If China and Japan change their minds, could the United States have a problem? Since 1980, the U.S. has imported more than it has exported.1 It makes up for this trade deficit by issuing Treasury bonds and other debt instruments. Foreign governments have long lined up to buy them.
China holds almost $800 billion of U.S. Treasuries. That’s the April 2009 figure from the U.S. Treasury (at this moment, the most recent data). In addition, Japan has $686 billion in Treasuries. Hong Kong has $81 billion, Taiwan $78 billion, Singapore $40 billion, India $39 billion, and South Korea $35 billion. Away from Asia, Great Britain holds $153 billion, Russia holds $137 billion, and Brazil holds $126 billion. 2 U.S. Treasury bonds offer these institutional investors some stability in uncertain times.
Are China and Japan wary of buying more? Earlier in the decade, China, Japan and other nations readily bought Treasuries. From 2004-2008, China spent as much as 14% of its GDP on the purchase of foreign debt – mostly American debt.3
What happened as a result? China, Japan and other creditor countries got a nice return on their investment and a strong export market. We got to buy inexpensive imports. This kept the dollar strong and interest rates low.
Now we have two problems that could potentially sour this relationship. The economies of China, Japan and other countries have suffered along with ours in the global recession. Moreover, the U.S. has run up a huge budget deficit to accompany its trade deficit. Our President is on record as saying that we may have trillion-dollar deficits for ‘years to come.?
Under these conditions, China and Japan are naturally getting leery of holding so much American debt (especially when the Federal Reserve is printing money to buy it). China needs to pay for its own $600 billion stimulus package, and Japan announced a $154 billion stimulus in April. Tax revenues in both economies have declined with the recession. Government regulators in China have ordered banks to direct money this year to local governments and small- and medium-sized businesses. All this means China and Japan aren’t as eager for dollars and Treasuries as they were a few years ago.3,4
What if other nations stop buying our debt? There are three potential side effects. One, interest rates would likely increase as there would be fewer buyers for Treasuries. Two, the dollar could weaken. Three, long-term bond prices could fall.
Voices on the fringe worry about a scenario in which the central banks of China, Japan and other nations jettison dollars en masse or abruptly quit buying U.S. debt. Realistically, the odds of something like this happening are slim. These countries would have nothing to gain by stifling America’s chances for economic recovery, and these decisions would greatly harm the world economy.
Now for some good news. In May, our trade deficit fell to its lowest level since November 1999. It shrank 9.8% in May from April levels, defying analysts? expectations ? and offering a hint of economic recovery. Our deficit with China increased by $4.4 billion for May, but the 2009 increase is 12.6% under last year’s pace. The U.S. deficit with Japan reduced to its lowest level in more than 20 years last month.5
More good news. Domestic and foreign demand for Treasuries is still strong ? in its auction in the first full week of July, the Treasury quickly sold $19 billion of 10-year notes, with Treasury yields hitting 6?-week lows.6 At least in the short term, it appears the government doesn’t have to struggle for buyers to fund its reforms and rescue efforts.

Loran S. Coffman is the founder of Wealth Preservation Strategies, LLC and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health?, Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.

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.)1
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.

Loran S. Coffman is the founder of Wealth Preservation Strategies, LLC and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health?, Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.

If you’re laid off, what happens to your retirement money? Well, you have three basic choices with your 401(k). One gives you more freedom and control than the other two.
You could just leave your 401(k) alone. The money will remain invested, and the financial firm handling your 401(k) will keep mailing you quarterly statements telling you how it is doing. Any future growth will be tax-deferred.1

But this passive choice comes with an opportunity cost. If you just leave the 401(k) assets in the plan, you may be giving up control and flexibility. Your investment choices may be limited, the plan fees may be high, and you may not be able to quickly access your money or do what you want with it. If you have a trail of old 401(k)s left with a bunch of former employers, things can get really complicated when you retire ? especially when you have to take Required Minimum Distributions (RMDs). Leaving the money in the plan may not be the wisest choice.
You could withdraw the money. This may be as last resort. It comes with a severe financial penalty. You will not get all the money you have invested back ? far from it. You will lose 20% of your 401(k) assets to withholding taxes, and if you are under 55, and not taking a hardship withdrawal the IRS will levy an additional 10% penalty for early withdrawal of the assets. By the way, distributions from a 401(k) are considered taxable income ? so expect a big tax bill in the year you cash out.1 The federal government does not want to see you wipe out your retirement savings. Neither does your financial advisor.
If you really need money, you could consider borrowing from your 401(k). The problem here is that most companies want the loan balance paid off when you leave ? whether you leave work by choice or not.
You could roll it over into an IRA. This is the choice that usually allows you more control of investment options. You can move the money into an IRA through a rollover or trustee-to-trustee transfer. Or, you could direct the money into a so-called ‘conduit IRA,? a traditional IRA created to hold your old 401(k) assets until you move the money into another qualified retirement plan. (You can’t contribute to a conduit IRA.)2
There’s no tax penalty when you do an IRA rollover or trustee-to-trustee transfer. After you do it, you have total control of the money, continued tax-deferred growth, expanded investment choices, and possibly lower account management fees.1
Rolling over the money into a Roth IRA might be a great move, provided you can meet two conditions. First, your adjusted gross income has to be less than $100,000 for the year in which you make the rollover. Second, you’ll have to pay taxes on the assets you convert.1 The upside is considerable: you get tax-free compounding, tax-free withdrawals if you are older than age 59? and have owned your account for at least five years, and the potential to make contributions to your IRA after age 70? without having to take RMDs. Contributions to a Roth IRA are not tax-deductible, but there are fewer restrictions on withdrawals.3,4
In 2009, you can fund a Roth IRA with after-tax contributions to a 401(k), 403(b) or 457 retirement savings plan ? you can take those contributions and convert them to a Roth IRA tax-free, provided your AGI is $100,000 or lower. There is no limit on the conversion amount. Incidentally, in 2010, anyone can convert a traditional IRA to a Roth IRA ? the AGI restriction on such conversions disappears.5
What if you have to shiver through a 401(k) freeze? A ‘freeze? is when your employer reduces or suspends matching contributions to your retirement plan. FedEx, General Motors and Motorola have all recently chosen to do this.6 The answer: don’t let up on your personal contributions. If you can manage it, adjust your 401(k) contribution to a level where you effectively replace what your employer contributed. Saving for retirement should remain one of your highest priorities.

How is your money positioned? How are you invested today? Are you doing things designed to preserve and enhance your retirement money? A chat with a financial consultant you trust may give you more confidence and direction for the future.

Loran S. Coffman is the founder of Wealth Preservation Strategies, LLC and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health?, Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.

You don’t have to take RMDs from your traditional IRA this year. On December 23, President Bush signed the Worker, Retiree, and Employer Recovery Act of 2008 into law, suspending all Required Minimum Distributions (RMDs) from IRAs, 401(k)s and 403(b)s for 2009.1
This is sweet relief for people 70? or older, especially people that don’t really need the IRA income. After all, no retiree wanted the ‘injury? of having to withdraw deductible IRA assets already hurt by the recession plus the ‘insult? of having to pay taxes on the RMD. You can leave that money in your IRA in 2009 without incurring a tax penalty ? and if the markets recover in 2009, those invested assets can grow and compound.2
So what if you turned 70? in 2008? You still have to take your 2008 RMD by April 1, 2009. It should be calculated using your account balance as of Dec. 31, 2007.2 (This is assuming you haven’t taken it already.)
Now, what if you turn 70? in 2009? Well, you can wait until the end of 2010 to take your first RMD, but the IRS will consider it to be your second RMD.2
The IRS says that if you turn 70? in 2009, you have the option of delaying your first RMD until April of 2010. If you decide to do that, you will have to take two RMDs in 2010: one by April 1, 2010 for the 2009 tax year and one by December 31, 2010 for the 2010 tax year.2
But ? since nobody has to take an RMD for 2009, those turning 70? won’t be required to take a 2009 RMD by April 1, 2010. However, you will still have to take a 2010 RMD by December 31, 2010, which the IRS will count as your ‘second? RMD, even though you didn’t take a ‘first? one for 2009.2
How does this affect me if I have an inherited IRA? You get a break. You can forego a mandatory withdrawal in 2009 and effectively give yourself an extra year toward that pesky five-year rule, which demands distribution of all assets in the inherited IRA no later than December 31st of the fifth year after the original IRA owner’s death.2,3
What does this mean for IRA charitable rollovers? Suddenly, they’ve become less attractive for 2009 because of the RMD suspension. (After all, the amount of the charitable rollover counted toward your RMD.) But you can still directly donate to a charity from your IRA this year without incurring income taxes.2
And what about Roth conversions? We might as well mention this piece of good news: in 2009, any withdrawals from a traditional IRA can be used to fund a Roth IRA. To convert a traditional IRA into a Roth IRA, your MAGI for 2009 (not including the converted IRA income) has to be $100,000 or lower.2
Any chance of no RMDs in 2010? Well, who knows ? with 2010 being such an experimental year for the federal tax code, Congress may decide to give older Americans another annual exemption from RMDs. But the odds of that happening seem pretty long. Most likely, deductible IRA owners 70? or older and those who have inherited IRAs or 401(k)s will have to take mandatory withdrawals in 2010.
What does this mean for you? Do you need to take a withdrawal from your IRA, 401(k) or 403(b) in 2009? Should you leave the assets untouched this year? Should they be invested in a slightly different way? What could you do in 2009 to position yourself for 2010, when a horde of taxes will be waived and big tax breaks are available? It’s a good time to chat with your financial advisor.
Loran S. Coffman is the founder of Wealth Preservation Strategies, LLC and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health?, Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.

