Saturday, July 24, 2004
First Command's Rebuttal Rebutted
Well, that didn't take long.
First Command doesn't take criticism lying down. In fact, I predicted a swift and ferocious counterrattack, although they stopped short of calling Diane Henriques "biased" against 50% front-end loads as I thought they may have, and as they did with Steve Goldberg, a writer at Kiplinger's, who was also critical of contractual plans, in September of 2003.
You can read the Kiplinger's article here, accompanied by a lively discussion from what looks to be a cut and paste from the Morningstar Vanguard Diehards discusion board.(scroll down a bit)
Here's the first graf of First Command's response to that article.
... an irresponsible and misleading story that unfairly attacks the many benefits of systematic investing for professional military families and could seriously impact financial opportunities for these deserving Americans. We view this as the essence of irresponsible journalism and a prime example of why the media is not trusted.
Well, the military doesn't trust the media, sure enough. But that ain't why.
First Command has learned a few tricks since then, and today's response, written by former First Command representative Patrick Swan is far more subtle.
First, a word about the author.
The National Review identifies Swan simply as a reservist mobilized in Baghdad.
But that's only half the story. Swan isn't just a reservist in Baghdad; he also works for the Chief Information Officer, and as such is an official spokesperson for the Army--an organization who's highest ranking officer, General Pete Schoomaker, is a former advisory board member.
Sure, it's not clear that he's writing this in his official capacity as an army spokesman and official media contact. But since he is sitting in that billet, Swan is wading into more ethical conflicts than I care to enumerate--and dragging the Army along with him.
It's probably not deliberate. But as a PAO, Swan should be aware of these potential conflicts.
At any rate, I'm just not sure that Army Public Relations officers should also be doing PR campaigns on behalf of corporations that do business with the US Army and its soldiers.
And now for the point-by-point:
To many Americans, today's military is the smartest, most innovative, most savvy, and most adaptive force in our nation's history. But, if you read a recent New York Times exposé, you'll discover that, despite their competence on the battlefield, our servicemen are actually financial simpletons, and hence are easy prey for unsavory firms ready to exploit military clients.
I don't think there's any doubt whatsoever that many in the military are financial simpletons, for the simple reason that many in the population at large are financial simpletons.
After all, the skills required to set the headspace and timing on an M2 .50 Cal Browning Machine Gun, and then go downrange and kill the enemy with it, are markedly different than the skills it takes to calculate the expected inflation-adjusted future value of a series of payments into an interest-earning account.
The logical fallacy here is a false appeal to authority. Just because we have a high quality army made up of high quality soldiers doesn't mean they're mini CFPs as soon as they get off the bus at Boot Camp. Great soldiers do silly things with their money. Ask Lighthorse Harry Lee. Or just drive down any strip outside a military base and count the number of payday loan shops and 'we tote-the-note' auto dealers.
You'll find that these strips look a lot like those in financially underserved inner cities with financially unsophisticated, largely unbanked, and not incidentally, largely minority communities.
Read the first part (of two) of Diana Henriques's article, and you'll walk away with the sense that military folks are duped by senior or retired military leaders into purchasing investments and life insurance that are not in their best interests.
Yes, and that's exactly the sense you should walk away with. Because the fact that it happens is not in doubt. I've spoken about the issue with some of my own NCOs today. All of them who were on active duty have stories of pitchmen disguised as quasi-official benefit counselors. It happens all the time.
Let's not try to create doubt about the central facts of the matter here, where no doubt exists.
The article is unfair
No it's not. As we shall see.
It would have been nice if, before she accepted these competitors' claims at face value, she had at least presented them with this quiz. Here are several military acronyms related to pay and travel: SBP, BAH, BAS, TDY, PCS. What do they stand for, and what do they do for military people? I'm confident these firms would be hard-pressed to figure out even half of them. [For the record, they are Survivor Benefit Program, Basic Allowance for Housing, Basic Allowance for Subsistence, Temporary Duty, and Permanent Change of Station.] If you don't understand Military Acronyms 101, you are hardly in the position to strike a superior pose on whether someone else's financial producers are suitable or not for servicemen and their families.
Of questionable relevance, as only SBP really creates mondo financial planning issues unique to military clients. Everybody who moves as part of his job, military or not, undergoes PCS issues. But military PCS's generally don't involve tax-deductible job search expenses, except at retirement.
The others--BAH, BAS, and TDY, are simply very basic cash flow statement items easily grasped by any competent financial planner. TDY money is generally treated as a windfall--albeit a small one. (Most guys blow a chunk of TDY money on steakhouses and strip clubs, anyway.)
What is clear is that First Command knows and understands them all.
So do I. Heh heh heh.
One specific subject of Henriques's extended derision is First Command's support for front-end-load contractual investment plans. They are designed for career military families with long-term goals and the discipline to pursue them over a 15- to 20-year career.
So is any dollar-cost averaging strategy. But I wouldn't brag about 15-20 year results.
First Command's most often cited flagship fund, Fidelity Destiny, ranks in the bottom 20% of the large growth category over both the trailing 5-year and 10-year time periods.
Fidelity Destiny--a large cap fund--also trails the S&P 500 by an astounding 5% per year over the last ten years.
It's underperformance is consistent over almost any trailing time period you'd care to name.
And this is BEFORE adjusting for the front-end load!
What's more, it delivered these pathetic results with only slightly less volatility as the S&P 500, and the fact that 97% of its returns are explainable by movements of the S&P (high correlation) tells me that it provides next to no diversification benefit against it.
Fidelity Destiny is a dog with fleas. If a 401(k) fiduciary trustee steered employees into this mutt, he'd be facing Department of Labor inquiries and ERISA charges for failing to conduct due diligence.
Five years ago, investors would have been better off investing in a five year CD at 6 1/2% interest rates than in investing in Fidelity Destiny. A First Command rep who put his clients in that fund offered no value added for that transaction for his commission.
None.
Fidelity Destiny II is better: it only trails the S&P 500 by TWICE its expense ratio (it's got a somewhat more value-based approach than Fidelity Destiny I, and so does better in weak markets. But why choose this one over a no load S&P 500 fund going forward? I can't think of a reason at all.)
They are not designed to bring high-flying, short-term results.
They're apparently not designed to bring long term results either.
On the contrary, they are designed to keep short-term, "market-timing" speculators out of the funds — precisely because of the high front-end load. This approach benefits long-term investors by providing a stable fund largely immune to daily market fluctuations.
Oh, horse hockey. There's a much simpler and time-tested way to discourage market timers from disrupting the funds: Simply slap a 2% redemption fee on any shares redeemed within 3 months to 2 years of their purchase date.
But really--is your average E8 with just a few tens of thousands or hundreds of thousands in his account really going to be a market-timing threat? Are enough of them going to redeem at the same time to cause a problem?
Spare me.
It's not the mom and pop investor who creates cash drag and transaction costs sufficient to noticably sting other shareholders. It's the multibillion dollar hedge funds pushing millions and billions at a time.
A 2% redemption fee--payable to the fund itself, and NOT First Command, would cover cash drag and transaction costs easily, without penalizing everyone else.
Problem traders could easily be kicked out of the fund.
But wait: there's even less!
Since the 50% load is a one-time fee, and fund shareholders are then allowed to trade without paying the load, the 50% load would do nothing--NOTHING to discourage market timing in the fund, anyway!!!!
So Swan's argument is a sham.
If you believe Henriques, however, you'll consider these funds bad because they are "obscure" or because they don't employ the follow-the-heard approach.
No. I consider both of these funds bad because they're lousy.
Henriques then quotes some dissatisfied clients who demonstrate that they are short-term (if not also short-sighted) investors.
We've already established that long-sighted investors in the Destiny funds have no business remaining in the funds. Why stay in a large cap fund that trails the S&P over time? Especially a highly correlated one?
There's not going to be a such thing as a dissatisfied long term client with First Command. Those with the sense to be dissatisfied will also have the sense to direct their investment dollars elsewhere.
Certainly, some First Command clients are unhappy with the performance of their mutual funds over the past several years. Considering we've just come out of the worst bear market in some 70 years, who hasn't been unhappy with his mutual fund's performance?
That's the wrong question to ask. The right question to ask is how have your funds been performing, on a LOAD-ADJUSTED basis, compared to other mutual funds with similar investment goals and styles?
If other large cap funds have lost 5% and my fund lost 10% over the same period, I'm very unhappy. If other large cap funds lose 10% and mine only lost 5% over ten years, I'd be happy taking my manager out to a steak dinner.
Henriques should have compared First Command's mutual funds with the no-load funds whose managers she uses to disparage First Command. Nothing doing.
Lucky for First Command.
Henriques quotes Jack Bogle, founder of the Vanguard Group.
I'll put Vanguard's lineup up against Fidelity's Destiny Series, or AIM's, or Oppenheimer's or Pioneer's, or Franklin Templeton's lineup any day of the week, fund for fund, style box for style box, over any 10 year period or longer. Especially on a LOAD-ADJUSTED basis!
What's more, I'll RAISE you a comparison of Vanguard's disciplinary record with First Command fund families, since two of them have run into serious regulatory trouble with the SEC or state regulators pursuing market timing
allegations and other trading abuses.*
In addition, she could have explained how this long-term investing approach, called "dollar-cost averaging," allows First Command clients to buy more shares of their mutual funds when the market is depressed, thereby purchasing when shares are "on sale" so they can bring in greater returns when they sell decades later.
Oh. My. God.
Is this guy trying to imply that dollar cost averaging is somehow unique to contractual funds?
Just how much Kool-Aid are they serving at these First Command seminars?
Buy low and sell high?) Instead, these somehow "obscure" funds — from nationally recognized investment firms such as Pioneer, Fidelity, and AIM — are portrayed as "ill-suited" for military people.
50% front-end loads are ill-suited for anybody investing more than 1,000 dollars in his first year. More on that later.
Any such affinity company knows that its word is its bond, and if it fails to live up to its word, it is out of business.
As Porgy and Bess might say: "It Ain't Necessarily So." At least, not in the financial services industry.Morgan Stanley and Merrill Lynch made hundreds of billions of dollars on the strength of bogus research--their analysts have been caught red-handed lying their pants off to investors, and they got a 1.4 billion dollar slap on the wrist--peanuts on Wall Street-- and are still going strong.
Prudential ripped off billions of dollars, and has literally paid billions in fines and disgorgement, thanks to unethical sales practices. Their limited partnership comeuppance in the early 90s--as Prudential-Bache--was the largest scandal in modern market history. They've been hauled before the SEC and NASD and the courts multiple times. But they're still raking in the bucks.
That plan is a mix of investments (to achieve long-term financial goals), savings (for short-term needs of less than five years), and permanent life insurance to cover any permanent financial needs (e.g., providing a permanent "check a month" for widows or widowers, for instance; or death taxes).
A "permanent check a month?" Don't you mean an annuity?
Ok, fine. But that's hardly unique to First Command, either. So let's take a look at the fees? What are the underlying expenses? What are the surrender charges? How long are they in place?
Vanguard offers annuities, too. I'd love to take Swan up on his challenge to compare First Command with Bogle's funds. Vanguard offers annuities, too. (First Command refused to send me any prospectuses when I was first looking at them last January).
If you want an apples to apples comparison with other advisor sold annuities, fine. How about Capital Group/American Funds?
I triple dog dare you.
Lay 'em out, fee by fee, and return by return in variable annuity subaccounts. Let's play ball.
On the subject of life-insurance products offered to military clients, First Command carefully selects the companies with which it deals. In may surprise some that there are companies that sell life-insurance policies containing a "war clause" that invalidates the policy if the insured goes to war. First Command will not sell life insurance with such clauses to its military clients.
