Stewart Financial Services

California Probate Changes

2012-01-23T11:01:00.000-08:00

Some good news for those of us who live in California and have to deal with the dreadful probate laws and expenses. California is one of the most expensive probate states in the Union.

Effective January 1, 2012 a beneficiary can collect up to $150,000 (formerly $100,000) as an heir and not have to go thru probate. As long as these assets are titled in the decedent's name alone. For example, if I have a savings account with a $150,000 in my name only, my beneficiary can transfer these assets to her name with out having to go thru probate. It is a much simplified affidavit procedure.

In addition, real estate transfers up to $50,000 (formerly $20,000) can occur at a much simplified procedure in the court without excessive expenses and time to transfer. This is especially useful for small parcels of land, timeshares etc....

And the last good news is that a surviving spouse or domestic partner can collect via affidavit salary owed to a deceased person up to a maximum of $15,000 (formerly $5,000)

However, if you have a Trust, make sure that you still title all your non retirement assets in the name of the Trust. After all, why have a Trust in the first place?

Thanks California for giving our heirs a break!

Jazzy January Financial Resolutions

2012-01-08T16:03:00.000-08:00

OK, folks, 2012 is here and my plan is to give you some financial "must do's" for each month of the year. By the time December, 2012 rolls around, you will be well on your way to having your financial house in order.

January is a good time to do the following:

1. Check your credit score.
Since 2005, consumers have had the right by law to get a free annual credit report from the credit reporting bureaus. To do this, go to AnnualCreditReport.com. While there are other websites that may promise to provide your credit report, this is the official website, supported by the free credit report law. In other words, it’s been sanctioned by the US government.

When you arrive at AnnualCreditReport.com, you’ll find that you have three options: Equifax, Experian, and TransUnion. Each of these represents a different credit reporting bureau, and each has to give you a free credit report once a year.

If this is your first time checking your credit report, we advise you to check all three now. A 2004 study found that 25% of all credit reports had some mistakes, so it’s critical to make sure that all of your credit reports are accurate

2. Consider Refinancing
Mortgage interest rates are ridiculously low right now--I can not imagine them descending any lower. If you have not taken advantage of these low rates, then seriously consider refinancing. But only if you plan on remaining in your house for at least 4 or more years. And only if you can refinance for no more than 80% of the value of your home. Lock into a 30 year fixed and then pat yourself on the back for making a really smart financial move.

3. Organize Tax Records
Start collecting and organizing all your tax records. It is amazing the money you can save on taxes if you take the time to organize! Your tax preparer will LOVE you if you have all your records together.

4. Set Realistic Goals
This is a good month to set some financial goals. Maybe you need to save for a car, or set up an emergency savings fund or more aggressively save for retirement. Write down your goals and create an action plan. The best and most effective way to save has always been to "pay yourself first." This means setting up automatic transfers from either your payroll or your checking account to the savings plan of choice. There is no other way to do this. If you wait till the end of the month, you will have more month left than money.

Here's wishing each of my readers a year of financial prosperity and abundance and a heart to share.

Renting versus Buying

2012-01-04T14:10:00.000-08:00

We have all been sold the "American Dream" which is to own our own home. And while there are some great buying opportunities in the market right now coupled with ridiculously low interest rates, it may not make sense for you to buy but rather to rent.

If you have substantial credit card debt, you should work towards paying this off first
Not having the 10-20% for a down payment means that you are not ready to buy
If you plan on moving in the next 5 years or are unsure that you will remain in the house it makes sense to rent. Selling a house is expensive with realtor fees and closing costs.
Run the numbers and sometimes it makes much more sense to rent than buy. There are online calculators that let you input all the data and make an informed decision.
If you are unsure about the responsibilities of being a homeowner such as deferred maintenance on the house, landscaping, repairs, upkeep etc... then just rent!

The "American Dream: is not for everyone. Make sure you weigh all the pros and cons before jumping in and buying a house especially when some realtor tells you "it's the steal of the century."

Military Holiday Homecoming Surprises

2011-12-05T12:16:00.000-08:00

Guest post by Marcie

While I save and "spend within my means" (sometimes I really hate that term!) during this holiday season, sometimes it can get a little frustrating knowing that I need to keep within my budget for gifts. It's pretty hard not to get caught up in the 'buying' madness.

First it was just Black Friday, but now I need to resist spending for Small Business Saturday AND Cyber Monday, too?! And while subscribing to Groupon and other local coupon deals help save money, it's not been helping me to resist the temptation to go beyond that budget and shop 'til I drop. Because, heck, it's 60% off for crying out loud!!!!

I needed to come back to Earth before I destroyed my checking account.

I began to search for heartwarming photos and stories to help me see beyond the lie that having the perfect gifts would automatically equate to a perfect holiday season. I found it.

The following videos are surprise holiday homecomings from our men and women who sacrifice every day: our military. I often forget that many families go without the one thing they want most, their friends and family...

After watching these, much humbled and a bit puffy-eyed, I am reminded how thankful I am for these families that serve together. I hope you'll join me in this spirit and watch these videos.

And a whole montage of great surprise military holiday homecoming here, too.

Thank you, United States Military, for serving. I wish you a peaceful and safe holiday.

Free Tax Saving Strategies Help (Part Two)

2011-12-05T11:04:00.000-08:00


Even this cat disapproves of this tax organizing technique!

Last month we posted Part One of a two part blog: great strategies on how to save on your 2011 taxes this year. Click here to visit the previous blog. Here are some more great tips!:

If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholdings of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2011 if doing so won't create an alternative minimum tax (AMT) problem.
Estimate the effect of any year-end planning moves on the alternative minimum tax (AMT) for 2011, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction for state property taxes on your residence, state income taxes (or state sales tax if you elect this deduction option), miscellaneous itemized deductions, and personal exemption deductions.
Accelerate big ticket purchases into 2011 in order to assure a deduction for sales taxes on the purchases if you will elect to claim a state and local general sales tax deduction instead of a state and local income tax deduction. Unless Congress acts, this election won't be available after 2011.
You may be able to save taxes this year and next by applying a bunching strategy to “miscellaneous” itemized deductions, medical expenses and other itemized deductions as these deductions are allowed only after exceeding a percentage of adjusted gross income.
If you are a homeowner, make energy saving improvements to the residence, such as putting in extra insulation or installing energy saving windows, or an energy efficient heater or air conditioner. You may qualify for a tax credit if the assets are installed in your home before 2012.
Unless Congress extends it, the up-to-$4,000 above-the-line deduction for qualified higher education expenses will not be available after 2011. Thus, consider prepaying eligible expenses if doing so will increase your deduction for qualified higher education expenses.
If you are age 70-1/2 or older, own IRAs and are thinking of making a charitable gift, consider arranging for the gift to be made directly by the IRA trustee. Such a transfer, if made before year-end, can achieve important tax savings.

Remember, make sure you are working with a pro who can help you navigate all the complex tax strategies mentioned here. Have a dialogue!

Should I Refinance?

2011-12-05T09:00:00.000-08:00

This is one of the most frequently asked questions from clients. Here are some rules of thumb:

Mortgage rates are historically low right now and most likely the lowest we will ever see so it is wise to take advantage of the opportunity in today's economic environment
You need to have at least 20% equity in your home to refi
You should be planning to stay in your home for at least 3 years or longer to offset the cost of the refi
It only makes sense if you can lower your interest rate by a 1/2 percent or more
Always get a fixed rate loan

Many folks think that getting a 15 year loan is a smart deal as their house will be paid off quicker. While that is true, I always counsel folks to get the 30 year fixed loan because it doesn't lock you into the higher payment. And you always have the option of paying extra principal on your loan and shortening the payoff time. And, for example, what if you lost your job or had significant unexpected expenses to deal with, then the 30 year loan is a welcome relief. A 30 year loan gives you peace of mind at night.

What about the costs of refinancing? Many mortgage companies promote "no cost mortgages" This certainly sounds appealing. You pay no costs to refinance. But is it truly free? Unfortunately, there is no "free lunch" in business. You will pay these costs one way or another. Your interest rate will be higher with the "no cost mortgage". Anywhere from .5% to 1.25% and over the period of 30 years, this higher interest rate really adds to the cost of the loan. In most cases, it makes more sense to pay the closing costs either out of pocket or added to the loan balance.

Bankrate (www.bankrate.com) is a good place to start to get an idea of the current refinance rates. That way, you are are prepared to talk to a lender with competitive information. The refi marketplace is highly competitive so do your homework!

Free Tax Saving Strategies Help (Part One)

2011-10-31T11:37:00.000-07:00

Photo by soukup on Flickr.

Whether you like it or not, you have to pay taxes. But understanding the tax code these days requires a rocket scientist to interpret. Even Albert Einstein said “the hardest thing in the world to understand is the income tax.” There is hope and that’s where a good tax advisor comes to the rescue. Our firm take a very proactive approach to tax planning. Let’s look at some ways that your taxes can be reduced for 2011:

Increase the amount you set aside for next year in your employer's health flexible spending account (FSA) if you set aside too little for this year. Don't forget that you can no longer set aside amounts to get tax-free reimbursements for over-the-counter drugs, such as aspirin and antacids.
If you become eligible to make health savings account (HSA) contributions in December of this year, you can make a full year's worth of deductible HSA contributions for 2011.
Sell the stock/mutual fund losses in your taxable portfolio and capture the losses. Even if you cannot use all the losses in 2011, they can be carried over. You can always claim at least $3,000 in losses in any one year. That’s a savings of $1000 in taxes for most folks.
Postpone income until 2012 and accelerate deductions into 2011 to lower your 2011 tax bill
Consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your adjusted gross income for 2011. However, Roth IRAs are tax free forever.
If you converted assets in a traditional IRA to a Roth IRA earlier this year and the assets in the Roth IRA account have declined in value and if you leave things as-is, you will wind up paying a higher tax than is necessary. You can back out of the transaction by recharacterizing the rollover or conversion, that is, by transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional IRA via a trustee-to-trustee transfer. You can later reconvert to a Roth IRA.
Consider deferring any bonuses into early 2012.
Consider using a credit card to prepay expenses that can generate deductions for this year.

Tomorrow, I'll have more free tax saving tips to save you even more in 2011! Remember, make sure you are working with a pro who can help you navigate all the complex tax strategies mentioned here. Have a dialogue!

10 Financial Truths that are Just Plain Wrong

2011-10-01T08:27:00.000-07:00

Many of the financial planning concepts and strategies that have been around for many years are just not applicable to most folks. A lot of these so called “truths” developed out of the need to sell products rather than doing what is right for the client. In the next few blogs, we are going to debunk these financial “truths” and set the record straight. Much of this information comes from a real pioneer in the fee-only financial planning arena and his name is Bert Whitehead, the founder of Alliance of Cambridge Advisors, of which I fortunate to have been a member for the past 13 years. And am still actively involved. So, let’s get started

1. Risk Tolerance is an important consideration in your portfolio---WRONG

Most financial advisors, stock brokers etc…. administer a psychological test to clients to assess their psychological tolerance for risk. This is really a CYA strategy that is more about protecting the advisor or broker. The real question that needs to be probed and addressed is how much risk the client currently has in his/her life. Based on an analysis of current risk, we then determine how much risk is appropriate for the client.

We look at things like job stability, persons dependent on your income, current savings level, protection against inflation and deflation and risk needed to meet the client’s goals. I am a big fan on only taking as much risk as is needed. This is totally counterintuitive to psychological risk questionnaires. For example, let’s assume that a person answers test questions that show an enormous appetite and tolerance for risk. However, they are in an unstable job, married with 3 people dependent on him/her and have not been saving much. It doesn’t matter how the test scores came out, this person should not be taking a great deal of risk in their investments. Get the picture?

Bottom line… It is the current risks in your life/job/circumstances that are important and not some risk tolerance score based on a set of questions.

Next blog…we will look at debunking myths about inflation. Stay tuned.

Willeen: A Life Well Lived

2011-09-05T12:04:00.000-07:00

Last Friday I attended the memorial service for a dear friend and client of ours. She lived 82 years and listening to the eulogy, I was in awe of how she lived those 82 years.

I met Willeen Hasler when I was a budding entrepreneur in 1998 with the lofty goal of starting my own financial planning practice. Willeen was involved in Score Counseling and also the Carlsbad Chamber of Commerce. She took me under her wing and introduced me to several folks. She chaired the North County Women’s Roundtable and there I met many women who were instrumental in getting my business off the ground. She managed to rope me into chairing the Chamber’s First Friday breakfasts and also involved me in several other committees. Somewhere along the way, she became my client, which was the highest form of friendship and trust.

As I sat there last Friday listening to her life story, I was struck by how she lived her life. I would sum it up in two words: Servant Leadership. She loved to serve people and she did so with a forever expanding heart and unconditional love. She always had the other person’s best interest in mind. She wanted others to succeed and she stood by cheering them on. She loved business and used her God given talents and gifts to help others in business. She was a friend to all and she always had positive things to say about everyone.

She also served her church and was generous with her time, talent and treasure. When one passes away at 82 years of age, there usually are not a lot of people in attendance at the funeral because so many friends and loved ones have passed away and often, elderly people just do not socialize any more. Not in the case of Willeen as the church was filled with folks of all ages. It was a beautiful testament to a treasured soul.

Oh, and did I forget to mention that Willeen only retired in 2010!

Rest in peace, dear friend, you were a good and faithful servant.

The State of the US Economy

2011-08-10T16:33:00.000-07:00

Some economic indicators took a downward turn last month and of course the media has focused on these negatives. But there have been many more positive trends and let’s take a look at the “good stuff” happening in the US economy.

• The Index of Leading Economic indicators (see definition below) turned upward at the end of June and points to slowly expanding economic activity in the coming months

• Payroll data reflects modest improvement and is displaying a typical pattern of jobs recovery that occurs after a serious slump

• There were 117,000 net new jobs added in July and Unemployment claims have fallen from their high in April of 2009

• Cities, states, counties and federal entities are still shedding jobs but the private sector is adding jobs—this is good news for a more healthy economy

• Unemployment rate for college graduates is only 4% compared to national average of 9%. Getting a college degree is a smart thing to do!

• Fiscal stability of most states has greatly improved and revenues are now in line with expenses. Most states have balanced budgets. And have made the necessary cuts.

• Vehicle sales have been sluggish and pulling down Gross Domestic Product (GDP) (see definition below) growth mainly due to the parts shortage caused by the Japanese Tsunami. However, that is improving and we should be back to 13 million in sales per month for the last quarter of 2011.

• The US GDP growth is forecast to be close to 3% for the remainder of the year.

• Consumers have significantly shed debt loads and consumer credit is surging. This is a key driver in our consumer driven economy.

• Housing affordability is at an all-time high

• Interest rates expected to be very low for at least next two years, allowing more folks to take advantage of extremely low real estate prices.

• The US adds approx. 3 million new bodies each year. New housing starts have averaged 1.5 million per year. Considering that we have only been adding approx. 500,000 new housing units, the demand will soon exceed the supply. Once all the foreclosures and short sales get off the market, the demographics prove that a strong housing recovery will occur.

• Retail sales are higher now than before the crash of 2008. The consumer has more disposable income and is spending. But the consumer is also being wise and saving—the saving rate is 5.4%.

• Inflation is not expected to be an issue for several more years as promised by the Fed Reserve at yesterday’s meeting.

• Companies are reporting strong corporate earnings. Much of these earnings are being derived from overseas sales which are expected to persist. China, India and other emerging countries have a huge appetite and capacity to purchase our goods and services. And earnings drive the market in the long run. Right now, the S%P is selling for 11 times earnings and that is dirt cheap! The outlook for the stock market is good.

Index of Leading Economic Indicators

An index that is compiled by the Conference Board, a private-sector consulting firm. The index is designed to indicate the future direction of economic activity. A rising index signals that economic activity can be expected to increase in the near future

Gross Domestic Product

The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

9 Reasons to Not Panic About the Debt Downgrade

2011-08-08T13:00:00.000-07:00

The Silver Lining in the US Credit Downgrade

Photo by Eric E Proimos on Flickr

The US has had a AAA rating since 1941 and certainly in my lifetime, it was unthinkable that we could ever lose this coveted rating. But the unthinkable happened last Friday and one of three credit rating agencies (S&P) stripped the US of the AAA rating and downgraded us to AA. So…what does this mean and what are implications?

1. Only S & P chose to downgrade, that means that Moody’s and Fitch still have confidence in our AAA status. Two out of three ain’t bad!

2. Insiders at the rating agencies and many large companies believe that the S&P move was super cautious because, remember, that they gave AAA ratings to all the companies that held all the toxic assets that brought down the economy in 2008. They were severely chastised by Congress for being asleep at the wheel and they lost a lot of credibility in the process. Payback time???

3. The downgrade is more a function of the political impasse in Washington and concerns that our political system cannot chart the necessary course to reduce our deficit and have a balanced budget.

4. Warren Buffet’s perspective (and I value his commentary far more than the “talking heads” of the media) is that there's no question that the United States' debt is still AAA and that he's not changing his mind about Treasurys based on Standard & Poor's downgrade. "If anything, it may change my opinion on S&P," the legendary investor said.

5. Japan lost its AAA rating many years ago but has had no problems borrowing money at super low interest rates despite a Debt-GDP (gross domestic product) ratio about where we will be in 7-10 years.

6. Rates are a function of supply and demand. Our supply isn’t changing, so a downgrade would tell us that the demand will now change. Really folks? Where will the money go? China is a huge purchaser of our debt and might like to park it somewhere else but where? No other country has the liquidity and the size to store their cash reserves. And no other country is safer.

7. The new rating does not mean we are heading into a recession. While our economy is still struggling (Pimco calls it a “hobble through” economy) there is room for cautious optimism. 70% of the S&P 500 companies have exceeded earnings estimates this year. The unemployment figures look bad but if you drill down, the governments (cities, states, counties, US govt) are the ones shedding jobs while the private sector is adding jobs. Isn’t this what we hoped for and expected to happen as our infrastructure shrinks?

8. The silver lining is that this is a wakeup call to Washington. It is a loud and urgent signal that we can no longer kick this can down the road. We have to deal with our burgeoning debt, our not so balanced budget, our entitlement programs such as Medicare and social security and we need to do it NOW. Both parties need to put aside their agendas and do what is right for our country and the world as we are still the Super Power. I was encouraged by President Obama’s speech today because I think that our politicians (both parties) now realize the damaging effects of the past 4 weeks. It was a humiliating picture to the world of how partisan and childish we have become. There will be enormous pressure on the bipartisan committee of 12 to get the job done and come up with a plan to show the world that we are serious about putting our country back on the path to financial soundness.

9. I, for one, am almost elated that this happened. We needed a kick in the butt. If I had a boatload of cash lying around, I would be buying every good US Company that I could. Ahhh… if only I had a small portion of Warren Buffet’s fortune!

A Summer Rollercoaster Ride

2011-08-07T12:49:00.001-07:00

With the U.S. stock market falling for eight of the past nine days and dropping 8% during the past week, you are probably just a little bit on edge. After Thursday’s 5% drop in the S&P 500, the index is now down for the year, and the media is having a field day with terms like global meltdown, double dip recession etc.. I can understand the anxiety that you are feeling. It’s only natural.

My advice to you is the same as it was in 2008 (and has been for the past 13 years). Take a deep breath, stay calm, and keep your emotions in check. Successful investing requires us to be patient and have a long term attitude. Successful investors are not market timers. None of us has a crystal ball that tells us where stocks will go in the next month or quarter. But we do know that throughout history, stocks as a group have gone up two out of every three years, and I am confident that investing in a well-diversified portfolio of stocks and bonds remains one of the best ways to create lasting wealth for you and your family.

Looking back for context, we know that after falling 22% during 2002, the S&P 500 rallied 28% in 2003. In 2008, the market dropped a whopping 37%, only to gain 26% in 2009 and 15% in 2010. History is on the side of the patient investor who remembers that investing is a long term process.

Perspectives on the US Debt Ceiling Debate

2011-07-29T13:52:00.000-07:00

Today, I participated in a conference call with the senior economists from TD Ameritrade. These notes are taken directly from this call. I must credit TD Ameritrade for a great job in detailing the four most likely outcomes and the ramifications for each scenario.

Scenario 1….”to dream the impossible dream”

In this scenario, congress finally agrees to the “grand bargain” whereby $3-4 trillion in financial austerity is agreed to. This is the most optimistic scenario and probably hard to achieve within the short time frame of only 4 days. But this agreement would yield the most positive financial market reaction. And a rough path would be carved out for a more sustainable US budget picture. But while the markets would calm down, this will come with a huge economic price as our GDP growth will slow down over the next several years. It will be a painful process as we move towards a balanced budget with expenditures not exceeding income and severely trimming the deficit. Something that absolutely needs to be done but folks, there will be pain in the process.

Scenario 2…”no harm..no foul”

In this scenario, a last minute deal is struck and government operations are not affected. However, this deal involves only an incremental increase in the debt ceiling in exchange for ongoing discussions of further reductions etc… Standard and Poor’s will most likely downgrade the current AAA status of the US government because they do not see a long term plan in place for reducing the deficit. Having said this, it will only have a benign impact on the US economy. Other rating agencies do not appear inclined to follow Standard and Poor’s. The markets should react favorably in the short run.

So, while we dodged the bullet in the short term, we still need to come up with a long term plan much like the “grand bargain” cited above. We have just kicked the can down the road.

Scenario 3…”a flesh wound”

In this scenario, no agreement is reached before the Aug 2nd deadline. S&P downgrade is certain and also the risk of downgrades by other rating agencies. We will have a double hit to the economy. Approx $135 billion a month would be withdrawn from the US economy (this is the current shortfall resulting from $165 billion a month in revenues and $300 billion a month in expenses). You can imagine the immediate impact of spending $135 billion a month less and how this will slow down the economy. The second hit would come from a rise in Treasury yields (our bonds would not be as credit worthy, so therefore we have to pay investors more to buy them). If the situation is only for a few days..a week at the most, the impact will not be disastrous. We clearly have the revenues ($165 billion a month) to pay our debt and the debt payments would receive first priority. So we would not default on our interest payments but other government expenditures would be severely cut back. Gee—maybe Congress would not get paid! But if allowed to continue for the entire month of August or later, then we could certainly be back in a recession. Bottom line is that this scenario would lead to short term financial turmoil that will weaken an already weak and fragile US economy. But not the end of the world.

Scenario 4…”a mortal blow”

In this scenario, there would be an actual default because Congress has been unable to reach any type of agreement and it has dragged on for too long after the 8/2/deadline. This would be considered a technical default as the Central banks understand this would be caused by bi-partisan politics and not the inability of the US to pay its debt. While we may receive grace from the financial markets, the rating agencies would lower our rating to “SD” which stands for selective default. This is unknown territory for the US. Interest rates on our government bonds would probably rise dramatically. Investors would flee from treasuries (once considered the safest investment in the world) and there would be a rash of redemptions. Stock market would tank and there would be a total freeze in the credit markets. We would be plunged back in to a deep recession.

So what do I think will happen? Much as I would love to see #1, I just do not think it likely due to the late hour but who knows…miracles do happen. I think there is a 75% chance that the#2 scenario will occur and 25% for # 3.

Changing Residency to Reduce Taxes

2011-07-11T16:52:00.000-07:00

Many retirees or pre-retirees are desirous of having a second home in a more "tax friendly" state in order to claim residency in that state; thereby increasing their standard of living by paying less on taxes. With California boasting one of the highest state tax brackets, this often can be a smart decision.