When an investor or financial advisor thinks about diversification, it is generally with market risk in mind. It’s worth remembering that there are other potential risks to your money ? and diversification can be valuable in helping you cope with them.
Business risk. Even today, there are people who have worked for one company for many years and who own great amounts of corporate stock, perhaps as a significant portion of their 401(k) investments or overall portfolio. Are you one of them? Here’s a word for you: Enron. It is risky to link your financial future to the health and viability of one company.
Investment advisor risk. We can be thankful, as investors and as a society, that Bernie Madoff represents an unfortunate aberration in the financial services industry. Financial advisors, investment advisors, money managers ? hundreds of thousands of them work by strict legal, ethical, and moral standards. If they don’t, they risk losing their livelihoods, or worse. But, very rarely, you do read stories of financial services professionals who have proved charlatans. One way to combat this risk is to check out the advisor. You can do it through the free Broker Check record search offered by the Financial Industry Regulatory Authority (finra.org/brokercheck), and through your state securities administrator. This risk, although thankfully rare, does give one pause to think about the value of having a strong cash position and diversification beyond the standard investment vehicles.
Brokerage risk. At mid-decade, if you had walked around Manhattan saying Lehman Brothers would go bankrupt, few would have paid you any mind. But it happened ? not just because of the financial climate, but because of decisions management made.
Of course, brokerages only handle your investments; they are prohibited from tapping into your assets or lending them out when they get in a jam. The Securities Investor Protection Corporation protects up to $500,000 of your assets at a brokerage ? including stocks, bonds, money market funds, and cash up to $100,000.1 In the 39-year history of the SIPC, just 349 brokerage account holders have failed to get their entire portfolios back.2 But SIPC coverage doesn’t cover everything – fixed annuity contracts, commodity futures contracts, and certain investment contracts such as limited partnerships aren’t protected.1 Additionally, there have been a few brokerages that have lost their SIPC membership, for a variety of reasons. Again, it pays to be vigilant, and to diversify.
Political risk. Americans don’t always link politics and financial pressures, except when it comes to oil and gas prices. Yet earlier this decade – I don’t have to tell you the date – the financial markets were rocked by an unimaginable human tragedy and a new kind of global threat. The plunge was temporary, and it was a bear market at the time. But the DJIA fell 685 points in a day and 14.26% across the succeeding week.3 These risks, too, make you think about the value of diversification.
Currency risk. Many investors don’t incorporate this factor into risk assumptions. But fluctuating exchange rates do present a risk element. If you have stocks in Canada that gain 6% but the Canadian dollar loses 6% of its value relative to the U.S. dollar, so much for that return.

Inflation risk. Inflation ? even moderate inflation – effectively reduces your purchasing power over time. This is why growth investing is a priority in retirement.

Bottom line: be diversified. Have many baskets, not one. Speak to a qualified financial advisor to examine the financial options before you. There may be many more ways to invest your assets than you realize.

Loran S. Coffman is the founder of Wealth Preservation Strategies, LLC and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health?, Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.

What causes a recession? Recessions are ultimately a product of excess capacity in an economy ? a condition where you have more supply than demand. Economic sectors grow steadily to meet years of increasing demand, but then when demand falls, there are economic downturns and layoffs and sectors contract.
Many economists trace our current recession to excess capacity in the housing sector, which still has a remarkable inventory of unsold homes. With more supply than demand, prices fell ? and you had a ripple effect throughout the broad economy.
What defines a recession? Maybe the question should be ‘who defines a recession?? While the vast majority of economists now assume we are in one, there are two standard definitions. When gross domestic product (GDP) shrinks for consecutive quarters, you have a recession. But this doesn’t always occur ? in the 2001 recession, GDP alternately grew and shrank and real consumer disposable income actually grew.1
It is hard to confirm a recession until you are several months into it. The nonpartisan National Bureau of Economic Research (NBER) has long defined and ‘closed the book? on U.S. recessions after the fact. (Visit nber.org/cycles.html to see a quick history.)
Is this recession better or worse than recessions past? Until it is over, we won’t actually know. In stock market terms, this one is pretty severe – but other recessions have been much worse for Main Street. The 1981-82 recession saw 10% unemployment for the first time since the Great Depression: in 4Q 1981, 10.5% of Americans were out of work, including 28% of teenagers and 20% of African-Americans.2 In case you were wondering, a common definition of a depression is a jobless rate of 25% or higher lasting for more than two years. We are nowhere near that level of unemployment.
One thing is certain: since World War II, recessions have been shorter. Part of the credit goes to a more active Federal Reserve in the post-WWII era. Post-1945 recessions have averaged approximately 10? months. Recessions prior to World War II tended to average around 20 months by NBER’s measure. NBER counts 33 recessions since 1854; the worst lasted from 1873 to 1879.3
Markets typically fall in a recession, right? Not always. Typically, a bear market foretells a recession. But the ten best rallies in the history of the Dow Jones Industrial Average ? the ten best market days, if you will ? have all happened in bear markets.4 After Black Monday in 1987, many people thought a recession would occur ? but it didn’t happen until three years later.
When does a recession end? When demand tops supply again. When demand increases, sectors start hiring and consumers start spending forcefully. If you look at recessions in different parts of the world on a graph, some are W-shaped (false recovery, descent, real recovery), some are L-shaped (as in Japan in the 1990s, where the economy shrank and stood still for a decade), some are V-shaped (sharp drop, sharp rebound) and some are U-shaped (long, gradual decline and long, gradual rebound). Some economists feel that America is seeing a U-shaped recession.
What does an investor do in a recession? It depends on the investor and his or her long-term goals. You certainly don’t want to make any rash moves. The perspective and professionalism of a financial advisor can help you focus on the long-term upside as you plan to position yourself for a recovery.

Loran S. Coffman is the founder of Wealth Preservation Strategies, LLC and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health?, Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.