That part is commendable. It's hard to imagine a good fee-only planner who would overlook the war exclusion when recommending a life insurance policy to a client. But that is a useful service for First Command to provide. I'll give them that one.
The insurance companies First Command has chosen do. In fact, from a personal perspective, if my "option" were due this month, I could take it, and the insurance company could neither turn me down nor charge me a heavy rate-up premium — even though I'm serving today in a combat zone.
Oooh. First Command's policies are guaranteed renewable.
I'll alert the media.
I've described the operations of this firm in some detail because it is important people know that there are reputable companies out there whose sole mission in business is to help military people.
IraqNow readers, meet USAA. USAA, meet IraqNow readers.
USAA offers solid mutual funds and good insurance coverage in a variety of lines, with much lower fees and commissions than First Command.
What's more, unlike First Command, USAA offers index fund alternatives to high-cost actively managed funds, and does so on a no-load basis. And their counselors understand the military, too.
When a newspaper like the New York Times smears an honorable company, such as First Command, for providing products that are "ill-suited to military people," we should call them on it.
No. I'm calling on First Command for providing a program that is ill-suited to military people.
Here's why.
Consider a case study:
SFC Garon and his wife Lily are 35 years old, with two five year old children, whom they would like to send to a private school. They're just now getting startd with serious financial planning, and schedule a few appointments with a First Command Advisor.
Let's say the First Command Advisor recommends starting Roth IRAs for both SFC Garon and his wife, and recommends--wisely--that they max out their contributions the first year, and every year thereafter. He also recommends they start Coverdell Education accounts for their children, since Coverdell plans allow tax free dispursals on qualified private school expenses.
So in the first year, they make payments of $2000 each on two coverdell accounts for their children, and two Roth IRAs of $3,000 for the sergeant and his wife.
The accounts will then have a combined basis of $10,000, generating a commission of $5,000 for the First Command representative.
And he hasn't even sold an insurance policy yet.
And we're not even considering the long-term opportunity cost of investing in underperforming funds, nor are we considering the opportunity cost of losing years of earnings on the 5,000 dollars used to pay the commission.
Now consider the alternative:
Rather than contact First Command, the couple instead contacts the National Association of Personal Financial Advisors, and finds a good fee-only Certified Financial Planning practicioner in the area.
The CFP would likely make many of the same recommendations: Max out your Roth IRAs for yourself and your wife. Contribute to your children's Coverdells.
The CFP is also more likely to recommend prudent debt payoff strategies; the FC rep will have no incentive to do so, and indeed, Enriques found one instance where a FC representative failed to do so.
The CFP is more likely to explain the benefits of the Thrift Savings Program--a great tax deferred savings vehicle which does not generate a dime in commissions.
The CFP is likely to hold more coursework and credentials than the FC rep.
The CFP is committed to abiding by a rigorous code of ethics--and if a fee-only planner, is committed to acting as a fiduciary. Meaning the client's needs must come first. If he fails to do so, the client has recourse to seek a revocation of the professional designation from the CFP board.
The CFP is more likely to recommend taking advantage of the Federal Thrift Savings Program, which would generate no commission for the First Command Advisor.
The CFP will be able to choose from a wider menu of funds and fund companies, and from insurance companies, and get the client into better funds. Without sales loads.
The CFP is more likely to recommend a sufficient emergency fund, since the fund generates no commissions for the FC rep.
The CFP will be able to develop a full-fledged financial plan for the clients, over a series of appointments.
Total cost: Probably between $500 and $1000.
Better plan. Better funds. $1,000 vs. $5,000.
Which is more suitable to the military family?
You make the call.
Splash, out
Jason
*AIM Funds was forced to settle on fraud charges after it got caught with its hands in the cookie jar, and then lying about it to investors.
Franklin Templeton has been hit with fraud charges by Massachussets investigators.
The New York Times has this extensive article on predatory financial product sales practices targeting troops. Examples: Contractual plan mutual fund products with 50% front end loads on first year commissions. Life insurance salesmen posing as benefits counselors and VA reps, giving briefings to soldiers, and signing them up with expensive whole life insurance policies under the fraudulent pretense of official status.
I remember one guy who pitched to my unit a few years back, claiming to be a benefits counselor. He presented with some official looking brochures and pamphlets. He asked for and got some time on the training schedule.
When he was briefing, and it became clear he was a commissioned sales agent, and not a VA counselor, and he did not disclose that to the leadership of the unit from the outset, I told him to pack up and get his ass out of our armory.
It's been a problem for years. The Army press covers the practice from time to time. But Army leaders and NCOs are not financial services aces, and don't know how to separate the shite from the Shinola.
I'm not hostile to the idea. If someone from an organization with a long history of providing quality services to soldiers at a reasonable price wanted to come set up a table, or borrow a classroom to give a briefing AFTER duty hours, I'd be fine with it, and even help the guy publicize it.
By that I mean, if USAA or TIAA-CREF wanted to lend us a CFP for the day, I'd be very supportive. I think the military ought to encourage reputable financial services companies to make their pitches, right alongside the car salesmen from AAFES. I'd much rather see soldiers open an IRA or Section 529 plan at the end of a deployment than blow their money on a truck.
But while I saw many new car sales reps in Jordan, Iraq, and Kuwait, I didn't see a single serious effort to sell financial products or advice to soldiers at any price.
I wrote a brief guide to basic financial planning for E-1's to E-4's, which got passed around a lot. But the good low-cost financial services companies are not reaching out to the grunt demographic.
(knock knock knock...Helllooooooo!!! TIAA-CREF!!!!!! Barclays!!!!!! Vanguard!!!!! Are you there????)
Another product heavily promoted to military people is a type of mutual fund in which 50 percent of the first-year contributions are consumed as fees, a deal considered so expensive that such funds all but disappeared from the civilian market almost 20 years ago.
The name of the company is First Command. The Times caught a lot of brass on its advisory board--Anthony Zinni, for instance. They missed the current Army Chief of Staff Peter Schoomaker, though.
Which gives you some idea of why these practices are tolerated on military bases. Because flag officers are the biggest ones drinking the Kool-Aid.
That argument does not satisfy people like Capt. James A. Shaw, commander of the Second Battalion's 325th Airborne Infantry Regiment at Fort Bragg, N.C.
In all, this is the article that Army Times SHOULD have written ages ago. But failed. Instead, they were too busy cashing advertisement checks from those full color full page First Command ads.
The Army Times should be ashamed of itself. And kudos to the New York Times for catching on to it. It's not exactly a BRAND new story--Kiplingers hit it in 2002, and I hit it in January of last year) but this is easily the best and most thorough treatment of the subject I've seen.
Watch for a response on First Command's website attacking the credibility of the journalist, claiming she doesn't understand contractual plans and is biased against them.
Baloney.
She's a more than competent personal finance journalist, and knew exactly who to call. She called the Investment Company Institute. She called Jack Bogle, the inventor of the Index fund. She called a member of the National Association of Personal Financial Advisors.
She understands the issues. She did her homework. Don't let First Command drag her name through the mud on their website without calling them on it.
Splash, out
Jason
Snagging the Earned Income Credit
Good news...
Many families of deployed servicemen and women should now be eligible for the Earned Income Tax Credit.
Thanks to recent change in the tax law, combat zone pay, basic allowance for housing payments (BAH), and Basic Allowance for Subsistance payments (BAS), don't count against you when tallying up your income when you apply to claim the Earned Income Credit.
From the IRS's website:
Income and family size determine the amount of the EITC. To qualify for the credit, both the earned income and the adjusted gross income for 2003 must be less than $29,666 for a taxpayer with one qualifying child ($30,666 for married filing jointly), $33,692 for a taxpayer with more than one qualifying child ($34,692 for married filing jointly), and$11,230 for a taxpayer with no qualifying children ($12,230 for married filing jointly).
So when you guys file your taxes later this year, take a good hard look at the EIC sections of the 1040, 1040EZ, or 1040A.
Just because you didn't qualify last year doesn't mean you can't qualify this year. It could mean a few hundred bucks back in your pocket.
Splash, out
Jason
Time's running out on the deadline for taking advantage of this fabulous tax credit!
In a nutshell, the government is offering a substantial match to low-income individuals who contribute to a retirement plan. Depending on your adjusted gross income, you may be eligible for up to a 50% match on the first $2,000 you contribute.
Here's where being a reservist or Guardsman comes into play: If you are in the reserves or Guard, and you were mobilized early last year, and sent to a combat zone, then in most cases everything you made in the combat zone does not count towards your AGI.
That means chances are great that even though you were making active duty wages last year, you'll still qualify for the low-income credit.
It's up to $1,000 in free money, people. Take the opportunity!
If you haven't contributed to a Roth IRA for 2003 yet, do it now! You only have until April 15th. After that you lose the opportunity forever.
Splash, out
Jason
Financial Tip: Fire Your First Command Advisor
First Command, a financial advisory firm based in Fort Worth, Texas, has built its business around soliciting personal financial planning services to military families, on a commission basis to its advisors, or sales representatives.
So far, so good. But First Command’s retirement products come with an unusual fee structure. Most advisor-sold mutual funds come with a 5.75% sales charge on everything you put into the fund, much of which goes to compensate the sales rep, or broker, who sold the fund.
First Command, on the other hand, hits customers up for an outrageous front-end fee of up to 50% of the first year’s mutual fund contributions. The deal is that if you pay this fee up front, you can continue to invest in the same funds for 25 years with no further sales charges.
It’s called a ‘contractual plan,’ and the logic behind them is this: consumers who cough up a huge up-front fee are committed, and have more of an incentive to stick with their dollar-cost averaging investment plan.
It works in much the same way as a barbed tip on a spear creates an incentive to push the spear all the way through your body, rather than pull it out the way it came in.
Well, there’s a certain brutal behavioral logic to it, but there’s got to be a better way.
Consider: A military couple consults a First Command advisor, who sits down with them and works out a financial plan. The advisor recommends they each start Roth IRAs, and contribute the maximum allowable $3,000 each, or $6,000, in the first year, and all subsequent years they remain eligible.
The couple just paid $3,000 for a personalized financial plan. But they could have gotten the same plan, or better, from just about any fee-based certified financial planner for roughly a fifth of that cost.
And the CFP would probably get them into better funds and fund companies. Three of the five companies listed on the First Command website—AIM, Franklin Templeton, and Pioneer, have been implicated in the market-timing/late trading scandals currently being pursued by the Securities Exchange Commission and NY Attorney General Elliot Spitzer. Basically, these fund companies have been caught ripping off small shareholders. Like military clients.
I contacted First Command and asked them about their fund selection, refund policies, or whether it receives any continuing stream of income from 12(b)1 fees. Company spokesperson Mark Leach declined to answer any specific questions about First Command’s investment products.
"Any balanced story on First Command will not focus on investment, insurance, [or]
banking product(s), but rather on the much greater problem faced by American
wage earners and families, military included,” writes Leach. “The problem is not that they have the second best product, but rather that they do not save and invest
regularly in any meaningful way.”
He’s right about that. The greatest threat to most people’s retirement security is behavioral, not structural.
That said, that’s no reason military members need to settle for a product so markedly inferior even to the mediocre industry norms.
Here’s what your First Command advisor won’t tell you:
1. Most of their preferred fund companies are in trouble with regulators for unethical or illegal behavior.
2. There are plenty of excellent fund companies out there—Vanguard, T. Rowe Price, TIAA-CREF, who don’t charge investors a sales load at all—much less a 50% commission.