However, claiming residency in another state is not as easy as it sounds. According to tax laws, "residency" is the location of your permanent home. You are considered a resident of a state if you intend your main home to be in that state. Your state of residency is determined by whether the time you spent in that state was permanent or temporary.

So...how do you prove that your new state is your permanent home and not your temporary home? Here are some pointers:

Register to vote in your new state
Register your car in your new state
Change your drivers license to your new state
Plan on living in the new state over 50% of the year
Move your primary bank account to the new state
Change your permanent mailing address to the new state
Apply for a property tax exemption on the residence that you purchase in the new state

Can changing a state of residency really save you that much on taxes. Consider Nevada where there is zero state tax. A retired couple with $75,000 of taxable income will pay approx $3300 in California state taxes. However, by claiming residency in Nevada, they will pay no state taxes. That is like giving yourself a monthly increase of $275. That's a lot of golfing green fees!

The Healthcare Reform Law and how it Affects Retirees

2011-05-30T09:20:00.000-07:00

The health care reform law will bring a mixed bag of good and bad news—with many of the changes affecting benefits provided to retirees by former employers. Here's a look at the key trends that will impact retiree health care spending.

Good News: Improved Medicare Prescription Drug Benefit----The Affordable Care Act (ACA) boosts the value of the Medicare D prescription drug plan by closing the notorious “doughnut hole.” That's the coverage gap that starts when a beneficiary's annual drug spending hits $2,830, and resumes at the catastrophic level ($4,550). Fidelity estimates that about 30 percent of seniors enter the doughnut hole in any given year.

Good News: Pre-65 Insurance Options Multiply--Workers who retire before age 65 – sometimes involuntarily – face some tough challenges replacing the group health coverage they enjoyed at work. The ACA creates new public health insurance exchanges that will open for business in 2014. Their aim is to create competitive marketplaces offering individuals high quality, affordable coverage. At the same time, insurers will be barred from turning away applicants due to medical conditions, or charge them higher rates – although they will be able to charge up to three times the differential between the oldest and youngest insured in the plan. Finally, the ACA offers a combination of credits and subsidies aimed at keeping policies bought in the exchange affordable

Mixed news: Health Savings Accounts Proliferate--Health Savings Accounts (HSAs) can help workers save money to offset health expenses down the road in the retirement. Created during the Bush years, HSAs have very attractive tax features: contributions and account growth are tax free—as are withdrawals, so long as the funds are used to pay for healthcare. Unused funds can be rolled over from year to year, and the accounts offer IRA-like portability. HSAs are gaining ground among workplace plan sponsors, mainly because they are tied to high-deductible insurance plans that reduce premium costs up to 30 percent. About 27 percent of retiree plan sponsors offer an HSA option, according to the Towers Watson/National Business Group on Health survey. But 25 percent of companies plan to convert their current retiree health coverage subsidy in the coming year But the jury's still out on HSAs as a retirement saving vehicle. Most participants use the accounts to fund current-year expenses, since insurance plan annual deductibles linked to HSAs must be at least $1,200 for individuals, or $2,400 for family coverage. And the deductibles can run much higher. As a result, Fidelity says only 24 percent of HSA accounts at plans it administers are used for long-term saving.And, since HSAs have only been on the scene a few years, average account balances are quite small, averaging $1,355 in 2010.

Bad news: Affluent Retirees Face Steep Hike in Medicare Premiums--The ACAACA freezes the threshold at 2010 levels through 2019, starting this year. The ACA also extends the income threshold formulas to seniors enrolled in Part D prescription drug plans. The changes will affect just five percent of Medicare enrollees this year, although that figure will rise to 14 percent by 2019 as more seniors jump past the frozen income threshold levels, according to the Kaiser Family Foundation, a non-profit health policy and research organization. High-income seniors who pay both Part B and Part D premiums could see their combined premiums rise anywhere from $300 to $700 per month by the end of the decade, according to Juliette Cubanski, associate director of Kaiser’s Medicare Policy Project. “That’s a considerable sum, considering that the base Part B premium for most people this year is $96.40,” she says. The new income thresholds also affect people who choose a Medicare Advantage plan (Part C). These are privatized managed care plans that replace traditional Medicare, and usually incorporate prescription drug coverage. Advantage enrollees typically pay the monthly Part B premium plus a supplemental premium to the Medicare Advantage plan; now, these premiums are being adjusted to factor in the higher-income amounts for Part B and Part D coverage, where applicable.

Credit to Mark Miller who is a journalist and author and writes about trends in retirement and aging. He has a special focus on how the baby boomer generation is revising its approach to money, careers and lifestyle after age 50.

Asset Location, Location, Location

2011-05-16T12:45:00.000-07:00

Asset location is deciding what assets should go in which accounts. Most investors have accounts that receive different tax treatment such as the following:

Traditional tax-deferred account such as IRA , 401k, 403b, 457. Contributions may be tax deductible and the growth and income are not taxed until the money is withdrawn. Withdrawals then taxed as ordinary income ranging from 10-33%.
Roth IRA or Roth 401k. Contributions are not tax deductible but withdrawals are tax free
Taxable non-retirement account. The taxation of these types of accounts depends on the investments in the account. Short term capital gains and interest from bonds and CDs are taxed as ordinary income, but qualified dividends and long-term capital gains are taxed at lower rates between 0-15%.

So..what types of investment should go in these different types of accounts to minimize taxes and create greater wealth?

Traditional tax-deferred. Corporate bonds, treasuries, TIPS, high yield stocks and commodity funds
Roth accounts. Small cap stocks, REITS, high turnover and/or high yielding funds especially if they have above-average growth potential.
Taxable non retirement accounts. Low-or non yielding stocks you plan to own for several years, low turnover stock funds (such as Index funds and tax managed funds), municipal bonds, US government savings bonds and maybe Treasuries.

Remember: It's not how much you make but how much you keep that matters in creating wealth.

Living an Extraordinary Second Half

2011-05-02T10:16:00.000-07:00

With over 76 million baby boomers entering their "golden years", some folks find it a little daunting to imagine what life will be like during retirement. This is a compilation of some strategies and ideas that I have gleaned from my readings:

1) Money is all about numbers. Happiness is all about attitudes and behaviors.
2) Live below your means if you want to be comfortable in retirement. Pay yourself first and build your lifestyle around these two habits.
3) Have a plan. A road map to retirement is as necessary as breathing oxygen.
4) Start saving early. But remember that it is never too late to try and catch up.
5) Take care of your health. A nutritious and low fat diet combined with exercise and stress reduction will ensure that you make it to retirement.
6) Hang out with people who make you feel good and enrich your life. Ditch the negative influences.
7) Invest like a millionaire. Work with a fee-only advisor with no conflicts of interest. Take a long term view and keep your costs as low as possible. Don't chase the "hot tips" your friends or the media tout.
8) Stimulate your brain with constant learning, taking trips, reading, trying new things, making new friends.
9) Create your bucket list. Go for it. Be engaged in life.
10) Give back with your time, talents and treasure. Create a legacy

Following these ideas will truly allow you to enjoy those golden years and live a full and glorious life.

Warren Buffet’s Annual Letter to his Shareholders

2011-03-07T13:00:00.000-08:00

I am a huge fan of Warren Buffet and always enjoy reading his annual letter to his shareholders. I am convinced that if every CEO and company in the US had the same guiding principles and integrity that is the hallmark of Buffet, we never would have the economic problems that we do today. Here are some of my favorite highlights, all quoted from his letter:

Money will always flow toward opportunity and there is an abundance of that in America. Commentators today often talk of “great uncertainty” But think back, for example, to December 6, 1941, October 18, 1987 and September 10, 2001. No matter how serene today may be, tomorrow is always uncertain.
Our citizens now live an astonishing 6 times better than when I was born. The prophets of doom have overlooked the all important factor that is certain; human potential is far from exhausted and the American system for unleashing that potential…remains alive and effective.
A housing recovery will probably begin within a year or so.
If home buyers throughout the country had behaved like our buyers, America would not have had the crisis that it did. Our approach was simply to get a meaningful down payment and gear fixed monthly payments to a sensible percentage of income..
Home ownership makes sense for most Americans, particularly at today’s lower prices and bargain interest rates. All things considered, the third best investment I ever made was the purchase of my home (the two best investments were wedding rings). For the $31,500 I paid for my house, my family and I have gained 52 years of terrific memories with more to come.
But a house can be a nightmare if the buyer’s eyes are bigger than his wallet and if a lender—often protected by a government guarantee—facilitates his fantasy. Our country’s social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford.
The fundamental principle of auto racing is that to finish first, you have to finish first. That dictum is equally applicable to business and guides our every action at Berkshire.
Unquestionably, some people have become very rich through the use of borrowed money. However, that’s also been a way to get very poor. But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices.
We can afford to lose money—even a lot of money. But we can’t afford to lose reputation—even a shred of reputation.
America’s best days lie ahead!

Gotta love this guy!

Meet Judy Stewart!

2011-02-28T15:17:00.000-08:00

Judy Ann Stewart is the owner of Stewart Financial Services. She has been offering life-centered and comprehensive financial planning services for 10 years. She became a Certified Financial Planner (CFP) after serving as the President and CEO of Rancho Vista National Bank, a community bank that she and others founded in 1982. Ms Stewart has a Masters in Business Administration and is an Enrolled Agent licensed by the IRS. In 2003, she was honored to be named as one of the top 100 Financial Advisors in the Untied States by Mutual Funds Magazine. And in 2009, Ms Stewart is reconginized as one of the 2009 Five Star Wealth Managers in San Diego.

Ms Stewart is a member of Cambridge Advisors; a national network of fee-only financial advisors committed to serving the financial planning needs of Middle-America and is also a member of The National Association of Personal Financial Advisors, the largest fee-only financial planning association in the world.

She attends and serves at Generation Church in Oceanside, California, and has traveled to Uganda in 2007 and 2008 to teach men and women basic business classes so that they can help lift themselves out of poverty. She resides in Oceanside, Ca., and Borrego Springs, Ca., with her husband, Bill and their two pets, a cat named Daisy Mae and a dog named Dakota.

Rising Oil Prices and Falling Dictators

2011-02-25T11:42:00.000-08:00

The headlines and talk shows scream at us about the rising oil prices and Mideastern dictators falling like dominos. The stock market is scared and so the S&P500 has fallen 5% in the past week. Here we go again, you might say. Are we sliding back into another recession? These are very legitimate concerns but let’s look at the facts:

• The demand for oil is at an all time high. With the emerging markets of India and China coming on strong, they have an enormous appetite for oil. Increased oil prices should not be a surprise. It’s a fact of life and reflects our utter dependence on oil. Most economists will tell you that oil demand is on a continually upward sloping line so it stands to reason that oil prices will go up. And most economists are still bullish about the recovery and predict that gross domestic product (GDP) in the US will grow by 3.2% in 2011 and 2012. However, all bets are off if oil climbs to over $125/barrel. But that’s a long way to go.

• The fed is still predicting benign inflation for the next few years. How can this be with the rising oil prices? And food prices keep rising? If you look at food and energy costs as a percentage of family expenses, it comes to 13%. That is a small part of the whole pie. Housing and healthcare represents 38% and housing costs are sure not going to be inflated any time soon.

• Corporate earnings drive the stock market. Yes, the market has periods of increased jitters like we are seeing now but in the end and over time; it is corporate earnings that make the line go ever upward. And corporate earnings are expected to be 9-10% this year. Price earning (P/E) ratios for stocks is at 13 and the long term P/E ratio is 15. Stocks are still underpriced when you look at historical averages. Most economists predict another good year for stocks.

• The best mouse trap ever devised for creating wealth is an appropriate asset allocation financial plan. That means that you hold a combination of stocks, bonds, cash and real estate. That combination is dependent on your goals, your age and your risk tolerance. You own a diversified portfolio and you rebalance this portfolio every year. So, in a year when your stocks do well and you are now over allocated to stocks, you sell them and put the money into bonds. This is a disciplined non-emotional strategy and allows you to sell high and buy low. By doing this year after year, you ride the ups and downs but your portfolio steadily grows. More importantly, you sleep at night!

San Diego's A-List of Wealth Managers

2011-02-14T13:14:00.000-08:00

Once again, I am very proud to announce that I have been chosen as a 'San Diego 2011 Five Star Wealth Manager' by San Diego Magazine. I love serving San Diego county, now including Borrego Springs! Thank you for everyone who voted for Stewart Financial Services. We work really hard to make your financial dreams a reality.

From the article...

"With more than 11,000 wealth managers in the San Diego area, how do you find someone who listens to you, represents your interests and operates with an emphasis on integrity and service?

The resulting list of 2011 Five Star Wealth Managers is an elite group, representing less than 4 percent of the wealth managers in the San Diego area."

Thank you again San Diego! We continue to look forward to serving you in 2011!

Tidbits from the TD Ameritrade Conference

2011-02-14T12:42:00.000-08:00

Cheryl and l recently attended the annual TD Ameritrade National Conference in San Diego. I can truly say that it was one of the best conferences I have ever attended. While I will be sharing more specific information with clients one on one at meetings, here are some of the highlights:

General Colin Powell---He has unwavering faith and confidence in our nation and our people. He sees great wealth created in certain countries over the next several years, countries like China, India and some of the Latin America countries. This is good for the entire world because stability in the government and the economy is needed to create wealth. We should not fear these emerging countries but rather embrace them. The US is still the best place in the world to invest wealth. Their success is our success.

Jeremy Siegel is a professor at the prestigious Wharton School of Finance in Pennsylvania. Professor Siegel is still very bullish on stocks for the long run. He showed charts that illustrate the real return (after taxes and inflation) of stocks from 1802-2010 is 6.7%. The past 20 years from 1990-2010 (which includes the horrific recession of 2007-2008) shows the exact real return of stocks is 6.7%. Cash and bonds cannot deliver this kind of return so it is prudent and imperative that in order to create wealth, an investor must be willing to invest in stocks. He thinks the US market of good quality companies is poised to deliver strong returns over the next few years. Price earning ratios are below the long term average and corporate earning are strong so therefore the price earning ratios will be rising. He also showed charts that made a compelling argument to be investing in stable emerging markets such as China, India and some Latin America countries.

Craig Alexander is Senior Vice President and Chief Economist for TD Ameritrade. He said the US economy is on the mend. We still have a long way to go but it is encouraging that we are on the road to recovery. There are three key factors that will determine our recovery. 1. Housing –currently we have approx 9 months supply of houses on the market versus 2005 when the supply was only 4 months. We have too much product and there is more coming with short sales and foreclosures. The housing market still has another 5% to decline in value before we hit bottom. 2. Unemployment remains high at over 9% but he was optimistic that jobs are coming. Companies have squeezed expenses all they can and are now experiencing growth due to increased demand for products and more access to credit. This will result in slow job creation. 3) State and local governments are struggling with reduced revenues and high liabilities to service. Some states are worse than others like New Jersey, California etc…

Bottom line is that Mr. Alexander also confirmed what Professor Siegel stated, the next few years will be good for equities. Bonds will suffer and interest on cash will remain low but stocks will reward the wise investor.

The Zen of Creativity

2011-02-07T14:29:00.000-08:00

On the afternoon of the first day of the TD Ameritrade conference, I attended one of the most amazing and inspirational sessions I have ever had the good fortune to attend. Our speaker was Dewitt Jones, a former photographer with National Geographic Magazine. He is now a speaker in much demand and I can certainly understand why. He took us on an extraordinary journey with the many beautiful and unique photos that he has captured over the years. However, instead of just showing us photographs he used each picture to convey his message of “falling in love with the world” and “celebrating what’s best in the world.” His purpose was to teach us how to be creative, to think outside the box and to always search for a better answer. He demonstrated this by showing us many photos of a particular scene that he was trying to capture. Most of the photos were very good but there was usually one that so clearly stood out and captured the essence of what he was trying to get the viewer to experience, that it took your breath away.

In my own financial planning practice, I am always looking for the right solution for the client and most of the time I can come up with the right one. But Dewitt showed us that while we may have the right or best solution, there might be a better one out there and don’t give up until you get it! In order to get that better solution, you need to let yourself be fully engaged and fully in love with the process so that the creativity can flow and you do come up with that better answer.

Dewitt is clearly a man who loves life and all that it offers. A man who always looks at the glass as “half full”, an eternal optimist who believes that our world is an extraordinary place. He used an example from a meditation class that he attended. He had a difficult time concentrating on his breath in meditation as his mind continually wandered. His teacher told him to try the one breath meditation. Take it all in with one breath and give it all back. Take in everything the world can give you and give it all back out again. As a yoga practitioner myself, this totally resonated with me and my yoga practice will never be the same again. Thank you, Dewitt, for a most inspirational afternoon.

Poor, sweet Toxie

2011-01-24T11:42:00.000-08:00

Hey everyone, Marcie here!

While I was perusing through NPR's business section this morning, I came across a little video. While humorous and mildly cute, I watched the story of Planet Money's "Toxie." As an experiment, Planet Money bought a toxic housing asset to, literally, "watch it die." (Yeah, they named it "Toxie," and she wears a cute little bow.) And while it's a little morbid in a dark humor type of way, watching Toxie's video and inevitable death, actually sheds a lot of light for us normal folk as to what really happened with the economic collapse a couple years ago and also what's still happening today.

So, how did "Toxie" the little toxic asset with the cute bow fare? Listen for yourself! Oh, and if you want to watch the video of the cute floofball asset (which I highly recommend), click here.

We wish you a financially happy new year

2011-01-03T15:22:00.000-08:00

How many times did you hear this phrase this weekend?

"Happy New Year!"

Did you say it? Did family, friends or people at the store say it to you? I think I sent and received dozens of messages, emails, and texts with that exact phrase. We say "Happy New Year" so easily, but making resolutions, having dreams of a new start year after year, does that really make us happy?

Dr. Henry Cloud, a clinical psychologist, says no, but he gives several helpful hints to happiness in his interview on CNN's American Morning.

So, how does this relate to finances? We hear from many friends, clients and acquaintances about issues with their finances, especially pertaining to the economy. We empathize with what's happening now and we understand. It's hard for some of you. But we want to encourage and remind everyone it doesn't need to affect your overall happiness or outlook on life.

There are items that Dr. Cloud says that align perfectly with achieving financial peace of mind:

1. Make goals. They don't need to be lofty goals. Begin your goals at square one and work from there. For example, achieving a goal of saving 10% of all income for retirement in one year seems really hard. So, start at 5% and work from there.

2. Concentrate on what you can control. We can't control the stock market or the unemployment rate. But we can control making good spending decisions and educated choices. Doing research, asking for help and making goals can help achieve peace of mind.

We know that this new year won't be perfect. But it's nice to know that despite the cloudy days, there are decisions we can make to give us sunshine through the clouds. If you have questions about any goals you'd like to make, feel free to give us a call!

And we wish you peace and true happiness, in all aspects of your life!

1/3/11, 3:46pm edit: Dr. Cloud himself responded to our blog on his Facebook page. His words:

It is incredible how much of this material affects people's finances. Several of the practices are related to people making more money, and at the same time, not needing to make more in order to feel happy. The happy ones do better, but know that happiness does not come from material circumstances. And, many of these practices, like gratitude, for example, mitigate against stupid spending and financial problems. Take the one about comparing oneself to others. If people just would follow that one principle, they would often save a LOT of money not trying to keep up with the Jones'.

You can follow Dr. Henry Cloud on his Facebook page!

Payroll Tax Relief and What it Means to YOU

2010-12-22T08:35:00.000-08:00

If you haven’t heard, President Obama signed a new tax bill last week. One of the items that will affect all employees is the 2% point reduction in an employee’s share of Social Security portion of the FICA Tax, from 6.2% to 4.2%. What exactly does that mean for you?
The table below illustrates the change and savings. FICA limits are currently adjusted for inflation and are currently set at $106,800. The tax savings is currently only available for 2011.

Pay             2010 Tax (6.2%)     2011 Tax (4.2%)     Savings

$30,000      $1,860                    $1,260                     $600
$50,000      $3,100                    $2,100                     $1,000
$80,000      $4,960                    $3,360                     $1,600
$100,000    $6,200                    $4,200                     $2,000
$106,800    $6,621                    $4,485                     $2,136

This is a huge opportunity for every employed person to increase their 401k contributions or contribute to an IRA or a Roth IRA in 2011. This is FREE money, folks. Using it for retirement is a very wise move.

Please call me if you need more information or want to take advantage of the extra money in your pocket by smart retirement investing.

2010's Big Tax Bill Explained (Part 1)

2010-12-13T13:58:00.000-08:00

13 pages of summaries are what comprises the new Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.

My daunting task, should I accept it (and let's face it, I am accepting it because I'm writing this), was to wade through the jargon to find what would be useful to the average tax payer, like you and me.

There are 7 main parts to this bill, but today we are covering what's just under the first section called the "Temporary Extension of Tax Relief."

What's found in this section of the bill is a lot of tax break extensions from 2001 and 2003 that were set to expire, but are being extended through 2012. (You may feel some deja vu, but this is what the American Recovery and Reinvestment Act did last year for 2009 as well.)

The bill...

· Continues the reduction in income tax brackets for 10%, 25%, 28%, 33% and 35%

· Extends the capital gains and dividend rates

· Increased extension of credit from $500 to $1000 for the Child Tax Credit

· Extends the marriage penalty relief

· Gives incentives for families and children

o Expanded tax credit for child care costs for children under 13 and special needs dependents

o Tax credits for qualified adoption expenses

o Tax breaks for employers purchasing or building a child care facility for their employees

o Continuing the 45% tax credit for working families' first $12,570 worth of income

· Education incentives for those going to school

o Coverdell savings accounts remain tax exempt

o Employee can exclude up to $5,250 worth of income for employer provided education assistance

o Student loan interest deduction up to $2,500

o Excludes scholarships from income

· Bond exclusion

· American Opportunity Tax Credit extended (Rebate of up to $2,500 of tuition or education related expenses)

Top 10 Financial Tips for Newlyweds

2010-11-22T13:51:00.000-08:00

My dear niece is getting married in March, 2011, to a wonderful young man. As I have been thinking of this wedding and the two wonderful people that will be starting a life together, I cannot help but think of the financial advice that I can offer them so they can have a prosperous life together.

Here are the top ten ways to keep financially sane, today and for the rest of your life together:

The power of compounding interest is truly a miraculous thing but it takes time. Start saving now when you have nothing but time ahead of you and your money will grow exponentially.
Always save 10% of your income—each and every year—no exceptions.
Go slow on large purchases and always consult with each other. Set a dollar limit that each can spend on his/her own.
Avoid credit card debt like the plague. Only charge what you can pay off when you get your monthly statement.
Have money set aside for emergencies and believe me, they will happen. A rule of thumb is approximately 3 months of your monthly earnings.
Be generous. Sit down together and decide what annual amounts you want to give your church or charities so that others can be blessed.
Contribute to your employer retirement plans so that you always get the match. If your employer has no plan or no match, consider contributing to an IRA or a Roth IRA. Remember… compounding interest is phenomenal.
Buy term life insurance only. Check with your employer about group term life, it is almost always the cheapest way to go.
If you are having trouble with more expenses than income, seriously look at cutting out the extras such as expensive cell phone plans, cable TV, eating out etc… Taking lunches to work saves a lot of money!

And, of course, number 10...

