There, the median age is 15. AIDS has killed most persons 35 to 45, and untold others die daily in childbirth or from diarrhea and malaria. It’s not uncommon for a grandmother to be left with the responsibility for 15 grandchildren; an estimated 900,000 children have lost one or both parents.

“The higher children go in school, the more informed decisions they make,” Sister Ephrance Nuwamanya told a group of area women. “They can say ‘no’ to sex, determine the number of pregnancies they want to have, and bypass so many risks.” Girls, she said, typically are given in marriage between the ages of 13 and 15.

“Sister” is the title Ugandans give registered nurses such as Nuwamanya, a trained midwife who manages a health clinic and orphan sponsorship program for the Tulsa-based nonprofit Bushenyi Alliance for Rural Health & Development (BARHD).

The Ugandan government pays for education for all students through the sixth grade. “After that,” Nuwamanya said, “they are left to fend for himself or herself.”

This year, BARHD sponsors supported the education of 262 students, said president Amy Williams, a retired schoolteacher and Norman resident who plans to take her fifth trip to Uganda this summer. Each $350 donation pays for a year’s room and board, tuition, books and a school uniform.

In addition to supporting three secondary boarding schools n Uganda, BARHD helps provide lifesaving medications including childhood immunizations. “Ninety percent of the conditions (from which people die) are preventable, caused largely by waterborne illnesses,” Williams said. But the Ugandans, she said, can’t just go to the Walmart and get Pedialyte (fluid-replacing solution).”

Along with advocating for education, Nuwamanya travels to her country’s rural communities empowering women to, among other things, safely birth each other’s children and grow rice. After a day’s work in the fields, many AIDS widows join together to make paper beads, baskets made of banana fibers and other handmade merchandise to sell.

Among the best examples of capitalism are water wells, the first of which was drilled by BARHD to serve 5,000 across 10 villages. Trained men now are making a livelihood at drilling other wells, which, with through service fees, generate income for communities, Williams said.

BARHD’s work is much like that undertaken by my church, Wesley United Methodist Church of Oklahoma City, which in February sent missionaries to Margibi County, Liberia, in West Africa to build the foundation of a new school to replace one burned by rebels in the country’s 14-year civil war. The tuition-free charter school — New Hope Elementary School — will serve around 1,000 children from 14 area villages including fellow member and Methodist Bishop Bennie Warner’s birthplace, Nyamahn Town. Warner, who once served as Liberian vice president, donated the 25 acres of land on which the school sits and, thanks to the generosity of many, has seen water wells drilled in the villages the school will serve.

I told our missions chair, Gay Abarr, on Sunday about hearing Sister Ephrance speak about the importance of education and Abarr, who’s made several trips to Africa, concurred. “Without education,” she said, “people will go to the swamp for water,” she said, “if it’s closer than the well.”

Meanwhile, Nuwamanya, the first woman Rotarian in her district and first woman president of her chapter, is attending the Rotary International convention in New Orleans.

“I hope to make more Rotarian friends and network to promote community service back home,” she said.

Consumer Articles - Debt Reform

2010-12-03T20:25:00Z

REAL Debt Reform

If you want to watch something alarming, look at the U.S. Debt Clock (http://www.usdebtclock.org/), which calculates, second-by-second, America's rising debt (approaching $14 trillion), federal spending (nearly $3.5 trillion a year) and budget deficit (roughly $1.3 trillion). Second-by-second the numbers increase, and you can also watch (more slowly) the inexorable rise in the average debt per U.S. citizen--currently more than $44,000, perhaps more by the time you read this and check for yourself.

Consumer Articles - Identity Theft

2010-11-19T17:10:00Z

Protecting Your Identity

Whenever there's a lot of fear, there also seems to be a lot of misinformation, and sometimes good information mixed in with bad. This is certainly the case with identity theft, which now, according to a 2007 survey of the Federal Trade Commission, counts some 8 million people a year as victims.

Consumer Articles - Balance Budget

2010-11-18T17:00:00Z

You, Too, Can Balance the Federal Budget

Want to have a little mindless fun? Try balancing the federal budget in ten minutes or less.

Believe it or not, you can actually do this on an interactive web site created by the New York Times. (You can find it here) There are two graphics at the top of the page: one is the projected shortfall in 2015 (a scary $418 billion), and the other is a more long-term (and scarier) deficit in 2030 ($1.345 trillion).

Consumer Articles - Federal Money Supply

2010-11-17T17:00:00Z

A warning shot

You may have heard recent controversy over the U.S. Federal Reserve Board buying Treasury bonds--$600 billion in all--and wondered what all the fuss was about. You may even have wondered why one branch of the government is buying bonds from another one.