3. You can dollar-cost average for free with any no-load fund company just by setting up an automatic withdrawal from your bank account and forgetting about it.
4. Index funds can provide near instant diversification at a fraction of the cost of most of our funds. And most of the time, they provide better returns.
So what’s a novice military investor to do?
Consider an appointment with a fee-based advisor who can offer independent, unbiased, personalized recommendations. Check out the fund companies listed above. USAA is another good company with a lot of experience serving military families. If you’re a novice, stick with index funds for now, until you can get an advisor’s help.
And sock away as much as you can in the Federal Thrift Savings Program. It’s a great deal, and there’s no sales charge at all.
But above all—and First Command
and I are in absolute agreement on this much—get started investing now, and invest regularly, in a meaningful and disciplined way.
Splash, out
Save Money on Phone Calls from Combat Zones
Got a son, daughter, or spouse serving in a combat zone? Then you're eligible for a break on the Federal Excise Taxes resulting from any phone calls from service members originating in combat zones. All you have to do to avoid paying them is send a letter, called a 'certificate of exemption,' to the telephone service provider.
According to the IRS, the letter should read something like this:
EXEMPTION CERTIFICATE
(Overseas Telephone Calls)
(Date)..........20...
I certify that the toll charges of $.......... are for telephone or radio telephone messages originating at..............(Point of origin) within a combat zone from..............(Name) a member of the Armed Forces of the United States performing service in such combat zone; that the transmission facilities were furnished by ......(Name of carrier); and that the charges are exempt from tax under section 4253(d) of the Internal Revenue Code.
………………………..........
(Signature of Subscriber)
………...............................
(Address)
To recover any FCC charges you've already paid, you can get a refund from the U.S. Government. Fill out an IRS Form 8849, and an 8849 Schedule 6.
What a country!
Splash, out
Jason
Deployed Troops: How To Pocket a Free $1,000
Psst. Hey, soldier. Yeah, you. C’mere.
Stand at ease.
Got deployed to Iraq or Afghanistan in February, March, or April? Or are you expecting to be deployed this coming spring?
Ok. How’d you like to make an easy $1,000 bucks?
Here’s how you do it.
Call up your favorite mutual fund company. Personally, I like Vanguard, which is where I stash my investment money. I started with Vanguard Total Stock Market, but there are other ways to skin that cat, too. For beginners, the important thing is to get started.
Sign up for a Roth IRA. Contribute every penny you can. You have until April 15th to contribute for tax year 2003, or you can contribute for 2004, or do both. It makes great sense financially.
Your future will be more secure.
Your spouse will feel more secure.
Your spouse will therefore want to have more sex.
With you.
And so will a lot of other people.
Trust me. It’s a good idea.
The Roth IRA, I mean. I can’t vouch for the sex.
So where does the free thousand bucks come in?
Most income earned in a combat zone is free of federal income tax. Which means it doesn’t count toward your adjusted gross income (AGI), according to Barbara Pietrowski, a CPA in Kensington, Maryland, and mother of a Fort Campbell soldier now deployed in Mosul.
If you leave for a combat zone early in the year, then, and stay until the end of the year, you only have a few weeks or months of taxable income from the military or from your civilian job, as a reservist.
So if you're a working stiff like me, and you made less than $25,000 in taxable income last year (or if you and your spouse file jointly and your combined taxable incomes are less than $50,000), then you may qualify for the low-income IRA tax credit, according to Pietrowski.
You can find the eligibility table here.
Depending on your income level, you may be eligible for a tax credit (not a deduction, a credit) of up to 50 cents on every dollar you contribute up to $2,000. So if you made less than $15,000 (or $30,000 for married couples filing jointly) in taxable income last year, you may qualify for the max.
You may not get a refund--but the credit will reduce your taxes by up to a thousand bucks.
For doing nothing more than something you ought to be doing anyway.
It's not something you're going to read in Money Magazine. Money's only published one chintzy little letter on the combat zone exclusion, and they punted. (C'mon--is a link to the generic IRS home page really the best you can do, people?)
But don't take it from me. I'm just a dumb grunt with a laptop and a rifle. Take it from Barbara Pietrowski: "The ROTH IRA is the greatest gift ever given to the taxpayer that I have seen in 17 years of practice as a CPA and 30 in financial services," she says. "How fabulous!"
What a deal, huh?
Get your Roth started. Open one for both of you if you're married and otherwise qualify.
Now, don't be a "blue falcon."
Share this link with your buddies.
Jason
Military Tax Tip: Selling Your Home
Have you sold a house since May 6, 1997?
If so, you may be able to save yourself a boatload of money this year. I mean, thousands of dollars in some instances.
Here's how:
In order for you to qualify for the capital gains tax exclusion, the law normally requires sellers of houses to have owned the home for at least two years, and to have actually lived in the house for at least two years of the last five.
But this requirement is an onerous one for military families, who are routinely undergo PCS (permanent change of station) moves every one to three years--and are often deployed in the interim.
Under the new tax law, though, military people can 'stop the capital gains' clock for service-related deployments.
That means that if you bought a house, say, in 1995 but PCS'd in 1998, and sold the house in 2003, having spent all that time away from the home at different duty stations, you can still qualify for the exemption, even though you hadn't lived in the home at all for five years.
The reason: The clock stopped when you PCS'd.
The law was written to apply retroactively to May 6th, 1997. But you can work the law to your benefit going backwards and forwards. Meaning that you can claim a new exclusion on a home you sold years ago. Or, you can now sell an existing home (into a hot real estate market) and claim an exclusion, even if you haven't lived in the house for more than five years. Which may or may not influence your decision to sell.
Some caveats:
1.) You can only stop the clock for 10 years.
2.) You can only stop the clock on one residence at a time.
3.) The transfer or duty station has to be 50 miles away from the house or more, and for a minimum of 90 days.
And yes, normally you have only three years to file an amended return. But for this provision the deadline has been extended to November 10th, 2003.
In order to file an amended claim the credit--and potentially get a huge refund--fill out a form 1040X. Write "Military Family Tax Relief Act" across the top of the form, in red ink.
Splash, out
Jason
Guardsmen/Reservists: How To Claim Travel Deductions
Happy April, everyone! I hoped you guys kept your receipts!
Here’s why: If you’re a guardsman or reservist, and your duties took you on an overnight stay 100 miles or more away from home, you can now deduct most unreimbursed expenses related to transportation, meals, and lodging, beginning with tax year 2003. You can't go hog wild, though--you can only deduct up to what the federal government pays its own employees for travel expenses. You can also deduct 36 cents per mile for use of your POV on these trips. (Details are here. Scroll down to page 33.)
Best of all, these are "above the line" deductions. Which means that you can claim them even if you don't otherwise itemize deductions. You don't have to fill out a schedule C, and you still get the benefit of your full standard deduction.
But you won't find these deductions itemized on a form 1040, though, like an IRA contribution or a teachers' expense deduction. Noooooo! nothing can be easy for us reserve component soldiers, can it???
I guess the NEA has more pull with the suits at the IRS than us grunts.
So instead, the bastards are going to make you jump through a couple of hoops.
Here's how to claim the deductions. Follow along carefully.
1. When you put together your returns, you download IRS form 2106 (Employee Business Expense), or a Form 2106 EZ (Unreimbursed Employee Business Expenses.)
2. Use one of those two forms to figure the deduction amount.
3. Fill out an IRS Form 1040. (Don't us a 1040 EZ or you'll miss the deduction!) Write the letters "RC" and the deduction amount on the dotted line. NOT in the box. The dotted line.
4. Add this figure to all your other deductions specifically itemized in lines 23-32.
5. Write the resulting sum into the box on 33.
6. Send this link to every guardsman or reserve soldier or family member in your distribution list, so I can rule the world so they can claim the deduction, too.
Stay tuned--more finance and tax tips on the way!
Splash, out
Jason
IRA Investing for Novices: the 80% Solution
Now, I'm a soldier at heart, so unlike certain international terrorist organizations in 2001 I'm going to make my intel specific enough to be "actionable."
If you're a flat-out novice investor, just starting out, I encourage you to claim your free 'low-income retirement credit' money by taking the following steps:
1.) Go to the TIAA-CREF website and open a Roth IRA for you and your spouse, if any. Contribute as much as you can without risking disaster if your car breaks down or something else unexpected happens. I'd start with the Equity Index Fund.
OR
Go to the Vanguard website, and select either the Total Stock Market Index or Vanguard 500. If you're over 40 or so, try the Vanguard Asset Allocation, which balances your holdings between stocks and bonds, and so is a bit less volatile.
I chose the above funds because they're middle-of-the road funds which are free to get into (no sales charges to commissioned agents) and as index funds they're very inexpensive to own relative to other funds.
OR
Go to the Fidelity Funds site, and click on "Freedom Funds." Pick the one with the year closest to the year you expect to retire. If you don't want to worry about fundpicking at all, these are great "fire-and-forget" funds. They're managed to take some risks to make some money now, but they'll become less risky as you get closer to retirement age. This is the way to go if you just want your fund to make money for you on autopilot.
If you want a little extra help, check out USAA. They offer a variety of decent funds, some excellent auto and property and casualty insurance programs, and a variety of financial and relocation services for military families. They also have financial planners on staff to help get you started.
Then: Educate yourself. Do it now. Don't rely on scammers and sharks to do it for you.
Splash, out
Jason
Friday, July 16, 2004
Test
This is a test posting for Personal Finance, a blog by Jason Van Steenwyk and whoever else might show up. This is only a test.
First Command doesn't take criticism lying down. In fact, I predicted a swift and ferocious counterrattack, although they stopped short of calling Diane Henriques "biased" against 50% front-end loads as I thought they may have, and as they did with Steve Goldberg, a writer at Kiplinger's, who was also critical of contractual plans, in September of 2003.
You can read the Kiplinger's article here, accompanied by a lively discussion from what looks to be a cut and paste from the Morningstar Vanguard Diehards discusion board.(scroll down a bit)
Here's the first graf of First Command's response to that article.
... an irresponsible and misleading story that unfairly attacks the many benefits of systematic investing for professional military families and could seriously impact financial opportunities for these deserving Americans. We view this as the essence of irresponsible journalism and a prime example of why the media is not trusted.
Well, the military doesn't trust the media, sure enough. But that ain't why.
First Command has learned a few tricks since then, and today's response, written by former First Command representative Patrick Swan is far more subtle.
First, a word about the author.
The National Review identifies Swan simply as a reservist mobilized in Baghdad.
But that's only half the story. Swan isn't just a reservist in Baghdad; he also works for the Chief Information Officer, and as such is an official spokesperson for the Army--an organization who's highest ranking officer, General Pete Schoomaker, is a former advisory board member.
Sure, it's not clear that he's writing this in his official capacity as an army spokesman and official media contact. But since he is sitting in that billet, Swan is wading into more ethical conflicts than I care to enumerate--and dragging the Army along with him.
It's probably not deliberate. But as a PAO, Swan should be aware of these potential conflicts.
At any rate, I'm just not sure that Army Public Relations officers should also be doing PR campaigns on behalf of corporations that do business with the US Army and its soldiers.
And now for the point-by-point:
To many Americans, today's military is the smartest, most innovative, most savvy, and most adaptive force in our nation's history. But, if you read a recent New York Times exposé, you'll discover that, despite their competence on the battlefield, our servicemen are actually financial simpletons, and hence are easy prey for unsavory firms ready to exploit military clients.
I don't think there's any doubt whatsoever that many in the military are financial simpletons, for the simple reason that many in the population at large are financial simpletons.