10. Seek the wise counsel of your Aunt Judy. She knows what she is talking about!

Journey to Haiti (Part 2)

2010-10-12T20:25:00.000-07:00

It has been only been three weeks from my experience in Haiti...The devastation and hopelessness that I witnessed will haunt me forever. However, I left a big chunk of my heart in Haiti and know that someday I will return. I pray for world leaders to unite and truly help Haiti become a viable country with exports and manufacturing.

The people are willing—they want to work and have a better life. They don’t need money to be dumped into the country…they need education and training and jobs that they can perform. They need dignity and empowerment. Haiti desperately needs leaders to rise up who care only about Haiti and how to make it better and not their own selfish ambitions. The Non Government Agencies (NGO’s) and churches of all faiths are the hope of Haiti. These are the people who truly care about the beautiful and resilient Haitian people.

I am so proud of my church, Generation in Oceanside that is going back to Haiti for two more trips in 2011 to help a local church expand in size and thereby be a blessing to more people in the community that it serves. This church currently cares for 20 orphans that lost their parent(s) in the earthquake. I personally met each one of these children and each child is imprinted on my heart forever. They will be taken care of and educated by Pastor Pierre’s church until they are self sufficient. They are the Hope of Haiti.

These photos are courtesy of Jonathan Moyer. We invite you to explore his Haiti Photo Gallery. Thank you, Jonathan!

Top Five Year End Tax Saving Strategies

2010-10-11T14:12:00.000-07:00

We are only two and a half months away from 2011! Some families are realizing that they do not have a lot of time to enact some tax savings before the year is out. We're here to help! It appears that 2011 is headed for higher taxes, below are the top five ways to do some tax saving before the year is over:

1. Sell stock. A smart tax strategy is to sell some highly appreciated stock/stock funds before the end of the year and pay capital gains at the lower rates in 2010. Often, the tax bite can be mitigated by also selling some of your “losers” at the same time, thereby offsetting some of the gains with the losses.

2. Charitable giving. Charitable giving is always a great way to save on taxes and do some good! Gifting appreciated stocks to your favorite charity(s) is also a great tax savings tool. The charity gets the fair market value of the stock transferred and you get the tax deduction and it saves you the capital gains taxes.

3. Tax sheltered giving. Tax sheltered plans are one of the best gifts that Uncle Sam has ever given us. A person 50 and older can defer $22,000 into his/her 401k, 403b, and 457 plans for 2010 and everyone else can defer $16,500. This results in significant tax savings for you, the investor. Check your current pay slip and see how much you are on track to contribute for 2010. If you will not meet the above maximums, ask your HR department to increase the monthly amount so that you can take advantage of these limits and save BIG on taxes.

4. Invest in a Roth Conversion. Roth conversions are in the news this year. For the first time ever, folks making $100,000 or more can covert their traditional IRAs to Roths this year. Yes, taxes will be due on the converted money but Uncle Sam has also given us another nice gift. You can pay the taxes over a 2 year period. That really helps take the sting out of the tax bite. An interesting provision in the recently signed Small Business Bill is that employer tax sheltered plans can now allow their employees to do Roth Conversions of their 401k, 403b and 457 plans. If this is of interest to you, check with your HR department for the details.

5. 2010 Tax Energy Credits. The personal energy tax credits expire at the end of 2010. If you are planning on getting more energy efficient windows and/or doors or installing heating or cooling units, then please do so before the end of 2010 and get up to 30% of the purchase price as a tax credit for the year. Credit tops out at a generous $1500.

Please feel free to contact us for more information if you need any more information or assistance on how to implement any of these tax savings strategies.

Journey to Haiti (Part 1)

2010-09-20T12:13:00.000-07:00

Hello everyone! This is Marcie filling in for Judy today. As some of you may know, Judy has taken some time this week to visit Haiti with her church, Generation Church. This trip is a scouting mission trip of sorts, to see where Generation Church can make an impact in the rebuilding of Haiti. So far, it has been a strenuous and hard trip. Phone calls and texts are hard to come by, so the team has been emailing and posting thoughts and photos to Facebook. Below are some words that Judy sent to her family.

This is indeed a tough trip. The sights are so overwhelming. People living like this are beyond words. The people are so resilient. All kinds of tents set up everywhere --they sleep in there at night and may work out of their shack/homes during the day. But they are so scared to be indoors at night. The wreckage is hard to describe. It just doesn't seem like much has been done.

Supermarket collapse in Haiti

Today is Sunday and we arrived at Pastor Pierre's church at 8:30am and left around 2:00pm. Church and worship lasted over 3 hours in a small room filled with people (crammed in) and only a few fans. Pastor Pierre is a small man--very rotund--with a booming voice and infectious joyful personality. We loved him and his wife and 10 children. They live in a small area over the church--7 boys in one bedroom probably half the size of one of our bedrooms and the 3 girls in with the parents. Church was filled with songs and clapping and preaching and joyful praising. One of the most memorable church services I have ever been to. Shawn preached and of course, we had a translator.

Pastor Pierre and his family

Daybreak and Generation Church are going to talk about sending construction teams to expand the church building for him. He has an opportunity to buy the three rooms attached. Trust me--it needs to be bigger!!! It is absolutely stifling here and very little water pressure. Showers are a trickle. Tomorrow, we go and visit the 20 orphan kids that Pierre's church is taking care of.

Church in Haiti - needs to be bigger!

All I can do to get past this overwhelming hopelessness is to know that 20 kids are being cared for, educated and loved and will grow up to be a light in this part of the world. And that Pastor Pierre can make a difference in his community thru his church and be a light. If I cannot cling to this and focus on it--I would be overcome with despair."

We will have more thoughts and photos, hopefully today, depending on the availability of the Internet, of course. Thank you for reading and your continued support. Please feel free to comment below, I will send any comments to Judy via our next corresponding email.

Thoughts from Atlanta

2010-07-30T15:02:00.000-07:00

I am blogging from Atlanta while attending the NAPFA (National Assn Personal Financial Advisors) Core Competency Conference. This morning we had an excellent speaker from the Atlanta Federal Reserve named Michael Hammill. I will share with you some of the key ideas that I gleaned from his presentation:

We are in a period of moderate economic growth (about 2.5%) since the first quarter of 2010. While this is not a great number, at least we are moving in the right direction
Consumer confidence is fairly pessimistic which translates to weak consumer spending. Since consumer spending is 70% of GDP growth, you can see how this translates to the slow growth numbers cited above. Wages drive consumer spending and when you consider the number of people unemployed or underemployed, it makes perfectly good sense that people are not spending because they cannot spend. And the savings rate is up sharply. When we went into this recesssion, the savings rate was negative. It is now hovering around 7%. As a financial planner who preaches a 10% savings rate for people, this makes me very happy. Although the paradox is that we need people to spend in order to grow our economy.
Unemployment is around 9%. However when you factor in the number of people who are underemployed (working part time instead of full time) and the folks who are so discouraged that they have actively stopped looking for work, this number should be doubled. So, the TRUE unemployment rate is more like 18%. Ouch! We are adding about 100,000 jobs a month but when you consider that we were shedding more than 800,000 jobs a month during the recession (depression?), it will take us 5 more years to get back to pre-recession job growth.
Business inventory levels are growing --a good thing!
Housing market is very poor. It was propped up with the generous tax credits but those have all expired. The forecast is that housing market will remain very weak for the next four years. It will take until 2012 to work thru the short sales and foreclosures clogging the market. And until 2014 before housing prices start to rise. Bad news for people trying to sell their home. Hardest hit areas are Florida, Calif, Nevada and Phoenix--the sunshine states where the biggest bubbles were. No surprise there.
Inflation not expected to be an issue for several years--good news
Financial markets adjusting to a new normal--stricter credit --weak loan demand. Loan defaults (except for real estate) have peaked and are now declining.
Europe is working through their debt issues and not as much effect on US markets as expected.

Well, now you have the good, the bad and the ugly. My bottom line take is that we are in for a long and slow recovery but we will recover. I am committed to helping you navigate the road ahead. One of my colleagues said that he feels like Moses--leading his clients to the promised land of prosperity and recognizing that it may take the next 5 years to get there. Great analogy. Let me be your Moses!

New Financial Reform Bill: Progress Or Not?

2010-07-26T14:05:00.000-07:00

If you have turned on the news, you probably have heard and re-heard reports on two events: the horrendous BP oil spill and the, newly passed, Financial Reform Bill. While I wish I had insight on how to fix the oil spill, I do have a few thoughts about the Reform Bill that was passed Thursday, July 15th.

So, what is in this Reform Bill?

Jill Schlesinger, author of "The Financial Decoder," and contributor to CBS' Moneywatch.com, wrote an article on June 25th, using with layman's terms, what the bill can and cannot do. She states, "the bill probably won't prevent the next crisis," but it will help consumers in some ways.

For example, there will be a new Consumer Financial Protection Bureau, which will help consumers by moderating the credit card and house mortgage industries. According to the Senate, the new Bureau will "finally [be] a watchdog to oversee financial products, giving Americans confidence that there is a system in place that works for them – not just big banks on Wall Street."

Schlesinger says in another article about the new Bureau, "The new rules will prohibit mortgage brokers from steering customers into more expensive loans for a commission and will ban no-documentation or "liar" loans. It will also make credit card statements more readable and transparent, allowing consumers to more easily compare products."

She also notes where the new Bureau will not protect consumers in all things, namely auto dealer supervision and addressing the fiduciary standard: "Although the new consumer rules are a step forward, there are some noticeable omissions. During negotiations, two important consumer measures were left out: the oversight of auto dealers and the fiduciary standard. I'm particularly upset about the later, which would have made it law for financial professionals to put their customers' interests first."

I agree with Schlesinger about these omissions, namely about the fiduciary standard. We work very hard at Stewart Financial Services to address our client's needs first. There are many planners and institutions out there who base their financial advice simply on what funds would give them the biggest commission, or return... regardless if it's a good fit for their client's financial goals or dreams.

The SEC has been delegated to take care of an umbrella fiduciary standard for all financial advisors. We hope to see progress on this front, hopefully, within 6 months from now.

If you have a question about what the fiduciary standard is, please click on the orange button below. Stewart Financial Services is proud to follow all these guidelines for our clients' financial well being.

FocusonFiduciary.com

Also, if you have further questions about the Financial Bill Reform, you can click here to view Senate.gov's complete copy of the bill, or, as always, feel free to ask me. I feel the Consumer Financial Protection Bureau is a good step in the right direction... let's just keep making these steps!

The Really Important Things in Life

2010-07-11T13:50:00.000-07:00

Yesterday my daughter and I attended a wedding in our old neighborhood. We moved away from that home and our dear neighbors next door some 24 years ago. The sweet daughter of that family was the beautiful bride yesterday. Even though many years and "much life" has passed in those 24 years, we felt like we were with family all day and we were so honored to be part of their special day. We even got to tour the backyard of the house that we lived in for 12 years. The house where my daughter lived for the first 4 years of her life. Lots of good memories made in our home and the home next door. And the time and distance between us was like it never happened. We felt loved and part of their circle.

So...why is my personal finance blog reminiscing about the good old days? Shouldn't I be talking about investments, rate of returns etc....? Because yesterday helped me reflect on what is truly important in life. For me, it's spending time with my family and dear friends, gazing at the amazing milky way in Borrego Springs with my husband, walking my dog at the beach, brushing my kitty (she is deliriously happy when I brush her), getting lost in a book for hours, going to Padres baseball games, planning our upcoming missions trip to Haiti, shopping for a bridal dress with my niece and family, cooking and planning healthy dinners. I could go on and on.

For my clients, I strive to help them figure out "how much is enough". So that they can spend their time on the things that are really important in their lives. Oh...and working with my clients... is one of the truly important and fulfilling things in my life.

How To Spot and Stop Senior Financial Exploitation

2010-06-28T15:05:00.000-07:00

I read a recent article in the Los Angeles Times and was reminded, even more, of why continual vigilance is needed for senior financial exploitation. This chord strikes close to me as I have an aging mother and do worry from time to time how she could be approached for senior financial abuse.

Senior financial abuse doesn't seem to make headlines on CNN, but it is very prevalent. I was surprised to see some of these statistics in a recent survey done by these organizations: the North American Securities Administrators Association (NASAA), Investor Protection Trust, and the National Adult Protective Services Association (NAPSA).

Here are some surprising statistics from their survey:

• Half of older Americans exhibit one or more of the warning signs of current financial victimization.
• Almost half of those aged 65 or over (44 percent) got at least two out of four questions wrong about basic investment knowledge.
• About one out of three older Americans (31 percent) says they are vulnerable in one or more ways to potential financial victimization.
• Only 5 percent of adult children in touch with their parents' doctors report "the healthcare providers ever mention[ing] any concerns about your parents handling of money or relayed any concern from your parent about handling money." Only 2 percent of Americans aged 65 or older say that their healthcare provider has ever asked about "how you are handling money issues or problems."
• Four out of 10 children of parents 65 or older are "very" or "somewhat" worried that their parents "have already become or will become less able to handle their personal finances over time."

Half of our seniors exhibit warning signs of financial exploitation? Sounds scary, doesn't it? I am relieved that there are some who have heeded the warning signs and are taking action. The NASAA, Investor Protection Trust, and the NAPSA, along with medical professionals and social workers, are banning together to create the Elder Investment Fraud and Financial Exploitation project, whose sole job is to stop a "rising tide of economic exploitation of the elderly." (Kristof, LA Times)

But what can the average person do right now to prevent senior financial exploitation? The California Society of CPA's recommends that the best defense is a good offense:

• Be aware – it can happen to your family
• Identify vulnerabilities
• Take action to safeguard your family
• Look for clues of abuse
• Take action if you suspect fraud

Sheryl Rowling of Advisors4Advisors further explains what that action can look like:

“Financial fraud can occur in small amounts over time. For seniors on a fixed income, even $10 here and $20 there can be devastating. The most common scams against seniors fall into three groups:

• Telemarketing scams: More than a third of telemarketing fraud victims are over 60 years old. The most common scams are free vacations packages, time shares, sweepstakes, phony charity fund raisers, and expensive 900 numbers.
• "Free" lunch investment seminars: Shady financial advisers often lure seniors to a free lunch or dinner, promising advice on “senior” issues such as living trusts or estate planning. Once there, seniors are pressured into purchasing dubious investments such as annuities or promissory notes. Although technically legal, these products are monumentally bad choices for retirees - illiquid, complicated and booby-trapped with high fees.
• Religious or social group fraud: Among con artists' favorite targets are members close knit religious or social groups. The con joins the group and then tries to sell fraudulent investment schemes to members.

One of the easiest - and most effective - ways to protect parents is to talk to them about the common financial scams. Tell them it's important they know what's happening - if for no other reason than to warn their friends.

Also, it's important that children know their parents' social circle. Are they mentioning a new name? Have they begun to talk about someone that has "a lot of good ideas" about money? Children should introduce themselves to new people entering their parents' life. Con artists are looking for easy marks, not people with family or friends looking out for them.

Theft committed by a caregiver, such as a nurse or aide, can be very difficult to uncover. There are warning signs of caregiver financial abuse. Watch for signs that a caregiver is trying to control the parents' actions or isolate them from family and friends. When hiring a professional caregiver, be sure to check their resume and references and pay for a professional credit and background check. Finally, note that more than half of all instances of caregiver fraud are committed by a family member.

Finally, children might want to get involved with managing their parents' money. Although this can be a delicate topic to suggest, keeping an eye on things can aid in noticing trouble early. Even simply looking over their phone bills or financial statements can uncover large ATM withdrawals or expensive calls to 900 numbers.”

If you suspect a parent or other aging family member or friend might be a victim in financial exploitation, there are ways to help. Contacting a financial advisor or counselor and getting them involved is a good way to provide expertise in a delicate and serious situation for your loved one.

As always, I am available and welcome your questions or comments. Feel free to email us by clicking here.

What is a Fiduciary? And why is it Important to You?

2010-06-14T12:19:00.000-07:00

The fiduciary standard is a code of conduct for registered investment advisors who are regulated under the Investment Advisors Act of 1940. I am a registered investment advisor so therefore I am held to the fiduciary code of conduct. This important standard requires me to:

always put your interest first
act with prudence
never mislead you
provide full disclosure
avoid conflicts of interest
and fully disclose and fairly manage (in your interest) any unavoidable conflicts.

This is a strict code of conduct and I am proud that I am a fiduciary and held to these high standards. However, not all financial advisors are required to follow this standard. Hard to believe but it is true. Advisors who work for brokerage firms and insurance companies have to follow a "suitability" standard which only requires them to show that a proposed transaction is "suitable" for their clients. This leaves the door wide open for big problems and abuses in the industry. And we have seen many of these abuses in the recent years.

Brokers are not required to show conflicts of interest, details of his/her fee structure (which would be pretty shocking if disclosed) or to make sure that the product being sold or offered to the client is truly best for that client. And if a client is wronged by a broker, the burden of proof is on the client to show the damage. As a fiduciary, the burden on proof is for me to show that I am right or wrong.

So...who would you trust to manage your portfolio, make recommendations, help you to retire etc....? A broker or a true fiduciary who sits on the same side of the table as you!

The House-Senate Conference Committee is grappling with this issue right now and deciding whether all financial advisors should be held to the fiduciary standard. This is a no-brainer, in my opinion. We all should be fiduciaries. The brokerage and insurance industries are working hard to strike the fiduciary provision from the reform bill.

Let your voice be heard. Contact the committee members today and let them know that a Fiduciary Standard is the best thing we can do for financial reform.

Stewart Financial Services News

2010-06-08T17:51:00.000-07:00

We are happy to announce that Stewart Financial Services has a newsletter! This will be sent via email to all clients and anyone of interest. If you are interested in receiving our newsletter, please email our tech team here. Also, we would love to hear topics of interest that you want to hear about. Feel free to respond at the linked email in this post, or simply respond in a comment below.

We're excited to share this new communication tool with all of our friends and clients!

Sincerely,

Judy, Cheryl and Marcie

SmartyPig

2010-06-07T14:10:00.000-07:00

Hi everyone, this is Marcie here guest blogging today. Part of my position here at Stewart Financial Services is connecting new technology and social media trends with the sector of finance and financial planning. We are always on the look out for innovative ideas to find holistic and safe finance advice, relationships, and technology that our clients can use.

Today, I wanted to talk about a really neat organization we found that utilizes social media, teaches good saving practices, and is a safe institution to use (and free!). It's called SmartyPig.

SmartyPig is a organization that allows anyone to open up a savings account for free. Straight from their FAQ page: SmartyPig is a unique savings program that was designed to help people save for specific goals. Goals may be funded with a monthly recurring contribution from your existing checking or savings account. You can also make one-time additions of money toward your goals and receive contributions from your friends and family members.

What's great about this is that it's, wait for it... FREE. There are no monthly fees. Every account is FDIC insured for balances under $250,000. The initial deposit is only $25.00 and account holders earn 2.15% APY on balances under $50,000, which American Consumer News states, "one of the best rates available for FDIC insured savings accounts."

You can also use social media applications like Facebook and Twitter to help your family and friends fund your stated savings goal. Tired of receiving shirts from Aunt Susan that you don't like? A simple fix is sending Aunt Susan a link to your SmartyPig account and let her deposit the money into your account for your stated goal. Goals can be anything you want: a trip, a shopping spree, or a night on the town. Plus, if you use one of their retail partners, you can boost your money by up to 12%: places like Amazon.com, Macy's, or Travelocity.

As great as SmartyPig is for adults (and for me, I signed up to fund a trip to Hawaii), this is a great tool teaching children how to save. American Consumer News blogs about how to use SmartyPig as a tool to teach children how to save:

"Watching a saving account grow via compound interest can help teach a child the importance and benefits of savings and investing at an early age.

Perhaps the most important lesson that your child will learn with a SmartyPig account is the power of setting and achieving goals. They will see the direct correlation between the amount of effort that they put in and the results of their success."

For accounts for children under 18, SmartyPig says this, "Anyone may have a SmartyPig account. But customers under 18 years of age must be invited to become co-owners by parents or legal guardians who have first opened their own SmartyPig accounts."

To test out SmartyPig, I went ahead and opened an account. Here's a list of things I needed to begin:

I found setting up an account easy and intuitive. After 10 minutes, I had validated my information, set up my security questions and answers, and finished registration with a working account. The next step is setting up routing and bank information in which you want to transfer from. Remember: your first transfer only has to be $25.00 and $10.00 monthly after that.

And, dare I say that setting up an account with my goal was actually fun?! Now instead of getting that t-shirt from Aunt Susan, all I need to do is to send my link around for my birthday and imagine sitting in Hawaii two years from now. Yeah!

If you have any questions about this post, saving accounts, or any other things, feel free to contact Stewart Financial Services at our email or give us a call at 888.891.9709. We'd be happy to help. Happy Saving!

Memorial Day Remembrance

2010-05-30T10:20:00.000-07:00

People always talk about "celebrating" Memorial Day. But when you really think about it, what is there to "celebrate"? Memorial Day is a day to remember and honor our military for all of the sacrifices they've made. Since the Revolutionary War, over 775,000 Americans have died serving our country with countless numbers being wounded. Over 50,000 U.S. Citizens are (were) classified as "Missing in Action". Over 600,000 have been Prisoners of War. I fail to see what there is to celebrate. This doesn't mean we can't remember and honor our fighting heroes (they're all heroes) together with family and friends. Go camping, have picnics and BBQ's, enjoy the freedoms our military has fought to preserve; just remember the real purpose of Memorial Day.

Small Business Heath Care Tax Credit

2010-05-20T17:14:00.000-07:00

This new tax credit is part of the recently signed Affordable Care Act (healthcare). It helps small businesses and small tax exempt organizations afford the cost of providing health care coverage for their employees.

Small businesses started receiving postcards from the IRS last month with details on this new tax credit. Here are the major points:

Credit is worth up to 35% of the premium costs paid by a small business in 2010 thru 2013. In 2014, the credit is increased to 50%
Credit phases out for small businesses with average wages between $25,000 and $50,000 and for firms with with the equivalent of between 10 and 25 full time (FTE) employees
A qualifying employer must cover at least 50% of the cost of health care coverage
A qualifying employer must have less than 25 (FTE) workers

Clearly, this tax credit is designed for the very small businesses that are the backbone of this country in an effort to encourage them to provide valuable health care for their employees. Many employers have always wanted to provide the coverage but could not afford to do so. Hopefully, this will give them an incentive to do so.

I have also provided a youtube link for a video that explains this credit in more detail: http://www.youtube.com/watch?v=85i1kzIG57k

New Law Allows Tax-Free Health Coverage to Older Children

2010-05-18T17:02:00.000-07:00

Changes made by the recently enacted Patient Protection and Affordable Care Act, provide tax-free health coverage for an employee's children who are under age 27. The change is effective March 30, 2010. These changes immediately allow employers with cafeteria plans to permit employees to begin making pre-tax contributions to pay for this expanded benefit.

In addition to extending coverage to older children, the Affordable Care Act also requires plans that provide dependent coverage to continue to make the coverage available for an adult child until the child turns age 26. The extended coverage must be provided no later than plan years beginning on or after September 23, 2010. The favorable tax treatment applies to that extended coverage.

COBRA Premium Subsidy extended for 3rd time

2010-05-13T12:29:00.000-07:00

Congress has extended eligibility for the COBRA premium subsidy for two months as one provision of The Continuing Extension Act of 2010 enacted April 15th.
The subsidy, which expired March 31, is now available to qualified individuals who lost their jobs between September 1, 2008, and May 31, 2010. The premium reduction, originally a provision of The American Recovery and Reinvestment Act (ARRA), applies to periods of health coverage that began on or after February 17, 2009, and lasts for up to 15 months.

