Salespeople are out in force right now selling equity indexed annuities.  They are products that can be very tempting on the surface because they promise the upside of the stock market with downside protection.  And who isn't enticed by that promise right now?

 

However, there are typically lots of issues when you dig into equity indexed annuities that make them less than ideal ... high commissions (ranging to 9%), high investing expenses, high charges on surrender during the initial years of your investment, and big limits on the upside you can realize. 

 

But the purpose of this article is not go into details on the problems of equity indexed annuities.  It's to show you how you can create your own version of this at a very low cost.  I can't take credit for the specific details of this idea, but I am happy to pass it along to you.  It comes from the Money Magazine columnist "The Mole." I like his approach because of its simplicity, and it definitely shows that you don't have to pay high fees to get a guarantee.   You can read the full article on their website, but here's the gist of it:

If you received my email update after the stimulus act was signed into law, the Making Work Pay Tax Credit was included as part of a long list of provisions.  In case you missed the original list, you can still access it on my website.  Here's some more detail on who qualifies for the Making Work Pay Tax Credit and how it will work.

Do you qualify?

 

Most working Americans will, but nonresident aliens and individuals who can be claimed as a dependent by someone else aren't eligible (estates and trusts aren't eligible, either). And to claim the credit, you've got to include a valid Social Security number on your tax return; married couples filing jointly have to include at least one valid Social Security number. Assuming that you make it past these initial hurdles, whether you benefit from the credit depends on your income level.

If your modified adjusted gross income (MAGI) is greater than $75,000 ($150,000 if you're married and file a joint return), the credit that you're eligible for is reduced. If your MAGI is $95,000 ($190,000 if you're married and file a joint return) or more, you don't qualify for the credit at all. And there's one more factor--if you receive a $250 economic recovery payment under the American Recovery and Reinvestment Act because you were eligible for Social Security, Railroad Retirement, or veterans benefits, the amount of the Making Work Pay credit you'd otherwise be entitled to is reduced by that amount.

If you qualify for the credit, you don't really have to do anything. The IRS has issued new federal income tax withholding tables that reflect the Making Work Pay credit. When your employer begins using the new tables, you'll see an increase in your take-home pay. Don't expect to see the full amount of the credit in one paycheck, though. The credit is effectively being paid to you evenly over the balance of the year. (If you're self-employed, qualify for the credit, and don't want to wait until you file your federal income tax return, you'll have to adjust your quarterly estimated tax payments.)

The recent financial difficulties of some of the largest and oldest insurance companies may have you wondering about the financial strength of your insurer. Here are some sources of information that you can use to help you determine whether your insurance policy is safe, and what happens when an insurance company is unable to pay claims.

 

There are several rating services that review, evaluate, and rank insurance companies based on their financial strength and claims-paying ability. The primary players in the ratings game are A.M. Best (www.ambest.com), Standard & Poor's (www.standardandpoors.com), Fitch (www.fitchratings.com), Moody's (www.moodys.com), and The Street.Com (formerly Weiss, www.thestreet.com).

The standards used by each ratings service differ, and the ratings ultimately reflect the service's opinion of the financial strength and claims-paying ability of the insurer--it is not a guarantee of future performance. So you should consider your insurer's ratings from at least two or more services to determine its financial strength.

Insurance companies are heavily regulated by the states in which they are headquartered. Generally, each state requires that an insurer has sufficient reserves to pay all of its claims. In addition, states require that companies file updated financial reports that often are available to the public through the state's insurance department. For information about companies doing business in Texas, visit www.tdi.state.tx.us.

While financial ratings are important, there are other sources that provide financial information about your insurer. For instance, the National Association of Insurance Commissioners (NAIC) is an organization representing the insurance departments of all 50 states. You can access their information by going to www.naic.org. An important statistic contained in the NAIC's financial report of each company is the assets to liabilities ratio. This statistic compares the insurer's total assets to its total liabilities. For example, a favorable assets to liabilities ratio may be $108 of assets for each $100 of liabilities.

Many insurers subscribe to the Standard Analytical Service, Inc., an independent organization that compares insurance companies based on financial statements filed with state departments of insurance. Many insurers publish the Standard's reports on their websites.  The reports compare insurers based on a few important statistics. One such statistic compares the ratio of an insurer's bonds, stocks, cash, and short-term investments to liabilities. A higher ratio of liquid assets to liabilities may indicate the company's ability to cover unforeseen emergency cash requirements if they arise.
Another statistic compares an insurer's surplus assets to life insurance in force. A high ratio of surplus to life insurance in force provides evidence of a company's ability to meet its claims obligations.

If you claim benefits from your policy during a period of extraordinary claims activity, will your insurer be able to satisfy your claim? The chances are better if the insurer has a high ratio of assets, including capital, to policy reserve liabilities. A high surplus ratio may indicate a company's ability to meet its claims obligations even during a period of high volume.

If your company experiences severe financial difficulties, it might be taken over by the state's insurance department. Generally, claims continue to be honored as long as premiums are current. If the company lacks sufficient assets and reserves to pay all claims, the state's guaranty association will either pay claims directly or transfer the policies to a financially stable insurance company that will honor the claims. The National Organization of Life and Health Insurance Guaranty Association (NOLHGA) provides information on state guaranty associations and insurance companies that have failed or are in danger of failing (www.nolhga.com).

I know many of you are sick of hearing me talk about Roth IRA conversions.  But with the market continuing to fall, converting now becomes a better and better deal if you're eligible.  For many, the tax cost of converting has dropped significantly, making this a more attractive option.

You can convert your traditional IRA to a Roth IRA in 2009 if your modified adjusted gross income (MAGI) is $100,000 or less. If you file a joint federal tax return with your spouse, the $100,000 limit applies to your combined income. If you're married filing separately, you're not allowed to convert at all in 2009.  You generally have to include the amount you convert in your gross income for the year of conversion, but any nondeductible contributions you've made to your traditional IRA won't be taxed.

If you're not eligible to convert in 2009, there's always next year--literally, in this case. Starting in 2010 anyone can convert, regardless of income level or marital status. Plus, if you convert in 2010, you're allowed to spread the income tax hit over two years: you report half the taxable income from the conversion in 2011, and half in 2012. So, even if you're eligible to convert in 2009, you should discuss with your financial professional whether it makes sense in your particular case to wait until 2010 to convert in order to take advantage of this special tax rule.

If you're eligible, converting is easy. Simply notify your IRA provider that you want to convert your existing IRA to a Roth IRA, and they'll provide you with the necessary paperwork to complete. You can also transfer or roll your assets over to a new IRA provider.

Remember that you can also convert SEP IRAs (and SIMPLE IRAs that are at least two years old) to Roth IRAs. And, if you're eligible for a distribution from your employer retirement plan (for example, a 401(k) or 403(b) plan), you may also be eligible to transfer or roll over those distributions to a Roth IRA, subject to these same conversion rules.