After all, the skills required to set the headspace and timing on an M2 .50 Cal Browning Machine Gun, and then go downrange and kill the enemy with it, are markedly different than the skills it takes to calculate the expected inflation-adjusted future value of a series of payments into an interest-earning account.
The logical fallacy here is a false appeal to authority. Just because we have a high quality army made up of high quality soldiers doesn't mean they're mini CFPs as soon as they get off the bus at Boot Camp. Great soldiers do silly things with their money. Ask Lighthorse Harry Lee. Or just drive down any strip outside a military base and count the number of payday loan shops and 'we tote-the-note' auto dealers.
You'll find that these strips look a lot like those in financially underserved inner cities with financially unsophisticated, largely unbanked, and not incidentally, largely minority communities.
Read the first part (of two) of Diana Henriques's article, and you'll walk away with the sense that military folks are duped by senior or retired military leaders into purchasing investments and life insurance that are not in their best interests.
Yes, and that's exactly the sense you should walk away with. Because the fact that it happens is not in doubt. I've spoken about the issue with some of my own NCOs today. All of them who were on active duty have stories of pitchmen disguised as quasi-official benefit counselors. It happens all the time.
Let's not try to create doubt about the central facts of the matter here, where no doubt exists.
The article is unfair
No it's not. As we shall see.
It would have been nice if, before she accepted these competitors' claims at face value, she had at least presented them with this quiz. Here are several military acronyms related to pay and travel: SBP, BAH, BAS, TDY, PCS. What do they stand for, and what do they do for military people? I'm confident these firms would be hard-pressed to figure out even half of them. [For the record, they are Survivor Benefit Program, Basic Allowance for Housing, Basic Allowance for Subsistence, Temporary Duty, and Permanent Change of Station.] If you don't understand Military Acronyms 101, you are hardly in the position to strike a superior pose on whether someone else's financial producers are suitable or not for servicemen and their families.
Of questionable relevance, as only SBP really creates mondo financial planning issues unique to military clients. Everybody who moves as part of his job, military or not, undergoes PCS issues. But military PCS's generally don't involve tax-deductible job search expenses, except at retirement.
The others--BAH, BAS, and TDY, are simply very basic cash flow statement items easily grasped by any competent financial planner. TDY money is generally treated as a windfall--albeit a small one. (Most guys blow a chunk of TDY money on steakhouses and strip clubs, anyway.)
What is clear is that First Command knows and understands them all.
So do I. Heh heh heh.
One specific subject of Henriques's extended derision is First Command's support for front-end-load contractual investment plans. They are designed for career military families with long-term goals and the discipline to pursue them over a 15- to 20-year career.
So is any dollar-cost averaging strategy. But I wouldn't brag about 15-20 year results.
First Command's most often cited flagship fund, Fidelity Destiny, ranks in the bottom 20% of the large growth category over both the trailing 5-year and 10-year time periods.
Fidelity Destiny--a large cap fund--also trails the S&P 500 by an astounding 5% per year over the last ten years.
It's underperformance is consistent over almost any trailing time period you'd care to name.
And this is BEFORE adjusting for the front-end load!
What's more, it delivered these pathetic results with only slightly less volatility as the S&P 500, and the fact that 97% of its returns are explainable by movements of the S&P (high correlation) tells me that it provides next to no diversification benefit against it.
Fidelity Destiny is a dog with fleas. If a 401(k) fiduciary trustee steered employees into this mutt, he'd be facing Department of Labor inquiries and ERISA charges for failing to conduct due diligence.
Five years ago, investors would have been better off investing in a five year CD at 6 1/2% interest rates than in investing in Fidelity Destiny. A First Command rep who put his clients in that fund offered no value added for that transaction for his commission.
None.
Fidelity Destiny II is better: it only trails the S&P 500 by TWICE its expense ratio (it's got a somewhat more value-based approach than Fidelity Destiny I, and so does better in weak markets. But why choose this one over a no load S&P 500 fund going forward? I can't think of a reason at all.)
They are not designed to bring high-flying, short-term results.
They're apparently not designed to bring long term results either.
On the contrary, they are designed to keep short-term, "market-timing" speculators out of the funds — precisely because of the high front-end load. This approach benefits long-term investors by providing a stable fund largely immune to daily market fluctuations.
Oh, horse hockey. There's a much simpler and time-tested way to discourage market timers from disrupting the funds: Simply slap a 2% redemption fee on any shares redeemed within 3 months to 2 years of their purchase date.
But really--is your average E8 with just a few tens of thousands or hundreds of thousands in his account really going to be a market-timing threat? Are enough of them going to redeem at the same time to cause a problem?
Spare me.
It's not the mom and pop investor who creates cash drag and transaction costs sufficient to noticably sting other shareholders. It's the multibillion dollar hedge funds pushing millions and billions at a time.
A 2% redemption fee--payable to the fund itself, and NOT First Command, would cover cash drag and transaction costs easily, without penalizing everyone else.
Problem traders could easily be kicked out of the fund.
But wait: there's even less!
Since the 50% load is a one-time fee, and fund shareholders are then allowed to trade without paying the load, the 50% load would do nothing--NOTHING to discourage market timing in the fund, anyway!!!!
So Swan's argument is a sham.
If you believe Henriques, however, you'll consider these funds bad because they are "obscure" or because they don't employ the follow-the-heard approach.
No. I consider both of these funds bad because they're lousy.
Henriques then quotes some dissatisfied clients who demonstrate that they are short-term (if not also short-sighted) investors.
We've already established that long-sighted investors in the Destiny funds have no business remaining in the funds. Why stay in a large cap fund that trails the S&P over time? Especially a highly correlated one?
There's not going to be a such thing as a dissatisfied long term client with First Command. Those with the sense to be dissatisfied will also have the sense to direct their investment dollars elsewhere.
Certainly, some First Command clients are unhappy with the performance of their mutual funds over the past several years. Considering we've just come out of the worst bear market in some 70 years, who hasn't been unhappy with his mutual fund's performance?
That's the wrong question to ask. The right question to ask is how have your funds been performing, on a LOAD-ADJUSTED basis, compared to other mutual funds with similar investment goals and styles?
If other large cap funds have lost 5% and my fund lost 10% over the same period, I'm very unhappy. If other large cap funds lose 10% and mine only lost 5% over ten years, I'd be happy taking my manager out to a steak dinner.
Henriques should have compared First Command's mutual funds with the no-load funds whose managers she uses to disparage First Command. Nothing doing.
Lucky for First Command.
Henriques quotes Jack Bogle, founder of the Vanguard Group.
I'll put Vanguard's lineup up against Fidelity's Destiny Series, or AIM's, or Oppenheimer's or Pioneer's, or Franklin Templeton's lineup any day of the week, fund for fund, style box for style box, over any 10 year period or longer. Especially on a LOAD-ADJUSTED basis!
What's more, I'll RAISE you a comparison of Vanguard's disciplinary record with First Command fund families, since two of them have run into serious regulatory trouble with the SEC or state regulators pursuing
market timingallegations and other trading abuses.*
In addition, she could have explained how this long-term investing approach, called "dollar-cost averaging," allows First Command clients to buy more shares of their mutual funds when the market is depressed, thereby purchasing when shares are "on sale" so they can bring in greater returns when they sell decades later.
Oh. My. God.
Is this guy trying to imply that dollar cost averaging is somehow unique to contractual funds?
Just how much Kool-Aid are they serving at these First Command seminars?
Buy low and sell high?) Instead, these somehow "obscure" funds — from nationally recognized investment firms such as Pioneer, Fidelity, and AIM — are portrayed as "ill-suited" for military people.
50% front-end loads are ill-suited for anybody investing more than 1,000 dollars in his first year. More on that later.
Any such affinity company knows that its word is its bond, and if it fails to live up to its word, it is out of business.
As Porgy and Bess might say: "It Ain't Necessarily So." At least, not in the financial services industry.Morgan Stanley and Merrill Lynch made hundreds of billions of dollars on the strength of bogus research--their analysts have been caught red-handed lying their pants off to investors, and they got a 1.4 billion dollar slap on the wrist--peanuts on Wall Street-- and are still going strong.
Prudential ripped off billions of dollars, and has literally paid billions in fines and disgorgement, thanks to unethical sales practices. Their limited partnership comeuppance in the early 90s--as Prudential-Bache--was the largest scandal in modern market history. They've been hauled before the SEC and NASD and the courts multiple times. But they're still raking in the bucks.
That plan is a mix of investments (to achieve long-term financial goals), savings (for short-term needs of less than five years), and permanent life insurance to cover any permanent financial needs (e.g., providing a permanent "check a month" for widows or widowers, for instance; or death taxes).
A "permanent check a month?" Don't you mean an annuity?
Ok, fine. But that's hardly unique to First Command, either. So let's take a look at the fees? What are the underlying expenses? What are the surrender charges? How long are they in place?
Vanguard offers annuities, too. I'd love to take Swan up on his challenge to compare First Command with Bogle's funds. Vanguard offers annuities, too. (First Command refused to send me any prospectuses when I was first looking at them last January).
If you want an apples to apples comparison with other advisor sold annuities, fine. How about Capital Group/American Funds?
I triple dog dare you.
Lay 'em out, fee by fee, and return by return in variable annuity subaccounts. Let's play ball.
On the subject of life-insurance products offered to military clients, First Command carefully selects the companies with which it deals. In may surprise some that there are companies that sell life-insurance policies containing a "war clause" that invalidates the policy if the insured goes to war. First Command will not sell life insurance with such clauses to its military clients.
That part is commendable. It's hard to imagine a good fee-only planner who would overlook the war exclusion when recommending a life insurance policy to a client. But that is a useful service for First Command to provide. I'll give them that one.
The insurance companies First Command has chosen do. In fact, from a personal perspective, if my "option" were due this month, I could take it, and the insurance company could neither turn me down nor charge me a heavy rate-up premium — even though I'm serving today in a combat zone.
Oooh. First Command's policies are guaranteed renewable.
I'll alert the media.
I've described the operations of this firm in some detail because it is important people know that there are reputable companies out there whose sole mission in business is to help military people.
IraqNow readers, meet USAA. USAA, meet IraqNow readers.
USAA offers solid mutual funds and good insurance coverage in a variety of lines, with much lower fees and commissions than First Command.
What's more, unlike First Command, USAA offers index fund alternatives to high-cost actively managed funds, and does so on a no-load basis. And their counselors understand the military, too.
When a newspaper like the New York Times smears an honorable company, such as First Command, for providing products that are "ill-suited to military people," we should call them on it.
No. I'm calling on First Command for providing a program that is ill-suited to military people.
Here's why.
Consider a case study:
SFC Garon and his wife Lily are 35 years old, with two five year old children, whom they would like to send to a private school. They're just now getting startd with serious financial planning, and schedule a few appointments with a First Command Advisor.
Let's say the First Command Advisor recommends starting Roth IRAs for both SFC Garon and his wife, and recommends--wisely--that they max out their contributions the first year, and every year thereafter. He also recommends they start Coverdell Education accounts for their children, since Coverdell plans allow tax free dispursals on qualified private school expenses.
So in the first year, they make payments of $2000 each on two coverdell accounts for their children, and two Roth IRAs of $3,000 for the sergeant and his wife.
The accounts will then have a combined basis of $10,000, generating a commission of $5,000 for the First Command representative.
And he hasn't even sold an insurance policy yet.
And we're not even considering the long-term opportunity cost of investing in underperforming funds, nor are we considering the opportunity cost of losing years of earnings on the 5,000 dollars used to pay the commission.
