You need financial planning software with sophisticated income tax projection features to make a durable plan for your financial success

Our free achieving financial freedom web site publishes documents on how to establish a self-directed personal finance plan

The family financial plan articles on this free web site provide important ideas to households about family financial plan topics that they should take into consideration. These articles help in making a life time personal finance planning strategy. Furthermore, to produce a fully comprehensive long-term money management strategy depends upon you using the leading financial planning tool with an excellent investment planning software and the leading financial planning tools.

Furthermore, our free achieve financial freedom website enables you to find a first-rate ALL-IN-ONE tax projection software home computer application with the best retirement planning software, first-rate personal finance budgeting software, and the leading investing calculator software for your self-directed lifelong financial planning.

Municipal Bond Investments and Marginal Income Tax Rates

Some investors hold municipal bonds in an attempt to reduce their tax burden. This article discusses the relationships between tax-exempt municipal bonds, marginal tax rates, and investment asset tax location.

An investor’s marginal tax rate is important, when making tax-related investment portfolio decisions. By combining your federal, state, and local marginal income tax rates, you can value the “tax shield” that you obtain from an incremental dollar of non-taxable bond investment income versus and incremental dollar of taxable bond income. The higher the combined marginal income tax rate, the higher the potential benefit from investments that yield non-taxable income.

Using 2008 tax rates, here are two examples with married couples filing joint tax returns who are California residents:

Example A — “Couple A” has $100,000 in taxable income after deductions and exemptions, which would put them into the 25% federal marginal income tax bracket and into the 9.55% state marginal income tax bracket, for a combined marginal income tax rate of 34.55%.

Example A — “Couple B” has $250,000 in taxable income after deductions and exemptions, which would put them into the 33% federal marginal income tax bracket and into the 10.55% state marginal income tax bracket, for a combined marginal income tax rate of 43.55%.

For an extra dollar of taxable income, Couple A would pay 34.55 cents in state and federal income taxes, while Couple B would pay 43.55 cents.

Both could avoid these taxes on an extra dollar of income, if they held a tax-exempt bond investment that was not taxed at both the federal and state income tax levels. California municipal bonds could shield them from these taxes and provide such savings. However, the question is whether the tax savings would be sufficient for one or both of these couples to warrant choosing tax exempt municipal bonds versus an alternative investment in taxable government or corporate fixed income bonds.

Because of investor bidding in real-time credit markets, the markets set differential investment yields on taxable versus tax-exempt assets.

The spread between these yields is influenced by bond investor supply and demand on an after-tax basis. Investors in higher marginal tax brackets have a greater incentive to own tax-exempt bonds. Those who benefit the most from tax avoidance tend to gravitate toward tax-exempt bonds and the opposite is true for those who do not.

To compare after-tax yields on taxable and tax-exempt investments, multiply the percentage yield on the taxable bond by one minus the marginal tax rate expressed as a decimal. Then, compare this result with the market yield on the tax-exempt bond. (Obviously, this comparison presumes that otherwise these taxable and tax-exempt bonds have similar maturities, likelihoods of default, and other provisions and characteristics.)

Assuming a taxable bond yield of 7%, Couple A with the combined marginal tax rate of 34.55%, would require that an equivalent tax-exempt bond would yield at least 4.5815% for the tax-exempt bond to be more desirable on an after-tax basis. [(7.0% times (1.0 minus .3455) = 4.5815%)]

Assuming a taxable bond yield of 7%, Couple B with the combined marginal tax rate of 42.3%, would require that an equivalent tax-exempt bond would yield at least 3.9515% for the tax-exempt bond to be more desirable on an after-tax basis. [(7.0% times (1.0 minus .4355) = 3.9515%)]

Clearly, the investor with the highest combined marginal tax rate has a stronger preference for holding tax-exempt municipal bonds. Investors in the highest total federal and state marginal income tax rate brackets get the most benefit, because the after-tax value to them could exceed significantly the actual market yield spread between taxable and tax-exempt bonds.