The subsidy already has been extended twice. Democrats in Congress are working on a bill that will extend the COBRA subsidy for a longer period, at least until the end of the year, but passage may prove difficult because of cost concerns.

Eligible individuals pay only 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the coverage provider through a tax credit.

To be eligible for the subsidy, the terminated worker must have experienced a qualifying event, which can include a reduction in hours followed by termination; must elect the coverage within the required timeframe; and must not be eligible for Medicare or any other group coverage.

The premium subsidy is retroactive and will be made available to individuals who lost their job between March 31st and April 15th.

Is a Reverse Mortgage in Your Future?

2010-05-10T09:51:00.000-07:00

Reverse mortgages are a curious and complex topic. There is a lot of misunderstanding and confusion about them. They have received bad press and good press. So, let's try and demystify them and see if they make sense for you.

Using a reverse mortgage may make sense for a lot of baby boomers who will not have sufficient retirement savings when they finally retire. And with the uncertainly over Social Security and the compelling arguments that benefits will most likely change in the next few years, a reverse mortgage may be the product that allows boomers to have a comfortable retirement.

For some folks, the only true valuable asset may be their home with a low mortgage or no mortgage. A reverse mortgage converts your home equity into tax free proceeds and the owners retain title to their home. The reverse mortgage payments do not count towards Social Security and Medicare. The payments can cover living expenses, long term health care, home health care etc... It can be an important and necessary safety net for those folks with limited savings. Here are some facts about how a reverse mortgage works:

Qualifying is not dependent on income, health, employment or credit score

Only available for folks age 62 and over

Must have a low mortgage balance or no mortgage balance

Must attend a counseling session with a HUD approved agency so that you are fully informed of how a reverse mortgage works and also look at other options

Can be taken as a lump sum, monthly annuity or line of credit

Upon death, the beneficiaries will need to pay back the loan and the interest if they are keeping the house. If selling the house, all monies need to be paid back from the sale.

Please be aware the Reverse Mortgages are expensive--the fees are high. However, the benefits can be huge to folks who simply do not have enough funds to live a comfortable retirement.

In summary, a Reverse Mortgage can be a viable option in retirement in providing needed tax free income. Make sure that you do your homework and know all the ins and outs of how this works before entering into a binding contract.

The Truth About Annuities

2010-05-06T09:56:00.000-07:00

I have to admit up front that I am not a fan of annuities, except in very rare situations. The sad facts are that 90% of the folks who buy an annuity have absolutely no idea what they are buying and 90% of the folks who buy an annuity really don't need this investment product.

Annuities are a very lucrative product for insurance sales reps to sell. They typically receive 3 to 8% of the deposit money. So, let's assume that you deposit $100,000 in an annuity. The sales rep can receive up to $8000 for selling you this product! Pretty outrageous commissions.

An annuity is really an insurance contract. Many times the sales rep will tell you that the investment is insured against loss because when you die, your heirs will always receive at least the original value of the annuity insurance contract. So, you are paying a steep fee for this insurance protection. However, with most conservative investments, over time, your investment should at least be worth what you started with. So, the extra cost for the insurance is expensive and not needed.

Annuities carry heavy surrender charges. If you need your money in the first 7 to 10 years after opening the annuity, you most likely will pay anywhere from 7-10% in surrender charges. On your own money!

Annuities are often sold as "safe investments". But remember that insurance companies can fail and investments can go south. Nothing is guaranteed. Especially in this economy where we have witnessed huge companies going bankrupt in the past few years. Did you ever think GM would need to be rescued?

Annuities are sold to folks for "tax savings". This is because the money inside an annuity grows tax deferred. However, once the money starts to get distributed (either to the person who bought the annuity or the heirs) the distributions are taxed at the highest rate. All distributions are treated as ordinary income. If you held this money in a taxable brokerage account, you would pay capital gains rate on the earnings and not ordinary income tax rates. Big difference.

Annuities typically have very limited investment options. Most offer high cost captive mutual funds with few good choices.

Annuities should never be purchased within an IRA account. IRAs are tax deferred already so it makes no sense to put a tax deferred annuity in an already tax deferred account. Remember...big commissions on the sales of annuities!

And finally...annuities are hardly ever "bought"...they are almost always "sold".

California and the new tax credits

2010-05-04T16:33:00.000-07:00

California is offering some nice tax credits for folks who buy either a new home (never been occupied) or a first home. These credits are available for purchases that close escrow on or after May 1, 2010. Here are the rest of the details:

Applications for the credit must be faxed after escrow closes
Credits are available for taxpayers who purchase a qualified personal residence only after May 1, 2010 and before January 1, 2011
Tax credits limited to the lesser of 5% of the purchase price or $10,000, whichever is smaller
Tax credit received over a 3 year period ($3333 per year) beginning with the tax year the home is purchased.
Tax credits are non refundable and unused credits cannot be carried over

For both the First Time Home buyer and the New Home Buyer credits, the taxpayer must live in the home for 2 years following the close of escrow.

California has allocated $100 million for the New Home credit and $100,000 for the First Time Buyer credit. Credits allocated on a first come, first served basis. We expect the credits to go fast so if you know of someone who qualifies under the rules, let them know ASAP.

What To Do When Your Home Is Underwater

2010-04-29T18:02:00.000-07:00

Currently, there is so much consternation for consumers concerning their homes right now. This article written by a colleague of mine really details the options that are available and the ramifications of each one. Very good article.

Here is a link to the blog by Burt Whitehead, "What To Do When Your Home Is Underwater."

Inflation or Deflation???

2010-04-11T12:21:00.000-07:00

Excellent article written by some of my colleagues at Cambridge Advisors. Enjoy reading.

Bert Whitehead's blog about Inflation or Deflation

Long Term Care Benefits

2010-03-29T19:17:00.000-07:00

Something interesting that is part of the Health Reform Act.

Long-term Care Benefit Also Made Available in Health Reform

March 26, 2010 (PLANSPONSOR.com) - The health reform legislation contains a provision that will make long-term care insurance available to all Americans, who will be automatically enrolled with the choice to opt out.

Under the Community Living Assistance Services and Support (CLASS) Act, individuals will begin paying a premium immediately and, after five years, those with functional limitations have the option of receiving a cash benefit of around $50 a day that can be used for medical equipment and home renovations.

In addition, Health Leaders Media reports that the bill will implement much stricter guidelines in terms of ownership transparency of nursing home chains.
"This will allow patients and the public at large to better understand ownership and operational hierarchies that currently are difficult to identify. Making these changes in the industry will be challenging, particularly for large publically-owned chains," says Katherine McCarthy, business account manager at PointRight in Lexington, MA, according to the news report. "However, those of us in the industry are all very excited that the bill will extend the therapy caps exceptions process through 2010. At the end of this year, they will have to revisit this issue again, at which point we are all hopeful for a long-term fix that ensures patients are able to receive the care they need based on medical necessity, rather than an arbitrary cap on funding." The health reform bill also includes a provision to help close the Medicare Part D coverage gap for medications. According to the Senate’s summary of the Patient Protection and Affordable Care Act, "in order to have their drugs covered under the Medicare Part D program, drug manufacturers will provide a 50% discount to Part D beneficiaries for brand-name drugs and biologics purchased during the coverage gap beginning July 1, 2010. The initial coverage limit in the standard Part D benefit will be expanded by $500 for 2010."-Rebecca Moore

Credit CARD Act of 2009

2010-03-01T14:05:00.000-08:00

Last week, the most sweeping credit card reforms ever passed by Congress (The Credit CARD Act of 2009), began to take effect. On one side, consumer groups are excited that credit card companies are required to communicate more frequently and plainly about changes they make to your cards. Critics, however, say that these new regulations will make credit cards more expensive, in the long run, for everyone.

NPR’s “All Things Considered” outlines a few need-to-know-points for consumers:

— Interest Rates: Card issuers cannot increase interest rates during the first year on new accounts. In most cases, retroactive rate increases are prohibited.

— Payments and Billing: The issuer has to set the payment-due deadline on the same day each month.

— Fees: Consumers cannot be charged extra fees for making payments online, by phone or by mail.

— Disclosures: Issuers must notify cardholders of significant changes to their account terms at least 45 days before the changes take effect. If the consumer objects to the changes, he or she can close the account, or "opt out."

— Young People: Consumers younger than 21 need an adult co-signer to open a credit card. In addition, the card issuers cannot entice students to sign up by offering free pizzas or other gifts within 1,000 feet of a college campus.

Also, have you ever tried paying your credit card over the phone, only to realize it will cost you 10 bucks to do so? That’s also out with these new credit regulations. (They always try to nickel and dime us, don’t they?)

What might be confusing to consumers is finding out what rules take place when. We found an interactive timeline at CreditCards.com that clearly outlines when legislation begins:

Creditcards.com Credit Bill Timeline

I urge my clients to read the communication that their credit card company sends them. If you have an issue with something you read, call them, and ask for clarification about the terms of your card.

As always, I am available for any questions anyone has concerning about this new legislation, or credit cards in general. Thanks for reading!

Why Your Credit Score is so Important

2010-02-22T12:49:00.000-08:00

Your Credit Score is like your reputation, it follows you everywhere. Protect it as best as you can.

What Makes Up a Credit Score

A credit score takes into account a lot of different information from your credit report, but it’s not all treated equally. Some aspects of your credit history are more important than others and will weigh more heavily on your overall score. Your FICO score is essentially made up of the following:
· Payment History – 35%
· Total Amounts Owed – 30%
· Length of Credit History – 15%
· New Credit – 10%
· Type of Credit in Use – 10%
As you can see, the bulk of your credit score comes from your payment history and how much debt you actually have. Those two items account for 65% of your score. So, if you’re really looking to improve your credit score, these are the areas you’ll want to tackle first.

Why Your FICO Credit Score is Important

We’ve determined what makes up a credit score, but why is it so important? Your credit score will follow you for your entire life and if you are ever trying to borrow money, the lender is going to look at your credit score to determine whether or not to lend money to you. Need to buy a car? They will check your credit score. Looking for a mortgage? You can bet they are checking your credit score. In fact, even some employers are checking credit scores when hiring to possibly determine who would make a good employee.
Not only does your credit score determine whether or not you’ll receive financing, it also determines how much it will cost you to borrow that money. People with higher credit scores are deemed to be less of a risk and therefore will typically receive the lowest interest rates. Those with lower scores are viewed as more of a risk so the bank will offset that risk by lending you money at a higher interest rate. And when you’re talking about larger loans such as buying a vehicle or a home, just an extra interest rate point could add up to thousands, and even tens of thousands of dollars wasted on interest.

2010 Five Star Wealth Managers

2010-02-15T16:00:00.000-08:00

A big thanks to San Diego Magazine and San Diego for honoring me and our practice this month. I am humbled and grateful for the honor of being one of San Diego Magazine's 2010 Five Star Wealth Managers.

From February's San Diego Magazine, the award, "represents less than 4 percent of the wealth managers in the San Diego area. Only 456 of the top-scoring wealth managers made this year's list."

Cheryl, Marcie, and myself work hard to provide the best customer service and financial planning to all our clients. I am excited to share this honor with them and all our clients whom we serve.

Why You Should Convert to a Roth IRA in 2010

2010-01-25T13:57:00.000-08:00

2010 offers us some special and unique planning opportunities. It allows all taxpayers to convert IRA (tax deferred) money to Roth IRAs (tax free money) regardless of adjusted gross income. In the prior years, only taxpayers with adjusted gross income of less than $100,000 were allowed to convert IRA money to a Roth IRA.

When a taxpayer converts money from a regular IRA to a Roth IRA there is a tax bill due. The taxes are based on the amount of conversion and taxed at the taxpayer’s current tax bracket. In other words, if $10,000 of regular IRA money is converted to a Roth and the taxpayer is in a 15% tax bracket, then $1500 of federal taxes would be owed in addition to state taxes.

2010 also offers another special situation in that the federal taxes owed for conversions in 2010 can be spread over 2 years rather than all being paid in one year. So, if we look at the same example above, the $1500 in taxes could be paid in 4/15/11 and 4/15/12. However, please note that if the tax brackets are higher in the later years, you will pay more in taxes. So, if you believe that we will see higher taxes down the road, it might make more sense to pay the entire tax bill in 4/15/11!

The entire IRA does not need to be converted. So, if a taxpayer has a $100,000 IRA but does not want to convert the entire IRA because of the high tax bill, he /she can convert just a portion of the IRA. And pay taxes only on the converted amount.

If there are non deductible contributions in the IRA account mixed in with deductible contributions, you cannot just convert the non deductible amounts. It must be pro-rated. Assume that a taxpayer has a $100,000 IRA and $40,000 is from non deductible or post tax contributions, then only 40% is non taxable if the entire IRA is converted. The other $60,000 would be taxable. If the same taxpayer decided to just convert $50,000, then $20,000 (40%) would be non taxable and $30,000 would be taxable.

And the final good news sounds like a TV commercial “if for any reason you are not satisfied, you can undo your Roth conversion absolutely free, with no further obligation”. It’s called a recharacterization and if you convert this year you have until 10/15/2011 to undo the conversion. For example, assume you convert $100,000 in 2010 and the market totally tanks and you end up with only $80,000 in your Roth but will owe taxes on the $100,000 that you converted. You can do a recharacterization and put the money back into your IRA and undo the whole transaction. Sounds almost too good to be true!

The earlier that you convert, the better off you will be. Consider that, over time, stocks have risen more than they have fallen. All other things being equal, converting earlier means that the dollar amount of your conversion will be lower, thereby costing you less in taxes.

Haiti Charitable Giving and 2009 Taxes

2010-01-20T12:43:00.001-08:00

I am proud of our country and our citizens in how we as a nation have stepped up with our time, talent and financial resources to help the folks in Haiti. It has been very gratifying to see the outpouring of prayers and donations for this most impoverished country. Haiti's pain has truly captured the hearts of America and we have responded generously.

I am pleased to say that the House passed a bill yesterday that will allow all donations to Haiti Relief organizations to be considered charitable contributions on tax returns for 2009. Senate approval is expected as well. This applies to donations made after January 11th, 2010 and before March 1, 2010. Even though most of us give from our hearts and not because of tax reasons, it is nice to know that we get to reduce our 2009 taxes and help out Haiti as well.

If you are considering making a financial gift to Haiti, please do so by end of February and lower your 2009 taxes!

Worker, Homeownership and Business Assistance Act of 2009

2009-11-16T10:27:00.000-08:00

We have another tax bill! This was signed by Pres Obama on 11/6/2009 in order to help stimulate the housing market. This bill has huge opportunities for first time homebuyers and existing long term homeowners. Even if it doesn't apply to you, chances are someone in your family, workplace or network of friends will definitely be able to qualify and utilize these generous tax credits. Here are the nuts and bolts:

1. FIRST TIME HOMEBUYERS---the credit of $8000 is extended for purchases made before 5/1/2010. The defintion of first time homebuyer is a taxpayer who has not owned a principal residence at any time during the previous 3 years. Taxpayers must have entered into a written binding contract by 5/1/2010 and close escrow before 7/1/2010.

2. EXISTING HOMEOWNERS--A taxpayer is eligible for a credit up to $6500 ($3250 if single) if they purchase a personal residence AFTER 11/6/2009 and before 5/1/2010. The same rule applies in that the taxpayer must enter into a written binding contract by 5/1/2010 and close escrow before 7/1/2010. The taxpayer must have owned the same principal residence for any five consecutive years during the 8 year period ending on the date of purchase. In addition, the maximum purchase price of the home is $800,000 or less. The taxpayer also needs to attach the closing statement to his/her tax return for either 2009 (purchase home after 11/6/2009) or 2010 return (purchase home before 5/1/2010 and close before 7/1/2010).

Bottom line is that if you are thinking of buying a first time home or changing residences, this is the time to start looking around and do it. Home prices have fallen 30-60% in the past two years and the time may never be better!

Being Overconfident

2009-10-01T12:25:00.000-07:00

This is part 7 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.

Our ancient ancestors needed to be overconfident in order to survive because life was short and food was scarce. That served them well then but today, it can cause us costly investment mistakes. Because overconfident investors often forget past mistakes yet always remember past successes.

Remember the bull market of the 90's. It was almost impossible to have not made money in the stock market, especially the technology sector. Investors got overconfident and thought they were geniuses. Many shifted all of their stock portfolio to tech stocks and then got burned when that sector tanked in early 2000.

Also, investors may invest heavily in their own employer stock because they think they have insider knowledge of the company. Think Enron!

To create true wealth and avoid being overconfident, investors must be non-emotional and disciplined investors. Having a little humility helps.

Bottom line: Don't make the mistake of being overconfident in your investing skills.

Information Overload

2009-09-14T07:32:00.000-07:00

This is part 6 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.

What sources of information do you use when considering an investment? Most people make investments based on emotion--a hot tip from a co-worker, family member or friend. They jump in to buy the stock because they think they have "inside information".

Or they listen to all the cable news shows like MSNBC or Fox money reports. Many of these so called money and finance commentators are nothing more than theatrical performers.

Some people read several of the many trade publications that tout the latest and greatest. The problem with all the information out there is that it is way too much information for any one person to absorb. There is simply too much white noise.

Trying to accumulate vast amounts of information in order to make intelligent and rational investment decisions is way beyond the time and resources of most people.

An astute investor is careful to limit the amount of information he/she uses to make decisions or they hire out this important work to a trusted advisor.

Bottom line is that basing your investment decisions on tons of information is not the best way to generate wealth.

Relief for Struggling Small Businesses

2009-08-24T14:05:00.001-07:00

The Small Business Administration (SBA) has announced a new loan program as part of the American Recovery and Reinvestment Act of 2009 (ARC). ARC loans are available to small businesses that need short term assistance to make principal and interest payments on existing qualifying debt.

The loans are interest free and carry no fees. The maximum amount of the loan is $35,000. Business owners can defer loan payments for up to one year after the loan is received. And the loan can be repaid over 5 years.

Get more information at www.sba.gov and type ARC in the search field.

Truly Diversifying Your Portfolio

2009-08-17T12:19:00.000-07:00

This is part 5 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.

Most investors know that it's smart to diversify. However, most investors are not nearly as diversified as they should be. Investing in the S&P 500 (the 500 largest stocks in the US) is not a diversified portfolio. Did you know that the US represents less than 50% of the developed global markets in the world??? By avoiding international stocks, an investor is missing out on a lot of opportunities.

From 1993 through 2008, if you examine the countries with the best equity returns each year, the US was only a top-five performer three times in the last 16 years.

Bottom Line: Don't make the mistake of focusing solely on US securities!

Understanding the Difference between Income and Cash Flow

2009-07-27T13:53:00.000-07:00

This is part 4 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.

Income and cash flow are not the same thing even though most people think they are.

Most people think in terms of how much they can safely take from their portfolio for living expenses. The correct way to think is how much they can safely spend from their portfolio for living expenses.

It is a big mistake to think that you should get the cash flow that you need only from portfolio income (dividends and interest) without ever touching your principal. This is an emotional issue that is sometimes hard for folks to overcome. By doing this, you can pay more taxes than necessary.

Investors need to focus on the total after-tax return of their portfolios. Selling stocks when they are have appreciated and using that money for living expenses is a far more tax advantageous way of creating the cash necessary for lifestyle.

Bottom line: The way in which you generate income can have a tangible effect on the growth of your assets as well as on the taxes you pay.

Managing and Judging Risk

2009-07-21T07:19:00.000-07:00

This is part 3 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.

Many investors do not understand risk when investing. Generally, the longer the time horizon, the more risk you can take.

If you need money in the next 5 years, you should not be taking on long term risk. Best to keep the money in CDs and bonds so that it will be there when you need it. Don't put your financial future at risk by "betting the house"

Conversely, many investors also take too little risk. They focus on the short term volatility of the market rather than the long term growth potential. These folks typically invest in only money markets, CDS, short term Treasuries etc... even thought their time horizon is 20 or 30 years out. The result is that their portfolios may not even keep up with inflation so their purchasing power is greatly eroded. They will not achieve their desired lifestyle.

A good financial advisor can help you evaluate the risks in your life and design an asset allocation strategy based on your goals, time horizon and the amount of risk that is needed to achieve your desired outcome.

Bottom Line: Understanding your exposure to risk---as well as your time horizon and goals---can help you better protect your portfolio and make better investment decisions.

Clear Investment Objectives

2009-07-16T09:39:00.000-07:00

This is part 2 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.

Most people invest their money with no clear investment objectives. Your personal portfolio must be in sync with your financial goals.

Specific strategies can be tailored to meet a single objective of a combination of several objectives.

For example.....If the goal is to grow your assets.....then your objective would be to have X number of dollars at a certain time point in your life.

If your goal is to have cash flow for your lifestyle and grow your assets .....then your objective is to have X number of dollars per year and have X number of dollars at then end of the time horizon

If a goal is to partially fund a child's college....then your objective is to save X number of dollars per year for that goal.

If your goal is to buy a house.....then your objective is to determine the down payment and have X number of dollars saved in the time frame.

Bottom Line: You can significantly increase your chances of investment success by starting with clear investment objectives

Time Horizon for Your Assets

2009-06-25T13:29:00.000-07:00

This is part 1 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.

Many people simply underestimate the length of time that a portfolio is needed to carry them through their life. A person can work hard all his earnings years and then end up running out of money in his/her retirement years. The National Institutes of Health have shown that someone born in 1952 had a life expectancy of 68.6 years at birth. By 2006, that figure has risen to 77.9 years. My mom is 87 years old and according to the US Total Population Life Table 2007, she is expected to live to 93!

This trend towards longer life spans will only continue with rapid advances in health care and nutrition. There is no question that we will most likely live much longer than our parents and grandparents.

A Time Horizon should be thought of as the amount of time that your assets need to be working for you and generating the cash flow needed for your lifestyle. This will vary from investor to investor. For example, some people want their assets to last only for their lifetime and their spouse as well. Other investors have a strong desire to leave a legacy for their kids, in addition to meeting their own cash flow needs and some investors want all of the above as well as a vacation home, interesting vacations etc....

Bottom line: Don't put your retirement at risk by planning for too short a time horizon.