Even though this has been a poor year for the market, you may realize short-term capital gains. What do you do about them? You could do what many savvy investors do ? you could ‘cash in your losses? and practice tax loss harvesting.
Selling losers to offset winners. Tax loss harvesting means taking capital losses (you sell securities worth less than what you first paid for them) to offset the short-term capital gains you have amassed.
While this doesn’t get rid of your losses, it can mean immediate tax savings. It can also help you diversify your portfolio. It may even help you to position yourself for improved long-term after-tax returns.
The tax-saving potential. Sure, you can use this technique to put your net gains at $0, but that’s just a start. Up to $3,000 of capital losses in excess of capital gains can be deducted from ordinary income, and any remaining capital losses above that can be carried forward to offset capital gains in upcoming years.1
So by taking a bunch of losses this year and carrying over the excess losses into 2009, you can potentially shelter some (or maybe even all) of your long-term and short-term capital gains next year. This gives you a chance to shelter winners you’ve held (even for less than a year) from being taxed at up to 35%.1
The strategy in action. It is really quite simple. Step A is to pick out the losers in your portfolio. Step B is deciding which losers to sell and telling your financial advisor what you want to do.
However, both investor and advisor have to watch out for the IRS ‘wash sale? rule. You can’t claim a loss on a security if you buy the same or ‘substantially identical? security within 30 days before or after the sale.2 In other words, you can’t just sell a stock, mutual fund or securities to rack up a capital loss and then quickly replace it with the same stock, mutual fund or individual security. If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a ‘wash sale??.
If you want to keep market exposure and have similar investment objectives as you do now, you might be able to avoid the wash sale rule by using what is known as a ‘tax swap?: an ETF for a stock or mutual fund with similar objectives but not substantially identical, or even an ETF for another ETF if the ETFs are linked to different indexes.3 Although these ‘tax swaps? are widely done, this is still sort of a gray area, so consult a qualified tax advisor first.
Here’s a heads-up: a new IRS ruling (Revenue Ruling 2008-5) says you can no longer use an IRA to acquire ‘substantially identical? securities within the 61-day wash sale window ? and you can’t boost your tax basis in said IRA by the amount of the disallowed loss.4
The (minor) drawbacks. You may not wish to alter a carefully chosen portfolio to the degree that you must for tax loss harvesting, especially if it has been built for the long term. Also, you could end up missing a rally in which a stock, ETF or mutual fund you’ve sold could take off. Transaction costs do add up, so a fee-based account makes sense when tax loss harvesting.
Will long-term capital gains be taxed more in the future? They could. President-elect Barack Obama has talked about possibly raising the long-term capital gains tax rate for taxpayers earning over $250,000 per year from 15% to 20%.5 Is that you? If so, you might think of triggering excess capital losses in 2008 and using the losses to shelter future long-term capital gains that could be taxed at a higher rate.
Not just a year-end tactic ? also a year-round strategy. Some investors harvest losses throughout the year, not just in December. You may want to ask your financial advisor how you can harvest losses this holiday season and beyond.
Loran S. Coffman is the founder of Wealth Preservation Strategies, LLC and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health?, Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.

Do you own multiple IRAs? Many people do. You may have started your first IRA all the way back in the 1970s. Maybe you started a Roth IRA in the late 1990s when that option became available. Perhaps you have an IRA CD or an IRA money market account at a bank. Or perhaps you’ve rolled over 401(k) assets from former employers into a few IRAs.
There is wisdom in consolidating your IRAs. Why? Well, let’s look at the reasons.
Save on yearly account fees. Fewer IRA accounts mean fewer administrative costs. If you have seven IRAs, you could consolidate them into one or two accounts and rid yourself of the fees you would be paying annually to maintain the other five or six.
Less paperwork. Tired of getting multiple account statements? Tired of filing and keeping track of those multiple statements? Why not simplify things? With fewer accounts, it becomes easier to track the performance of your investments.
A chance to refresh the way you invest. An IRA consolidation can also be a time to invest your IRA assets more conservatively than you did at midlife. Sometimes people don’t adjust the asset allocation of their IRA or 401(k) for years. They approach retirement with investments that make more sense for younger investors, and with their IRA assets exposed to more risk than they want.
A way to simplify the administration and distribution of IRA assets. Are you older than 70.5? When it comes to calculating your Required Minimum Distribution (RMD), having just one traditional IRA instead of, say, five makes figuring out that RMD amount considerably easier.
A while back, you may have set up multiple IRAs for estate planning purposes, each with its own beneficiary. Years ago, only one beneficiary could inherit an IRA. In 2002, that changed. Now, under most circumstances, you can name multiple beneficiaries for one IRA. (Your original IRA can be divided into separate accounts by December 31 of the year after your death, and each beneficiary may calculate RMDs based upon their own life expectancies.)
Furthermore, the executor of your estate will appreciate having one or two IRAs to deal with, as opposed to six or eight or nine (and there will be less paperwork to hunt for, if a hunt must take place).
It’s easy. Moving IRA assets from one traditional IRA to another requires an IRA asset transfer (also called a trustee-to-trustee transfer). It’s actually less involved than the classic 401(k)-to-IRA rollover. You don’t have to deal with the 60-day deadline that comes with that move.
Can you convert your traditional IRA to a Roth IRA? You sure can during 2010 ? in that year, anyone will be able do it. But before then, you may or may not be eligible to do so. In 2008 and 2009, your modified adjusted gross income (MAGI), not including the converted IRA income, needs to be under $100,000 for the tax year involved.2 Also, inherited IRAs may not be converted into Roth IRAs. (But thanks to IRS Notice 2008-30, non-spouse beneficiaries of company retirement plan assets may now convert those inherited assets into Roth IRAs.)
Should you convert to a Roth before 2010? For many IRA owners, it makes sense to wait until then. If you convert in 2008 or 2009, your tax bill may be sizable, because you’ll have to pay income tax on any gains in the IRA and any pretax contributions you’ve made to it over the years.4 On the other hand, if you do it in 2010, you can defer the taxes on the conversion over 2011 and 2012.2 Of course, through any Roth IRA conversion, you’ll gain the future benefits of tax-free compounding, the possibility of tax-free withdrawals and the potential to make contributions after age 70.5 without having to take RMDs.5
Consider simplifying your IRAs. This small step may reduce fees, statements and even confusion.
In fact, if you have a bunch of ‘strays? in your portfolio ? investments you’ve almost forgotten about, or wonder if you could be getting more out of ? consider a chat with your financial advisor that could help you sharpen your investment focus.
Loran S. Coffman is the founder of Wealth Preservation Strategies, LLC and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health?, Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.

With the way the market is behaving, you may be tempted to pull money out of your 401(k) right now or greatly reduce your contributions. If you’re considering such a move, you may want to reconsider.
Don’t stop saving for retirement. Even if you think you’re wealthy enough to forego putting money in your 401(k), you could end up seriously shortchanging your retirement savings potential by reducing your retirement plan balance or elective salary deferrals.
A 401(k) plan is a great retirement savings vehicle–and the fact is that most Americans have not saved enough for their retirement years. Additionally, if you withdraw money from a 401(k) plan before age 59, you’ll face a 10 percent tax penalty (with few exceptions) and you may end up spending money today that could have enjoyed tax-deferred compounding in the future.
Don’t expose more of your money to taxes. Usually, contributions to a 401(k) are tax-deductible. If you decide not to make those contributions, here’s a consequence: the IRS and your state government will claim more of your income. So you’ll wind up with less money in your wallet today and less money in your retirement account.
Don’t lose out on a match. Will your employer match your contributions ? say, a dollar-for-dollar match on the first 3 percent of salary? If you make $60,000 per year, 3 percent is $1,800. Would you throw away $1,800 worth of free money each year? You shouldn’t, especially given that this money will grow tax-deferred.
Do keep contributing steadily. It’s a good idea to keep up the dollar cost averaging and continue to make steady month-to-month or paycheck-to-paycheck salary deferrals. In all probability, this is central to your financial plan–and how will you amass the retirement savings you need if you stop contributing? Sure, there are other ways to build retirement savings, but dollar-cost-averaged contributions to a 401(k) represent a consistent, recurring way to get that job done.
If you contribute to your 401(k) plan through a dollar cost averaging approach, your investment dollar is buying shares at a lower price in this down market ? and it is also buying more shares for your money. That could put you in a really good position when the market rebounds.
Often people want to know what money to use to help pay off debts. Should you pay down debts with your 401(k) assets? Only as a last resort. In most states, pension plans, IRA and 401(k) assets are protected in bankruptcy proceedings.3 In fact, if you are looking at a bankruptcy or similar financial pressures, a 401(k) account is a really good place to put some of your money (the 2008 contribution limit is $15,500, with a $5,000 ceiling on additional ‘catch-up? contributions for workers 50 and older)
Do review your goals with your financial advisor. Look at your time horizon. Look at your overall financial plan. Whether you are nearing retirement or far away from it, you will see that your 401(k) is a vital tool for pursuing your financial objectives. So don’t be discouraged by the short-term headlines; abide by the long-term plan created personally for you.
Loran S. Coffman is the founder of Wealth Preservation Strategies, LLC. See ‘The Science of Financial Health?, Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.

