November 10, 2010
Vol 3, Issue 11
DFW Financial Planning

Jean KeenerGood morning. 


The market has continued its positive trend with the S&P 500 up nearly 4% in October and more than 7% year to date.  As is often the case in periods with strong equity gains, fixed-income returns for October were more subdued. The Vanguard Total Bond Market Index returned 0.4% for October, while municipal bonds, as measured by Barclays 7 Yr Muni Bond Index, were slightly negative (-0.1%).

In this month's newsletter, we have information on inheriting property in 2010, an update on college cost and financial aid trends, an invitation to the November social security workshop, and more.  As always, feel free to e-mail me at with requests for newsletter topics you'd like to see covered or to discuss concerns or questions on anything in the financial world.   


The Garrett Planning Network conference was jam-packed with lots of great information, and Eureka Springs was beautiful with the leaf changing perfectly timed for our visit.  I'll be out of the office again this month with vacation planned for all of Thanksgiving week.  I hope that you have a wonderful Thanksgiving, and enjoy the time with friends and family.  Thank you, and live well.

In This Issue
2011 Retirement Plan Contribution Limits
Inheriting Property in 2010
College Cost and Student Aid Trends
Homeowners insurance and personal liability
Social Security Workshop for Boomers
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2011 Retirement Plan Contribution Limits
2011 Retirement Plan Contribution LimitsOn October 28, 2010, the IRS announced cost-of-living adjustments to dollar limitations for retirement plans in 2011. 

There were very few changes, however it's still a good time to check your savings levels and ensure that you're on track to contribute as much as planned for this year.   

Roth IRA contribution income phase-outs

The income phase-out range for Roth IRA contributions did go up slightly for 2011 -- for married filing joint it's now $169,000 - $179,000, for single it's $107,000 - $122,000.  These limits only apply for new Roth IRA contributions, not conversions or Roth 401k or 403b contributions.

Elective deferrals
  • The annual elective deferral limit for 401(k) plans, 403(b) plans, 457(b) plans, SAR-SEPs, and the federal government's Thrift Savings Plan remains unchanged at $16,500
  • The annual elective deferral limit for SIMPLE plans remains unchanged at $11,500

Employee "catch-up" contributions for individuals age 50 or older

  • The annual limit on additional catch-up contributions to 401(k), 403(b), and Section 457(b) plans remains unchanged at $5,500
  • The annual limit on additional catch-up contributions to a SIMPLE plan remains unchanged at $2,500

For more information, see IR-2010-108.

Inheriting Property in 2010 -- Estate Tax Rules

2010 estate tax rulesCurrently, there is no estate or generation-skipping transfer (GST) tax for 2010, but both taxes are scheduled to be reinstated in 2011, with a $1 million estate tax exemption, a GST tax exemption of about $1,340,000, and a top rate of 55%. The federal gift tax, however, remains in effect for 2010, with a $1 million lifetime exemption and a top rate of 35%. Of course, it's still possible that we'll see legislative action in the next few months. For example, Congress could extend 2009 rates and exemption amounts (the result would be a $3.5 million exemption amount for both estate and GST taxes and a top rate of 45%). It's impossible to predict specific action, however, or whether any such action will be applied retroactively to 2010.

Current 2010 rules

While the joke may be that this is a good year to die, in reality, it's not that simple. True, there's no federal estate tax--at least for the moment--but the rules that now apply in 2010 change the way inherited property is taxed--in a way that's not always favorable. This means that some individuals who inherit property in 2010 may be in for a surprise when they sell the inherited assets. It's all because of a change in the way cost basis is calculated for property inherited as a result of a death.

New cost basis rules for 2010

What's cost basis? The cost basis of an asset is generally its purchase price, and it's used to calculate taxable gain (or loss) when the asset is sold. For example, if you own a share of stock, your cost basis is generally the purchase price plus any costs incurred in the purchase (e.g., any commissions). With real property, your cost basis is increased if you make capital improvements.


Prior to 2010, the cost basis of any asset you inherited was generally "stepped up" (or "stepped down") to what the asset was worth (its fair market value) on the day that the person who left you the property passed away. So, for example, if you inherited a piece of property worth $100,000, that property would generally have a basis of $100,000, even if the person who passed away had purchased the property for $10,000. If you sold the property years later for $115,000, any taxes due would be based on $15,000 gain ($115,000 minus $100,000).


If you inherit property as a result of a death in 2010, however, this step-up rule doesn't apply. Instead, your basis in the inherited property is the lower of the property's fair market value as of the date of death or the deceased owner's cost basis. In the example above, that means that your basis in the property would be $10,000, resulting in a $105,000 gain if you sold it for $115,000.


There are two very important exceptions.

  1. First, every estate gets a $1.3 million increase in basis that can be allocated among assets (up to fair market value) by the executor of the estate, increased by unused built-in losses and loss carryovers.
  2. Second, there is generally an additional $3 million increase in basis available for assets (also up to fair market value) passing to a surviving spouse, either outright or through a qualified terminable interest property (QTIP) trust (but only $60,000 basis increase for nonresident alien decedents). This means the basis of assets in an estate with a surviving spouse as a beneficiary can potentially be increased up to $4.3 million.