Help for Folks who cannot pay Taxes

2009-04-13T17:25:00.000-07:00

What if you have prepared your taxes and owe money but have no money to pay your taxes? This is a common problem right now as many folks have lost their jobs. The IRS indicates it is willing to work with you. Please view the attached video from CNN interviewing the IRS Commissioner. Help is on the way!

http://www.cnn.com/video/#/video/business/2009/04/13/dcl.gw.pay.taxes.cnn

Who Will Guard Your Nest Egg

2009-03-29T07:21:00.000-07:00

By JASON ZWEIG

A power struggle in Washington will shape how investors get the advice they need.
On one side are stockbrokers and other securities salespeople who work for Wall Street firms, banks and insurance companies. On the other are financial planners or investment advisers who often work for themselves or smaller firms.
Heath Hinegardner
Brokers are largely regulated by the Financial Industry Regulatory Authority, which is funded by the brokerage business itself and inspects firms every one or two years. Under Finra's rules, brokers must recommend only investments that are "suitable" for clients.
Advisers are regulated by the states or the Securities and Exchange Commission, which examines firms every six to 10 years on average. Advisers act out of "fiduciary duty," or the obligation to put their clients' interests first.
Most investors don't understand this key distinction. A report by Rand Corp. last year found that 63% of investors think brokers are legally required to act in the best interest of the client; 70% believe that brokers must disclose any conflicts of interest. Advisers always have those duties, but brokers often don't. The confusion is understandable, because a lot of stock brokers these days call themselves financial planners.
Brokers can sell you any investment they have "reasonable grounds for believing" is suitable for you. Only since 1990 have they been required to base that suitability judgment on your risk tolerance, investing objectives, tax status and financial position.
A key factor still is missing from Finra's suitability requirements: cost. Let's say you tell your broker that you want to simplify your stock portfolio into an index fund. He then tells you that his firm manages an S&P-500 Index fund that is "suitable' for you. He is under no obligation to tell you that the annual expenses that his firm charges on the fund are 10 times higher than an essentially identical fund from Vanguard. An adviser acting under fiduciary duty would have to disclose the conflict of interest and tell you that cheaper alternatives are available.
If brokers had to take cost and conflicts of interest into account in order to honor a fiduciary duty to their clients, their firms might hesitate before producing the kind of garbage that has blighted the portfolios of investors over the years.
Richard G. Ketchum, chairman of Finra, has begun openly using the F-word: fiduciary. "It's time to get to one standard, a fiduciary standard that works for both broker-dealers and advisers," he told me. "Both should have a fundamental first responsibility to their customers."
When I asked whether Finra should be that single regulator, Mr. Ketchum replied: "Do we have the infrastructure and would we do a good job? We think yes."
Others disagree. "It would be lethal if Finra becomes the only regulator," retorts Tamar Frankel, a professor of securities law at Boston University. "Finra has an inherent conflict of interest, because it's the same people regulating themselves."
In testimony to the Senate in the past week, SEC Chairwoman Mary Schapiro said the agency is considering "whether to recommend legislation to break down the statutory barriers" that impose different regulations on brokers and advisers.
Ms. Schapiro stepped down earlier this year as head of Finra to lead the SEC. In 2005, when she was vice chairwoman of Finra's predecessor, Ms. Schapiro wrote a scathing letter to the SEC calling "this much-vaunted fiduciary duty ... imprecise and indeterminate."
When I asked her now if she still held that view, Ms. Schapiro replied: "I wear a new hat now. I completely get that I work for America's investors, so my perspective has changed. I think investors would rationally say that they prefer fiduciary duty as the standard of care. And they are entitled to have their interests come first, always."
Ms. Schapiro said it is too early to say who should be the lead regulator if brokers and advisers are brought under the same set of rules.
Ms. Schapiro sounds sincere, and they say there is no zeal like that of the convert. Here is hoping she means what she now is saying, and that Congress -- and the investing public -- will hold her to it. It is high time for everyone who says "Trust me" to be held to the highest standard.
Write to Jason Zweig at intelligentinvestor@wsj.com

The Madoff Madness

2009-03-10T18:13:00.000-07:00

As I read the headlines on the internet today, I see that Bernard Madoff, former NASDAQ Stock Market chairman and founder of Bernard L. Madoff Investment Securities LLC, will most likely plead guilty and be sentenced to life in prison.

What did he do? He allegedly collected money to invest from clients, made up false statements to show that they were doing well, and used new clients' money to pay interest and withdrawals to existing clients. This is known as a Ponzi scheme and is estimated to involve more than a $50 billion loss for his investors.

His clients didn't see this coming. Could they have? Let's look at three key safety tips that would have prevented this from happening.

Know what you own. Stick to stocks, bonds, ETFs, and mutual funds that are publicly traded and listed on major exchanges like the New York Stock Exchange. They are valued independently at least daily, if not minute-by-minute, while the exchange is open. You can check their reported returns against your own portfolio. If you can't look up the prices and performance in the newspaper or on the Internet - that's a red flag - ask a lot more questions.

Use an independent custodian. Madoff held his client assets, managed them, and priced them, too. See the conflicts of interest? Investment performance can look better if the prices reported to clients are manipulated, which is allegedly how Madoff showed winning year after winning year despite market turmoil. At our firm, our clients have an independent third party, either TD Ameritrade, Vanguard or American Funds (for the College America accounts) pricing each investment they own. We have no input on investment pricing, and that separation is a very good thing. Clients also get an independent statement directly from TD Ameritrade, Vanguard or American Funds.

Check on insurance. Our clients benefit from fraud insurance. The first part is Securities Investor Protection Corporation (SIPC) coverage for $500,000 per account. Then, at TD Ameritrade Institutional, there is an additional aggregate amount of $250 million of additional securities protection.

Fraud insurance does not protect against market declines; but it does protect against theft of securities and/or related fraudulent transactions.

One final thought - if an investment sounds too good to be true, it probably is. Reportedly Madoff claimed consistent annual returns of 10-12% with little volatility and no annual losses. Can you name any legitimate investor who can make that claim in recent years?

IRA Contribution Deadlines

2009-03-05T09:04:00.000-08:00

IRA Contribution Deadline

Don’t miss the IRA contribution deadline! Make sure you make your 2008 IRA contribution before April 15! With share prices at historic lows, fully funding your IRA for 2008 (and 2009) could mean a tremendous boost toward saving for retirement. Times are tough, but remember: the goal is to buy low and sell high! Anyone with an IRA should use this opportunity to fully fund it.If you’ve been contributing $50 or $100 to an IRA each month, there’s room to contribute a lot more. Putting $600 or $1,200 in your IRA annually is nice, but you can direct up to $5,000 into your IRAs for tax year 2008, and up to $6,000 if you turn 50 in 2008. (These limits apply whether you have one IRA or 21 IRAs – they represent the total amount an individual may contribute to one or more IRAs for 2008. If your modified adjusted gross income, or MAGI, is really high, then you may have to contribute less.)

As for your 2009 contribution...You have until April 15, 2010 to make that one, but you can also make it during 2009 and cross it off your to-do list. Again, with stock prices so low, a lot of amazing values are available. This recession will not last forever; looking back years from now, chances are you will be very glad you contributed what you did when you did.

Please call us if we can help you with your contributions.

More Strategies on Weathering the Economic Storm

2008-11-07T15:19:00.001-08:00

We have seen lots more volatility this week in the stock market. Bad news keeps getting badder, like the loss of over $1 million jobs this year and General Motors burning through billions of dollars worth of cash in the last quarter alone. These are staggering numbers. What do they have to do with you and me? In the short term--everything as we continue to watch our 401ks become 101ks but as long term investors, we can weather the storm. Here are some strategies that you have probably heard before but we all need continued reassurances:

1) Stick to your plan.

Young people--keep on funding your Roths and make sure you have emergency savings
Pre-Retirees--keep on saving in to your retirement plans--your dollar cost averaging is a big plus right now
Retirees--watch your spending --you might have to tighten the belt for a few years

2) Stick to simple investing

Low cost mutual stock and bond funds
Don't try to figure out the next hot sector or the sector that you think is poised for significant growth
And for goodness sake, don't think you know when to get out of the market and when to get back in. Remember that upward surge of 900 points the end of October???

3) Rebalancing

Rebalancing your portfolio at least annually provides smoother returns and guarantees that you are selling high and buying low
Harvest those tax losses now--great opportunity to rebalance taxable accounts and capture the losses (can always be carried forward if not used this tax year) and rebalance your portfolio at the same time

4) Turning off the "white noise"

There are some total idiots on the major news channels who just love to spout off and create sensational stories. Boring! Turn them off!

Call or email me anytime with any issues. Have a great weekend.

Misc IRS Adjustments for 2009

2008-10-27T17:30:00.000-07:00

IRS has $266 Million in Undeliverable Refunds and Stimulus Payments. The IRS is urging taxpayers to make sure their mailing address is up-to-date. If a taxpayer has moved since he or she last filed a tax return, Form 8822, Address Change Request, should be filed with the IRS. It is critical that taxpayers who are due a stimulus check update their addresses with the IRS before year-end, because by law, economic stimulus payments must be sent out by December 31 this year.

2009 Social Security Cost of Living Adjustments. Beginning January 1, 2009, the maximum earnings subject to social security tax withholding increases to $106,800. The earnings needed for one quarter of coverage is $1,090. The threshold for coverage for domestic employees increases to $1,700.

2009 Inflation Adjustments AnnouncedThe IRS has released Revenue Procedure 2008-66 announcing increases in deductions, exemptions, limitations, and credits for 2009, as well as widened tax brackets. Key changes affecting 2009 returns include the following:

The value of each personal and dependency exemption increases to $3,650.
The new standard deduction is $11,400 for married couples filing a joint return, $5,700 for singles and married individuals filing separately, and $8,350 for head of household.
Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $67,900
. The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $5,028. The income limit for the credit for joint return filers with two or more children is $43,415.
The annual gift exclusion rises to $13,000, up from $12,000 in 2008.

Prescription for Today's Economic Uncertainty

2008-10-27T12:47:00.000-07:00

Many people are over-indebted, over-fed and living in a fast-depreciating house. Savings rates, although improved, are paltry. It's time to return to the practice of thrift and leave the culture of debt behind. If there is any lesson to be learned from the current economic uncertainty it is that we can no longer rely on gains from our assets to adequately provide for us. We need to focus on what we can control-spending less and saving more. Building a bigger nest egg is our best hope for accumulating enough assets to finance our lifestyles over a 30- to 40-year period. To accomplish this, we must live well below our means and save the difference. Even if you are years away from retirement, start saving now. For every 10 years you delay saving for retirement, you will need to save three times as much each month just to catch up. Put savings at the top of your expense list and pay yourself first. Take full advantage of the match your employer offers in your retirement savings plan. Never leave free money on the table. If you are just a few years away from retirement and determine that you'd rather build a bigger safety net than rely on stock market returns to get you through, think about working longer or working part-time after you've retired from your full-time job. You may even consider a second career. Leaving your nest egg to grow for a longer period may mean you won't have to alter your lifestyle later on. If you are already in retirement and are concerned that your spending level might jeopardize the longevity of your assets, then a retrenchment plan may be in order. Scrutinize your expenses, cut back the "fluff" and find expense-cutting ideas in books and magazine articles. Find ways to have fun with little or no money. Find a cause you have passion for and get involved. It will cost you more time than money. Running retirement projections as often as I do, the variable that seems to threaten the longevity of retirees' assets more than any other is their spending level. What retirees seem to worry most about is outliving their assets. Turn worry into action. Spend less, save more and measure your goals periodically to assess your progress. If you don't manage it, you can't measure it. It's never too late to start. It's only too late if you don't start at all.

Judy's Letter from her heart

2008-10-11T10:14:00.000-07:00

Dear Friends,

Today is Saturday and we have a blessed three days of NO stock market as the market is closed on Monday in observance of Columbus Day. I pray that everyone takes a deep breath and just calms down for the next three days. I plan on going for long walks, doing yoga, attending a wedding for the son of some dear friends and going to the Charger game on Sunday. It has been an incredible week—we are truly living in unprecedented times. My mom (who was a young girl during the depression) called yesterday to see how her portfolio is doing. When I gave her the news, she said that she would gladly lose all her money if she could have my Dad back with her. My Dad died three years ago and three months before my late husband, Lee. That really hit home with me. And it kind of put everything in perspective.

I really want to share from my heart with you because you are all dear friends and I so appreciate the fact that you have entrusted me with your financial well being. It is a responsibility that I willingly accept. This week, I have been in agony as I have watched and seen everyone’s hard earned savings lose so much in value. The weight of the responsibility has been crushing. However, I do believe with every fiber of my being that this will pass—it may take a few years—but we will recover and learn from this. While there is no way to determine where the bottom of this market is—the issue is not how far it falls but how high it will bounce thereafter.

There are serious forces at work in the economy that are causing this turmoil and some are temporary and some are permanent: I am quoting from a newsletter that was sent to me by Bill Losey, a CFP. The following 5 paragraphs with the bold headings are written by Bill.

The credit markets have seized up. This is real and it is temporary. Almost all large public and private companies issue commercial paper - short- term debt instruments that mature in less than 270 days to help meet their short-term liabilities. This debt in the past has been very liquid and quite secure. It is what has been owned by most money market funds to help them give savers better returns than they would get from owning Treasuries. Since concern has dramatically increased about corporate balance sheets and their ability to meet even the shortest of obligations, two things have happened. People have fled money market funds, which means that those funds must sell their paper and there is no market for the new paper that is being issued. When you hear about the "need" for a rescue package, this is the main reason why. The Fed and the Treasury are trying to create an avenue of liquidity for these instruments. This part of the plan is what will eventually hit Main Street. The reason that this is temporary is because it is too significant to not be worked out. Everything from hospital payrolls to inventory purchases is dependent upon this mechanism, so it will be fixed.

Wall Street is broken. This is real and it is permanent. Some of the largest investment banks were using a tremendous amount of leverage on exotic instruments that created even more leverage. This industry will continue to change and change dramatically. Access to money will not be as easy, which means profits for these companies will be compromised. Eventually they will come up with new and different ways to make money, but regulation will inevitably make it harder to make as much as they did for contributing as little as they had. This will inevitably change what types of investments will make sense going forward. Less exotic will be back in vogue

Fear and greed own the day. This is real and it is permanent. Every day, stock prices are determined by sellers - who either need to raise money or are convinced their stocks are going down, and buyers - who believe that they are getting bargains on investments that will go up. In periods of turmoil, there are far more sellers than buyers. People get scared that their investments are going to fall forever and sell (often at the worst possible times). When markets are going up, people think that they have all the answers and end up buying at the worst possible times. No one is ever completely rational, but successful investors tend to be less scared and less greedy than unsuccessful ones.

Diversification doesn't work. This is real and it is temporary. When we have a global melt-down, all investments, other than the very safest, fall. This means that asset classes initially fall together. And this is usually the case for around three to six months. After that, the most mispriced asset classes come back more strongly than others. Everything has been a sinking ship this past month.

People are hurting. This is real and it is temporary. Jobs have been lost and more jobs will be lost. People who piled on debt will have tremendous problems working their way out of the hole that they dug for themselves. The stress of seeing investments drop can add to the stress that each of us feel in raising a family, or work, or tending to our aging parents. People are scared right now and are not making rational decisions.

The one universal truth is that nothing lasts forever and things will change. It may take awhile but we will dig ourselves out of this mess. Regardless of whether you are a republican or democrat or which candidate you endorse for president—I do believe that a new administration will bring some much needed leadership and confidence to this country. I really think we will see a more positive spirit in this country after November 5th.

I want to let you know (again) what I think you should be doing right now and what my husband and I are doing:

1. If you are working, keep your jobs. Work harder and smarter than your co-workers. Layoffs could be coming and you want to be the LAST one considered. If you fear a layoff, be proactive and get out there and start looking for a job. Don’t sit around and wait for the axe to fall. High unemployment is inevitable in the next few years due to the domino effect of what is going on.

2. If you are retired and in a position where you are drawing down on your portfolio and not adding to it, then consider part time work in the next few years so that you can slow down the withdrawals.

3. Control your spending. Go through your spending categories and cut out most of the discretionary stuff like eating out, expensive vacations, clothes shopping etc… Now is the time to take that money and stick it into your emergency savings account. This gives you peace of mind and lets you sleep at night.

4. Save, save, save.

5. Do what it takes to keep your good credit history and reputation. Credit will be tight from now on and your credit reputation is of paramount importance. The days of buying houses and cars with mediocre credit are OVER.

6. Turn off the TV and the talking heads and go for a walk or take up a hobby. Do not sit around and listen to this stuff. They all sensationalize it and make it seem worse than ever. Fall is a beautiful time of the year, regardless of where you live, so go out and enjoy it.

7. Be more frugal with Christmas and holiday presents this year. Your family and close friends would love to have the gift of your time and love rather than expensive gifts.

8. Do not make any BIG purchases right now, especially real estate. Always call first and let’s discuss it first.

9. Home equity lines are being frozen, so if you really think that you will need to use in the future, I suggest that you draw on it NOW and put the money into a savings account.

10. And finally, if you really cannot sleep at night and are so distressed by the current situation, then please call me and we will discuss making some changes to your portfolio. I know this is contrary to what I have been preaching for the past two weeks (and I have no intention of selling anything in my portfolio) but physical and mental and emotional health, in my opinion, are more important than the size of your portfolio.

Please let us know how we can help you or discuss any concerns or questions. I am leaving for Nashville on Friday, Oct 17th and returning Tues, October 21st. I am attending the annual Cambridge Financial Advisor conference. Trust me; I need this conference and some R&R! Bill is going with me but Cheryl and Marcie will be here and minding the store. Again, I take my job and your financial well being with the utmost seriousness. It is a sacred trust. Thank you for letting me be your guide during these difficult days.

Warmly,

Judy Stewart, CFP, MBA, E.A.

What Does Warren Buffet think?

2008-10-09T14:41:00.000-07:00

Did you see Charlie Rose’s interview with Warren Buffett? On October 1, they met in San Diego for a brief chat about the economy and the financial markets. Earlier that day Buffett had announced that his holding company, Berkshire Hathaway, would invest $3 billion in General Electric. The great investor was realistic about today’s economy – and also optimistic.“It’s like a great athlete that’s had a cardiac arrest.” That’s Buffett’s view of the U.S. economy right now. What led to the heart attack? He puts it as simply as he can: “300 million Americans, their lending institutions, their government, their media, all believed that house prices were going to go up consistently. And that got billed into a $20 trillion residential home market.” Everyone leveraged up, and when “you have a 20% fall in value of a $20 trillion asset, that’s $4 trillion. And when $4 trillion [in] losses lands in the wrong part of this economy, it can gum up the whole place.” Now, with major financial institutions deleveraging, “only one institution in the world that can leverage up in [a] countervailing force to that, and that’s the United States Treasury.”“An economic Pearl Harbor.” Dire words? Well, in Buffett’s view, that was what the last month or so on Wall Street had meant for the country. “In my adult lifetime, I don’t think I’ve ever seen people as fearful economically as they are right now. They are not wrong to be worried.” When something like this hits, he added, “You better spring into action with the best people you have.” He praised the initiative and vision of Treasury Secretary Henry Paulson – and FDIC Chairman Sheila Bair, in his view the unsung hero of the crisis. For the next administration, “it’s more important who the Treasury Secretary is than who the Vice President is.”Will taxpayers get their money back? “I would bet on it.” Buffett feels that the Treasury Department’s plan to purchase hundreds of billions of mortgage-related assets will turn a profit given that they will buy them at market, and also “because the United States government has staying power and it has a low cost of borrowing.” The Bush administration’s plan is, in short, “the kind of stuff I love to do.” He noted that “if I could take 1% of that $700 billion pot and take the gain or loss from it and be their partner, and they would buy the stuff at market, I’d make a lot of money.”“Financial weapons of mass destruction.” Buffett is no fan of derivatives. “They destroyed AIG. They certainly contributed to the destruction of Bear Stearns and Lehman.” He feels that if AIG had resisted the temptation of derivatives, it “would be doing fine today.” He later added that the Federal Reserve structured its $85 billion loan to AIG “very, very well … they have put themselves in a position where they are very likely to get their money back, maybe more … I mean I want to hire the guy that made that deal. He’d fit in well at Berkshire.”The “choice” America is making. In Buffett’s assessment, the U.S. is “to some extent, making a choice between future inflation and getting off the floor. And we’re likely to have more inflation in the future as a consequence of the things we do to fight the present situation.” He cautions that “unemployment’s going to go up under any circumstances.”“You want to be greedy when others are fearful.” Personally, Buffett sees many attractive opportunities right now. Cash reserves are important, “but when people talk about cash being king, it’s not king if it just sits there and never does anything. There are times when cash buys more than other times, and this is one of [them].” In addition, Buffett reminds us of the inverse of his principle: “You want to be fearful when others are greedy. It’s that simple.”“Oh, I think confidence will come back.” When Rose asked him what might “never be the same” about Wall Street or the American economy, Buffett replied optimistically. “We’ve got all the ingredients for a sensational future. It’s just that right now the athlete’s on the floor. But this is a super athlete.”“I don’t want any viewer to [think] a magic wand exists in Congress,” he stated. “So they’re going to see some more bad news. But if we do this, we’re doing the right thing. And if [we do], the system will work over time.”

Is My Money Really Safe?

2008-09-22T12:33:00.000-07:00

An article that I highly recommend, "Is My Money Really Safe?," by Joan Goldwasser, Kimerly Lankford, and Pat Esswein. Clients, if you have any questions about this article or anything pertaining to it, please write me an email.

Is My Money Really Safe?

When IndyMac bank failed this summer, the lines of nervous account holders trying to withdraw their money made headlines everywhere. But that was an anomaly.

The Federal Deposit Insurance Corp. has taken over ten other banks this year without incident. If you are worried about the safety of your money -- in banks or brokerages, such as Lehman Brothers, which filed for bankruptcy September 14 -- or money you've paid your mortgage servicer for taxes or insurance, here are answers to your pressing questions.

To finish the article, please follow this link to Kiplinger's.

Legitimate Business or Hobby??

2008-08-28T16:05:00.000-07:00

Many people are confused about the rules for having their own business. The IRS is clear that, in order to file as a business venture, it must truly be a business. The following are some guidelines to ehlp you decide.

Is Your Hobby a For-Profit Endeavor?
FS-2008-23

The Internal Revenue Service reminds taxpayers to follow appropriate guidelines when determining whether an activity is engaged in for profit, such as a business or investment activity, or is engaged in as a hobby.

Internal Revenue Code Section 183 (Activities Not Engaged in for Profit) limits deductions that can be claimed when an activity is not engaged in for profit. IRC 183 is sometimes referred to as the "hobby loss rule."

Taxpayers may need a clearer understanding of what constitutes an activity engaged in for profit and the tax implications of incorrectly treating hobby activities as activities engaged in for profit. This educational fact sheet provides information for determining if an activity qualifies as an activity engaged in for profit and what limitations apply if the activity was not engaged in for profit.

Is your hobby really an activity engaged in for profit?
In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business or for the production of income. Trade or business activities and activities engaged in for the production of income are activities engaged in for profit.

The following factors, although not all inclusive, may help you to determine whether your activity is an activity engaged in for profit or a hobby:

Does the time and effort put into the activity indicate an intention to make a profit?
Do you depend on income from the activity?
If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
Have you changed methods of operation to improve profitability?
Do you have the knowledge needed to carry on the activity as a successful business?
Have you made a profit in similar activities in the past?
Does the activity make a profit in some years?
Do you expect to make a profit in the future from the appreciation of assets used in the activity?

An activity is presumed for profit if it makes a profit in at least three of the last five tax years, including the current year (or at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses).

If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.

What are allowable hobby deductions under IRC 183? If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity. Deductions for hobby activities are claimed as itemized deductions on Schedule A, Form 1040. These deductions must be taken in the following order and only to the extent stated in each of three categories:

Deductions that a taxpayer may claim for certain personal expenses, such as home mortgage interest and taxes, may be taken in full.
Deductions that don’t result in an adjustment to the basis of property, such as advertising, insurance premiums and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.
Deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.

Who Qualifies for Mortgage Help and How to Get It

2008-07-30T11:49:00.000-07:00

"Who Qualifies for Mortgage Help and How to Get It"
By Dave Carpenter, AP Business Writer

Questions and answers about the Hope for Homeowners Act of 2008, passed by Congress last weekend to try to steer as many as 400,000 struggling homeowners away from foreclosure:

Q: What exactly will the legislation do?
A: It will allow those who qualify to cancel their old mortgage loans and replace them with 30-year fixed-rate loans for up to 90 percent of the home's current value. The FHA will insure a total of $300 billion of the loans over a three-year period.
But the decision on whether to write such a loan remains up to banks, which would have to be willing to take a loss on the existing loans in exchange for avoiding an often-costly foreclosure.