The lower one’s marginal income tax rates, then the lower ones potential tax shield benefit. At some point, municipal bond yields become disadvantageous for those who have lower marginal income tax rates, when compared to owning taxable fixed income investments. Whether or not to invest in a municipal bond versus taxable bond, of course, depends upon a variety of factors. These include one’s marginal tax rate, the spread at the time, the tax status of the account holding the asset, the concern for potential default, the duration, etc.

This analysis also demonstrates why municipal bonds should never be held in a tax-advantaged retirement account.

With a tax-advantaged retirement account, the current marginal tax rate on both taxable and tax-exempt bonds would be zero. Tax driven bond market supply and demand forces taxable yields upward or tax-exempt yields downward – whichever might be your perspective. Therefore, only taxable bonds should be held in tax-advantaged retirement accounts because of taxable bond yields would tend to be higher than tax-exempt yields on otherwise equivalent bonds.

There is a “sweet spot” for certain investors to hold municipal bonds

Given the factors discussed here regarding marginal income tax rates, bond market taxable versus tax-exempt yield spreads, and the optimal asset location decision between taxable and tax-advantaged accounts, there is a “sweet spot” for certain investors to hold municipal bonds. Those who are more likely to benefit from municipal bonds have the following characteristics.

These investors tend to have an asset allocation that more heavily skewed toward bonds, and they tend to have far more assets in taxable rather than tax-advantaged accounts. Furthermore, they have relatively high current earned income. Investors with this profile, “fill up” their tax-advantaged accounts with taxable bonds. Next, their heavy allocation to fixed income assets then “spills over” into their taxable accounts. In this circumstance, their very high marginal income tax rates might make owning tax-exempt municipal bonds a more advantageous proposition. Nevertheless, an analysis should always be performed using current bond market yields and total marginal tax rates to confirm that tax-exempt municipal bond investments would be more advantageous.

Personal financial planning tools are recommended to generate a thorough plan for your financial freedom

This free “steps to financial freedom” information site has info concerning how to develop a personally customized family financial plan

The personal finance plan essays on this free web site give important ideas to families and individuals about financial planning program strategy subjects that they should consider. These write-ups help in producing a life time family financial planning strategy. Also, to establish a fully personalized plan for your financial freedom demands that you use an excellent financial calculator with a high quality investment calculator and the top home financial software.

In addition, our free financial freedom information site helps you find the best ALL-IN-ONE financial planning software program home software product with a high quality retirement investment calculator tool, the top personal budgeting software, and the leading investment calculators for your personally customized life long family financial planning.

Guard Your Credit in the Event of Financial Identity Theft

Without becoming a victim of identity theft, you can get a free credit report from each of the three credit reporting agencies once a year. Federal law requires the three major credit reporting agencies to provide these free reports annually. To satisfy their obligations, Equifax, Experian, and TransUnion jointly have established www.annualcreditreport.com, where you can order your free credit reports.

You can also call them at 1-877-322-8228 or write to them at Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. Because the material in your credit reports is usually largely redundant across these three companies, stagger your requests over the year and rotate between the three firms. If there is any problem with your credit report, it usually will show up on any of your reports from these three firms.

(Avoid using any of those obnoxious free credit report copycat companies, such as “freecreditreport.com,” that advertise on TV, but will only supply “free” credit reports, when you pay a lot for their other supposedly valuable premium services. Also, if you are a woman, you probably have already figured out these freecreditreport.com TV advertisers are not to be trusted. Incredibly cluelessly, their TV ads always blame the bride’s bad credit for young guitar playing slacker hubby having to work at a pirate themed fast food job. What a clueless company marketing department to insult the female half of their target audience with their advertising budget! Have they written off women because women shop and are too smart to pay for something that is supposed to be free? Free credit reporting my keister! This is another confirmation that the Federal Communications Commission is dead at the wheel with respect to consumer protections. Companies can get away with confusing people, screaming “free, free, free,” and then charging people for something that they have a legal right to get for free, if they just knew the correct web address.}

Identity Theft Events Provide Opportunities to Lock Down Reporting about Your Credit

While identity theft is a large and growing problem and can be very costly and inconvenient to you, it is just a business cost and headache to financial and retail firms, who also have benefited greatly from the proliferation of easy credit.