United they stood ? and up the markets climbed. On a tranquil Friday morning in the Rose Garden of the White House, the financial ‘front line? of the U.S. government stood in solidarity and presented a bailout plan in response to the troubles in the stock markets.
President Bush, Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, and yes, even Securities and Exchange Commission Chairman Christopher Cox were present as a remarkable federal intervention was unveiled ? with major details still to be determined, presumably to be worked out over a busy weekend.
How much will it cost taxpayers? Don’t ask. Will it restore confidence on Wall Street? It certainly did Friday, as stocks rallied dramatically for the second straight day.
Here’s the big picture. The federal government is moving to take bad debts off the hands of Wall Street firms. This is critical, because for months, investment banks have been redirecting profits from other types of investments to offset ballooning losses incurred from mortgage-backed securities. If the government relieves them of this chore, these firms can focus on making money through other, more profitable investments.
Some big moves. Friday morning, the SEC banned short selling of the stocks of 799 financial companies until October 2, in an effort to restore some stability to the markets. (Regulators in the United Kingdom had made the same move a day earlier.)1
The Treasury Department also made an extraordinary move, tapping into the Exchange Stabilization Fund (created back in the 1930s) to provide insurance for certain retail and institutional money market funds for up to one year. In addition, Fannie Mae, Freddie Mac and the U.S. Treasury will expand their efforts to purchase mortgage-backed securities ? the Treasury will buy $10 billion during the first month of its program, up from an initially stated $5 billion.
As for the Federal Reserve, it will offer loans enabling banks to purchase ‘high-quality? asset-backed money-market securities, and it will also buy a yet-to-be-determined amount of short-term discount notes issued by government-sponsored agencies (i.e., Fannie Mae, Freddie Mac, and the Federal Home Loan Banks).2
And some big questions. Will the federal government create a new regulatory agency ASAP to manage all these government-owned investments and prevent such crises in the future? It would seem imminent. Otherwise, the Treasury Department might have to take on that role in the interim.
And what’s the bill for all this? No one really knows, but Paulson thinks it will take ‘hundreds of billions of dollars.? Sen. Richard Shelby (R-Ala.), formerly the chair of the Senate Committee on Banking, Housing and Urban Affairs, believes it will be ‘probably $500 [billion] to a trillion dollars?. Bloomberg News reports that the federal government is considering assigning as much as $1.2 trillion for the effort.3
Have you been thinking about your money lately? Almost certainly, you have. At the moment, we’re a very financially focused nation. If you are thinking about where your money is and whether you should make a move with your investments, may I suggest a face-to-face conversation with, or at least an e-mail to, your financial advisor? It’s a good way to gain perspective amid the turbulence.
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Loran S. Coffman is the founder of Wealth Preservation Strategies, LLC and may be reached on the web at www.WPSinvestments.com, by phone (248)693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health,? Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.
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Citations. 1 abcnews.go.com/Business/Vote2008/Story’id=5839134&page=3 [9/19/08]
2 bloomberg.com/apps/news’pid=20601087&sid=ajh1eg_9iovk&refer=home [9/19/08]
3 dealbook.blogs.nytimes.com/2008/09/19/putting-a-price-on-a-government-bailout/ [9/19/2008]
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These views are those of the author and should not be construed as investment, tax or legal advice. Past performance is no guarantee of future results. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Investment, Tax and/or Legal Advisor for further information and advice about application to your specific circumstances. Researched and authored by Loran S. Coffman & Peter Montoya, Incorporated.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Branch address of WPS is 189 W. Clarkston Rd., Bldg. A, Lake Orion, MI 48362

The last 18-24 months have been wild ones on Wall Street, and the volatility has motivated some sophisticated investors to look into non-correlated or indirectly correlated asset classes. With the rise in oil and gas prices, high net worth investors are naturally examining the potential of alternative investment programs, especially in the energy sector.
The world appetite for energy ? especially clean energy ? is surging. Analysts project that global energy needs will be 50 percent higher in 2030 than now, with the economies of China and India spurring 45 percent of the increase. Therefore, some economists and Wall Street analysts have become quite bullish about the long-term outlook for energy investments.
In recent years, accredited investors seeking greater portfolio diversity have begun to direct their investable assets into energy programs, oil and gas equipment leases, and private REITs focusing on the energy sector. Additionally, other investors are moving assets into ETFs and mutual funds focused on energy firms.
Direct energy investments represent just a slice of the alternative investment world. Commodities, managed futures, tax credits, real estate securities, real estate exchanges, annuities, even collectibles: there are all kinds of investment vehicles apart from Wall Street. While many people historically dismissed some of them as too exotic or speculative for their portfolios, that opinion has changed as investors have become more educated about their potential.
As any financial advisor wisely notes, past performance is no guarantee of future results. But just for a moment, let’s compare a couple of blue chip indices with a couple of commodity indices.
Over the last three years ending April 25, the S&P 500 returned nearly 21 percent, and the DJIA about 27 percent. Across the same 3-year period, the S&P GSCI Commodity Index went up 57 percent. It also posted a year-over-year gain of 22 percent for the 12 months ending April 25, 2008. The Dow Jones-AIG Commodity Index returned about 27 percent in that same 12-month stretch. Did the blue chips do this well in the last 12 months?
To make some of these investments, you do need to be an ‘accredited investor.? That is a category of investor defined by the Securities and Exchange Commission (SEC). In general terms, the SEC defines an accredited investor as: an organization, partnership, corporation, business, or trust with $5 million or more in assets; an individual or couple with a net worth of $1 million or more; or a stable annual income of $200,000 or more ($300,000 for a couple).
As the value of these investments can fluctuate notably, they are not usually suited for the risk-averse retiree or the middle-class investor. But if you are a high net worth investor in search of diversification, they may be for you.
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Loran S. Coffman is the founder of Wealth Preservation Strategies, LLC and may be reached on the web at www.WPSinvestments.com, by phone (248)693-5599, or by email advisor@WPSinvestments.com. See Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.

‘Registered Financial Consultant.? What does that title really mean? When you search for a financial consultant, it means everything. Let me explain why the RFC designation is so important.
Today, the financial world is full of credentials and designations. Some are respected, some aren’t. The RFC designation is one of the most respected. (Some financial credentials are simply conveyed to people after the completion of a glorified sales course. The RFC designation is definitely not one of them.)
It means meeting some very high standards. To become a Registered Financial Consultant, you have to meet seven stringent standards ? standards of knowledge, experience, examination, integrity, licensing, ethics, as well as a significant amount of professional education. Many RFCs have not only met these high standards, but also others ? quite a few are also Chartered Financial Consultants and Certified Financial Planner? practitioners.
More and more financial services professionals ? not only in America, but around the world ? are actively studying for and meeting the tests to receive the prestigious RFC designation. The designation is conveyed by the non-profit International Association of Registered Financial Consultants, whose membership has increased twelvefold since 2000.1
It means maintaining these standards. The IARFC requires RFCs to complete a 40-hour continuing education requirement each year, so that each RFC can keep up with the latest developments affecting the financial services industry and the investor. The ethics must also be upheld, or the RFC designation will be lost.
So when you see the RFC designation, it signals a financial advisor of greatly advanced education, with an ongoing commitment to learning as much as possible about the fine points and the fresh developments in the financial and investment world.
This is why the RFC designation is so respected. Knowing all this, would you settle for any less qualified financial advisor? I doubt it.
The critical difference. Today, many people call themselves ‘financial consultants? or ‘financial advisors? without having this kind of experience and knowledge. Many of them work with a sales-based mentality. Often, they will suggest an investment product as a financial solution. Quite often, they get a nice commission off the sale of that product.
On the other hand, Registered Financial Consultants know that investments are simply components in an overall financial strategy, not financial solutions in themselves. We have the education and experience to create integrated financial strategies using not only investments, but also methods for tax reduction, wealth accumulation, wealth preservation and tax-efficient wealth transfer. We have the knowledge to help our clients pursue their long-term goals, and the experience to implement, oversee and revise these strategies through the years.
Choose an RFC. If you are searching for a financial consultant, contact an RFC today, and enjoy the confidence that comes from meeting with a truly educated and qualified financial advisor.
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Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health?, Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.
These views are those of the author and should not be construed as investment, tax or legal advice. Past performance is no guarantee of future results. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Investment, Tax and/or Legal Advisor for further information and advice about application to your specific circumstances. Researched and authored by Loran S. Coffman & Peter Montoya, Incorporated.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Branch address of WPS is 189 W. Clarkston Rd., Bldg. A, Lake Orion, MI 48362
***
Citations.
1 iarfc.org/content.asp’n=1