Now consider the alternative:
Rather than contact First Command, the couple instead contacts the National Association of Personal Financial Advisors, and finds a good fee-only Certified Financial Planning practicioner in the area.
The CFP would likely make many of the same recommendations: Max out your Roth IRAs for yourself and your wife. Contribute to your children's Coverdells.
The CFP is also more likely to recommend prudent debt payoff strategies; the FC rep will have no incentive to do so, and indeed, Enriques found one instance where a FC representative failed to do so.
The CFP is more likely to explain the benefits of the Thrift Savings Program--a great tax deferred savings vehicle which does not generate a dime in commissions.
The CFP is likely to hold more coursework and credentials than the FC rep.
The CFP is committed to abiding by a rigorous code of ethics--and if a fee-only planner, is committed to acting as a fiduciary. Meaning the client's needs must come first. If he fails to do so, the client has recourse to seek a revocation of the professional designation from the CFP board.
The CFP is more likely to recommend taking advantage of the Federal Thrift Savings Program, which would generate no commission for the First Command Advisor.
The CFP will be able to choose from a wider menu of funds and fund companies, and from insurance companies, and get the client into better funds. Without sales loads.
The CFP is more likely to recommend a sufficient emergency fund, since the fund generates no commissions for the FC rep.
The CFP will be able to develop a full-fledged financial plan for the clients, over a series of appointments.
Total cost: Probably between $500 and $1000.
Better plan. Better funds. $1,000 vs. $5,000.
Which is more suitable to the military family?
You make the call.
Splash, out
Jason
*AIM Funds was forced to settle on fraud charges after it got caught with its hands in the cookie jar, and then lying about it to investors.
Franklin Templeton has been hit with fraud charges by Massachussets investigators.
I remember one guy who pitched to my unit a few years back, claiming to be a benefits counselor. He presented with some official looking brochures and pamphlets. He asked for and got some time on the training schedule.
When he was briefing, and it became clear he was a commissioned sales agent, and not a VA counselor, and he did not disclose that to the leadership of the unit from the outset, I told him to pack up and get his ass out of our armory.
It's been a problem for years. The Army press covers the practice from time to time. But Army leaders and NCOs are not financial services aces, and don't know how to separate the shite from the Shinola.
I'm not hostile to the idea. If someone from an organization with a long history of providing quality services to soldiers at a reasonable price wanted to come set up a table, or borrow a classroom to give a briefing AFTER duty hours, I'd be fine with it, and even help the guy publicize it.
By that I mean, if USAA or TIAA-CREF wanted to lend us a CFP for the day, I'd be very supportive. I think the military ought to encourage reputable financial services companies to make their pitches, right alongside the car salesmen from AAFES. I'd much rather see soldiers open an IRA or Section 529 plan at the end of a deployment than blow their money on a truck.
But while I saw many new car sales reps in Jordan, Iraq, and Kuwait, I didn't see a single serious effort to sell financial products or advice to soldiers at any price.
I wrote a brief guide to basic financial planning for E-1's to E-4's, which got passed around a lot. But the good low-cost financial services companies are not reaching out to the grunt demographic.
(knock knock knock...Helllooooooo!!! TIAA-CREF!!!!!! Barclays!!!!!! Vanguard!!!!! Are you there????)
Another product heavily promoted to military people is a type of mutual fund in which 50 percent of the first-year contributions are consumed as fees, a deal considered so expensive that such funds all but disappeared from the civilian market almost 20 years ago.
The name of the company is First Command. The Times caught a lot of brass on its advisory board--Anthony Zinni, for instance. They missed the current Army Chief of Staff Peter Schoomaker, though.
Which gives you some idea of why these practices are tolerated on military bases. Because flag officers are the biggest ones drinking the Kool-Aid.
That argument does not satisfy people like Capt. James A. Shaw, commander of the Second Battalion's 325th Airborne Infantry Regiment at Fort Bragg, N.C.
In all, this is the article that Army Times SHOULD have written ages ago. But failed. Instead, they were too busy cashing advertisement checks from those full color full page First Command ads.
The Army Times should be ashamed of itself. And kudos to the New York Times for catching on to it. It's not exactly a BRAND new story--Kiplingers hit it in 2002, and I hit it in January of last year) but this is easily the best and most thorough treatment of the subject I've seen.
Watch for a response on First Command's website attacking the credibility of the journalist, claiming she doesn't understand contractual plans and is biased against them.
Baloney.
She's a more than competent personal finance journalist, and knew exactly who to call. She called the Investment Company Institute. She called Jack Bogle, the inventor of the Index fund. She called a member of the National Association of Personal Financial Advisors.
She understands the issues. She did her homework. Don't let First Command drag her name through the mud on their website without calling them on it.
Splash, out
Jason
Good news...
Many families of deployed servicemen and women should now be eligible for the Earned Income Tax Credit.
Thanks to recent change in the tax law, combat zone pay, basic allowance for housing payments (BAH), and Basic Allowance for Subsistance payments (BAS), don't count against you when tallying up your income when you apply to claim the Earned Income Credit.
From the IRS's website:
So when you guys file your taxes later this year, take a good hard look at the EIC sections of the 1040, 1040EZ, or 1040A.
Just because you didn't qualify last year doesn't mean you can't qualify this year. It could mean a few hundred bucks back in your pocket.
Splash, out
Jason
Many families of deployed servicemen and women should now be eligible for the Earned Income Tax Credit.
Thanks to recent change in the tax law, combat zone pay, basic allowance for housing payments (BAH), and Basic Allowance for Subsistance payments (BAS), don't count against you when tallying up your income when you apply to claim the Earned Income Credit.
From the IRS's website:
Income and family size determine the amount of the EITC. To qualify for the credit, both the earned income and the adjusted gross income for 2003 must be less than $29,666 for a taxpayer with one qualifying child ($30,666 for married filing jointly), $33,692 for a taxpayer with more than one qualifying child ($34,692 for married filing jointly), and$11,230 for a taxpayer with no qualifying children ($12,230 for married filing jointly).
So when you guys file your taxes later this year, take a good hard look at the EIC sections of the 1040, 1040EZ, or 1040A.
Just because you didn't qualify last year doesn't mean you can't qualify this year. It could mean a few hundred bucks back in your pocket.
Splash, out
Jason
Time's running out on the deadline for taking advantage of this fabulous tax credit!
In a nutshell, the government is offering a substantial match to low-income individuals who contribute to a retirement plan. Depending on your adjusted gross income, you may be eligible for up to a 50% match on the first $2,000 you contribute.
Here's where being a reservist or Guardsman comes into play: If you are in the reserves or Guard, and you were mobilized early last year, and sent to a combat zone, then in most cases everything you made in the combat zone does not count towards your AGI.
That means chances are great that even though you were making active duty wages last year, you'll still qualify for the low-income credit.
It's up to $1,000 in free money, people. Take the opportunity!
If you haven't contributed to a Roth IRA for 2003 yet, do it now! You only have until April 15th. After that you lose the opportunity forever.
Splash, out
Jason
In a nutshell, the government is offering a substantial match to low-income individuals who contribute to a retirement plan. Depending on your adjusted gross income, you may be eligible for up to a 50% match on the first $2,000 you contribute.
Here's where being a reservist or Guardsman comes into play: If you are in the reserves or Guard, and you were mobilized early last year, and sent to a combat zone, then in most cases everything you made in the combat zone does not count towards your AGI.
That means chances are great that even though you were making active duty wages last year, you'll still qualify for the low-income credit.
It's up to $1,000 in free money, people. Take the opportunity!
If you haven't contributed to a Roth IRA for 2003 yet, do it now! You only have until April 15th. After that you lose the opportunity forever.
Splash, out
Jason
Financial Tip: Fire Your First Command Advisor
First Command, a financial advisory firm based in Fort Worth, Texas, has built its business around soliciting personal financial planning services to military families, on a commission basis to its advisors, or sales representatives.
So far, so good. But First Command’s retirement products come with an unusual fee structure. Most advisor-sold mutual funds come with a 5.75% sales charge on everything you put into the fund, much of which goes to compensate the sales rep, or broker, who sold the fund.
First Command, on the other hand, hits customers up for an outrageous front-end fee of up to 50% of the first year’s mutual fund contributions. The deal is that if you pay this fee up front, you can continue to invest in the same funds for 25 years with no further sales charges.
It’s called a ‘contractual plan,’ and the logic behind them is this: consumers who cough up a huge up-front fee are committed, and have more of an incentive to stick with their dollar-cost averaging investment plan.
It works in much the same way as a barbed tip on a spear creates an incentive to push the spear all the way through your body, rather than pull it out the way it came in.
Well, there’s a certain brutal behavioral logic to it, but there’s got to be a better way.
Consider: A military couple consults a First Command advisor, who sits down with them and works out a financial plan. The advisor recommends they each start Roth IRAs, and contribute the maximum allowable $3,000 each, or $6,000, in the first year, and all subsequent years they remain eligible.
The couple just paid $3,000 for a personalized financial plan. But they could have gotten the same plan, or better, from just about any fee-based certified financial planner for roughly a fifth of that cost.
And the CFP would probably get them into better funds and fund companies. Three of the five companies listed on the First Command website—AIM, Franklin Templeton, and Pioneer, have been implicated in the market-timing/late trading scandals currently being pursued by the Securities Exchange Commission and NY Attorney General Elliot Spitzer. Basically, these fund companies have been caught ripping off small shareholders. Like military clients.
I contacted First Command and asked them about their fund selection, refund policies, or whether it receives any continuing stream of income from 12(b)1 fees. Company spokesperson Mark Leach declined to answer any specific questions about First Command’s investment products.
"Any balanced story on First Command will not focus on investment, insurance, [or]
banking product(s), but rather on the much greater problem faced by American
wage earners and families, military included,” writes Leach. “The problem is not that they have the second best product, but rather that they do not save and invest
regularly in any meaningful way.”
He’s right about that. The greatest threat to most people’s retirement security is behavioral, not structural.
That said, that’s no reason military members need to settle for a product so markedly inferior even to the mediocre industry norms.
Here’s what your First Command advisor won’t tell you:
1. Most of their preferred fund companies are in trouble with regulators for unethical or illegal behavior.
2. There are plenty of excellent fund companies out there—Vanguard, T. Rowe Price, TIAA-CREF, who don’t charge investors a sales load at all—much less a 50% commission.
3. You can dollar-cost average for free with any no-load fund company just by setting up an automatic withdrawal from your bank account and forgetting about it.
4. Index funds can provide near instant diversification at a fraction of the cost of most of our funds. And most of the time, they provide better returns.
So what’s a novice military investor to do?
Consider an appointment with a fee-based advisor who can offer independent, unbiased, personalized recommendations. Check out the fund companies listed above. USAA is another good company with a lot of experience serving military families. If you’re a novice, stick with index funds for now, until you can get an advisor’s help.
And sock away as much as you can in the Federal Thrift Savings Program. It’s a great deal, and there’s no sales charge at all.
But above all—and First Command
and I are in absolute agreement on this much—get started investing now, and invest regularly, in a meaningful and disciplined way.
Splash, out
Save Money on Phone Calls from Combat Zones
Got a son, daughter, or spouse serving in a combat zone? Then you're eligible for a break on the Federal Excise Taxes resulting from any phone calls from service members originating in combat zones. All you have to do to avoid paying them is send a letter, called a 'certificate of exemption,' to the telephone service provider.
According to the IRS, the letter should read something like this:
EXEMPTION CERTIFICATE
(Overseas Telephone Calls)
(Date)..........20...