One way to protect yourself is to put restrictions on your credit records with the three major credit reporting agencies, Equifax, Experian, and TransUnion. These credit reporting companies have made profitable businesses on both sides. They charge fees to business firms who may not always treat your financial information carefully, and they charge you fees when you want to restrict access to your financial information in their data bases.

For some, these credit information access restriction fees go away when you become an identity theft victim. Whether or not you lose money, if you become a victim of identity theft, this may actually be an opportunity for some of you. In some states, like California, identity theft victims can get long-term locks put on their accounts without having to pay fees to the three credit bureaus.

California Residents Can Get a Free Fraud Alert for Seven Years Following Even a Minor Fraud Event

If you live in California and have become a victim of identity theft, you have rights under California law as an identity theft victim to have your credit files frozen for seven years without paying fees to the credit reporting agencies for such a long-term “fraud alert.” For example, if your credit card shows suspicious charges that you did not make and even if your credit card company takes them off your statement, you still can make an identity theft report to your local police and get a police report. With this police report and by writing to the appropriate addresses and following the procedures, the three credit reporting agencies are obligated legally to put long-term fraud alerts on your credit reports.

The downside of locking your credit report is that you cannot yourself apply and be approved immediately for instant credit. The good news is that nobody else can do the same for seven years, as well. (Note that if you do need to apply for a credit card or refinance a mortgage, you still can do so, but the credit lock on your account just creates a delay. You have to proactively contact the credit bureaus to inform them of the validity your efforts to apply for more credit.)

Lock Up Your Credit at the Credit Reporting Agencies

The upside to locking your credit report is that new attempts to establish credit in your name are blocked without your permission. Not only does that mean that criminals cannot open new credit cards in your name, it means that you have greater protection from other kinds of credit related crimes. For example, the credit crisis has spawned a crime wave of mortgage and real estate line of credit frauds.

Criminals have opened credit lines in home owners names and then have quickly drained the credit lines of their funds. In addition, homes have been sold without the home owners knowledge and sometimes the knowledge even of the “buyer” who also had his or her identity stolen and was an unwitting participant in the transaction.

Obviously, it is better to prevent costly situations like these than clean them up. In addition, pay close attention to any document sent to you by your county registrar. Because of increasing real estate fraud some county registrars, including Los Angeles County, now send notices to the address of record whenever any deed or other records change is filed with them.

<<<<< Go back to the previous part: Protect Your Financial Security

Financial planning calculators are needed to develop a much more reasonable family financial strategy

This free financial freedom website publishes documents on how to produce a do-it-yourself family financial plan

The personal finance plan articles on this free information site give important considerations to families and individuals about personal financial plan topics that they should think about. These write-ups help in developing a lifelong personal finance planning strategy. In addition, to develop a really useful plan for financial success depends upon you using an excellent financial planning tool with superior home financial software and a sophisticated lifetime investment calculator. This free “create financial freedom” website enables you to find the top ALL-IN-ONE personal finance software tool home PC program with the best retirement savings calculator, the top family budget software, and the top investment financial calculator for your do-it-yourself lifelong financial planning.

Financial Planning Security and Identity Theft Prevention

You should take the potential for financial identity theft very seriously, as a threat to your financial security. Identity theft can sometimes entail loss of your financial assets, whether small or large. However, very often it requires taking a very large amount of your time to rectify an identity theft breach. Given the interconnectedness of the personal asset and personal credit system, any breech of your financial identity can have very time consuming ramifications, and the value of your time can many times exceed the value of the money that might have been stolen from you or from some firm through your stolen identity. Furthermore, once your identity is “out on the black market” you are more vulnerable to subsequent attacks. Taking certain steps to prevent an occurrence of identity theft in the first place is prudent. This is why identity theft prevention is a key, but often overlooked, component of a prudent financial plan.