A little phrase that may mean a big difference. When you read about investing and other financial topics, you occasionally see the phrase ‘tax efficiency? or a reference to a ‘tax-sensitive? way of investing. What does that really mean?
The after-tax return vs. the pre-tax return. Everyone wants their investment portfolio to perform well. But it is your after-tax return that really matters. If your portfolio earns you double-digit returns, those returns really aren’t so great if you end up losing 20% or 30% of them to taxes. In periods when the return on your investments is low, tax efficiency takes on even greater importance.
Tax-sensitive tactics. Some methods have emerged that are designed to improve after-tax returns. Your money manager should be considering these strategies when determining whether assets in an investor’s taxable account should be bought or sold.
Holding onto assets. One possible method for realizing greater tax efficiency is simply to minimize buying and selling to reduce capital gains taxes. The idea is to pursue long-term gains, instead of seeking short-term gains through a series of steady transactions. Again, this is more important if you are in a taxable account verses a tax-deferred or tax-free account.
Tax-loss harvesting. This means selling certain securities at a loss to counterbalance capital gains. In this scenario, the capital losses you incur are applied against your capital gains to lower your personal tax liability. Basically, you’re making lemonade out of the lemons in your portfolio. This also means you need to be more proactive in your tax planning when you review your portfolio, prior to the end of each year.
Assigning investments selectively to tax-deferred and taxable accounts. Here’s a rather basic tactic intended to work over the long run: tax-efficient investments are placed in taxable accounts, and less tax-efficient investments are held in tax-advantaged accounts. Of course, if you have 100% of your investment money in tax-deferred accounts such as 401(k)s or IRAs, then this isn’t a consideration. It also means that if 100% of your investments are in tax-deferred accounts, you need to review your tax diversification strategy. You may have unintended consequences, like a future tax bomb just waiting to explode.
How tax-efficient is your portfolio? It’s an excellent question, one you should consider. But this brief article shouldn’t be interpreted as tax or investment advice. If you’d like to find out more about tax-sensitive ways to invest, be sure to talk with a qualified financial advisor who can help you explore your options today. What you learn could be eye-opening.
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Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health?, Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.
***
These views are those of the author and should not be construed as investment, tax or legal advice. Past performance is no guarantee of future results. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Investment, Tax and/or Legal Advisor for further information and advice about application to your specific circumstances. Researched and authored by Loran S. Coffman & Peter Montoya, Incorporated.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Branch address of WPS is 189 W. Clarkston Rd., Bldg. A, Lake Orion, MI 48362

The point of the POA. A Power of Attorney is a legal instrument that delegates an individual’s legal authority to another person. If an individual is incapacitated or mentally incompetent, the POA assigns a trusted party to make decisions on his or her behalf.
There are nondurable, springing and durable Powers of Attorney. A nondurable Power of Attorney often comes into play in real estate transactions, or when someone elects to delegate their financial affairs to an assignee during an extended absence. A springing Power of Attorney ‘springs? into effect when a specific event occurs (usually an illness or disability affecting an individual).1
A “durable” Power of Attorney allows an assignee, or Agent, to act on behalf of a second party, or Principal, even after the Principal is not mentally competent or physically able to make decisions. Once a Principal signs (executes) a durable Power of Attorney, it may be used immediately, until it is either revoked by the Principal or the Principal dies.1
Of course, even after a POA goes into effect, the Principal can still make financial and legal decisions on his or her own. The Principal can also elect to have the POA take effect immediately, not just at a point in the future when they lose the ability to make these decisions. You can also appoint multiple Agents. 2
What the POA allows in financial terms. Financially, a Power of Attorney is a tremendously useful instrument. An Agent can pay bills, write checks, make investment decisions, buy or sell real estate or other hard assets, sign contracts, file taxes, even arrange the distribution of retirement benefits.3
Of course, a POA can stipulate what an Agent can and can’t do financially. There are some things that are expressly forbidden, no matter what you stipulate. For example, your Agent can’t use your assets on his or her behalf (which often constitutes elder abuse) or change or write a will. But he or she can establish a trust.3
Advanced healthcare directives: HCPOAs and Living Wills. Alzheimer’s Disease, Parkinson’s Disease, ALS and other maladies can eventually rob people of the ability to articulate their wishes, and this is a major reason why people opt for a Health Care Power of Attorney or a Living Will. There are differences between the two.
A Health Care Power of Attorney (also called a ‘healthcare proxy?) allows an Agent to make medical decisions for a Principal, should that loved one become incapacitated or mentally incompetent. A person does not have to be facing death for a HCPOA to be put into effect.
A Living Will gives an assignee similar power of decision, but this advanced directive only applies when someone faces certain death. It may articulate whether the loved one wants to be hospitalized at the end of life, or have surgery, blood transfusions, resuscitation, or other medical procedures administered. The assignee has the authority to carry out the wishes of the incapacitated party.
It is a wise move to draft these documents and have them in place before a diagnosis of some degenerative or crippling disease, or at least immediately after one. A HCPOA or Living Will must comply with state laws.
Who should have copies of these healthcare directives? You, your attorney, any doctors treating your loved one, and any hospital, assisted living facility, or nursing home involved in his or her care. Assuming you are the assignee, another copy should be in the hands of a family member or friend you trust in case anything debilitating happens to you.
A hitch: the HIPAA Privacy Rule. In 2003, the Health Insurance Portability and Accountability Act (HIPAA) became law, and it stated that an employee’s confidential health records must be protected from unauthorized dissemination. So today, a Health Care Power of Attorney should include an ‘Authorization for Disclosure of Protected Health Information?. This permits a health care provider to transmit PHI to doctors and hospitals under the HIPAA Privacy Rule. Without it, you could have a problem in a medical emergency, because most health care providers won’t provide PHI without the express written authorization of the patient (a HIPAA medical release form). In fact, doctors and hospitals can face fines and sanctions for violating the HIPAA Privacy Rule.4
No power without a signature. Please remember: no Power of Attorney, HCPOA, or Living Will is valid unless it is signed and notarized and/or properly witnessed. It seems unthinkable that some people would draft these documents and never sign them ? but to borrow an analogy, some smoke detectors are bought but never installed.
Would you like to learn more? Then meet with an eldercare or estate planning attorney. You may even want to ask for a referral to an attorney from your insurance advisor who helped you with your long term care and eldercare issues, or a qualified financial advisor who has assisted families with legacy planning. Now is the best time to understand these options.
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Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health?, Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.
These views are those of the author and should not be construed as investment, tax or legal advice. Past performance is no guarantee of future results. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Investment, Tax and/or Legal Advisor for further information and advice about application to your specific circumstances. Researched and authored by Loran S. Coffman & Peter Montoya, Incorporated.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Branch address of WPS is 189 W. Clarkston Rd., Bldg. A, Lake Orion, MI 48362
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Citations.
1 oag.state.ny.us/seniors/pwrat.html
2 scselfservice.org/probate/finan/powersatty.htm
3 scselfservice.org/probate/finan/powersatty.htm
4 hawaiielderlaw.com/estate-planning/hipaa-critical-new-law.html

