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Ask MAX: We Aren't Married, Will She Owe Taxes When I Die?

04/13/06 -

Ron from Atlanta asks: 'I'm 62 years old and am not married but I have lived with my girlfriend for over 17 years. She is the main benefactor in my will (which includes a house and a decent-sized mutual fund portfolio), and I plan on leaving her my IRA assets. Will she be required to pay taxes on those assets?

Stuffy old Uncle Sam still doesn't give his full blessing to unmarried couples.

When married people die, they may leave their spouse an unlimited amount of assets free of federal estate taxes. That's called the marital deduction.

Unmarried couples do not receive an unlimited marital deduction, and therefore your girlfriend could be due a nasty tax bill after you leave this mortal coil.

Your estate is the total value of all of your assets, less any debts, at the time of your death.

If you died tomorrow and your assets total less than $2 million (the current federal estate exemption, increasing to $3.5 million in 2009), your girlfriend won't have to pay anything by way of taxes.

If you want to leave an IRA or property in excess of the exemption, it will trigger the dreaded estate tax - currently as much a 46% of the estate's value.

Crash?

Oddly enough, the mundane (and molasses-in-winter slow) market events tend to hurt investors more over the long haul than sudden drops. Even adjusting for inflation, investors lost far more in 2002 than they did in 1987 - the year of the biggest one-day market decline in history. 

February 2006 performance review

Interest rates were down in February, helping bond fund returns. Longer term bonds gained 0.77% for the month, while Vanguard Total Bond Index (which owns all types of investment grade U.S. bonds) rose 0.37%.

Wea Culpa

Jensen has spent a lot of its existence underperforming the market – so why does the fund have a couple of billion dollars under management, and why does it garnish so many accolades in the press and in the analyst community?

Ask MAX: A Fee-Free IRA?

Randy from Ohio asks:

I want to get an IRA started for my wife and I this year. I understand we can contribute $8,000 between the two of us. I have read several sources stating that a self-directed IRA will allow me to keep more of my money.

I have had no problem finding brokerage firms to set up IRAs, but how do I go about doing this without paying a broker? Also, many mutual funds have minimum investments of over $8,000. Are these funds out of the question for me?"

Individual Retirement Accounts were established by an act of congress in 1974, and have been confusing the heck out of individual investors ever since. With no less than eleven distinct varieties of IRAs, ever-shifting contribution limits and distribution formulas you need a degree in advance mathematics to understand, it’s no wonder we're all occasionally left scratching our heads.

February 2006 Trade Alert!

We're keeping our broad bond/stock allocations in our Conservative portfolio to 70% bond and 30% stock (adjusting for a balanced fund). These are tough times for a conservative investor as bond yields are low and value stocks are not cheap anymore – making large allocations to value-oriented stock funds a bit risky. On the plus side, short-term bonds and money market funds finally offer a reasonable yield thanks to recent Federal Reserve rate increases.

Something's Happening Here

The MAXadvisor Newsletter is now MAXadvisor Powerfund Portfolios. But don't worry. Besides the new name, a streamlined design, and some new features, not much has changed. We're managing our model portfolios the way we always have - by choosing the best no-load funds in out of favor categories.