Protection Practices for Sensitive Information and Passwords on Banking, Mutual Fund, Investment, and other Financial Websites

As you set up Internet accessible financial accounts, be very careful with your financial information. Furthermore, as you utilize the Internet it is important that you use what are known as “strong” passwords with more characters (combinations of letters, numbers, special symbols, upper and lower cases). Vary your passwords from one account to another. Never use the same password across your important financial sites. It is much better to maintain list of different passwords that you carefully protect at home, rather than to use a single weak or even strong password across various financial websites. Furthermore, it is a good practice to vary your user name from one account to another. In effect, different user names and different passwords in combination make your identity on any single site much more secure.

Therefore, it is recommended by security authorites that all your financial passwords for your on-line accounts be both strong and different. Many identity thieves are clever and sophisticated. Furthermore, there is a cyber underground and internet black market where compromised identity information is shared, bought, and sold. This cyber crime underground stretches around the world. When your user names and passwords are both strong and different, you could avoid a single identity breach from cascading across your other financial accounts.

Avoid using more sensitive information, such as mother’s maiden name or your city/state/date of birth, for example, as your answer to security challenge questions on any ordinary, non-financial website.  Reserve this information only for those sites that hold your financial accounts and your financially sensitive information. Simply assume that the vast majority of websites have absolute amateurs in charge of their website systems architecture and security. While this may not be true of any given website that attempts to collect sensitive information from you, assuming that the site security is poor is a wiser assumption, because you never know which site could be the weak link. Systems administrators of financial web sites tend to be much more sophisticated concerning security affairs, but they certainly are not infallible. Furthermore, all it takes is one corrupt employee at firm with strong or weak web systems security, to circumvent any protections that are in place.

Deal with Financial Services Company and Non-Financial Websites

With less important and non-financial web sites that require registration, you could use the same username and the same easily remembered strong password. However, it would be very wise never provide these sites with any additional information that is accurate about your name, address, phones, the security challenge answers above and other potentially sensitive information. Always assume that security on any of these “unimportant” web sites could be breached and that your password information could be used to access other accounts elsewhere. By drawing a strong distinction between the user names and passwords that you use on financial and other sites that are important to you versus those unimportant sites requiring registration information, you can in part firewall yourself from security breaches in the less well managed part of the Internet. Why supply via perhaps a forum registration to some hobby web site your actual name, address, etc. And, certainly do not supply your date of birth or mother’s maiden name as the answer to the security challenge questions. If that forum website’s membership database is breached you will have supplied key information needed to breach the financial accounts that are really important to you.

Access to your personal email system or systems should require a strong and different password. Stored email messages can contain passwords for which a thief could search. Furthermore, on your home computer systems, you should always have a fully functioning firewall and up-to-date anti-virus/anti-spyware software that is always on.

Take these issues seriously. Cyber crime is worldwide, cooperative, and increasing sophisticated. Since it is highly profitable and risks of criminal prosecution are low, do you think this problem is going to go away. The prudent thing to do is to keep identity theft away from your door, if you can.

Avoid Phishing and Other Impersonation Attacks

Avoid phishing of all kinds. For example, never provide any personal data of any kind in response to a link provided to you via email. Always ensure that the URL of the site you are using is the correct URL. If you are ever in doubt, type in the URL yourself or search for the site on Google and then enter the site with the link from Google.

Furthermore, never enter any financial information or other sensitive information into any website that does not use the secure “https” protocol (note the “s” added to “http”). When buying over the Internet with a credit card or otherwise, if a site does not use https, do not use it. Use only one credit card when buying on the web. If that credit card is compromised, you can close that credit account number and replace the card.