You probably read or hear about some ‘Top Ten? list nearly every day. But take a moment to read this one. This list is different, and probably not the kind of list you’d expect a Financial Advisor to write.
Reason #10: ‘I’m too busy?
I can’t tell you how often I hear this excuse. So many people want to plan for a better retirement, but they don’t have time. They think they’ll take care of it tomorrow, or the day after that ? and before they know it, several years have gone by. The best advice I can give you is to stop procrastinating and start planning today.
Reason #9: ‘It’s too soon?
I don’t know how this happened, but many people have adopted the notion that you don’t have to start planning for your retirement until you’re almost there. This is totally incorrect. The truth is, the sooner you start planning, the better chance you stand of having the kind of retirement you want. It’s never too soon. Many people start planning in their early twenties!
Reason #8: ‘It’s too late?
If you’re already near or past your retirement eligibility date, you may think that whatever you’ve got is what you’re stuck with and it’s too late to do anything about it. Think again. If you’re unsure of what your options are, speak to a professional. Even if you’ve already retired, it’s important to consider how you’re receiving income and how long it will last. It’s never too late to revise your income distribution strategy.
Reason #7: ‘I don’t need to?
I’ve heard this excuse many times and it always baffles me. Many people think that because they’ve been diligent about contributing to a savings account, they’re all set. While saving for retirement is good, you also need a plan for income distribution once you enter retirement. Are you certain that what you’re saving will be enough? Have you considered your distribution plan? What about taxes? What about inflation? And are you sure your money will be properly invested? There may be other, better options for you and it may prove worthwhile to look into them.
Reason #6: ‘I don’t have enough money to get started?
This excuse seems marginal at first glance, but there is some truth behind it. You need to have money to save or invest money. However, unless your bills are exactly equal to or greater than your net income, you DO have enough to get started. Starting small is better than not starting at all, and if you plan well, you’ll eventually have more to work with.
Reason #5: ‘My finances are a mess?
This is all the more reason to seek out an advisor who can help you sort through and understand your assets. Perhaps you have a 401(k) from a former employer that has not been rolled over, a couple of savings accounts, a trust from a deceased relative, some stocks that your parents bought in your name when you were younger ? a circumstance like this can be confusing, but leaving it as it is won’t improve the situation. Consider speaking with an advisor who can look at your complete financial picture, help you to understand it, and help you to develop a plan to make your ‘financial mess? work for you.
Reason #4: ‘The Government will take care of me?
The bottom line is this ? there’s a chance Social Security may not be available when you retire, and even presuming it is, it may not be enough to provide your ideal retirement income. If you’re planning to retire on Social Security alone, I would advise you to create a back-up plan at the very least.
Reason #3: ‘Between my savings and my 401(k), I’ll be fine?
Saving for retirement without an income distribution plan can be a mistake. How will you use that money once you have it? And while you may think you’ll have everything you’re going to need, have you considered inflation? Taxes? And furthermore, some people are living past 90. Will your assets last that long? If you outlive your income, what then? It’s a good idea to look ahead and plan lifelong income.
Reason #2: ‘I don’t want to think about it?
Many people procrastinate simply because the thought of discussing financial matters (or growing old) is unappealing. I can certainly understand that. But consider this ? if you bite the bullet now and put a firm plan in motion, you may not have to think about it again for quite some time.
Reason #1: ‘I don’t know how?
If you knew everything there was to know about financial planning, you’d probably be a financial advisor yourself. While it is possible to do everything on your own, that generally involves a great deal of research and a huge time commitment. If you’re putting off retirement planning because you don’t know how, consider speaking to a professional who does.
These are just some of the reasons why people don’t plan for retirement ? but these are reasons, and not excuses. If you have retirement goals you want to reach, I would recommend you speak to a qualified Financial Advisor and set up an action plan. The sooner the better.
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Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health?, Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.
These views are those of the author and should not be construed as investment, tax or legal advice. Past performance is no guarantee of future results. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Investment, Tax and/or Legal Advisor for further information and advice about application to your specific circumstances. Researched and authored by Peter Montoya, Incorporated.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Branch address of WPS is 189 W. Clarkston Rd., Bldg. A, Lake Orion, MI 48362

Can an IRA keep growing for a century or more? In theory, it can. Some people are planning to ‘stretch? their Individual Retirement Accounts over generations, so that their heirs can receive IRA assets accumulated after decades of tax-deferred or tax-free growth. A stretch IRA can potentially create a legacy of wealth to benefit your heirs, and it could also help to reduce your estate taxes.
Usually, this is a choice of the high net worth investor. Typically, an individual, couple or family has amassed sizable retirement savings ? so sizable that they don’t need to withdraw the bulk of their IRA assets during their lifetimes.
How does this work? Simply put, a stretch IRA is a Roth or traditional IRA with assets that pass from the original account owner to a younger beneficiary when the original account owner dies. The beneficiary can be a spouse or a non-spousal heir (or in some cases, not a person at all but a ‘see-through? trust.)1
If the beneficiary is a person, this younger beneficiary will have a longer life expectancy than the initial IRA owner, and therefore may elect to ‘stretch? the IRA by receiving smaller required minimum distributions (RMDs) each year of his or her life span. This will leave money in the IRA and permit ongoing tax-deferred growth ? or tax-free growth, in the case of a Roth IRA.
In fact, since you don’t have to take RMDs from a Roth IRA at age 70?, you could opt to let your Roth IRA grow untapped for a lifetime. At your death, your beneficiaries could then stretch payouts over their life expectancies without having to pay tax on withdrawals.2
What options do the beneficiaries have? Well, the rules governing inherited IRAs are quite complex. The explanation below is simply a summary, and should not be taken as any kind of advice or guide.
If you have named your spouse as the beneficiary of your IRA, your spouse can roll over the inherited IRA assets into his or her own IRA after your death (presuming they don’t need the money).
If you die before age 70?, your spouse can treat the inherited IRA as his or her own and make contributions and withdrawals. Or, instead of treating the IRA as his or her own, your spouse can elect to begin receiving distributions on either December 31st of the calendar year following your death, or the date that you would have been age 70?, whichever date is later.
If your beneficiary is non-spousal, he or she cannot treat the IRA as his or her own, and cannot make contributions to it or rollovers into or out of it.3 A non-spousal beneficiary can either take the lump sum and pay taxes on it, or transfer the IRA assets to an IRA distribution account.
If your non-spousal beneficiary elects to set up a distribution account and you have passed away before age 70?, he or she must follow either the one-year rule or the five-year rule.
Under the one-year rule, annual distributions are based on the life expectancy of the designated beneficiary and must start by December 31st of the year following the original IRA owner’s death. In this way, your beneficiary can stretch out the distributions over his or her life expectancy, which can allow more of the inherited IRA assets to remain in the IRA and enjoy tax-deferred or tax-free growth.
Under the five-year rule, there are no minimum annual distribution requirements, but the beneficiary must withdraw their full interest by the end of the fifth year following the owner’s death.
The beneficiary can be determined even after the original IRA owner dies ? if there is somehow no named beneficiary, you have until the end of the year following the death of the primary IRA owner to establish one.4 But it is vital to establish a beneficiary during your lifetime: if you don’t, your IRA assets could end up in your estate, and that will leave your heirs with two choices. If you pass away after age 70?, the RMDs from the IRA are calculated according to what would have been your remaining life expectancy. If you pass away before age 70?, the five-year rule applies: your heirs have to cash out the entire IRA by the end of the fifth year following the year of your death.2
Things to think about. The decision to stretch your IRA cannot be made casually. A beneficiary must be selected with great care, and there is always the possibility that you may end up withdrawing all of your IRA assets during your lifetime. A stretch IRA strategy assumes that your beneficiary won’t deplete the IRA assets, and it also assumes a constant rate of return for the account over the years. It’s also worth remembering that stretch IRA planning is based on today’s tax laws, not the tax laws of tomorrow.
If you are interested in stretching your IRA, you must find a truly qualified financial advisor to help you. While many financial advisors know something of the rules and regulations governing stretch IRAs, look for an advisor with an advanced education in IRA planning.
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Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health?, Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.
These views are those of the author and should not be construed as investment, tax or legal advice. Past performance is no guarantee of future results. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Investment, Tax and/or Legal Advisor for further information and advice about application to your specific circumstances. Researched and authored by Peter Montoya, Incorporated.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Branch address of WPS is 189 W. Clarkston Rd., Bldg. A, Lake Orion, MI 48362
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Citations.
1 investmentnews.com/apps/pbcs.dll/article’AID=/20080501/REG/74256949/1031/RETIREMENT
2 kiplinger.com/retirementreport/features/archives/2006/06/Cover_Jun2006_03_01.html
3 irs.gov/pub/irs-pdf/p590.pdf
4 moneycentral.msn.com/content/Taxes/Taxshelters/P33760.asp

