PAGE 70 MONTANA SENIOR NEWS
APRIL/MAY 2010
Financial Potpourri By Gerald Townsend, Senior Wire the year before. If you had “total positive income” Q. Which is a better choice an index fund from $200,000 to $1,000,000, the audit rate inor an actively-managed fund? creased to 2.6% and for those with income above A. What is the best tool a screwdriver or a $1,000,000 the audit rate rises to 5.6%. Threehammer? It depends on what you are trying to fourths of audits were correspondence audits and do. Index funds have low expenses and track only one-fourth were conducted by IRS agents and their benchmark index reasonably well. However, examiners. Keep in mind that it is not just your which index or combination of indexes should you income level, but audits are triggered by certain be tracking and when should you alter this mix? types of income and expenses. For example, oneActively-managed third of the individual return audits were selected funds have higher ex- based on an earned income credit claim. penses, but also provide Q. What is the difference between the Disopportunity to outper- count Rate and the Federal Funds Rate? form the A. When averages, you hear In its most recent annual data book along with about the (for fiscal year 2008), the IRS reported that the posFederal only about 1.0% of individual returns were ausibility of Reserve under(the “Fed”) dited, which is about the same rate as the performchanging year before. If you had “total positive income” ing the interest from $200,000 to $1,000,000, the audit rate averages. rates, it reincreased to 2.6% and for those with income Since the ally means above $1,000,000 the audit rate rises to 5.6%. combined that the perforFederal mance of Open Marall funds represents the ket Committee (FOMC) has set a target Federal average, there will al- Funds Rate. It is a target rate only, because the ways be some funds actual rate is determined by the market. When a that do better and some bank has balances (federal funds) at the Federal that do worse. If you Reserve, it can lend these funds overnight to other are interested in active banks that need the balances. The interest rate management, look for earned by these banks is the Federal Funds Rate. funds that are not “closetInstead of borrowing this money from another “I just w wrote one list; index” funds and seek bank, it could be borrowed directly from a Federal he wen went out and quoted those funds who march Reserve Bank, in which case the borrowing bank the wh whole package.” to the beat of their own would pay the Discount rate, which is usually – ina a Farmers client –T –Tina, drummer otherwise, an higher than the Federal Funds Rate. While the index fund might be the Fed cannot set a specific Federal Funds Rate, it better choice. can establish a specific Discount Rate. Finally, keep in mind Q. I have a large IRA and some of my benthat index vs. active eficiaries are minor children. I am concerned should not be your main about their inheriting too much money at such concern. Instead, the a young age. How can I protect them? major factors that will A. You could leave the minors’ share to a cus® ultimately determine your todian under the Uniform Transfers to Minors Act investment success are (UTMA), but ultimately the IRA would still pass to having an appropriate a child when they become a legal adult – usually and reasonable asset al- age 21. For more control and flexibility, consider location strategy, adding utilizing a formal trust as the beneficiary of the Ready feels good. Not having to deal with multiple to your portfolio on a reg- IRA with the minors as the beneficiaries of the ular basis, and sticking trust. You will need an estate attorney to draft insurance agents feels even better. And when you to your plan especially properly the trust document in order to maximize combine all your insurance needs with Farmers, we don’t just save you during the tough times. the benefits of continued tax deferral as well as Q. What are the protecting and providing for the beneficiaries. One time. We can also help you save lots of money. Contact us today to find odds that my tax return item to consider: Will there be just one big pot that out how we can help streamline your life. And your budget. will be audited? benefits all the children, or will each child’s share A. In its most recent be kept separate? Call an agent today about insurance for auto, home, business, life, and more. annual data book (for fisGerald A. Townsend, CPA/PFS, CFP, CFA, is cal year 2008), the IRS President of Townsend Asset Management Corp reported that only about (www.assetmgr.com), a registered investment 1.0% of individual returns advisory firm. Submit your question to 5120 were audited, which is Bur Oak Circle, Raleigh, NC 27612 or email ANACONDA KALISPELL about the same rate as Gerald@AssetMgr.com. MSN
Tina has a family,
a business, ATVs, a a motor home. and With W Wi th F Farmers rm r , she h only needs one agent to insure them all.l.
Allan Clark 211 Cherry St 406.563.3419
Marc S. Connolly 44 Village Loop Rd 406.752.4350
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David Blackman 1132 Central Ave 406.248.5547
K. Dean Frank 3021 6th Ave N #109 406.248.6979
Danny Blowers 1705 S Reserve 406.541.9885
Tom Eldredge 1643 24th St W #113 406.652.5558
J. Bruce Danielson 2100 Oxford 406.728.3237
Ready Feels Good.
SM