Bob’s Journal 01/08
Why You Should Obtain an IP PIN from the IRS
To prevent having a false income tax return filed in your name and some other types of identity theft, obtain an identity protection personal identification number (IP PIN) from the IRS.
IP PINs are free and fairly easy to obtain.
An IP PIN is a six-digit number issued by the IRS to an individual taxpayer. The number is known only to you and the IRS. Once a person obtains an IP PIN, the IRS mails a new number to the taxpayer at the start of each year.
The number is used when filing an income tax return with the IRS and in some other contacts with the IRS. It is used in addition to your Social Security number and is an added layer of protection against ID theft and fraud.
The potential downside is that since only you and the IRS know the number, you have to be careful not to lose it. You won’t be able to file a tax return without it. You also have to keep the number secure so others don’t learn it.
The IRS started issuing IP PINs years ago to taxpayers who were confirmed as victims of identity theft because false tax returns were filed in their names.
After several years of experience with the numbers, the IRS decided they were effective and would be more effective if most taxpayers had the numbers before identity theft occurred.
Now, IP PINs are available to most individual taxpayers, and the IRS encourages all eligible taxpayers to obtain an IP PIN.
The easiest way to obtain an IP PIN is to first open an online account with the IRS, which you should do anyway.
More details are on this web page.
Be Sure to Name Contingent Beneficiaries
A gap in many estate plans is the failure to name contingent beneficiaries of key products and contracts.
The terms of the will or living trust don’t determine the next owner of some assets, including most retirement accounts, including 401(k)s and IRAs, annuities, life insurance and perhaps others.
The next owner is determined by the beneficiary designation the owner made in either the initial contract or account application or in an update.
I’ve told my readers for many years to be sure to name primary beneficiaries for these assets, especially retirement accounts. Failing to name a primary beneficiary usually means the account goes to the estate.
When the asset is a retirement account, that means the account must be distributed within five years after the death of the original owner.
In many states, the asset becomes subject to claims of the estate’s creditors.
In addition, when a primary beneficiary is named, the assets avoid the cost and delay of probate. But when the estate inherits the assets, the property is caught in the probate process.
Estate planners report anecdotally that even many people who name individuals as primary beneficiaries of these assets don’t name contingent beneficiaries.
But it’s just as important to designate contingent beneficiaries.
A contingent beneficiary is a person who will inherit the asset if the primary beneficiary is unable to do so. There are several reasons why a primary beneficiary might be unable to inherit, but the most common are the primary beneficiary passed away or is a minor.
When the primary beneficiary isn’t able to inherit and a contingent beneficiary wasn’t named, the terms of the contract or account determine who inherits. The most common provision states that the estate inherits, though some contracts and accounts designate others.
Not having a contingent beneficiary can result in the same disadvantages as not naming a primary beneficiary. The assets might not go to the person or people you would want to have them. The assets also become part of the probate process and could be subject to claims of the estate’s creditors.
The bottom line is that even when it seems unlikely that the primary beneficiary won’t inherit the assets, a complete estate plan should designate contingent beneficiaries for retirement accounts, life insurance, annuities and any other assets that pass to the next owner by terms of a contract instead of the will or living trust.
Ways to Reduce or Eliminate the Federal Budget Deficits
The Congressional Budget Office added to the debate over reducing federal budget deficits by releasing a report with options Congress could consider.
Without any changes, the CBO estimates the cumulative deficits from 2025 through 2034 would total $18.9 trillion.
The report contains 76 options for increasing taxes or reducing spending.
The CBO estimates that if all 76 options were enacted, the cumulative deficit would be reduced by $11.1 trillion, leaving more than $7 trillion in deficits.
But the CBO said it found more effective alternatives for about one-third of the options. Using all those options would eliminate all the deficits and develop a cumulative surplus of about $300 billion over the 10 years.
The most effective action would be to eliminate all individual income tax deductions, which would raise $3.42 trillion over 10 years. Almost half of that money would come from eliminating deductions for state and local taxes.
The CBO’s numbers assume that the $10,000 limit on state and local tax deductions expires after 2025, as stated in the 2017 Tax Cuts and Jobs Act. So, eliminating deductions for state and local taxes beginning in 2026 would be only a little different from continuing the current limit on the deductions after 2025. Allowing the deduction limit to expire after 2025 would increase deficits substantially.