I certify that the toll charges of $.......... are for telephone or radio telephone messages originating at..............(Point of origin) within a combat zone from..............(Name) a member of the Armed Forces of the United States performing service in such combat zone; that the transmission facilities were furnished by ......(Name of carrier); and that the charges are exempt from tax under section 4253(d) of the Internal Revenue Code.
………………………..........
(Signature of Subscriber)
………...............................
(Address)
To recover any FCC charges you've already paid, you can get a refund from the U.S. Government. Fill out an IRS Form 8849, and an 8849 Schedule 6.
What a country!
Splash, out
Jason
Deployed Troops: How To Pocket a Free $1,000
Psst. Hey, soldier. Yeah, you. C’mere.
Stand at ease.
Got deployed to Iraq or Afghanistan in February, March, or April? Or are you expecting to be deployed this coming spring?
Ok. How’d you like to make an easy $1,000 bucks?
Here’s how you do it.
Call up your favorite mutual fund company. Personally, I like Vanguard, which is where I stash my investment money. I started with Vanguard Total Stock Market, but there are other ways to skin that cat, too. For beginners, the important thing is to get started.
Sign up for a Roth IRA. Contribute every penny you can. You have until April 15th to contribute for tax year 2003, or you can contribute for 2004, or do both. It makes great sense financially.
Your future will be more secure.
Your spouse will feel more secure.
Your spouse will therefore want to have more sex.
With you.
And so will a lot of other people.
Trust me. It’s a good idea.
The Roth IRA, I mean. I can’t vouch for the sex.
So where does the free thousand bucks come in?
Most income earned in a combat zone is free of federal income tax. Which means it doesn’t count toward your adjusted gross income (AGI), according to Barbara Pietrowski, a CPA in Kensington, Maryland, and mother of a Fort Campbell soldier now deployed in Mosul.
If you leave for a combat zone early in the year, then, and stay until the end of the year, you only have a few weeks or months of taxable income from the military or from your civilian job, as a reservist.
So if you're a working stiff like me, and you made less than $25,000 in taxable income last year (or if you and your spouse file jointly and your combined taxable incomes are less than $50,000), then you may qualify for the low-income IRA tax credit, according to Pietrowski.
You can find the eligibility table here.
Depending on your income level, you may be eligible for a tax credit (not a deduction, a credit) of up to 50 cents on every dollar you contribute up to $2,000. So if you made less than $15,000 (or $30,000 for married couples filing jointly) in taxable income last year, you may qualify for the max.
You may not get a refund--but the credit will reduce your taxes by up to a thousand bucks.
For doing nothing more than something you ought to be doing anyway.
It's not something you're going to read in Money Magazine. Money's only published one chintzy little letter on the combat zone exclusion, and they punted. (C'mon--is a link to the generic IRS home page really the best you can do, people?)
But don't take it from me. I'm just a dumb grunt with a laptop and a rifle. Take it from Barbara Pietrowski: "The ROTH IRA is the greatest gift ever given to the taxpayer that I have seen in 17 years of practice as a CPA and 30 in financial services," she says. "How fabulous!"
What a deal, huh?
Get your Roth started. Open one for both of you if you're married and otherwise qualify.
Now, don't be a "blue falcon."
Share this link with your buddies.
Jason
Military Tax Tip: Selling Your Home
Have you sold a house since May 6, 1997?
If so, you may be able to save yourself a boatload of money this year. I mean, thousands of dollars in some instances.
Here's how:
In order for you to qualify for the capital gains tax exclusion, the law normally requires sellers of houses to have owned the home for at least two years, and to have actually lived in the house for at least two years of the last five.
But this requirement is an onerous one for military families, who are routinely undergo PCS (permanent change of station) moves every one to three years--and are often deployed in the interim.
Under the new tax law, though, military people can 'stop the capital gains' clock for service-related deployments.
That means that if you bought a house, say, in 1995 but PCS'd in 1998, and sold the house in 2003, having spent all that time away from the home at different duty stations, you can still qualify for the exemption, even though you hadn't lived in the home at all for five years.
The reason: The clock stopped when you PCS'd.
The law was written to apply retroactively to May 6th, 1997. But you can work the law to your benefit going backwards and forwards. Meaning that you can claim a new exclusion on a home you sold years ago. Or, you can now sell an existing home (into a hot real estate market) and claim an exclusion, even if you haven't lived in the house for more than five years. Which may or may not influence your decision to sell.
Some caveats:
1.) You can only stop the clock for 10 years.
2.) You can only stop the clock on one residence at a time.
3.) The transfer or duty station has to be 50 miles away from the house or more, and for a minimum of 90 days.
And yes, normally you have only three years to file an amended return. But for this provision the deadline has been extended to November 10th, 2003.
In order to file an amended claim the credit--and potentially get a huge refund--fill out a form 1040X. Write "Military Family Tax Relief Act" across the top of the form, in red ink.
Splash, out
Jason
Guardsmen/Reservists: How To Claim Travel Deductions
Happy April, everyone! I hoped you guys kept your receipts!
Here’s why: If you’re a guardsman or reservist, and your duties took you on an overnight stay 100 miles or more away from home, you can now deduct most unreimbursed expenses related to transportation, meals, and lodging, beginning with tax year 2003. You can't go hog wild, though--you can only deduct up to what the federal government pays its own employees for travel expenses. You can also deduct 36 cents per mile for use of your POV on these trips. (Details are here. Scroll down to page 33.)
Best of all, these are "above the line" deductions. Which means that you can claim them even if you don't otherwise itemize deductions. You don't have to fill out a schedule C, and you still get the benefit of your full standard deduction.
But you won't find these deductions itemized on a form 1040, though, like an IRA contribution or a teachers' expense deduction. Noooooo! nothing can be easy for us reserve component soldiers, can it???
I guess the NEA has more pull with the suits at the IRS than us grunts.
So instead, the bastards are going to make you jump through a couple of hoops.
Here's how to claim the deductions. Follow along carefully.
1. When you put together your returns, you download IRS form 2106 (Employee Business Expense), or a Form 2106 EZ (Unreimbursed Employee Business Expenses.)
2. Use one of those two forms to figure the deduction amount.
3. Fill out an IRS Form 1040. (Don't us a 1040 EZ or you'll miss the deduction!) Write the letters "RC" and the deduction amount on the dotted line. NOT in the box. The dotted line.
4. Add this figure to all your other deductions specifically itemized in lines 23-32.
5. Write the resulting sum into the box on 33.
6. Send this link to every guardsman or reserve soldier or family member in your distribution list, so I can rule the world so they can claim the deduction, too.
Stay tuned--more finance and tax tips on the way!
Splash, out
Jason
IRA Investing for Novices: the 80% Solution
Now, I'm a soldier at heart, so unlike certain international terrorist organizations in 2001 I'm going to make my intel specific enough to be "actionable."
If you're a flat-out novice investor, just starting out, I encourage you to claim your free 'low-income retirement credit' money by taking the following steps:
1.) Go to the TIAA-CREF website and open a Roth IRA for you and your spouse, if any. Contribute as much as you can without risking disaster if your car breaks down or something else unexpected happens. I'd start with the Equity Index Fund.
OR
Go to the Vanguard website, and select either the Total Stock Market Index or Vanguard 500. If you're over 40 or so, try the Vanguard Asset Allocation, which balances your holdings between stocks and bonds, and so is a bit less volatile.
I chose the above funds because they're middle-of-the road funds which are free to get into (no sales charges to commissioned agents) and as index funds they're very inexpensive to own relative to other funds.
OR
Go to the Fidelity Funds site, and click on "Freedom Funds." Pick the one with the year closest to the year you expect to retire. If you don't want to worry about fundpicking at all, these are great "fire-and-forget" funds. They're managed to take some risks to make some money now, but they'll become less risky as you get closer to retirement age. This is the way to go if you just want your fund to make money for you on autopilot.
If you want a little extra help, check out USAA. They offer a variety of decent funds, some excellent auto and property and casualty insurance programs, and a variety of financial and relocation services for military families. They also have financial planners on staff to help get you started.
Then: Educate yourself. Do it now. Don't rely on scammers and sharks to do it for you.
Splash, out
Jason
Friday, July 16, 2004
Test
This is a test posting for Personal Finance, a blog by Jason Van Steenwyk and whoever else might show up. This is only a test.
So far, so good. But First Command’s retirement products come with an unusual fee structure. Most advisor-sold mutual funds come with a 5.75% sales charge on everything you put into the fund, much of which goes to compensate the sales rep, or broker, who sold the fund.
First Command, on the other hand, hits customers up for an outrageous front-end fee of up to 50% of the first year’s mutual fund contributions. The deal is that if you pay this fee up front, you can continue to invest in the same funds for 25 years with no further sales charges.
It’s called a ‘contractual plan,’ and the logic behind them is this: consumers who cough up a huge up-front fee are committed, and have more of an incentive to stick with their dollar-cost averaging investment plan.
It works in much the same way as a barbed tip on a spear creates an incentive to push the spear all the way through your body, rather than pull it out the way it came in.
Well, there’s a certain brutal behavioral logic to it, but there’s got to be a better way.
Consider: A military couple consults a First Command advisor, who sits down with them and works out a financial plan. The advisor recommends they each start Roth IRAs, and contribute the maximum allowable $3,000 each, or $6,000, in the first year, and all subsequent years they remain eligible.
The couple just paid $3,000 for a personalized financial plan. But they could have gotten the same plan, or better, from just about any fee-based certified financial planner for roughly a fifth of that cost.
And the CFP would probably get them into better funds and fund companies. Three of the five companies listed on the First Command website—AIM, Franklin Templeton, and Pioneer, have been implicated in the market-timing/late trading scandals currently being pursued by the Securities Exchange Commission and NY Attorney General Elliot Spitzer. Basically, these fund companies have been caught ripping off small shareholders. Like military clients.
I contacted First Command and asked them about their fund selection, refund policies, or whether it receives any continuing stream of income from 12(b)1 fees. Company spokesperson Mark Leach declined to answer any specific questions about First Command’s investment products.
"Any balanced story on First Command will not focus on investment, insurance, [or]
banking product(s), but rather on the much greater problem faced by American
wage earners and families, military included,” writes Leach. “The problem is not that they have the second best product, but rather that they do not save and invest
regularly in any meaningful way.”
He’s right about that. The greatest threat to most people’s retirement security is behavioral, not structural.
That said, that’s no reason military members need to settle for a product so markedly inferior even to the mediocre industry norms.
Here’s what your First Command advisor won’t tell you:
1. Most of their preferred fund companies are in trouble with regulators for unethical or illegal behavior.
2. There are plenty of excellent fund companies out there—Vanguard, T. Rowe Price, TIAA-CREF, who don’t charge investors a sales load at all—much less a 50% commission.
3. You can dollar-cost average for free with any no-load fund company just by setting up an automatic withdrawal from your bank account and forgetting about it.
4. Index funds can provide near instant diversification at a fraction of the cost of most of our funds. And most of the time, they provide better returns.
So what’s a novice military investor to do?
Consider an appointment with a fee-based advisor who can offer independent, unbiased, personalized recommendations. Check out the fund companies listed above. USAA is another good company with a lot of experience serving military families. If you’re a novice, stick with index funds for now, until you can get an advisor’s help.
And sock away as much as you can in the Federal Thrift Savings Program. It’s a great deal, and there’s no sales charge at all.
But above all—and
First Commandand I are in absolute agreement on this much—get started investing now, and invest regularly, in a meaningful and disciplined way.