Q: Who is eligible?
A: Eligible borrowers must have spent more than 31 percent of their monthly incomes on their mortgages as of March 1, 2008. The troubled loan must have originated no later than Jan. 1, 2008, and be on the borrower's primary residence. And the borrower's income must be verified.

Q: When does the program start?
A: It takes effect Oct. 1 and runs through September 2011, although the FHA isn't likely to have it operating at full capacity until next year.

Q: Since lenders can pick and choose which loans to refinance, how can consumers determine if theirs will be selected?
A: Check with the bank or financial company servicing your mortgage, but it may be weeks before they make decisions concerning the new guidelines and assess individual loans.
Even then, keep expectations limited. "Servicers are going to be reluctant to take the government up on their offer," predicted Mark Zandi, chief economist at Moody's Economy.com. "The earliest they'll start taking them up on it is early next year. And even then it's likely to be modest."

Q: Is there anything a homeowner can do to improve chances of benefiting from the program, such as crunching numbers to make a case for the bank?
A: Not really. The best step is to keep up your payments as best you can.

Q: But doesn't this provide an incentive to NOT pay your mortgage, if you're barely keeping ahead of bills and are underwater on your house, so you can qualify?
A: No. If your situation deteriorates enough, the bank may reject any possible new loan.
"Turning yourself into a financial basket case is not going to work," said Dan Seiver, a finance professor at San Diego State University. "If you turn into a complete deadbeat, the servicer is going to just foreclose and dump it."

Q: So what should I be doing now besides trying to keep up with payments?
A: Talk to a local credit counselor and call the toll-free hot line of the Hope Now alliance — an industry group trying to coordinate a response to the mortgage crisis — at 1-888-995-HOPE. It is available 24 hours a day to provide mortgage counseling in multiple languages. Mary Thomason, director of resource development for The Impact Group of Atlanta, a housing counseling group, also suggests tracking expenses and income closely in order to be able to forecast your cash flow for the next six months and give yourself better control of your finances.

Q: If the banks and lenders refuse to write these loans, then what?
A: Public and political pressure may prompt them to participate. If not, and more people continue to lose their homes, Zandi says the next White House administration subject them to additional regulations or investigations if they remain unwilling to take on the risks.

Q: What happens if I'm able to sell my home after I refinance?
A: If you sell during the next five years, you must agree to share 50 percent of any profits from the resale with the government. What's more, homeowners can only retain equity gains based on a sliding scale. The homeowner would have zero equity from a sale in the first year, with the amount rising 10 percent in each succeeding year and capping at 50 percent from a sale in year five and thereafter. The equity must be repaid because the maximum amount on the new loans will be capped at 90 percent of the current market value, which automatically gives the previously troubled homeowner 10 percent equity in the home.

Q: Where can consumers find more detailed information about the plan?
A: There is a six-page summary of the housing act at
http://banking.senate.gov/public/_files/HousingandEconomicRecoveryActSummary.pdf
and the FHA's Web site at http://www.fha.gov is a place to watch for updated information. The entire 694-page bill is at http://www.house.gov/apps/list/press/financialsvcs_dem/hr3221_bill_text.pdf

Roth IRA Conversions in 2010

2008-05-17T07:38:00.000-07:00

Virtually anyone can take advantage of this tax law loophole. 2010 will be an extraordinary year for tax law, a tax year so potentially advantageous that we may never see its like again. One probable 2010 phenomenon: a wave of high-income and high net worth individuals converting traditional IRAs to Roth IRAs. Here’s why 2010 represents a great year to make that move.Income limits: gone. Today, you have to pass an income test before you can convert a traditional IRA to a Roth. If your modified adjusted gross income (MAGI) is more than $100,000, you can’t do it. This limit has long frustrated high-income taxpayers.In 2010, it’s a whole different story – there is NO income test.

Anyone with any MAGI can make the conversion.While you still can’t contribute to a Roth IRA if your 2007 MAGI exceeds $166,000 (joint filers) or $114,000 (most single filers), it is the conversion that is important.Potential advantages: considerable. Many high-salaried people have rolled old 401(k) assets from old jobs into traditional IRAs. In 2010, they can convert them to Roths, which will mean:· Tax-free growth of these assets· Tax-free withdrawals of these assets someday (assuming they are 59½ or older and the Roth IRA is more than 5 years old)· No minimum distribution requirements once you turn 70½· An eventual reduction in their taxable estateTaxes: deferred. Of course, you will pay taxes on a Roth IRA conversion. But if you do this in 2010, you don’t have to pay them right away. Unless you elect otherwise, the taxes on the conversion will be spread out over the 2011 and 2012 tax years. In effect, this gives taxpayers the ability to delay full payment of any tax due until 2013.The non-deductible IRA option. Some high-income earners have opened non-deductible traditional IRAs with the intent of converting them to Roths in 2010.While a traditional IRA has no contribution phase-outs due to income, high-income taxpayers can’t deduct their IRA contributions like the middle class can. For tax year 2007, for example, the deduction phase-outs (this is MAGI) start at $83,000 for joint filers and $52,000 for single filers and heads of households.If you don’t qualify to make a deductible IRA contribution or a Roth contribution, the non-deductible IRA lets you make a permissible “end run” to build some assets that can “go Roth” in the near future.

If the tax law changes taking effect in 2010 stay in place for years to come, you will be able to open a non-deductible IRA annually (as long as you keep earning income) and convert it to a Roth each year.Why would Congress give IRA holders a break like this? The simple answer: quick revenue for the federal government. In 2010, a LOT of cash will be pumped into the Roth IRA program, and that will result in a LOT of taxes as a result of the conversions (a short-term revenue boost).Ready for 2010? Whether you do or don’t convert a traditional IRA into a Roth in 2010, you will want to know about the changes in tax law affecting IRAs and other retirement savings vehicles, and your estate and your investments. Before you make a move with your IRA, talk to a qualified financial advisor or tax professional who understands the coming rules modifications.If you have any questions or if I can help you in any way, please call me at 888-891-9709.

The Right Beneficiary

2008-04-17T11:47:00.000-07:00

Who have you chosen to inherit your assets? It may be wise to review your choices. Here’s a simple financial question: who is the beneficiary of your IRA? How about your 401(k), life insurance policy, or annuity? You may be able to answer such a question quickly and easily. Or you may be saying, “You know … I’m not totally sure.” Whatever your answer, it is smart to periodically review your beneficiary designations.Your choices may need to change with the times. When did you open your first IRA? When did you buy your life insurance policy? Was it back in the Eighties? Are you still living in the same home and working at the same job as you did back then? Have your priorities changed a bit – perhaps more than a bit?

While your beneficiary choices may seem obvious and rock-solid when you initially make them, time has a way of altering things. In a stretch of five or ten years, some major changes can occur in your life – and they may warrant changes in your beneficiary decisions. In fact, you might want to review them annually. Here’s why: companies frequently change custodians when it comes to retirement plans and insurance policies. When a new custodian comes on board, a beneficiary designation can get lost in the paper shuffle. (It has happened.) If you don’t have a designated beneficiary on your 401(k), the assets may go to the “default” beneficiary when you pass away, which might throw a wrench into your estate planning. How your choices affect your loved ones. The beneficiary of your IRA, annuity, 401(k) or life insurance policy may be your spouse, your child, maybe another loved one or maybe even an institution. Naming a beneficiary helps to keep these assets out of probate when you pass away. Many people do not realize that beneficiary designations take priority over bequests made in a will or living trust. For example, if you long ago named a son or daughter who is now estranged from you as the beneficiary of your life insurance policy, he or she will receive the death benefit when you die, regardless of what your will states. You may have even chosen the “smartest financial mind” in your family as your beneficiary, thinking that he or she has the knowledge to carry out your financial wishes in the event of your death. But what if this person passes away before you do? What if you change your mind about the way you want your assets distributed, and are unable to communicate your intentions in time? And what if he or she inherits tax problems as a result of receiving your assets?

How your choices affect your estate. Virtually any inheritance carries a tax consequence. (Of course, through careful estate planning, you can try to defer or even eliminate that consequence.) If you are simply naming your spouse as your beneficiary, the tax consequences are less thorny. Assets you inherit from your spouse aren’t subject to estate tax, as long as you are a U.S. citizen. For example, a spouse can roll assets inherited from a 401(k) plan into an IRA without incurring taxes on the wealth transfer.

When the beneficiary isn’t your spouse, things get a little more complicated … for your estate, and for your beneficiary’s estate. If you name, for example, your son or your sister as the beneficiary of your retirement plan assets, the amount of those assets will be included in the value of your taxable estate. (This might mean a higher estate tax bill for your heirs.) And the problem will persist: when your non-spouse beneficiary inherits those retirement plan assets, those assets become part of his or her taxable estate, and his or her heirs might face higher estate taxes. Your non-spouse heir might also have to take required income distributions from that retirement plan someday, and pay the required taxes on that income. As a result of the Pension Protection Act, surviving spouses from same-sex couples may be allowed by employers to convert inherited retirement plan assets into inherited, traditional or Roth IRAs, avoiding taxes until those assets are withdrawn. This requires a direct transfer, not a rollover distribution. Before the end of 2008, Congress may vote to make this option mandatory.If you designate a charity or other 501(c)(3) non-profit organization as a beneficiary, the assets involved can pass to the charity without being taxed, and your estate can qualify for a charitable deduction.

Are your beneficiary designations up to date? Don’t assume. Don’t guess. Make sure your assets are set to transfer to the people or institutions you prefer. If you have any questions about your situation, please give me a call at 888-891-9709 or drop me an email at judy@stewart-financial.com

TD Ameritrade Update

2008-04-05T08:28:00.000-07:00

Important Information Regarding TD AMERITRADE's Financial Strength and Stability

We recognize that the current economic environment continues to be a source of concern for you and your clients. Many of you have questions about recent events, along with concerns about ongoing market volatility and what it means for both your investments and your clients'.
If you'd like to gain a better understanding of TD AMERITRADE's financial strength and stability in light of the industry-wide issues of subprime market risk and liquidity, please read below.

Does TD AMERITRADE have liquidity issues?

TD AMERITRADE's capital structure and liquidity are strong and stable. TD AMERITRADE has no exposure to the U.S. housing market and the associated complex financial structures that are at the root of the current liquidity crisis. The collateral backing our liquidity is in cash or U.S. securities, which are available and marked-to-market daily, and not housing-related securities.
The credit and liquidity issues currently impacting other firms have not impacted our liquidity structure, which we monitor daily.

In addition TD AMERITRADE does not take proprietary risk on its balance sheet. Our clear, transparent business model and commitment to conservative fiscal management have helped us avoid the recent troubles other firms have experienced from investment risks.

Does the recent buy out of Bear Stearns by JP Morgan affect TD AMERITRADE?

It does not affect the firm financially or otherwise. Our capital structure and liquidity are strong and stable.

Does TD AMERITRADE invest in or have exposure to risks in the subprime market?

TD AMERITRADE does not own securities in the subprime and Structured Investment Vehicles (SIV) markets.

In addition, we keep our own assets separated from our clients' assets. This means your investments and those of your clients with TD AMERITRADE are not exposed to any hypothetical risks associated with our firm's investments.

Please note, however, that every investment has risk and TD AMERITRADE can't offer an opinion as to whether the investments made in self-directed accounts are exposed to additional risk as a result of the current market climate.

Are the money market funds available through TD AMERITRADE safe?
If the available cash in your TD AMERITRADE account or your clients' accounts is invested into money market funds, the money is invested in either the TD Asset Management USA funds or The Reserve funds.

Both of these investment companies have provided statements regarding their respective funds' exposure to the subprime market, SIVs and asset-backed conduits that focus on the subprime asset class.

Please see the statement from TD Asset Management USA and/or see the statement from The Reserve.

If available cash in a TD AMERITRADE account is invested in a Money Market Deposit Account (MMDA) when it isn't currently invested in securities, that money is held at TD Bank USA and is FDIC insured. In addition, please note that TD Bank USA does not invest in the subprime and SIV markets.

Before investing in any mutual fund, be sure to carefully consider the security's investment objectives, risks, charges, and expenses. For a prospectus containing this and other important information, contact the investment company or TD AMERITRADE. Please read the prospectus carefully before investing.An investment in a money market fund is not insured by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

What protection does TD AMERITRADE provide to client accounts?
TD AMERITRADE is a member of the Securities Investor Protection Corporation. SIPC protects securities customers of its members up to $500,000 (including $100,000 for claims for cash). An explanatory brochure is available on request, or at www.sipc.org. The SIPC phone number is (202) 371-8300.

In addition, TD AMERITRADE carries "excess SIPC" insurance through London insurers. Customers are protected up to an additional $149.5 million per customer (including $900,000 in cash) up to an aggregate of $250 million.

Using Your Brain

2008-04-03T11:32:00.001-07:00

Dispelling the Myth about Your Brain and Recall

The brain is an organ and, as such, it requires oxygen and exercise. Feed your mind, and you'll feel emotionally and physically invigorated. It's critical to focus on keeping your brain in shape.
By consistently engaging in the right activities, you can increase your memory, improve your problem-solving skills and even boost your creativity. Here are some fun ways to keep your mind active:

Grab a cue and play pool. Rack 'em up, grab a cue and contemplate on your strategy. Billiard players must focus on the immediate, blocking out distractions as they plan their next moves. Strategic planning increases mental clarity. Concentrating on the immediate helps keep your mind sharp. Additionally, this game of angles demands that players think in terms of physics, something most of us rarely do in our everyday lives.

Calm down with yoga.You might be surprised at how demanding yoga can be. Beyond the physical demands that give your entire body a workout, yoga has great calming and relaxation qualities. Yoga forces you to focus on controlling all your muscles and your breathing. Let your worries slide away and give your mind a rest from stress.

Play golf in the fresh air. Escape to the links and spend a few hours in the fresh air counting birdies, bogeys and mulligans. Golf is a social sport and a great way to network and loosen up at the same time. Golfers get mental stimulation using their decision-making skills as they plan stroke strategies. As the sport involves the control of repetitive movements, it instills mind-body discipline.

Lace up your running shoes. Lace up your jogging shoes and get moving. Even if you never plan to run a marathon, it will get both your body and mind in shape. Running will boost the levels of oxygen in your brain and flowing through your body. In turn, your body will release more endorphins, which will make you feel energized while producing a sense of pleasure and well-being.

Challenge a friend to a game.Challenge a friend to a game of chess at lunch. Invite colleagues over for an evening of cards. Besides the social aspects, such activities will keep your mind active. You'll use your memory and expand your powers of recall. You'll also test your mathematical skills and logic.

Subscribe to a daily online newsletter. Whether it's a "word of the day," "quote of the day" or "this day in history" newsletter, receiving new information each day will add data to the HD (hard drive) in your head. The mental stimulation will increase your comprehension skills.
Pick up a book.Choose from classic literature, science fiction or self-improvement books and give your brain a boost. Pick up a novel before your next business flight or vacation. On top of the cerebral benefits, the escapism that comes from reading can be refreshing. Reading helps you exercise your cognitive skills and increase your vocabulary.

Take a course.Learn something new. Sign up for a cooking class, register for karate training or enroll in a wine-tasting seminar. You'll be challenging yourself to assimilate new concepts, information and ideas, and you'll hone your retention skills through memorization.

Learn a new language.Attend classes, listen to tapes or date someone with whom you can converse in another language. Instead of watching the same TV programs you always do, take in a foreign-language movie with subtitles. Learning a new tongue keeps your brain flexible and your mind sharp, helping to reduce the slowing of the thought processes that comes with age.

Grab the controller.Believe it or not, playing certain video games really can be good for your health. The operative word here, however, is "certain": choose games that involve strategy or problem solving. Problem-solving and role-playing games will help you practice strategic planning. You'll also improve your hand-eye coordination.

Rent a classic movie.Rent Shakespearean adaptations or other language-heavy period movies and treat them as an exercise; watch them with a dictionary and thesaurus in hand and make a point of understanding all the dialogue, even if it means pausing the movie periodically. Some options include Macbeth, Othello and Hamlet.

Learn to play an instrument.Pull out your old guitar, sign up for piano lessons, or rent a trumpet or a clarinet. Trying to understand how music is made will stimulate your creativity. Reading music provides mental stimulation. Playing an instrument requires powers of recall as well as concentration to maintain tune and tempo.

Build a model.Remember how excited you were as a kid making model airplanes and ships? Re-create that by building a miniature model. Following written instructions sharpens your powers of concentration.

Do a crossword. Stick the newspaper crossword puzzle in your purse or briefcase and work on it while you're waiting for an appointment or a meeting to begin. You'll improve your cognitive skills and creative thinking, as well as your word power and vocabulary.

Engage in a debate.A lively discussion can be invigorating. As long as you avoid letting it digress into an altercation, you can have a lot of fun debating the pros and cons of an issue with a friend or colleague. You'll practice your quick-thinking skills, logic and creativity.

Use your cognitive skills, test your powers of recall, improve your memory and challenge yourself to be more creative in your thinking. You'll reap great brain-boosting benefits by keeping your mind active.

Rebate Checks

2008-03-18T09:25:00.000-07:00

This article was written by Tedd Oyler, a Cambridge Finacial Planner in Michigan. He is a respected colleague of mine.

ECONOMIC STIMULUS
(A SKEPTIC’S VIEW)

OK, I see that I am going to receive a check from the government – maybe in May, maybe not – that is labeled a “tax rebate”. And I also see that I am expected to spend this money along with all of the rest of you in order to help the economy avert the recession that is predicted by so many of the experts.

Have I stated the undisputed facts correctly? I am not suggesting that it is factual that we are headed for a recession – just that the experts say we are.

If we can agree on the facts, then I’d like to delve into the facts behind the facts together.

If we are in a recession – or about to be in one – why? I sure do not know much about macroeconomics, but my layman’s understanding of the recent economic chatter tells me that we may have overspent ourselves into this purported recession. This was apparently accomplished because lenders made mortgage and credit card money available to us in gargantuan proportions, such that many of now owe much more than we can reasonably pay back.

A significant portion of this easy credit fueled a run-up of real estate prices (not “values” – there’s a difference between value and price) beyond levels that the market could truly support. Many of the mortgages were at 100% of the then-appraised “value”, meaning that any slippage in the market would render the mortgage upside down. The out-of-whack loan-to-value ratios, coupled with all the adjustable-rate loans and the ensuing entirely predictable increases in interest rates, have successfully created a thriving market in foreclosed properties.

In other words, over-lending and over-borrowing – in other words “over spending” – have us on the doorstep of the next recession. It is my understanding that economies go through recessions from time to time, so there is really nothing all that unusual about the predictions. What might be unusual here is the response of the geniuses we’ve elected to serve us.

This “stimulus” is really a return to us of tax money we’ve already paid in – which is actually an advance payment to us of a tax credit that will be available to us on our 2008 tax returns (to be filed a year from now), except that the President and Congress, in their profound responsiveness to economic theory, are also rebating tax dollars to folks who have not paid any in recently. I just shake my head – the Feds are in a pretty serious deficit-spending footing, so they give us back money that they will pay for by giving us a tax credit NEXT year. Meanwhile, all of this is financed by borrowing (T-Bills, savings bonds, etc) against future tax collections.

In other words, the Federal Government is borrowing from next year’s tax collection to pay us a few bucks this year, so that we’ll spend it to avoid predicted but not certain cyclical economic trending. And it is being done so as to incur interest costs of that borrowing well intro the future. Patriotism now means spend even if you don’t have it.

In still OTHER words, the President and Congress are modeling the very behavior that got us into this predicament.

Like I said, I just shake my head.

So, as a skeptic, I encourage you to stop the madness. I encourage you to not fall into the spending trap. When you get your little check this spring or summer, use it more wisely than the bankers who made bad loans and the debtors who borrowed too much and the Feds who are but pandering to your lower nature.

Here are some suggestions:
· If you have any credit card debt, pay your rebate towards that
· If you have no consumer debt, then pay the rebate towards home equity debt (not mortgage debt)
· If you have no consumer or home equity debt, then sock the rebate into a Roth IRA

If you find yourself drawn to spending the rebate on a new toy, then you are allowing yourself to be sucked into the spendthrift mindset that got us here. Just say “no”.

Scary News Stories

2008-03-16T10:53:00.000-07:00

HOW MUCH SHOULD I CARE ABOUT ECONOMIC NEWS?

I admit it - I pay some attention to how the American economy is doing. And I even sometimes find myself experiencing emotional reactions to the news from time to time. What normal person wouldn’t? Heck, every news program and every talk show and every newspaper and newsmagazine start every edition with the most recent nerve-wracking dire economic news or prediction, don’t they?

Sub-prime mortgages – recession – Enron – Social Security funding deficit – makes you really want to turn on the radio, doesn’t it? And, despite your jangled nerves, you do in fact turn it on and you listen to the next bad thing being reported to you. And then you wonder what you should do in your own life to protect yourself against the next or most recent bad thing.

It is maybe impossible NOT to wonder. After all, you are charged with providing for your family or for retirement or for your employees. Yes, I wonder, too. When I am thinking through my emotions, which isn’t really thinking at all, I make immediate plans to get out of the stock market – or maybe I think that the market has nosedove as far as it is likely to and so I should jump more boisterously INTO the market. Neither of these reactions makes senses when one places them in proper perspective, nor do any other fear-based, knee-jerk responses.

Political fearmongers and talking heads benefit from our scaredy-cat reactions, since they are selling irrationality and WE are their market. Sellers of fear-based financial products (such as annuities and weird life insurance policies and beat-the experts investment schemes) profit handsomely from our lack of understanding of long-term economic reality.

When I find myself succumbing to the fears, I must resist. I hope you can, too.

There is a vast difference between what we really need and what the fear peddlers are telling us we need. They want us to worry about things we cannot control, things like what the greedy bankers are doing and what the Iranians are doing. I suggest that these things matter to you and me only on an infinitesimal level. Unless you plan to become a political candidate or a lobbyist, the only thing you can do about most of the macro “problems” that constitute the bulk of our spoon-fed economic “news” is become a more informed, less fearful voter and even then you are not influencing events a whole helluva lot.

Much more importantly, in our day-to-day lives, we are better off if we accept the news as (perhaps) factually true but not very important, and certainly not very important in out personal lives. When I am operating on all cylinders, I hear the latest stimulus package pabulum, for instance, and see it for what it is, which is that the political process is more interested in looking good than in doing good.

Then I work my way back to what it means to have financial peace of mind in my own life. Financial peace of mind is not made possible – or even likely – by the actions or behaviors of those external to me, by exogenous factors. My financial peace of mind is pretty much entirely up to me. This is either the bad news or the good news, depending on your mindset. If you like to blame others for your failures, then this is very bad news indeed.

What exactly can we control in our financial lives in order to assure, as much as possible, peace of mind? These possibilities boil down to how much we make, how much we save and how much we pay in taxes.