There are few options to reduce spending that would generate deficit reductions comparable to the tax increases.
One option that would generate more than $1 trillion over 10 years is to reduce payments to Medicare Advantage plans. Another big deficit reducer ($607 billion over 10 years) would be to set Social Security retirement benefits to 125% of federal poverty levels for all beneficiaries. Higher-income beneficiaries would receive lower benefits than under current law.
Browse the report and decide which options seem feasible to you. Then, let your congressional representatives know. Or have a party/discussion group with friends to see if you can agree on a plan.
For another view of the effects of various budget options, take a look at the Budget Model of the Wharton School of the University of Pennsylvania.
The Data
Home prices declined another 0.2% in October after falling 0.3% in September, according to the S&P Corelogic Case-Shiller Home Price Index.
The index rose 4.2% over the 12 months ending in October after being up 4.6% for the 12 months through September.
The FHFA House Price Index increased 0.4% in October, following a 0.7% rise in September. The index increased 4.5% for the 12-month periods ending in both October and September.
The ISM Services Index improved to 54.1 in December from 52.1 in November.
The ISM Manufacturing Index rose to 49.3 in December from 48.4 in November. This index has been below 50.0 — which indicates the manufacturing sector is contracting — since April and for all but one of the last 12 months.
The PMI Manufacturing Index was 49.4 at the end of December, down from 49.7 at the end of November but higher than the 48.3 mid-December flash reading.
The index has been below 50.0 for six consecutive months.
The PMI Services Index increased to 56.8 in December from 56.1 in November. December’s level is the highest month-end reading for the index since March 2022, but the mid-month flash index in December was higher at 58.5.
The PMI Composite Index for the economy improved to 55.4 in December from 54.9 in November. But the flash index was 56.6 in mid-December.
Pending home sales increased 2.2% in November following a 1.8% rise in October. The 12-month increase in pending home sales was 6.9% through November and 5.4% through October.
The Dallas Fed Manufacturing Index jumped to positive 3.4 in December from negative 2.7 in November.
Factory orders fell 0.4% in November after rising 0.5% in October. A proxy for overall business investment is factory orders excluding transportation orders, which increased 0.2% in both November and October.
There were 122,000 new private sector jobs created in December, according to the ADP Employment Report, down from 146,000 new jobs in November.
The number of job openings increased in November to 8.098 million, the highest level since May, from 7.839 million in October.
The number of people quitting jobs in November was a little lower than in October, while the number of layoffs and discharges was about the same.
Two weeks ago, new unemployment claims fell by 8,000 to 211,000. They fell another 10,000 in the latest week to 201,000, the lowest level in 11 months.
Continuing claims, which lag a week behind new claims, decreased two weeks ago to 1.844 million, the lowest level in three months, from 1.910 million the previous week, which was the highest level in more than three years.
In the latest week, continuing claims increased to 1.867 million.
The Markets
The S&P 500 rose 0.44% in the week ended with Tuesday’s close. The Dow Jones Industrial Average fell 0.04%. The Russell 2000 increased 0.80%. The All-Country World Index (excluding U.S. stocks) added 0.73%. Emerging market equities advanced 0.43%.
Long-term treasuries lost 1.61% for the week. Investment-grade bonds fell 0.94%. Treasury Inflation-Protected Securities (TIPS) declined 0.22%. High-yield bonds gained 0.24%.
In the currency arena, the U.S. dollar advanced 0.27%.
Energy-based commodities increased 1.38%. Broader-based commodities rose 0.75%. Gold gained 1.01%.
Bob’s News & Updates
A recent review on amazon.com of my latest book said, “Carlson is a unique national Asset while alive! Get the book, dude!” Look for “Retirement Watch: The Essential Guide to Retiring in the 2020s” (Regnery Capital: 2023) at amazon.com, barnesandnoble.com, booksamillion.com and regnery.com.
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A recent five-star review of my book, “The New Rules of Retirement” on amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”
If you’re interested in my books, check my amazon.com author’s page.
I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.