Splash, out
Got a son, daughter, or spouse serving in a combat zone? Then you're eligible for a break on the Federal Excise Taxes resulting from any phone calls from service members originating in combat zones. All you have to do to avoid paying them is send a letter, called a 'certificate of exemption,' to the telephone service provider.
According to the IRS, the letter should read something like this:
EXEMPTION CERTIFICATE
(Overseas Telephone Calls)
(Date)..........20...
I certify that the toll charges of $.......... are for telephone or radio telephone messages originating at..............(Point of origin) within a combat zone from..............(Name) a member of the Armed Forces of the United States performing service in such combat zone; that the transmission facilities were furnished by ......(Name of carrier); and that the charges are exempt from tax under section 4253(d) of the Internal Revenue Code.
………………………..........
(Signature of Subscriber)
………...............................
(Address)
To recover any FCC charges you've already paid, you can get a refund from the U.S. Government. Fill out an IRS Form 8849, and an 8849 Schedule 6.
What a country!
Splash, out
Jason
According to the IRS, the letter should read something like this:
EXEMPTION CERTIFICATE
(Overseas Telephone Calls)
(Date)..........20...
I certify that the toll charges of $.......... are for telephone or radio telephone messages originating at..............(Point of origin) within a combat zone from..............(Name) a member of the Armed Forces of the United States performing service in such combat zone; that the transmission facilities were furnished by ......(Name of carrier); and that the charges are exempt from tax under section 4253(d) of the Internal Revenue Code.
………………………..........
(Signature of Subscriber)
………...............................
(Address)
To recover any FCC charges you've already paid, you can get a refund from the U.S. Government. Fill out an IRS Form 8849, and an 8849 Schedule 6.
What a country!
Splash, out
Jason
Deployed Troops: How To Pocket a Free $1,000
Psst. Hey, soldier. Yeah, you. C’mere.
Stand at ease.
Got deployed to Iraq or Afghanistan in February, March, or April? Or are you expecting to be deployed this coming spring?
Ok. How’d you like to make an easy $1,000 bucks?
Here’s how you do it.
Call up your favorite mutual fund company. Personally, I like Vanguard, which is where I stash my investment money. I started with Vanguard Total Stock Market, but there are other ways to skin that cat, too. For beginners, the important thing is to get started.
Sign up for a Roth IRA. Contribute every penny you can. You have until April 15th to contribute for tax year 2003, or you can contribute for 2004, or do both. It makes great sense financially.
Your future will be more secure.
Your spouse will feel more secure.
Your spouse will therefore want to have more sex.
With you.
And so will a lot of other people.
Trust me. It’s a good idea.
The Roth IRA, I mean. I can’t vouch for the sex.
So where does the free thousand bucks come in?
Most income earned in a combat zone is free of federal income tax. Which means it doesn’t count toward your adjusted gross income (AGI), according to Barbara Pietrowski, a CPA in Kensington, Maryland, and mother of a Fort Campbell soldier now deployed in Mosul.
If you leave for a combat zone early in the year, then, and stay until the end of the year, you only have a few weeks or months of taxable income from the military or from your civilian job, as a reservist.
So if you're a working stiff like me, and you made less than $25,000 in taxable income last year (or if you and your spouse file jointly and your combined taxable incomes are less than $50,000), then you may qualify for the low-income IRA tax credit, according to Pietrowski.
You can find the eligibility table here.
Depending on your income level, you may be eligible for a tax credit (not a deduction, a credit) of up to 50 cents on every dollar you contribute up to $2,000. So if you made less than $15,000 (or $30,000 for married couples filing jointly) in taxable income last year, you may qualify for the max.
You may not get a refund--but the credit will reduce your taxes by up to a thousand bucks.
For doing nothing more than something you ought to be doing anyway.
It's not something you're going to read in Money Magazine. Money's only published one chintzy little letter on the combat zone exclusion, and they punted. (C'mon--is a link to the generic IRS home page really the best you can do, people?)
But don't take it from me. I'm just a dumb grunt with a laptop and a rifle. Take it from Barbara Pietrowski: "The ROTH IRA is the greatest gift ever given to the taxpayer that I have seen in 17 years of practice as a CPA and 30 in financial services," she says. "How fabulous!"
What a deal, huh?
Get your Roth started. Open one for both of you if you're married and otherwise qualify.
Now, don't be a "blue falcon."
Share this link with your buddies.
Jason
Military Tax Tip: Selling Your Home
Have you sold a house since May 6, 1997?
If so, you may be able to save yourself a boatload of money this year. I mean, thousands of dollars in some instances.
Here's how:
In order for you to qualify for the capital gains tax exclusion, the law normally requires sellers of houses to have owned the home for at least two years, and to have actually lived in the house for at least two years of the last five.
But this requirement is an onerous one for military families, who are routinely undergo PCS (permanent change of station) moves every one to three years--and are often deployed in the interim.
Under the new tax law, though, military people can 'stop the capital gains' clock for service-related deployments.
That means that if you bought a house, say, in 1995 but PCS'd in 1998, and sold the house in 2003, having spent all that time away from the home at different duty stations, you can still qualify for the exemption, even though you hadn't lived in the home at all for five years.
The reason: The clock stopped when you PCS'd.
The law was written to apply retroactively to May 6th, 1997. But you can work the law to your benefit going backwards and forwards. Meaning that you can claim a new exclusion on a home you sold years ago. Or, you can now sell an existing home (into a hot real estate market) and claim an exclusion, even if you haven't lived in the house for more than five years. Which may or may not influence your decision to sell.
Some caveats:
1.) You can only stop the clock for 10 years.
2.) You can only stop the clock on one residence at a time.
3.) The transfer or duty station has to be 50 miles away from the house or more, and for a minimum of 90 days.
And yes, normally you have only three years to file an amended return. But for this provision the deadline has been extended to November 10th, 2003.
In order to file an amended claim the credit--and potentially get a huge refund--fill out a form 1040X. Write "Military Family Tax Relief Act" across the top of the form, in red ink.
Splash, out
Jason
Guardsmen/Reservists: How To Claim Travel Deductions
Happy April, everyone! I hoped you guys kept your receipts!
Here’s why: If you’re a guardsman or reservist, and your duties took you on an overnight stay 100 miles or more away from home, you can now deduct most unreimbursed expenses related to transportation, meals, and lodging, beginning with tax year 2003. You can't go hog wild, though--you can only deduct up to what the federal government pays its own employees for travel expenses. You can also deduct 36 cents per mile for use of your POV on these trips. (Details are here. Scroll down to page 33.)
Best of all, these are "above the line" deductions. Which means that you can claim them even if you don't otherwise itemize deductions. You don't have to fill out a schedule C, and you still get the benefit of your full standard deduction.
But you won't find these deductions itemized on a form 1040, though, like an IRA contribution or a teachers' expense deduction. Noooooo! nothing can be easy for us reserve component soldiers, can it???
I guess the NEA has more pull with the suits at the IRS than us grunts.
So instead, the bastards are going to make you jump through a couple of hoops.
Here's how to claim the deductions. Follow along carefully.
1. When you put together your returns, you download IRS form 2106 (Employee Business Expense), or a Form 2106 EZ (Unreimbursed Employee Business Expenses.)
2. Use one of those two forms to figure the deduction amount.
3. Fill out an IRS Form 1040. (Don't us a 1040 EZ or you'll miss the deduction!) Write the letters "RC" and the deduction amount on the dotted line. NOT in the box. The dotted line.
4. Add this figure to all your other deductions specifically itemized in lines 23-32.
5. Write the resulting sum into the box on 33.
6. Send this link to every guardsman or reserve soldier or family member in your distribution list, so I can rule the world so they can claim the deduction, too.
Stay tuned--more finance and tax tips on the way!
Splash, out
Jason
IRA Investing for Novices: the 80% Solution
Now, I'm a soldier at heart, so unlike certain international terrorist organizations in 2001 I'm going to make my intel specific enough to be "actionable."
If you're a flat-out novice investor, just starting out, I encourage you to claim your free 'low-income retirement credit' money by taking the following steps:
1.) Go to the TIAA-CREF website and open a Roth IRA for you and your spouse, if any. Contribute as much as you can without risking disaster if your car breaks down or something else unexpected happens. I'd start with the Equity Index Fund.
OR
Go to the Vanguard website, and select either the Total Stock Market Index or Vanguard 500. If you're over 40 or so, try the Vanguard Asset Allocation, which balances your holdings between stocks and bonds, and so is a bit less volatile.
I chose the above funds because they're middle-of-the road funds which are free to get into (no sales charges to commissioned agents) and as index funds they're very inexpensive to own relative to other funds.
OR
Go to the Fidelity Funds site, and click on "Freedom Funds." Pick the one with the year closest to the year you expect to retire. If you don't want to worry about fundpicking at all, these are great "fire-and-forget" funds. They're managed to take some risks to make some money now, but they'll become less risky as you get closer to retirement age. This is the way to go if you just want your fund to make money for you on autopilot.
If you want a little extra help, check out USAA. They offer a variety of decent funds, some excellent auto and property and casualty insurance programs, and a variety of financial and relocation services for military families. They also have financial planners on staff to help get you started.
Then: Educate yourself. Do it now. Don't rely on scammers and sharks to do it for you.
Splash, out
Jason
Friday, July 16, 2004
Test
This is a test posting for Personal Finance, a blog by Jason Van Steenwyk and whoever else might show up. This is only a test.
Stand at ease.
Got deployed to Iraq or Afghanistan in February, March, or April? Or are you expecting to be deployed this coming spring?
Ok. How’d you like to make an easy $1,000 bucks?
Here’s how you do it.
Call up your favorite mutual fund company. Personally, I like Vanguard, which is where I stash my investment money. I started with Vanguard Total Stock Market, but there are other ways to skin that cat, too. For beginners, the important thing is to get started.
Sign up for a Roth IRA. Contribute every penny you can. You have until April 15th to contribute for tax year 2003, or you can contribute for 2004, or do both. It makes great sense financially.
Your future will be more secure.
Your spouse will feel more secure.
Your spouse will therefore want to have more sex.
With you.
And so will a lot of other people.
Trust me. It’s a good idea.
The Roth IRA, I mean. I can’t vouch for the sex.
So where does the free thousand bucks come in?
Most income earned in a combat zone is free of federal income tax. Which means it doesn’t count toward your adjusted gross income (AGI), according to Barbara Pietrowski, a CPA in Kensington, Maryland, and mother of a Fort Campbell soldier now deployed in Mosul.
If you leave for a combat zone early in the year, then, and stay until the end of the year, you only have a few weeks or months of taxable income from the military or from your civilian job, as a reservist.
So if you're a working stiff like me, and you made less than $25,000 in taxable income last year (or if you and your spouse file jointly and your combined taxable incomes are less than $50,000), then you may qualify for the low-income IRA tax credit, according to Pietrowski.
You can find the eligibility table here.
Depending on your income level, you may be eligible for a tax credit (not a deduction, a credit) of up to 50 cents on every dollar you contribute up to $2,000. So if you made less than $15,000 (or $30,000 for married couples filing jointly) in taxable income last year, you may qualify for the max.
You may not get a refund--but the credit will reduce your taxes by up to a thousand bucks.
For doing nothing more than something you ought to be doing anyway.
It's not something you're going to read in Money Magazine. Money's only published one chintzy little letter on the combat zone exclusion, and they punted. (C'mon--is a link to the generic IRS home page really the best you can do, people?)