Income (from all sources) – we have more control over this that we usually think. Many of us want to blame the boss, but I do not want to hear it. If the job is bad, we can choose to go somewhere else. If the pay is bad, then we MUST. We can work better, or harder, or smarter or elsewhere – see, we have control.
Savings – whether in retirement plans or for emergencies, we have utter control over how much we save. If income is flat, we can still save more by lowering expenses or by becoming a wiser consumer. The more we save, the less we have to worry about.
Taxes – one of the quickest ways to generate savings is by lowering taxes. Income taxes are lowered by working at it, not by complaining about them. There are plenty of ways to increase savings AND lower taxes at the very same time.

If you’re not taking advantage of the opportunities you have readily available to you, then you are achieving financial discomfort rather than peace of mind, and the economic news will depress you. Remember, that we can create our own financial comfort and peace of mind.

The Rebate Checks are Coming!

2008-02-14T16:16:00.000-08:00

February 14, 2008
President Signs Stimulus Package

On February 13, President Bush signed the long awaited stimulus package designed to put money into the pockets of many American taxpayers. Along with the rebate checks, the bill contains some business incentives.

The IRS has indicated that they will begin mailing the rebate checks in late spring and continue through the summer. The rebates are based on the information reported on the taxpayer’s 2007 return. If a return is not filed, the taxpayer will not receive a check even if they may otherwise qualify. Many of the taxpayers who fall into this category are not required to file because of low income. If a return is filed for these taxpayers, the IRS will send them a rebate check provided their qualified income is at least $3,000.

Recipients of Social Security, Railroad Retirement, and certain veterans’ benefits should report their 2007 benefits on Line 14a of Form 1040A or Line 20a of Form 1040. Taxpayers who already have filed but failed to report these benefits can file an amended return by using Form 1040X to ensure they receive their rebate.

For taxpayers who elect direct deposit for their 2007 income tax refund, their rebate check will also be deposited directly into that same bank account.

Most taxpayers will receive two notices from the IRS. The first general notice from the IRS will explain the stimulus payment program. The second notice will confirm the recipients’ eligibility, the payment amount, and the approximate timetable for the payment. Taxpayers will need to save this notice to assist them when they prepare their 2008 tax return next year.

Credit Scores and Why They are Important

2008-02-11T10:15:00.000-08:00

Your 5-minute guide to credit scoresA better score means a better deal from landlords, lenders, insurers and other creditors. Use these dozen-plus tips to boost yours. By MSN Money staff Your credit score is likely the most important three-digit number in your life. Your score affects how much you pay for credit, and it can affect other bills you pay, where you live and where you work. Banks and credit card companies review your score when deciding whether to extend you credit and how much interest to charge. (See "What bad credit really costs you.")

A high score can lead to lower car- and home-insurance premiums, a deposit waiver from utility companies and a better service package from the cell-phone company. (See "5 people who check your credit.") Many landlords check credit scores before allowing you to sign a lease. (See "Credit checks: A civil rights issue?") Many employers -- 35% in 2003 -- are doing credit checks on prospective employees, particularly those who would deal with money. Employers need your written permission to make the check and must give you a chance to respond.

With so much at stake, it's wise to find out where you stand and take steps to raise your score if it's below 700, particularly before you apply for a mortgage or other loan. Above 760 and you're in the upper echelon. A score below 620 tells people you're not a good risk and destines you for credit denial or subprime interest rates.

What is a credit score? The three major credit-reporting agencies -- Equifax, Experian and TransUnion -- use software developed by Fair Isaac Corp. to rate your risk for assuming debt based on your credit history. The result is commonly known as a FICO score. The score is based on five factors, including payment history, the amounts you owe and the types of credit you've obtained. Personal information like income, occupation, age and marital status are not considered. The FICO score can range from 300 to 850, although very few reach that pinnacle. Each credit bureau may assign you a different score, based on the information it receives from creditors. You generally have to pay to get your credit score. You are legally entitled to one free credit report each year from each of the three credit reporting agencies. (See "How to get a free credit report.")

To watch for errors and identity theft, stagger your requests and get a report from a different bureau every four months. Go to AnnualCreditreport.com to order a free report. Make sure you access the right Web site. Impostor Web sites abound.

Want to improve your score and keep it high? Think of credit as a privilege to be used sparingly. Don't apply for lots of credit cards. A credit inquiry can deduct five points from your credit score. However, multiple checks made when you're shopping for a mortgage will count as only one. Asking for your personal report won't hurt your score. Neither will requests made by credit card companies that offer preapproved cards, or requests by prospective employers. Avoid applying for credit cards from companies that don't set a spending limit or won't report your limit to the credit bureaus. Don't cancel multiple credit cards. That can suddenly lower your available credit and can hurt your credit score. Keep old accounts open to ensure a long credit history. Limit the percentage of available credit you use to no more than 30%, even if you pay off your balance each month. Your credit report will show the amount you owed, even if you subsequently paid in full, and excessive spending will ding your score. If you don't have a credit history, start one by obtaining a secured credit card and managing it responsibly.

It pays to pay on time The No. 1 way to raise your credit score? Pay all of your obligations on time. Your payment history constitutes 35% of your credit score. That includes library fines and parking tickets. Municipalities are more aggressive about turning over delinquent accounts to collection agencies, which will drag down your score. One late payment reported to a credit bureau can drop your score by 100 points, particularly if you had a high score. Late payments can remain on your credit report for seven years. Bankruptcies appear for 10 years. Consulting a credit counseling service to manage excessive debt will not damage your credit score.

If you find an error in your credit report, ask the creditor to correct it, then notify the credit bureau by sending a certified letter and copies of documents that support your claim. If the error isn't fixed, the bureau must identify the person who investigated your claim, and you can request a second report. If the error is corrected, the bureau must send you a copy of your new report and, at your request, a copy to everyone who obtained your credit report within the previous six months. If it's not corrected, you can include a statement in your credit report. Faced with a faulty credit report when you're about to obtain a mortgage? Mortgage companies can engage a rapid rescoring service to correct errors within days. Paying a service to monitor your credit is not worth the fee, unless you've been the victim of identity theft and have reason to believe you're still at risk.

The Mortgage Forgiveness Debt Relief Act of 2007

2008-01-08T14:04:00.000-08:00

President Bush, on December 20, 2007, in signing The Mortgage Forgiveness Debt Relief Act of 2007, stated:

"The bill I sign today will help this effort by ensuring that refinancing a mortgage does not result in a higher tax bill. Under current law, if the value of your house declines and your bank or lender forgives a portion of your mortgage, the tax code treats the amount forgiven as money that can be taxed. And of course, this makes a difficult situation even worse. When you're worried about making your payments, higher taxes are the last thing you need to worry about. So this bill will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. And it's a really good piece of legislation. The provision will increase the incentive for borrowers and lenders to work together to refinance loans — and it will allow American families to secure lower mortgage payments without facing higher taxes."

Quite simply, the way the new law functions is by amending Code Section 108. A little background: Code Section 61 indicates that gross income includes all income from whatever source derived. Code Section 108 addresses income from discharge of indebtedness. This amount is taxable unless it results from a title 11 case, insolvency, or is qualified farm indebtedness. The new addition to non-taxable cancellation of indebtedness (COD) reads as follows: the indebtedness discharged is qualified principal residence indebtedness which is discharged before January 1, 2010. That's it, in a nutshell.

The basis of the principal residence is reduced by the amount excluded. Qualified principal residence indebtedness means acquisition indebtedness (under IRC 163(h)(3)(B), but substitutes $2,000,000 for the $1,000,000 cap under acquisition debt). The effective date of the act is for discharges of indebtedness on or after January 1, 2007.

The IRS website has a web section on foreclosures. If you go to www.irs.gov, and type in foreclosure in the search box, you will find the following:

Special Web Section Unveiled for Homeowners Who Lose Homes; Foreclosure Tax Relief Available to Many
IR-2007-159, Sept. 17, 2007
WASHINGTON — The Internal Revenue Service unveiled a special new section today on IRS.gov for people who have lost their homes due to foreclosure. The IRS also reassured homeowners that, although mortgage workouts and foreclosures can have tax consequences, special relief provisions can often reduce or eliminate the tax bite for financially strapped borrowers who lose their homes.

Other changes: The Mortgage Insurance Premiums that can be deducted as interest has been extended for 2008 through 2010.

Sale of residence has been modified for sales or exchanges after December 31, 2007. In the case of a sale or exchange or property by an unmarried individual whose spouse is deceased on the date of such sale, the $500,000 exclusion applies if such sale occurs not later than 2 years after the date of death of such spouse and the regular requirements for the special rules for joint returns under IRC 121 apply.

Penalties: Here is the bad news. The failure to file partnership penalties increase from $50 per partner per month, for a maximum of 5 months, up to $85 per partner, per month, for a maximum of 12 months. In other words, the penalty goes from a maximum of $250 per partner to a maximum of $1020! This is effective December 20, 2007.

For S corporations, the penalty is also the $85 per month, maximum of 12 months, with an effective date of returns required to be filed after December 20, 2007.

There are also changes made that result in an exclusion from income for benefits provided to volunteer EMS and firefighters, modification of the prohibition against full-time students from qualifying for low-income housing credit, and changes to modify tests to qualify as cooperative housing corporation.

AMT Relief

2007-12-21T09:21:00.000-08:00

* * Congress Approves AMT Patch * *

Yesterday, the House approved the previously passed Senate version of the Tax Increase Prevention Act of 2007 (H.R. 3996). The president is expected to sign the bill. The Act provides for a one-year patch of the AMT for 2007 but does not offset the revenue cost with revenue raising provisions.

The AMT exemption amounts before phase-out for 2007 for individuals are:

- $66,250 for married individuals filing jointly and surviving spouses;
- $44,350 for unmarried individuals; and
- $33,125 for married individuals filing separately.

This is a temporary fix only. Without future Congressional action, the AMT exemption amounts for individuals in 2008 will revert to 2000 levels.

In addition, personal nonrefundable credits may offset AMT and regular tax. For tax years beginning in 2007, the combined total of the following credits is limited to the sum of: (1) regular tax liability reduced by the foreign tax credit, and (2) the AMT:

- Dependent care credit;
- Credit for the elderly and permanently and totally disabled;
- Mortgage credit;
- Child tax credit;
- Hope and Lifetime Learning credits;
- Adoption credit;
- Saver's credit;
- Nonbusiness energy property credit for energy-efficient improvements to a principal residence;
- Residential energy efficient property credit for photovoltaic, solar hot water, and fuel cell property added to a residence; and
- First-time D.C. homebuyer credit.

Again, absent future Congressional action, personal nonrefundable credits, with the exception of the child tax credit, adoption credit, and the saver's credit, can't exceed the excess of regular tax liability over tentative minimum tax in 2008.

The IRS has not commented on when they intend to begin processing tax returns. NATP has been told that the IRS will need seven weeks to program their systems to accept returns once the AMT patch is signed into law. This pushes back the start of filing season, and the IRS's readiness to accept returns, to early to mid-February. The IRS has indicated that they will post revised copies of the twelve tax forms impacted by the AMT legislation to www.irs.gov within 72 hours after the AMT patch is signed into law.

AMT (A Miserable Tax)

2007-11-16T08:36:00.000-08:00

I am passing on a notice that I received from one of my tax organizations. The AMT tax for 2007 taxes will be a nightmare for many people if Congress does not increase the AMT exemptions like we had in 2006. And even if they act soon (who knows if they even will) it could delay thousands of tax refunds because all the IRS forms would need to be changed. This is a prime example of the laziness and horribly inefficient Congress that we have in this country. Sorry to preach but this is so frustrating to me as a tax preparer and a taxpayer.

Judy

* AMT Update * *

The current situation concerning alternative minimum tax (AMT) is foremost on the minds of everyone from taxpayers to our Congressional leaders. The most recent statistics reveal that late enactment of the AMT fix would affect up to 50 million taxpayers and delay $75 billion in refunds, as many tax calculations flow through the AMT.

According to Acting IRS Commissioner, Linda Stiff, the IRS will need ten weeks after Congress enacts the AMT patch before it can process affected returns. Refunds could be delayed, she said. The 2008 filing season starts on January 14, 2008, leaving very little time for the IRS to react.

At present, both houses of Congress have proposed and passed bills containing legislation to increase the AMT exemptions for 2007. However, none of these bills have made it to the President's desk for signature. There is no way of knowing at this point what will pass, or when.

Affordable Financial Advice

2007-11-15T07:33:00.000-08:00

As many of you know, I am a proud member of Cambridge Advisors and it is nice to see us mentioned in this article as one of the few financial planning groups that works with "real people" and offers affordable financial advice. The article also mentions NAPFA, the largest group of fee-only advisors and I have been a member of NAPFA since 1997. Remember--there is a HUGE difference between commissioned stock brokers and fee-only financial planners.

Judy Stewart

Affordable, more reliable financial advice

Wed Nov 14, 2007 9:58am EST

By Linda Stern

WASHINGTON (Reuters) - Here's some good news from the world of money: The quality of professional financial advice is getting better and more affordable, just in time for all the folks who are probably feeling overwhelmed by the myriad details of their own financial lives.

Advisers are increasingly eschewing commissions to give straightforward advice, boosting their use of technology to provide better services, and tailoring recommendations to the needs of their clients, mainly because the market demands it.

"Consumers are getting smarter and realizing there are a lot of advisers out there who are calling themselves planners, but are product focused," says Susan Black, director of financial planning at eMoney Advisor, a company that provides the technology that many advisers use. "They are more discerning about what types of advisers they wish to trust."

Which is not to say there aren't still some incompetent, fraudulent or compromised practitioners out there. But it may be easier to avoid them and get exactly the advice you need, if you hire a planner according to these guidelines.

-- Competence is still key. It's not good enough to have an honest adviser if he is not very bright or knowledgeable. Look for one who has been in the business long enough to have weathered a couple of bubbles and bursts. They should have decent credentials, such as a CFP (certified financial planner) or a CFA (chartered financial analyst), and state-of-the-art portfolio management tools. Not to mention an investment philosophy they can explain to you in a way that makes sense.

Some private advisory networks require their members to meet additional quality standards. Some to check are the Alliance of Cambridge Advisors (www.cambridgeadvisors.com) and the Paladin Registry (www.paladinregistry.com/).

-- You should be paying them, and they should be working for you as a fiduciary. That leaves out brokers who might be nice guys but who make their money selling investment products. There is a conflict inherent in that arrangement, and an ample amount of research demonstrating that it fails to result in good returns for customers.

The designation "fee-based" clouds the water. Only "fee-only" advisers eschew all payments for products. If a fee-only adviser wants to recommend a product that he can't find without a commission, such as a certain kind of insurance, he should then reduce your fee by exactly the amount of the commission. That removes his financial incentive for choosing that product. You can find fee-only advisers at the National Association of Personal Financial Advisors (www.napfa.org).

-- One adviser might not be enough. Even the best stock market guru won't know everything about taxes, or estate planning or college saving or retirement savings rules. A great financial plan includes all of those pieces, so that leaves consumers with a few choices: You can find a planning firm that is big enough to integrate all of these specialties, or you can parcel it out and hire different experts to advise on separate pieces. You might want a certified public accountant, an actuary, and a lawyer or two to tackle different pieces of your comprehensive plan. In that case, you might want a financial planner who will offer by-the-question advice, or suggest investments you could buy for yourself. You can find experts willing to pass on their smarts by the hour at the Garrett Planning Network (www.garrettplanningnetwork.com).

-- Bells and whistles are nice -- if you are willing to pay for them. A full-service financial advisory firm that manages all of your money (and extracts a percentage or so of it for that service) should do more. The most up-to-date, full-service advisers will give you on-the-road access to all of your accounts, consolidated in one place, says Black.

They may even offer to track your frequent flyer, hotel club or credit card points. And they will call you, just to chat, during times like last week when many portfolios lost 4 percent or more in just a few days. Because the true value of a good adviser isn't just in the degree and the software, it's in the relationship that will see you through the kind of marketplace confusion that sent you for help in the first place.

(Linda Stern is a freelance writer. Any opinions in the column are solely those of Ms. Stern. You can e-mail her at lindastern(at)aol.com)

Beware of Email Scams

2007-11-15T07:10:00.001-08:00

IRS Warns of New E-Mail Scam * *

The IRS is warning taxpayers to be on the lookout for a new e-mail scam that appears to be a solicitation from the IRS and the U.S. government for charitable contributions to victims of the recent Southern California wildfires.

In an effort to appear legitimate, the bogus e-mails include text from an actual speech about the wildfires by a member of the California Assembly. The scam e-mail urges recipients to click on a link, which then opens what appears to be the IRS website but which is, in fact, a fake. An item on the phony website urges donations and includes a link that opens a donation form which requests the recipient's personal and financial information.

The IRS also believes that clicking on the link downloads malware, or malicious software, onto the recipient's computer. The malware will steal passwords and other account information it finds on the victim's computer system and send them to the scamster.

The IRS does not send e-mails soliciting charitable donations. As a rule, the IRS does not send unsolicited e-mails or ask for personal and financial information via e-mail. The IRS never asks people for the PIN numbers, passwords or similar secret access information for their credit card, bank or other financial accounts.

Enjoying a Low-Cost Retirement

2007-11-12T07:29:00.000-08:00

Enjoy a low-cost retirement

Your later years can be golden without being gold-plated. Most retirees are frugal by necessity, but they're no less happy.

By U.S. News & World Report

Having spent much of his career helping others with their finances, Don Peterson knew the importance of saving as much as possible before retiring. But when the stockbroker left the work force in 1988, he realized that retirement wasn't just about money.

In his case, Peterson, now 82, retired a bit sooner than he had planned -- and with less money in the bank.

But that was partly due to bad timing. Shortly after a few of his investments went bad in the 1987 market crash, his wife, Bobbie, decided it was time to retire from her career as a hospital laboratory administrator. Soon after that, one of the couple's daughters asked them to move from Eau Claire, Wis., to Nashville, Tenn., to be closer to her and the grandchildren.

So even though the Petersons had less than $100,000 in their accounts and just one pension between them -- hers, which paid out only around $500 a month -- they quit their 9-to-5 lives and shuffled off to Music City.

Their challenge was one that millions of older Americans are faced with every day: finding a way to lead a comfortable and, yes, happy retirement with only a modest nest egg.

For the vast majority of today's older workers, this is the reality of retiring in America. While financial planners and retirement experts debate how many millions of dollars families should save -- and how to invest that money to make it last -- most households are retiring on meager sums. Nearly two-thirds of workers 55 and older have less than $100,000 saved for their golden years, according to a recent study by the Employee Benefit Research Institute. And 56% of those workers who are already retired have less than $50,000 to last them for the rest of their lives.

Learning to cut back

Yet somehow, "people often find a way to get by," says Gayle Oboy, a financial planner in Marion, Ohio, who works with many middle- and working-class clients. "They adjust. They find ways to cut back but still be content."

In fact, studies show that more than 60% of seniors find retirement "very satisfying." Most say retirement is more satisfying than their working careers were.

Sometimes, it does take a bit of creativity. The Petersons, for instance, leveraged two assets they had -- time and a love of animals -- and started a pet-sitting business after "retiring" to Nashville. It wasn't a glamorous job -- "my wife jokingly says I have a Ph.D. in cat litter," Don Peterson says.

But the modest income they derived from dog- and cat-sitting "made all the difference in the world," he says. "It helped pay for the groceries and helped cover property taxes." It also gave the couple the freedom to retire on their own terms.

Those who don't want to or can't work during retirement are starting to take advantage of another asset: their homes. Thanks to the run-up in home values during this decade, some retirees are starting to downsize to cheaper digs and using the remainder of their home equity to finance retirement, says Jean Setzfand, the director of financial security for AARP, the nation's largest advocacy group for older Americans.

Others are choosing to relocate to less expensive parts of the country, which is what the Petersons did. "It's an insurance policy of sorts," Setzfand says.

What's more, a small but growing number of seniors are opting to supplement their retirement income through so-called reverse mortgages. By taking out this type of loan, you can receive a certain amount of your home equity in a lump sum, a line of credit or monthly annuity payments for life -- while still living in your home. And you don't have to repay the loan so long as you live in that house.

The catch is, when you die or move, the proceeds of the home sale will be used to repay the mortgage. And you have to be at least 62 and own a single-family residence to qualify for a government-insured reverse mortgage.

Because this involves the eventual sale of your home, Setzfand says, this strategy shouldn't be taken lightly. And keep in mind that like an annuity, the terms of the reverse mortgage will improve the longer you wait to take one out.

Of course, the simplest solution for some retirees is to find ways to limit spending --without sacrificing their retirement experience.

Take Gary Hutson. After retiring in 2001 following two decades as a railroad union leader, the 65-year-old now spends his time in far less stressful circumstances. Hutson and his wife, Kathy, are both artists in Spokane, Wash., and they use their free time -- and the serene backdrop of eastern Washington -- to paint wildlife scenes, carve wooden and metal sculptures, and do beadwork.

When the Hutsons aren't creating artwork, they find plenty of other low-cost activities. For example, "we love garage sale-ing," says Kathy. And they also take frequent trips to a cabin they inherited on a lake 45 miles away.

Watching expenses go down

The good news for cost-conscious retirees: "All the numbers show that you don't need the same amount of money in retirement as you needed before," says Alicia Munnell, the head of the Center for Retirement Research at Boston College.

Once you retire, you stop saving for retirement. Your taxes are often lower because your income is likely to drop. "And you don't need to buy work clothes or take transportation to work," Munnell says.

Workers making $40,000 to $90,000 a year need to replace about 75% to 80% of their pre-retirement income, on average, according to a 2004 analysis by Georgia State University and insurance giant Aon. So if you earned $40,000, you would need to generate about $32,000 in annual income to live as comfortably in retirement as you did during your working career.

And for the current generation of retirees, Social Security still covers around a third to more than half that amount, depending on income. So if you earned $40,000, you may need to generate only about $11,600 a year on your own -- or through a pension, if you have one -- to maintain your standard of living in retirement.

OK, but what if you still fall short?

"The answer with the biggest payoff is employment," Munnell says. Not only does finding work boost your current income, but it also delays having to tap your personal resources. And the longer that you can keep money in tax-deferred accounts like 401(k)s and IRAs, the better. Plus, by working a bit longer, says Rande Spiegelman, the vice president for financial planning at the Schwab Center for Investment Research, you may be able to wait before drawing your Social Security benefits.

That's what Marlene Adams did. A decade ago, the Torrance, Calif., resident was all set for a traditional retirement when the utility company where she worked offered her a modest buyout package. Adams was then 55 and thinking of funding her retirement with private savings first, followed by early Social Security benefits.

But after talking to a financial planner, she took a temp job instead, and it eventually turned into a full-time position working in customer service for an air-freight company. By doing so, Adams was able to hold off on taking Social Security until her full retirement age of 65 (that age has been pushed back to 67 for those born in 1960 and later). And that increased her Social Security payments from around $1,200 a month to $1,650.

Now, after paying her rent, she still has about $500 left over each month, and that's not counting her personal savings. "I feel like I'm blessed," says Adams, who is close to retiring for good.

To be sure, not everyone can find full-time work later in life as Adams did. In fact, many workers mistakenly assume they'll be able to keep working to cover any financial gaps. A recent Employee Benefit Research Institute survey indicated that most workers plan to retire at 65 or older. But in reality, nearly two in three Americans wind up leaving the work force before they reach 65, often because of unexpected health problems or layoffs.