So, if the appreciation of assets in the estate is $1.3 million or less (or $4.3 million for a surviving spouse), then the basis of those assets can be increased to fair market value as of the date of death. This means if you inherit an asset in 2010 with its basis stepped up to fair market value, and you sell that asset for no more than its date-of-death fair market value, you'd realize no tax on the sale.

Gulp!  College Cost and Student Aid Trends 2010
College Education Financial PlanningEvery October, the College Board releases its Trends in College Pricing report that highlights college cost increases and trends.

While costs can vary significantly by region and individual college, the College Board publishes average cost figures, which are based on its survey of 3,500 colleges across the country.

Here are highlights from its latest report:
  • At four-year public colleges for in-state students, tuition and fees increased an average of 7.9% from last year to $7,605, and room and board costs increased an average of 4.6% to $8,535. Total average cost for 2010/2011 is $20,339.
  • At four-year public colleges for out-of-state students, tuition and fees increased an average of 6.0% from last year to $19,595, and room and board costs increased an average 4.6% to $8,535. Total average cost for 2010/2011 is $32,329.
  • At four-year private colleges, tuition and fees increased an average of 4.5% from last year to $27,293, and room and board costs increased an average of 3.9% to $9,700. Total average cost for the 2010/2011 year is $40,476.

"Total average cost" includes tuition and fees, room and board, books and supplies, transportation, and a small amount for miscellaneous expenses.  To read the Trends in College Pricing report, visit


Student aid trends


The College Board notes that the average cost figure is not necessarily representative of what most college students pay. That's because approximately two-thirds of undergraduate students receive grants that reduce the actual price of college. The largest provider of grant aid is individual colleges, followed by the federal government, private sources and employers, and state governments. Some students and their parents also benefit from federal education tax benefits.


The College Board estimates that for the 2010/2011 academic year, students at public colleges will receive an average of $6,100 in grant aid from all sources and federal tax benefits, while students at private colleges will receive an average of $16,000 in grant aid from all sources and federal tax benefits. Federal tax benefits include the American Opportunity tax credit (formerly called the Hope credit), the Lifetime Learning tax credit, and the deduction for qualified higher education expenses.


Every year, the College Board releases a sister report to Trends in College Pricing, called Trends in Student Aid, that examines student financial aid in more detail. To read this report, you can also visit

Homeowners insurance and personal liability

insurance and personal liabilityAs the year comes to a close, it's a good time to review your liability limits on your homeowners and auto policies and make sure they provide adequate coverage. 


Typical homeowners insurance provides limited coverage for personal injuries or property damage to others for which you or members of your family living with you may be legally responsible. The injuries or damages don't have to occur on your property. Your policy will describe what types of claims are covered, and coverage may vary by state, policy type, and insurer, so check with your carrier or agent for particular coverage questions.


Liability protection is comprised of two parts: personal liability and medical payments. Personal liability covers claims or lawsuits against you arising out of bodily injury or property damage to others caused by an accident on your property, or by accidents away from your property, caused by you or family members who live with you. The coverage also pays for your legal defense should you be sued for a covered claim. However, coverage does not extend to losses caused by intentional acts, business related incidents, accidents covered by auto insurance, or claims covered by worker's compensation insurance.


Often, personal liability provides a minimum of $100,000 of coverage "per occurrence." Also, unlike other types of property coverage, there is no deductible for personal liability or medical payments coverage. 


Medical payments pays medical expenses incurred by people accidentally injured on your property, regardless of fault, up to policy limits. Injuries to you or family members living with you are not covered, nor are injuries resulting from activities that involve your business.


Examples of types of liability claims homeowners insurance may cover include: your dog wandering into your neighbor's yard and biting the house painter; a neighborhood child getting hurt climbing your fence, despite your repeated warnings; and your errant golf shot accidentally striking another player in the head.


Depending on the amount of assets you need to protect, the limits in your homeowners policy may be just fine or you may need to adjust your coverage.  If you need more coverage, you might consider increasing your personal liability coverage limits, or buying an umbrella policy that provides additional personal liability coverage in excess of your homeowners coverage.  The purpose of insurance is to protect against catastropic loss, and generally increasing these liability limits costs little relative to the protection provided.

Social Security Workshop for Baby Boomers November 16
Keller Public Library Free Financial Education SeminarsI am providing a free social security workshop on Tuesday, Nov. 16 at 6:30 pm at the Keller Public Library, and you're invited!

Fully utilizing social security benefits can significantly increase baby boomers' retirement income.  Workshop attendees will learn: 

  • 5 factors to consider when deciding when to apply for benefits
  • Why you should always check your earnings record for accuracy
  • How to coordinate benefits with your spouse
  • How to minimize taxes on Social Security benefits
  • How to coordinate Social Security with your other sources of retirement income
Space is limited and registration is encouraged to ensure your space. RSVP to

Future months topics include (always the third Tuesday of the month):

December: Investing Basics: How to build a diversified portfolio and keep your costs low

2011 Topics TBA.  Let me know if there are topics you'd like to hear about!

The Keller Public Library is located at 640 Johnson Road.
I hope you found this newsletter informative.  KFP offers a free, no-obligation initial consultation to start the financial planning process for new clients.  To learn more or schedule a time, call 817-993-0401 or e-mail
Jean Keener, CRPC, CFDP
Keener Financial Planning

Keener Financial Planning is an hourly, as-needed financial planning and investment advisory firm working with individuals at all financial levels.
All newsletter content Copyright 2010, Keener Financial Planning, LLC.