A greater number of parents say they are more prepared to talk about drugs and alcohol (32%) or sex and dating (28%) than money and finances (26%).

Parents overwhelmingly believe that they -- not the schools, the government, or any other third party -- should provide financial education to their children. Yet most don't practice what they preach.¹

Less than one-third of parents (29%) believe they are "excellent" financial role models for their minor children. The ability to communicate about money appears to be a major obstacle to education within the family: A greater number of parents say they are more prepared to talk about drugs and alcohol (32%) or sex and dating (28%) than money and finances (26%).²

Teaching the Basics and Beyond

The benefits of teaching your children about money early on can pay dividends both immediately and longer term. In the short term, children may develop strong saving habits, learn how to make smart purchases, begin to understand the true meaning of "investment," and perhaps even learn why they can't immediately get everything they want. In the long term, educating children about money now can help them avoid debt as adults. And by teaching children the value of saving for the future at a young age, you can help them establish the groundwork for a lifetime of financial security.

Tips to Help You and Your Child

Even very young children can begin to understand the concept of earning money. Here are some tips:

• Explain to your children that money is earned by working, and that you can only spend what you earn.

• Bring them shopping with you and point out the differences in prices for various necessities, such as food and clothing.

• Begin paying them an allowance for chores completed to help them understand what it's like to get paid on a fixed schedule for doing regular work.

• Help them set goals for how they spend and save their allowance. It's important, however, to make sure that you stick to the payment schedule; otherwise the lesson may be lost.

• Open a savings account in their name and make a point to sit down with them to review their account balance every month.

Regardless of their age, encourage your children to set aside a portion of their allowance or earnings for their financial goals. As they save money, you might reward them with a small additional amount, just like a bank pays interest. At the end of each month, calculate how much they have saved and then chip in a certain percentage as interest.
 
As your children get older, their savings will likely amass at a quicker rate. That presents an ideal opportunity to review the lesson of compounding, or the ability of earnings to build upon itself. Explain how compounding can be more dramatic over time, and that the longer money is left alone, the greater the effect may be. This can lead into a discussion about investing and how certain investments can have a greater ability to compound over time. Teaching your children about money may seem daunting, but it can help put them on the right track by encouraging smart habits.

While you may have been a good role model to your child(ren), the current economic environment has been volatile and difficult. Capital Advantage, Inc. can be a resource to your child(ren) during these difficult investing times. If you feel that we could add value to their situation, please don’t hesitate to contact us - we are more than happy to be of service to you and your family.

¹Source: T. Rowe Price, "Parents, Kids and Money Survey," April 2011.
²Source: ING Direct, April 2011.
 

Tips for Improving Your Credit Score

You will not receive any notification of your required beginning date or your required minimum distribution. It is up to you to know the rules and comply.

Getting your money out of a retirement account is not as easy as putting it in. During retirement, when it should be easy to spend your retirement savings, it can be complicated, as you consider tax issues, required annual withdrawals, and a beneficiary's ability to access your plan.

The IRS requires that you start distributions from non-Roth retirement plans by April 1 following the year you turn 70 1/2. These are called required minimum distributions---or RMDs. For example:

• If your 70th birthday is between January 1 and June 30, you will reach age 70 1/2 that year, and you must take a distribution by April 1 of the following year. This is called your required beginning date (RBD).

• If you were born between July 1 and December 31, you won't reach age 70 1/2 until the next year, and you must take the first withdrawal in the following year. For subsequent years, you must take your distribution by December 31.

Computing Your Required Minimum Distribution

While you may always withdraw larger amounts, the IRS computes a required minimum withdrawal figure using either your life expectancy number or the joint life expectancy of you and your beneficiary. The withdrawal factor is applied to your retirement plans as valued on December 31 of the year prior to the distribution.

Your Life Expectancy

If your beneficiary is anyone other than a spouse who is more than 10 years younger than you, you will use the IRS Uniform Withdrawal Factor Table, which can be found on the IRS website (www.irs.gov), to compute your required distribution. Find the applicable divisor for your age and divide your account balance by this number to compute your required distribution.

If your beneficiary is a spouse who is more than 10 years younger, you may use the IRS Joint Life and Last Survivor Expectancy Table, also on the IRS website. Find your age and your spouse's age on your birthdays in the distribution year, and use the factor where the column and row intersect. Then divide your account balance by that factor.

More Than One Retirement Account

If you have more than one retirement account, start by computing the required distribution for each (the factor may differ if you have different beneficiaries). For employer plans, you must take the required amount out of each plan. However, for IRAs, you may add up the required distributions for several IRAs and take the total out of whichever account you choose, as long as you take at least the required total. You may also aggregate required distributions from tax-deferred annuities (TDAs) in the same way, but you cannot mix IRAs and TDAs, nor may you aggregate inherited IRAs or TDAs with your own IRAs and TDAs.

Penalties for Noncompliance

You will not receive any notification of your required beginning date or your required minimum distribution. It is up to you to know the rules and comply. If you do not comply, Uncle Sam will penalize you 50% of the amount you should have removed plus any income taxes that would have been due on the required withdrawal. Because the distribution rules are complex, you may want to consult your financial advisor who can help you understand the details.

Rules regarding retirement plans are subject to change and it's important to pay attention to changes in the law as they occur. In many cases, mailings that arrive with your IRA or employer plan statements will give you good explanations of any changes in retirement plan laws and how they may affect you. If you have ANY questions regarding your RMD, please contact your Capital Advantage, Inc. financial advisor.