Investment and Finance

Certain distributions commonly referred to as dividends are actually interest. They include "dividends" on deposits or share accounts in credit unions, cooperative banks, domestic savings and loan associations, and mutual savings banks. Report interest income on IRS Form 1040, line 8a If your taxable interest income is more than $1,500, show that income on IRS Schedule B

An Alimony trust is a formal trust arangement where the beneficiary of the trust is the ex-spouse entitled to alimony payments. The settler or person who contributes property to the trust is the ex-spouse obligated to make the alimony payments. The taxpayer may establish a post death "testamentary" trust or a living "inter vivos" trust to provide for the alimony payments required by a divorce decree or an agreement between the parties.

An Educational IRA is a custodial account or a trust set up for the purpose of paying the qualified higher educational expenses of the designated beneficiary of the account.
The designated beneficiary must be a child under age 18. In general higher educational expenses include tuition, fees, books, supplies and room and board for at least half-time attendance.
You may contribute up to $2,000 each year.
The contributions are not tax deductible.
For the current year, an individual may contribute to a child’s educational IRA if those individuals Modified Adjusted Gross Income is not more than $ 110,000 ($190,000 for a married filing joint return).
There is a phase out if the MAGI is between $95,000 and $110,000 for non-joint filers and between $190,000 and $220,000 for joint filers. Amounts in the account accumulate tax-free until distribution.
Distribution of the contribution is always tax-free and the earnings on the contribution are tax free if less than or equal to the years educational expenses.
If more than the educational expense then a pro rata calculation is required. The assets in the account must be withdrawn by the age of 30. No contribution amount may be made in any year who also contributes to a qualified state tuition program on behalf of the same beneficiary.

Withdrawals from a regular IRA that are used for higher educational expenses at a post-secondary school are not subject to the 10% penalty on early withdrawals that is reported on IRS Form 5329. Qualified expenses include tuition, books, fees, supplies and room and board if student is at least a half-time student.

Uniform Transfer to Minors and Gift to Minors accounts are custodial accounts set up in a child's name. There are no income eligibility limits to set up an account. Contributions are not tax deductible. You may put up to $13,000 a year without any gift tax consequences. As the custodian you have the choice to invest the money in any investment you choose. The current year tax consequences are that the first $950 of the investment earnings is tax free, the next $950 will be taxed at the child's tax rate. Any earnings above $1,900 will be taxed at the parents rate until the child is 18 years of age. After 18 the earnings are taxed at the child's rate. An important item to note with these custodial accounts is that the account belongs to the child. The child gains full control of the Uniform Gift account at age 18 and gains control of the Uniform Transfer account at age 21.
Speak to your local CPA for more information on these custodial accounts.

Foe referrals to local CFPs you may call the Financial Planning Association FPA at 800 282-7526 and the National Association of Personal Financial Advisors NAPFA at 888-333-6659.

Mutual funds are usually listed with ratings numbers such as 3/4. A rating of 5 = superior and a rating of 1 = poor. The ratings are calculated by Morningstar Inc. The first rating is based on the grouping of funds into four broad groups. The four groups are domestic stock funds, international stock funds, taxable bond funds and municipal bond funds. The second rating compares funds within a single type of similar funds. The ratings are grouped so that 35% of funds get a 3 while just 10% each get ratings 1 or 5. Note that the ratings illustrate past performance and not future forecasts.

Mutual funds are rated by past performance for the past 3 years as calculated by Morningstar Inc. The rating system in newspapers are represented by 2 numbers such as 4/3.
Ratings range from 1-5, 1 = poor and 5 = superior. The first rating shows the funds performance against a broad group of funds.
The second rating shows the funds performance against a narrower group of more similar funds. The ratings are adjusted for risk.
Two funds might have the same 3 year return but may have different ratings based on the funds volatility.

General Bond fund: CL = long term bond, CI = intermediate term bond, CS = short term bond.
Government Bond funds: GL = long term bond, GI = itermediate term bond, GS = short term bond.
Specialized Bond fund: CV = convertibles, UB = ultra short bond, HY = high yield bond, MU = multisector bond, IB = international bond, EB = emerging market bond. Municipal bond funds: ML = muni national long, MI = muni national intermediate, SL = muni single st. long, SI = muni single st. intermediate, MS = muni single st. short, MS = muni single st. short, MY = muni NY long, MC = muni California long, MN = muni NY intermediate, MF = muni California intermediate.