Working for spending money

But even if you can't work full time, small jobs can help. Just ask Roy Walls, another Californian. Walls, a former equipment manager for an aerospace company, retired in 1999 at 62 with an early-retirement package. Between his pension and Social Security, he and his wife, Loretta, lead a relatively comfortable retirement. Still, Walls decided to take a part-time job as a crossing guard for a nearby school district. During the school year, Walls helps kids cross the streets near his home for about an hour and 15 minutes each morning and 45 minutes in the afternoon.

The job pays less than $5,000 a year. But that money helps cover the cost of dinners out and movies on the weekend, Walls says. And it allowed him to recently help a son out financially, without having to dip into his savings.

For those without pensions to fall back on, earning even a few thousand dollars a year can be the difference between outliving your money and your money outliving you. Academic research shows that you probably can't afford to withdraw more than 4% or 5% of your nest egg each year. That means if you saved $250,000, you could withdraw no more than $12,500 annually.

But what if you needed $17,500 a year -- in addition to Social Security and other benefits -- to maintain your lifestyle? Well, says Schwab's Spiegelman, instead of tapping 7% of your account, which might deplete it too quickly, why not get a part-time job paying $5,000? That way, you can keep your withdrawal rate at the safe 5% level and still meet your income needs.

It's one of the ironies of retirement, Spiegelman says. Workers are taught that to retire well, they need to save huge amounts of money. "Yet small amounts of money can still make all the difference," he says. And that's what a new generation of retirees is finding out.

This article was reported and written by Paul J. Lim and Emily Brandon for U.S. News & World Report.

Published May 24, 2007

Year End Tax Tips

2007-11-01T12:23:00.000-07:00

Here are some tax tips to think about before year end. If you have any questions, please don't hesitate to contact us.

1. You can contribute to your IRA or Roth IRA for 2007 as long as you do it by April 15, 2008. If your income is too high to make a contribution to your IRA or Roth IRA, you can always contribute to a non-deductible IRA. Your contribution may be as much as $4,000 + an additional $1,000 if you're over 50 years of age. If you participate in a retirement plan at work, deductible IRAs are limited and phaseouts apply to Roth IRAs.

2. Saver’s Credit – if you contribute to your retirement plan at work (e.g. 401(k)) and your income is lower than the income thresholds (less than $25,000 to less than $50,000 depending upon your filing status), you qualify for the Saver’s Credit. Even if you don’t qualify for the credit, make sure you’re saving for retirement little by little each and every pay period.

3. The sales tax deduction is back through December 31, 2007. If you itemize your deductions, we'll deduct the larger of the two deductions (sales taxes or state income taxes). If you purchased a car or boat or RV, the amount you paid in sales taxes is added to the published IRS Table amount. This doesn't apply to sales tax paid on business items because those taxes are already deductible to you.

4. If you’re covered by Medicare and you’re considered high income, you can expect a Medicare Part B surcharge in 2007 and it can triple by 2009. The surcharge is based upon 2005 income. The surcharge begins at adjusted gross income of over $80,000 if you’re single and $160,000 if you’re married. If your income has decreased since 2005, you can dispute the surcharge.

5. 529 Plans have been made permanent. As you recall, 529 Plans allow you to contribute to a college account and if the funds are used for higher education, any amount you pull out is tax free.

6. The lower 15% tax rates on long-term capital gains (held over 1 year + 1 day) and qualified dividends have been extended through 2010.

7. Do you remember the Kiddie Tax where kids were taxed at their parent’s income tax rate if they were over 14. Congress changed the age to over 18.

8. The gift tax limit increased from $11,000 to $12,000.

9. As of August 17, 2006, non-cash charitable deductions require more details. You cannot simply say “3 bags of clothing.” A list of what you contributed is required. If you have not received my Deduct It! book, please let me know.

10. Beginning in 2007, cash charitable contributions require a receipt from the charity. This means that if you attend church on Sunday and put $10.00 in the collection plate, you cannot take a deduction without a receipt from your church. If you pay by check, your cancelled check is your receipt. This also applies to cash you contribute to the Salvation Army Kettle at your local market, so get a receipt! This is also new: the receipt from any charity should state that “no goods or services were provided in consideration of the gift.”

11. Charitable travel – you can still deduct local charitable mileage at 14 cents per mile, but you can no longer deduct charitable travel unless there is “no significant element of personal pleasure.” If you travel for a charity (a chorus, symphony, fraternal organization, etc.), you cannot deduct your expenses unless you can prove that all or most of that trip was directly related to the charitable work.

12. Use Tax: this is an area that is under more scrutiny. If you purchased something on the Internet and did not pay sales tax, you are required to pay sales tax to your state when you file your tax return. Let me know if this is the case with you.

13. Home equity interest – unless you substantially improve your home with the money from a home equity loan, the mortgage interest deduction may be limited. Don’t forget home equity debt is generally limited to $100,000 to be able to deduct the interest.

14. Office in Home – if you have an office in home, your office must be used exclusively for your business (very little personal use), and regularly for your business. Also, the 1st trip of the day from your qualified home office is not deductible. It is considered part of your commute. The trips after that 1st stop of the day are deductible business miles if the stop is business related.

15. Telephone expense: if you have a business that you operate in your home, you must have a separate business telephone line to deduct your telephone. If you have a personal phone from which you make business calls, you may deduct only the business long-distance amount as telephone expense.

16. There is a new Domestic Production Deduction for businesses that construct or manufacture. This would include contractors who build or do substantial renovation of a property. Remodels qualify. Repairs do not.

17. “Listed Property Deductions” – this is a category that includes cell phones, home computers, auto expenses, etc. The IRS looks at each expense separately and measures the time you use these items (personal versus business use) and the business purpose of each before you may deduct it. For example, I have a cell phone that is used a large percentage of time for business but also used for personal use so I cannot deduct 100%. Home computers are a problem, also. How much of the time do you spend on your computer that is personal use as opposed to business use?

18. Travel and Meal & Entertainment Expense: make sure you keep a log noting the name of the client, the purpose of the meeting, the cost, and how many people attended. Your American Express statement is not considered substantiation.

19. Business travel expense: keep a log of your business mileage. Without a mileage log, no deduction is allowed. Again, keep track of the name of the client and business purpose of the miles.

20. Forms 1099-MISC: if you paid more than $600 to a business or individual, you are required to issue Form 1099-MISC no later than January 31, 2008. If you do not issue the forms and you are audited, your deduction will not be allowed.

21. Section 179 increased to $108,000 in 2006. It’s $112,000 in 2007. California still allows only $25,000.

Warning for TD Ameritrade Account Holders

2007-09-30T08:04:00.000-07:00

A colleague of mine informed me that one of his elderly clients was sent an email telling him that he could no longer log into his accounts and that he needed to provide his account number, last 4 digits of his social security number, his email address and his username. He started to provide much of this info and then realized that it may be a scam. It was a scam!
Due to the breach of security for many of the TD Ameritrade accounts, your email address may be in the hands of unscrupulous folks. So, please do not respond to ANY emails that claim to be from TD Ameritrade. TD Ameritrade will never ask you to put that kind of sensitive information in an email.
Always be on guard.

Africa Trip Blog

2007-09-26T07:51:00.000-07:00

Dear Friends,

I want to take you with me as we travel to Africa so our group has created a blogspot that you can access and follow us on our journey. The website is http://themzungus.blogspot.com/ We are still working on this blog and adding new stuff every day. Thanks to Marcie Grube for creating this for us. We will do our best to journal on our trip but it depends on whether we can access the internet. We suggest that you check our blog on a regular basis and see what we are up to. We thank you for all your love, support and encouragement and most of all, your prayers, as we embark on this life changing journey.

Much love,

Mzungu Judy

"God is in the slums, in the cardboard boxes where the poor play house. God is in the silence of a mother who has infected her child with a virus that will end both their lives. God is in the cries heard under the rubble of war. God is in the debris of wasted opportunity and lives, AND GOD IS WITH US IF WE ARE WITH THEM."

Bono at the 2006 National Prayer Breakfast

Refinancing Your Home and Taxes

2007-09-24T11:19:00.000-07:00

Is Your Home A Tax Trap?
If you've refinanced your mortgage, you may owe the IRS more than you thought

Have you refinanced your mortgage and taken a chunk of the equity in cash? Will you do so when your adjustable-rate loan resets its interest rate? If you fail to follow some little-known rules for calculating your home mortgage deduction, you may be writing off too much interest. Instead of saving on taxes, you could wind up owing them.

In general, the IRS lets you deduct 100% of the interest you pay on one or more home mortgages, up to a total loan value of $1 million. But when you refinance and withdraw cash, the rules change: Only the interest on your original mortgage balance, plus an additional $100,000, qualifies for a deduction. (If you want to take out more cash, use a home-equity loan or line of credit. The law allows a separate deduction for interest on borrowings of up to $100,000.)

It's easy to get this deduction wrong. Banks and mortgage companies send borrowers a Form 1098 early in the new year, which most use to prepare their taxes. This document shows total interest paid for the year, so many assume the number on the form is the one they should use in filing taxes. Schedule A, the tax form on which you enter home mortgage interest, makes no mention of limits on refi-related deductions, though the instruction booklet does.

Lenders seeking refi customers usually don't play up that little catch. "They have no incentive to educate borrowers about the tax consequences" of refinancing, says Douglas Dachille, CEO of First Principles Capital Management, a New York investment firm. Their promotions may include a fine-print caveat to check on the tax effects of a refinancing, but they don't spell out the rules. Dachille says this refi issue came to the fore when he was considering investing in subprime mortgage-backed securities. "The tax provision could affect homeowners' cash flow, so it's yet another reason to avoid the subprime market."

Here's how the refi tax trap works. Let's say you borrowed $500,000 at 8% in 1998 to buy your house. By 2003, the house had appreciated substantially and the mortgage balance had been whittled down to $450,000. Then you refinanced, taking a new loan of $650,000 at 6%. At tax time, Form 1098 would show that you forked over about $39,000 in interest on the $650,000 mortgage in 2003.

INCREASING INTEREST
If you use that $39,000 figure to calculate your annual mortgage interest deduction and you're in the 33% marginal tax bracket, you would wind up taking $1,980 more in deductions than you're entitled to, according to William Lazor, a CPA at Kronick Kalada Berdy in Kingston, Pa. That's because you may take a deduction on a mortgage of only $550,000—the $450,000 left on the original loan plus $100,000. On $550,000, the interest paid would be $33,000, says Lazor.

So what's the damage? If you had to repay the IRS for overdeducting, you would owe $2,109 including interest and penalties for one year, Lazor says. For three years, you'd be liable for more than $6,200. Greg Rosica, a tax partner at Ernst & Young in Tampa, says the IRS would not likely come after you for mistaken returns filed before 2004 because a three-year statute of limitations would probably apply.

There's no sign the IRS is currently hunting down taxpayers who may be miscalculating the mortgage deduction, but the error could trip you up in an audit. Rosica says the best way to protect yourself is to make sure you calculate this year's taxes correctly. If you've taken excessive deductions in past years, you can also file an amended return.

By Ellen Hoffman

TD Ameritrade and your accounts

2007-09-15T10:18:00.000-07:00

There has been recent news reports about TD Ameritrade and the fact that some of their database information has been compromised. I attended an audio meeting this morning with the President/CEO of TD and he assured us that, according to the information that they have uncovered, that NO client social security numbers nor passwords were obtained by the hackers. It appears that the unauthorized codes found in their systems were being used to obtain email addresses for spam purposes.

I direct you to a special website that TD has put up and where you can obtain the information needed to put yourself at ease. It is www.amtd.com. I recommend that you check this out. You will also be receiving a letter from TD on the situation.

I remain confident that TD has taken steps to make sure that your assets are SAFE and that this problem can be corrected.

Please call us if you have any questions.

Warmly,

Judy

Judy is going to Africa!

2007-09-12T09:19:00.000-07:00

Hello Everyone,

I wanted to let you know that I am going on a 2 week missions trip to Uganda and Kenya from September 30th thru October 13th. I am traveling with an amazing group of 5 other folks and we are a teaching team. We will be conducting business conferences/seminars and one on one coaching to enable folks to start and sustain their own businesses. Business failures in Uganda is the highest in the world! I am going through an organization called Global Partners in Development (www.globalpartnersindevelopment) and while in Uganda will be partnering with Shane Gilbert who has a ministry called www.comeletsdance.org Shane is doing amazing work in Kampala investing in and training up young men and women to be future leaders in their country. She is starting small micro businesses and is starting to see some great results. Shane is organizing the events in Kampala for our team. In Kenya, we will also be meeting with groups of people who are trying to break the "begging cycle" and become self-sufficient. At the end of our trip, we will take a 3 day "vacation" at the Maasai Mara wilderness to witness The Great Migration of animals traveling to the Mara Plains from the Serengeti.

Cheryl Tuz will be in the office while I am away and will be able to help you with any issues or concerns that arise while I am away. I am available until September 28th and starting October 15th--barring any jet lag!

I am most grateful for the opportunity to go on this trip and appreciate your good thoughts and prayers while I am traveling.

Warmly,

Judy

Finding the Joy

2007-09-04T18:00:00.000-07:00

These are some excerpts from an article that I would like to share with you. I hope that find it worthwhile reading. Lately, I have been doing a lot of trying to find the joy in my life.

The Joy Factor
Mary L. Duwe, CPF, Master Coach

Everyone longs for a life filled with passion. The human heart was created to be passionate. However, personal and business stresses, disappointments and challenges can often act like cold water thrown on a campfire. Damaged relationships and other life challenges can take their toll and cause the fire of passion to simply burn out. You begin to feel less alive and hunger for the warmth of an inner burning fire.

There are three important steps you need to take in order to find meaning and passion in an industry filled with emotional disease, dismay and disappointing outcomes. It is possible to shift from running on empty to being filled with passion by simply incorporating the “joy factor” into your practice:

Step One: Find the joy. It is critical to discover what brings you true joy. It is all too often we find ourselves doing things we feel we have to do or should do instead of things we want to do. Start to pay closer attention to what gets your attention and ignites a spark inside you. This spark is an important clue in designing your life around what brings you the greatest amount of joy. However, finding what brings you joy will only be a booby prize if you do nothing with your new-found knowledge.

Step Two: Follow the joy. Knowing what brings you joy is critical. Step two is giving yourself permission to follow that joy and develop a life that is full of meaning, purpose and passion. There are several things I noticed that advisors often allow to get in the way of developing a passion-filled life: Often advisors will put themselves last on their list of priorities. As a result, everyone else’s needs get fulfilled before their own. We tend to give too much without getting refueled and as a result, can burn out. Running on empty is the fastest way I know to put out the fire of passion. Never give away more than you have to give and always end the day with something left in your tank.

Step Three: Foster the joy. Now that you have given yourself permission to follow the joy you’ve identified, it is equally important to develop your business and your life around those good feelings. Protect your right to have a life that is passion filled. Expand and create circumstances and opportunities that light the fire within you. You can do things that will drain your energy or you can choose to do things that give you energy. It is your choice. Eliminate anything that drains you and do more of what fuels your passion. The more alive you feel the more effective and powerful you will be.

IRS News

2007-08-24T07:53:00.000-07:00

Closing the Gap

How the IRS is improving compliance to close the tax gap

From Investment Advisor Magazine | August 2007 Issue
By Les Witmer

August 1, 2007
The primary goal of the Internal Revenue Service is to collect the taxes that are owed to the federal government under current tax law. Reducing the difference between taxes legally owed and taxes actually paid in a timely manner— referred to as the “tax gap”—is a key objective of the IRS’s collection and examination efforts. A recent Tax Talk Today Webcast featured an expert panel of tax practitioners and IRS officials discussing the IRS’s efforts to encourage voluntary compliance with tax law.

The IRS estimates that, for tax year 2001, the gross tax gap had reached $345 billion. Three categories of non-compliant taxpayers make up the tax gap:

• Non-filing—the taxpayer files returns late, or not at all;

• Underpayment—the taxpayer files on time, but does not pay the full tax liability;

• Underreporting—the taxpayer files on time, but does not report her correct tax liability, often by overstating exemptions and deductions, or understating income.

How does the IRS propose to close the tax gap? Among other moves, it is stepping up activities in examination and collection, as well as proposing new federal legislation. The latest numbers on federal tax enforcement illustrate the IRS’s commitment to improve in this area (see sidebar). Kevin Brown, deputy commissioner for services and enforcement and the acting IRS commissioner, said that overall revenues are up, and the IRS is “quite pleased” with the level of service provided to taxpayers in a time when enforcement activities are increasingly successful.

“We need a balance between service and enforcement,” said Brown. “We can’t neglect one at the expense of the other, and we’re constantly seeking to improve in both areas.”

Brown and other IRS officials list these areas slated for change.

1) Examination. The IRS plans to improve its examination processes with a focus on two broad categories: balanced audit coverage, based on patterns of noncompliance; and egregious noncompliance, which would include abusive transactions. Expect to see an emphasis on examinations of high-risk taxpayers— including small businesses, self-employed individuals, and high-income individuals —that often have more complex returns and have exhibited a noticeable degree of noncompliance in the past.

“All of these are again designed around the tax gap…where examination appears to be the best way in closing the tax gap,” said Steve Burgess, director of examination in the small business/self-employed division of the IRS.

2) Collection. Taxpayers of all kinds tend to ignore or deny initial collection notices from the IRS, but waiting doesn’t change anything except the total amount of interest and penalties.

“The same ways to resolve a case are available at any point in collection,” said David Alito, director of collection in the small business/self-employed division.

The IRS currently uses two private debt collection agencies to assist with collection activities, although there have been several hearings on the program. While collection activities appear to be in a positive trend right now, the IRS is constantly looking for ways to improve its processes.
“We know we’re not going to get there one case at a time in collections, so we’re trying to take a step back,” said Alito.

3) Legislation. The IRS has 16 legislative proposals included in President Bush’s 2008 budget that were designed to improve information reporting and thus encourage voluntary compliance with tax law. Two key areas that may be affected by this proposed legislation are credit and debit card receipt reporting by merchants and basis reporting for publicly traded securities that are reported for capital gains transactions. By bolstering information reporting, the IRS expects to see an improvement in compliance.

“We know that, where there is information reporting, compliance is just much higher,” said Mark Mazur, director, research, analysis and statistics, in the national headquarters of the IRS.

Issue Resolution With the IRS
Any discussion of IRS efforts to improve examination and collection should also include a look at what options are available for issue resolution, the topic addressed in another recent Tax Talk Today Webcast. Depending upon the issue at hand, a variety of options for interaction with the IRS are available. The panel of IRS officials and tax professionals examined some of the current resolution systems and how they work, in particular, the Taxpayer Advocate Service.

The Taxpayer Advocate Service operates independently of the IRS and offers two distinct options for resolving federal tax issues: case advocacy and systemic advocacy. The type of advocacy needed depends on the type of case in question.

In case advocacy, local taxpayer advocates work with the tax practitioner or the taxpayer to resolve individual cases. Typical qualifying cases usually involve economic burden, such as a person on a fixed, limited income placed under levy; or systemic burden, in which the taxpayer has encountered an IRS process that is not working as intended. Extreme processing delays might qualify as a systemic burden. To submit a case for consideration, simply file a completed Form 911 with the Taxpayer Advocate Service.

The Taxpayer Advocate Service’s Office of Systemic Advocacy addresses larger problems that may arise within the IRS and create multiple, recurring problems for taxpayers. Systemic advocacy even provides an Internet-based system which taxpayers and tax practitioners alike can use to report suspected systemic problems. The link for reporting systemic problems can be found at www.irs.gov/advocate, but remember, the Office of Systemic Advocacy is not for case-specific problems. Tax Talk Today panelist Benson Goldstein, technical manager, taxation, with the American Institute of Certified Public Accountants, commented that AICPA often receives calls from tax pros about supposed systemic problems that actually are case-specific and should be dealt with by filing a Form 911 with the Taxpayer Advocate Service. Under systemic advocacy, the Taxpayer Advocate Service also provides an annual report to Congress, presented by the National Taxpayer Advocate, on the 20 (or more) most serious problems affecting taxpayers.

For both case and systemic advocacy, the Taxpayer Advocate Service has the authority to issue Taxpayer Assistance Orders for the benefit of the taxpayer. But the IRS cautions that not every troubled case will receive assistance from the Taxpayer Advocate Service. “Not every interaction that a taxpayer has with the IRS is necessarily a Taxpayer Advocate Service case,” said Matthew Weir, director of advocacy projects, systemic advocacy, with the IRS’s National Taxpayer Service. “Not every IRS levy is going to result in a Taxpayer Advocate Service case.”

The Taxpayer Advocate Service also takes certain cases that meet public policy criteria, such as issues associated with the IRS’ new private debt collection initiative.

The Office of Taxpayer Burden Reduction, while not a specific issue-resolution solution for the individual taxpayer, focuses on identifying ways in which the IRS can alleviate taxpayer burden. This office of the IRS is responsible for form simplification, process simplification, and the identification of new regulations that would streamline the taxpayer’s engagement with the IRS. The Office of Taxpayer Burden Reduction also helps to develop new legislative proposals for the Department of Treasury to consider as additional ways to ease the taxpayer burden. More ideas are always welcome, according to the IRS. “We do look to our tax professionals to give us ideas on simplification initiatives,” said Beth Tucker, director of communications, liaison and disclosure in the IRS’s small business/self-employed division.

Estimated Tax Payments

2007-08-21T20:59:00.000-07:00

A huge time saver for me has been using the federal and state government's websites to pay my estimated taxes. If you are not a wage earner and are required to make estimated payments, I encourage you to take the time to set up your accounts and make your payments electroncially. The following verbage is from the Federal website:

Welcome to EFTPS Online, the official Website of the Electronic Federal Tax Payment System (EFTPS). A free service provided by the U.S. Department of the Treasury, EFTPS allows all federal tax payments to be made electronically. This includes corporate, excise and employment taxes, and 1040 quarterly estimated tax payments. EFTPS Online is an official and secure United States Government System that allows business taxpayers to eliminate paper Federal Tax Deposit coupons and individual taxpayers to eliminate paper vouchers. All taxpayers can benefit by streamlined processing, therefore, saving time, postage costs and money.

The website link is https://www.eftps.com/eftps/

The website is user friendly and guides you in setting up your account. The really nice thing is that you can schedule all your payments in advance for the entire tax year and never have to worry about missing a payment--being on vacation etc...

The Franchise Tax Board's website is http://www.ftb.ca.gov/online/webpay/index.asp

Unfortunately, the State is not as user friendly as the Federal site but with a little bit of patience, you can do the same thing.

If you try setting up your account and need help, please call and either Cheryl or I can help you. It really has made my life a lot easier!

Market Volatility

2007-08-10T16:17:00.000-07:00

We have been experiencing quite a bit of market volatility lately and I am so proud of all our clients as we have not had one anxious call or email. Many of you are old hats at this as you have gone through the 2000, 2001 and 2002 down markets. And your portfolios survived because you were nicely diversified among several different asset classes such as large cap growth and value stocks, small cap, mid size and international stock funds. And you were grateful that the boring bonds, CDs and money markets provided growth and stability during the rough times. Well, it is no different now. Even though it seems that we have had heart stopping days, the stock market is actually up since January 1st. The international funds are still strong performers and those bonds, treasuries and CDs have been great shock absorbers. Because we do annual rebalancing, you are not reacting to the market like the masses. You are an educated, disciplined and non-emotional investor. And those of you who are in 401ks etc... and dollar cost buying into the market now, you are getting some nice bargains. Kind of like the half-yearly sale at Nordstrom's. The ladies can relate to that one! So, congratulations to all of you for keeping the faith and holding on.