What is going on? Before 2002, oil prices usually hovered around $20 a barrel. By early 2006, they were above $60 a barrel.1 They were at $62 a barrel in May 2007.2 One year later, oil prices have doubled. In October 2004, a gallon of regular unleaded gas averaged just under $2.00.3 Now it might cost you twice that.
Is this just a supply-and-demand story? Has demand for oil and gas doubled in the last four years? Have worldwide supplies shrunk notably over the same period? It’s a bit more complex than that. Let’s look at some of the factors analysts cite for the soaring prices.
The commodities market. We’ve seen a historic bull market in commodities recently, with oil, soybean, wheat, gold, and silver prices at record inflation-adjusted highs. It isn’t cooling down just yet. All the speculators investing in the commodities market have helped to drive prices higher.
The weak dollar. What fueled the commodities bull market? Many economists point to the dollar, which has declined about 35% in value against other benchmark currencies since February 2002.4 When the dollar weakens, investors tend to buy commodities like oil futures as a hedge against inflation. Also, when the dollar loses value against other currencies like the euro and the pound, it makes oil cheaper for overseas investors.
The Federal Reserve has signaled that it is through cutting interest rates for the near future, and many people think that this will boost the dollar’s value against other major currencies. (The dollar tends to slide when the Fed cuts the key interest rate.) So that may encourage a drop in oil prices, and in retail gas prices.
Sustained demand. If somebody told you to cut back on your driving, would you do it? Could you? Many Americans can’t. We complain about higher and higher gasoline prices, but we ultimately sigh and put up with them. In addition to ongoing American consumer demand for gasoline, industries worldwide demand crude oil. As the economies of China, India and other new major-league economic players have developed, their needs for oil and gas have correspondingly increased, raising demand a bit.
What will make prices fall? As mentioned, some analysts believe a recovering dollar will be the big factor. Others point to reduced worldwide demand for oil as an effect of record prices. OPEC has revised its demand forecasts downward twice in the last three months.5
Industrial needs aside, the American driver might be a major factor here. Change is occurring; SUV and truck sales are declining; people are adjusting their driving habits, and driving less. The U.S. is a prime market for oil exporters, and if consumer demand for gasoline lessens, oil prices seemingly have to fall. So your consumer sacrifice might send a message to Big Oil.
How is your money? When you see headlines about the economy, it may make you think of your financial situation, and what you might be able to do to improve it. In times like these, it’s a good idea to talk with a qualified financial advisor about topics like investing, saving and retirement. Think about scheduling such a talk today, for what you learn might help you not only this year, but for years to follow.
***
Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health?, Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.
These views are those of the author and should not be construed as investment, tax or legal advice. Past performance is no guarantee of future results. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Investment, Tax and/or Legal Advisor for further information and advice about application to your specific circumstances.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Lighthouse 436 S. Broadway, Suite F, Lake Orion, MI 48362
***
Citations. 1 businessweek.com/magazine/content/06_06/b3970078.htm
2 foxbusiness.com/story/markets/economy/oil-rises-time-high-near–barrel/
3 eia.doe.gov/oil_gas/petroleum/data_publications/wrgp/mogas_history.html [Excel download]
4 ftalphaville.ft.com/blog/2007/11/07/8713/the-dollars-slide-13-down-and-falling-faster/
5 bloomberg.com/apps/news’pid=newsarchive&sid=ay3B20MjKdro

Have you looked at your VUL lately? Variable universal life insurance can be a good investment ? if you check up on it to monitor asset allocation and performance. Some people simply tuck their policy away in a file and forget about it. This is a mistake.
VUL gives you a whole life insurance policy plus an opportunity for tax-deferred cash accumulation. You can choose to direct a percentage of your premiums into investment sub-accounts within an insurance company’s portfolio, and the gains in those investment accounts aren’t taxed if they remain within the policy.1
You should review your VUL policy every two or three years to see that it still matches your needs. Here are three good reasons to take a second look at your policy today.
Insurance costs can drop. As the baby boomers have matured, insurance costs have been adjusted in response to increasing longevity. In 2006, the National Association of Insurance Commissioners adopted new life expectancy tables from the Society of Actuaries.2 That meant some big changes in life insurance.
New whole life policies are available that provide coverage until age 121, with lower premiums. Your current whole life policy may provide coverage only until age 85. So is the cost of your policy still competitive? Or are you paying too much for coverage? Take a look, because you might not be getting the best value for your money.
Inflation cat eat away at your benefit. Maybe you opted for $250,000 worth of coverage five or ten years ago. That may have been enough then … but how about today? Inflation can definitely affect life insurance needs. What if your life insurance proceeds had to be used to pay for your children’s college tuition, or to pay off your mortgage? Would the proceeds be enough? You may have a VUL policy based on the income or lifestyle costs of 10 or 20 years ago. It may be time to reexamine it.
Are you funding the policy correctly? A VUL policy can lapse if it isn’t adequately funded. If you purchased your policy so you could have ‘cash rich? life insurance that would let you borrow against the cash value of the policy someday without paying tax on that money, you have to have enough cash value and continuing payments to keep up the basic insurance.
Insufficient funding means the policy collapses ? and when that happens, the amount that you borrow tax-free from your policy becomes taxable income. (No policy in place also means no death benefit.)
The trouble occurs when you borrow too much against the cash value for too many years and the investment sub-accounts can’t make it back. So here is where asset allocation becomes important. If you don’t fund the policy correctly, you may end up essentially purchasing an expensive form of term insurance.
It’s worth taking a second look at your VUL. Many people never review or reexamine life insurance decisions, but it is wise to do so. Open up that file and take a look at your policy ? the amount of coverage, the term of coverage, the premiums and the fine print. In fact, I urge you to review your policy today with a qualified insurance agent or financial advisor.
***
Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health?, Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.
These views are those of the author and should not be construed as investment, tax or legal advice. Past performance is no guarantee of future results. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Investment, Tax and/or Legal Advisor for further information and advice about application to your specific circumstances.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Lighthouse 436 S. Broadway, Suite F, Lake Orion, MI 48362
***
Citations.
1 investopedia.com/terms/v/variablelifeinsurancepolicy.asp
2 soa.org/research/individual-life/intl-2001-cso-preferred-class-structure-mortality-tables.aspx

A wave of conversions
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.1
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.2
Potential advantages: considerable. Many high-salaried people have rolled 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 3
? Tax-free withdrawals of these assets someday (assuming they are 59? or older and the Roth IRA is more than 5 years old) 3
? No minimum distribution requirements once you turn 70? 3
? An eventual reduction in their taxable estate 4
Taxes: 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.5 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.6
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.7
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.
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Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248)693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health,? Coffman’s exclusive weekly financial column on the web at www.LakeOrionReview.com.
These views are those of the author and should not be construed as investment, tax or legal advice. Past performance is no guarantee of future results. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Investment, Tax and/or Legal Advisor for further information and advice about application to your specific circumstances.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Lighthouse 436 S. Broadway, Suite F, Lake Orion, MI 48362
***
Citations.
1 irs.gov/publications/p590/ch01.html#d0e4941
2 irs.gov/publications/p590/ch02.html#d0e9252
3 aarp.org/money/financial_planning/sessionseven/roth_iras.html
4 fairmark.com/rothira/inherit.htm
5 nysscpa.org/cpajournal/2007/507/essentials/p48.htm
6 articles.moneycentral.msn.com/Common/Taxes/2007IRADeductionLimits.aspx
7 money.cnn.com/2006/09/06/pf/expert/expert.moneymag/index.htm’postversion=2006090611