But don't take it from me. I'm just a dumb grunt with a laptop and a rifle. Take it from Barbara Pietrowski: "The ROTH IRA is the greatest gift ever given to the taxpayer that I have seen in 17 years of practice as a CPA and 30 in financial services," she says. "How fabulous!"
What a deal, huh?
Get your Roth started. Open one for both of you if you're married and otherwise qualify.
Now, don't be a "blue falcon."
Share this link with your buddies.
Jason
Have you sold a house since May 6, 1997?
If so, you may be able to save yourself a boatload of money this year. I mean, thousands of dollars in some instances.
Here's how:
In order for you to qualify for the capital gains tax exclusion, the law normally requires sellers of houses to have owned the home for at least two years, and to have actually lived in the house for at least two years of the last five.
But this requirement is an onerous one for military families, who are routinely undergo PCS (permanent change of station) moves every one to three years--and are often deployed in the interim.
Under the new tax law, though, military people can 'stop the capital gains' clock for service-related deployments.
That means that if you bought a house, say, in 1995 but PCS'd in 1998, and sold the house in 2003, having spent all that time away from the home at different duty stations, you can still qualify for the exemption, even though you hadn't lived in the home at all for five years.
The reason: The clock stopped when you PCS'd.
The law was written to apply retroactively to May 6th, 1997. But you can work the law to your benefit going backwards and forwards. Meaning that you can claim a new exclusion on a home you sold years ago. Or, you can now sell an existing home (into a hot real estate market) and claim an exclusion, even if you haven't lived in the house for more than five years. Which may or may not influence your decision to sell.
Some caveats:
1.) You can only stop the clock for 10 years.
2.) You can only stop the clock on one residence at a time.
3.) The transfer or duty station has to be 50 miles away from the house or more, and for a minimum of 90 days.
And yes, normally you have only three years to file an amended return. But for this provision the deadline has been extended to November 10th, 2003.
In order to file an amended claim the credit--and potentially get a huge refund--fill out a form 1040X. Write "Military Family Tax Relief Act" across the top of the form, in red ink.
Splash, out
Jason
If so, you may be able to save yourself a boatload of money this year. I mean, thousands of dollars in some instances.
Here's how:
In order for you to qualify for the capital gains tax exclusion, the law normally requires sellers of houses to have owned the home for at least two years, and to have actually lived in the house for at least two years of the last five.
But this requirement is an onerous one for military families, who are routinely undergo PCS (permanent change of station) moves every one to three years--and are often deployed in the interim.
Under the new tax law, though, military people can 'stop the capital gains' clock for service-related deployments.
That means that if you bought a house, say, in 1995 but PCS'd in 1998, and sold the house in 2003, having spent all that time away from the home at different duty stations, you can still qualify for the exemption, even though you hadn't lived in the home at all for five years.
The reason: The clock stopped when you PCS'd.
The law was written to apply retroactively to May 6th, 1997. But you can work the law to your benefit going backwards and forwards. Meaning that you can claim a new exclusion on a home you sold years ago. Or, you can now sell an existing home (into a hot real estate market) and claim an exclusion, even if you haven't lived in the house for more than five years. Which may or may not influence your decision to sell.
Some caveats:
1.) You can only stop the clock for 10 years.
2.) You can only stop the clock on one residence at a time.
3.) The transfer or duty station has to be 50 miles away from the house or more, and for a minimum of 90 days.
And yes, normally you have only three years to file an amended return. But for this provision the deadline has been extended to November 10th, 2003.
In order to file an amended claim the credit--and potentially get a huge refund--fill out a form 1040X. Write "Military Family Tax Relief Act" across the top of the form, in red ink.
Splash, out
Jason
Guardsmen/Reservists: How To Claim Travel Deductions
Happy April, everyone! I hoped you guys kept your receipts!
Here’s why: If you’re a guardsman or reservist, and your duties took you on an overnight stay 100 miles or more away from home, you can now deduct most unreimbursed expenses related to transportation, meals, and lodging, beginning with tax year 2003. You can't go hog wild, though--you can only deduct up to what the federal government pays its own employees for travel expenses. You can also deduct 36 cents per mile for use of your POV on these trips. (Details are here. Scroll down to page 33.)
Best of all, these are "above the line" deductions. Which means that you can claim them even if you don't otherwise itemize deductions. You don't have to fill out a schedule C, and you still get the benefit of your full standard deduction.
But you won't find these deductions itemized on a form 1040, though, like an IRA contribution or a teachers' expense deduction. Noooooo! nothing can be easy for us reserve component soldiers, can it???
I guess the NEA has more pull with the suits at the IRS than us grunts.
So instead, the bastards are going to make you jump through a couple of hoops.
Here's how to claim the deductions. Follow along carefully.
1. When you put together your returns, you download IRS form 2106 (Employee Business Expense), or a Form 2106 EZ (Unreimbursed Employee Business Expenses.)
2. Use one of those two forms to figure the deduction amount.
3. Fill out an IRS Form 1040. (Don't us a 1040 EZ or you'll miss the deduction!) Write the letters "RC" and the deduction amount on the dotted line. NOT in the box. The dotted line.
4. Add this figure to all your other deductions specifically itemized in lines 23-32.
5. Write the resulting sum into the box on 33.
6. Send this link to every guardsman or reserve soldier or family member in your distribution list, so I can rule the world so they can claim the deduction, too.
Stay tuned--more finance and tax tips on the way!
Splash, out
Jason
IRA Investing for Novices: the 80% Solution
Now, I'm a soldier at heart, so unlike certain international terrorist organizations in 2001 I'm going to make my intel specific enough to be "actionable."
If you're a flat-out novice investor, just starting out, I encourage you to claim your free 'low-income retirement credit' money by taking the following steps:
1.) Go to the TIAA-CREF website and open a Roth IRA for you and your spouse, if any. Contribute as much as you can without risking disaster if your car breaks down or something else unexpected happens. I'd start with the Equity Index Fund.
OR
Go to the Vanguard website, and select either the Total Stock Market Index or Vanguard 500. If you're over 40 or so, try the Vanguard Asset Allocation, which balances your holdings between stocks and bonds, and so is a bit less volatile.
I chose the above funds because they're middle-of-the road funds which are free to get into (no sales charges to commissioned agents) and as index funds they're very inexpensive to own relative to other funds.
OR
Go to the Fidelity Funds site, and click on "Freedom Funds." Pick the one with the year closest to the year you expect to retire. If you don't want to worry about fundpicking at all, these are great "fire-and-forget" funds. They're managed to take some risks to make some money now, but they'll become less risky as you get closer to retirement age. This is the way to go if you just want your fund to make money for you on autopilot.
If you want a little extra help, check out USAA. They offer a variety of decent funds, some excellent auto and property and casualty insurance programs, and a variety of financial and relocation services for military families. They also have financial planners on staff to help get you started.
Then: Educate yourself. Do it now. Don't rely on scammers and sharks to do it for you.
Splash, out
Jason
Friday, July 16, 2004
Test
This is a test posting for Personal Finance, a blog by Jason Van Steenwyk and whoever else might show up. This is only a test.
Here’s why: If you’re a guardsman or reservist, and your duties took you on an overnight stay 100 miles or more away from home, you can now deduct most unreimbursed expenses related to transportation, meals, and lodging, beginning with tax year 2003. You can't go hog wild, though--you can only deduct up to what the federal government pays its own employees for travel expenses. You can also deduct 36 cents per mile for use of your POV on these trips. (Details are here. Scroll down to page 33.)
Best of all, these are "above the line" deductions. Which means that you can claim them even if you don't otherwise itemize deductions. You don't have to fill out a schedule C, and you still get the benefit of your full standard deduction.
But you won't find these deductions itemized on a form 1040, though, like an IRA contribution or a teachers' expense deduction. Noooooo! nothing can be easy for us reserve component soldiers, can it???
I guess the NEA has more pull with the suits at the IRS than us grunts.
So instead, the bastards are going to make you jump through a couple of hoops.
Here's how to claim the deductions. Follow along carefully.
1. When you put together your returns, you download IRS form 2106 (Employee Business Expense), or a Form 2106 EZ (Unreimbursed Employee Business Expenses.)
2. Use one of those two forms to figure the deduction amount.
3. Fill out an IRS Form 1040. (Don't us a 1040 EZ or you'll miss the deduction!) Write the letters "RC" and the deduction amount on the dotted line. NOT in the box. The dotted line.
4. Add this figure to all your other deductions specifically itemized in lines 23-32.
5. Write the resulting sum into the box on 33.
6. Send this link to every guardsman or reserve soldier or family member in your distribution list, so I can rule the world so they can claim the deduction, too.
Stay tuned--more finance and tax tips on the way!
Splash, out
Jason
Now, I'm a soldier at heart, so unlike certain international terrorist organizations in 2001 I'm going to make my intel specific enough to be "actionable."
If you're a flat-out novice investor, just starting out, I encourage you to claim your free 'low-income retirement credit' money by taking the following steps:
1.) Go to the TIAA-CREF website and open a Roth IRA for you and your spouse, if any. Contribute as much as you can without risking disaster if your car breaks down or something else unexpected happens. I'd start with the Equity Index Fund.
OR
Go to the Vanguard website, and select either the Total Stock Market Index or Vanguard 500. If you're over 40 or so, try the Vanguard Asset Allocation, which balances your holdings between stocks and bonds, and so is a bit less volatile.
I chose the above funds because they're middle-of-the road funds which are free to get into (no sales charges to commissioned agents) and as index funds they're very inexpensive to own relative to other funds.
OR
Go to the Fidelity Funds site, and click on "Freedom Funds." Pick the one with the year closest to the year you expect to retire. If you don't want to worry about fundpicking at all, these are great "fire-and-forget" funds. They're managed to take some risks to make some money now, but they'll become less risky as you get closer to retirement age. This is the way to go if you just want your fund to make money for you on autopilot.
If you want a little extra help, check out USAA. They offer a variety of decent funds, some excellent auto and property and casualty insurance programs, and a variety of financial and relocation services for military families. They also have financial planners on staff to help get you started.
Then: Educate yourself. Do it now. Don't rely on scammers and sharks to do it for you.
Splash, out
Jason
If you're a flat-out novice investor, just starting out, I encourage you to claim your free 'low-income retirement credit' money by taking the following steps:
1.) Go to the TIAA-CREF website and open a Roth IRA for you and your spouse, if any. Contribute as much as you can without risking disaster if your car breaks down or something else unexpected happens. I'd start with the Equity Index Fund.
OR
Go to the Vanguard website, and select either the Total Stock Market Index or Vanguard 500. If you're over 40 or so, try the Vanguard Asset Allocation, which balances your holdings between stocks and bonds, and so is a bit less volatile.
I chose the above funds because they're middle-of-the road funds which are free to get into (no sales charges to commissioned agents) and as index funds they're very inexpensive to own relative to other funds.
OR
Go to the Fidelity Funds site, and click on "Freedom Funds." Pick the one with the year closest to the year you expect to retire. If you don't want to worry about fundpicking at all, these are great "fire-and-forget" funds. They're managed to take some risks to make some money now, but they'll become less risky as you get closer to retirement age. This is the way to go if you just want your fund to make money for you on autopilot.
If you want a little extra help, check out USAA. They offer a variety of decent funds, some excellent auto and property and casualty insurance programs, and a variety of financial and relocation services for military families. They also have financial planners on staff to help get you started.
Then: Educate yourself. Do it now. Don't rely on scammers and sharks to do it for you.
Splash, out
Jason
Friday, July 16, 2004
Test
This is a test posting for Personal Finance, a blog by Jason Van Steenwyk and whoever else might show up. This is only a test.