Legitimacy is in the eye of the beholder. When someone invites you to a lunch or dinner financial seminar, are they trying to sell you something? Probably. Is it a scam? Not necessarily. It all depends. Often someone (for example, an insurance agent) will sell a product via a seminar or an invite-only lunch or dinner gathering. Sometimes they will hold a ‘meeting? or even come to your house. This could be a very well-meaning person with ideas that could really help you, or it could be someone who just wants to make a quick buck. The products they try to sell you may be totally legitimate, but that doesn’t mean that buying that product is the right move for you.
What don’t you need? Often, the ‘scam? is simply pushing you to buy a genuine product that’s simply not right for you. For example, if you have hardwood floors, do you need a carpet cleaning device? No. But that doesn’t make the device defective. It could be a perfectly good carpet cleaner, you simply don’t need it. If the person trying to sell you that device knows you don’t have carpet, then they may be trying to swindle you in order to make a quick buck. The legitimacy of the product isn’t always the concern, it’s whether or not you need that product.
It may work for you, but how well? Sometimes the product being offered would work for you, but that doesn’t necessarily mean it’s the best fit. For example ? let’s say your house is too hot during the summer months, and you’d like to cool down. Someone might encourage you to buy some lemonade. While that might cool you down in the short term, wouldn’t a fan work better? And to take it a step further, someone else could offer you a central air conditioning system. While this may keep your house much cooler than the fan, you’d want to be sure you fully understood the costs of installation, maintenance and any ongoing costs before making that purchase.
Ask questions. Many, many questions. A good rule of thumb with investing is ? if something sounds too good to be true, it probably is. When it comes to financial products or vehicles, there is no such thing ‘easy? money. A scam artist might tell you an investment is ‘risk-free?, but that is often a stretch. For example, many ‘guaranteed? investments are not actually guaranteed by the FDIC, only by the company that is pitching them. Try to think rationally, maintain a healthy amount of skepticism, and ask any and all questions that may come to mind. Some important questions to ask may be ? What are the specific risks involved? What are the actual costs? How long-term is the investment, and/or how long until you might see a return?
The fear factor. Often, skilled salesmen will use emotion as a tactic to help them sell something to you more quickly. The emotion can vary, but often it involves instilling a fear of some kind. Fear of financial ruin, for example, or fear of leaving loved ones unprotected. The fear can be very real and often very valid, but the solution they offer might not be. If you feel you’re being steered into something based on emotion, or if you feel a great deal of pressure, it may be best to wait and decide later. The next day, the next week ? take your time. Someone looking out for your best interest shouldn’t be offended if you’d like to learn more or ‘sleep on it? before making a decision.
Speak with someone qualified. It’s not always wise to make decisions based on what a friend, relative or colleague has done. While that person may be very intelligent, and/or while the investment may be doing very well for THEM, it still may not be a wise move for YOU. Your friend may be well-meaning, but that doesn’t mean they are qualified to give you financial advice. If you are unsure, talk to a qualified, experienced financial professional.
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Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health?, Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.
These views are those of the author and should not be construed as investment, tax or legal advice. Past performance is no guarantee of future results. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Investment, Tax and/or Legal Advisor for further information and advice about application to your specific circumstances.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Lighthouse 436 S. Broadway, Suite F, Lake Orion, MI 48362

Think you’re all set? If you’ve made wise decisions with your money, set aside plenty and feel like you’re ready to retire ? you’re one step ahead of many Americans. If you’ve planned your estate (arranged how your money and assets will transfer after your lifetime), then you’re even further ahead. But have you considered everything?
Reducing taxes ? The transfer of assets can trigger different types of taxes: income tax, estate tax, capital gains tax, generation-skipping transfer tax and gift tax. Have you considered how these taxes could affect the amount you’ll leave behind for loved ones? It’s wise to keep up with estate tax laws, because they constantly seem to change. The following are just a few examples of things you ought to consider ?
Unified Credit ? Estates that exceed a certain value (exclusion amount) may be subject to the Federal Estate Tax. But have you heard of the unified credit against estate tax? Basically, this means you can leave an amount that does not exceed the exclusion amount (currently $2 million*) to anyone you choose ? free of federal estate taxes. If you are married, you can leave an unlimited amount to your spouse, tax-free. But ? are you using the unified credit to your advantage?
For married couples, a little reorganization can help you attain the utmost value for this credit. Also worth considering could be a credit shelter trust, which can help maximize the value of the unified credit.
Gifting ? For those with taxable estates, gifting can be an important tool. While many choose to transfer estates after their death, consider transferring assets while you are alive. Did you know that married couples can gift an unlimited amount to one another without incurring gift taxes, as provided by the unlimited marital deduction provision in the federal gift tax law? They can also gift up to a certain amount to anyone they choose ? each year – without triggering gift taxes. (Currently this amount is $12,000*.)
There are also other methods of tax-free gifting ? including tuition paid directly to an educational institution or amounts paid to an approved non-profit institution. By taking advantage of these and other gifting options, you could potentially increase the value of what you’re giving.
Trusts ? A well-written trust could help your heirs to avoid the probate process, thereby potentially saving them money. Did you know that your heirs must file a petition to probate your estate ? even if you have a will? However, if a living trust has been prepared and funded properly, your heirs could avoid probate. You may also want to consider a dynasty trust, which is a long-term trust created to benefit future generations. Dynasty trusts can have huge tax-saving potential (in the long run).
Other areas to consider ? Have you thought about charitable remainder trusts? Life insurance replacement? Business succession? Investigating these topics may reveal ways to save taxes and retain more of your hard-earned wealth.
If you haven’t yet looked into any of the items I’ve mentioned here, it’s probably in your best interest to speak with a qualified professional about advanced estate planning. It can definitely and positively impact your financial legacy.
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Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health?, Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.
These views are those of the author and should not be construed as investment, tax or legal advice. Past performance is no guarantee of future results. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Investment, Tax and/or Legal Advisor for further information and advice about application to your specific circumstances.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Lighthouse 436 S. Broadway, Suite F, Lake Orion, MI 48362
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* For calendar years 2006 – 2008; see http://www.irs.gov/publications/p950/index.html

If you participate in a 401(k) plan, or if you have a variable annuity, an ETF, or an IRA mutual fund, you may have an option to automatically and periodically have your assets ‘rebalanced.? In fact, a 2007 survey by Hewitt & Associates found that 42% of large employers offered this option.1 Why might this be important?
An automatic check-up for your portfolio. Here’s why. When you first contributed to that retirement plan, ETF, IRA or variable annuity, there was a specific asset allocation in mind. Your assets were fractionally allocated across different investments ? a certain percentage in this class, a certain percentage in that class, and so on. You did this in a way that suited your tolerance for risk.
But over time, those percentages subtly change. Some investments outperform others, and as a result, the asset allocation may stray from the targets you once set.
Automatic rebalancing may remedy this.
A way to keep you on track. How does it work? Well, just as an example, let’s say you have assets initially allocated in a typical 60/40 ratio: 60% in stocks, 40% in non-stock market investments. If stocks do poorly and, say, bonds do well, that 60/40 balance may approach 50/50. You now have a greater percentage of your invested assets than you initially wanted in a certain investment sector.
Now you may be thinking, ‘If that investment sector is doing well, what’s the problem?? The problem is that you are drifting away from the guideposts you started investing with. If more and more of your assets end up in one investment class, your portfolio becomes less and less diverse and more heavily weighted in one category. So your risk exposure may increase, or conversely, your portfolio assets may not be poised to earn a large enough return to meet your goals.
The age-old idea behind automatic reallocation. Five words really sum it up: ‘buy low and sell high.? In the rebalancing process, some of the assets within an overachieving investment category are sold off and a bit more of the assets in an underachieving investment category are bought in order to regain the original asset allocation. This is the other important effect of automatic rebalancing.2
Should you opt for automatic rebalancing? If you want a better understanding of the potential benefits of automatic asset reallocation, or if you just have questions about your retirement plan or investments, be sure to talk with a qualified financial advisor today before making any moves. What you learn may help you in the years ahead.
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Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health?, Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.
These views are those of the author and should not be construed as investment, tax or legal advice. Past performance is no guarantee of future results. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Investment, Tax and/or Legal Advisor for further information and advice about application to your specific circumstances.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Lighthouse 436 S. Broadway, Suite F, Lake Orion, MI 48362
***
Citations. 1 hewittassociates.com/_MetaBasicCMAssetCache_/Assets/Articles/401kHI07.pdf
2 sec.gov/investor/pubs/assetallocation.htm

The secondary market for life insurance is reshaping the landscape within the entire financial services industry. Life insurance policies now have a fair market value. This means that your choices as a consumer regarding your life insurance are increased. You may be able to sell your policy on the secondary market even if it has no cash value such as term policies.
Life insurance provides financial solutions to meet various needs of businesses and families. Over time, however, needs change. Loans are repaid; key executives retire; estates become smaller; businesses are sold; estate taxes are reduced ? or better yet, no longer exist.Perhaps interest rates are down and the policy is underperforming, or maybe the policy is too expensive to maintain. Whatever the reason, most consumers will either let their policy lapse, or surrender their policy for the cash value. A surrender or lapse is, essentially, a sale of the policy back to the insurance company for the cash value, if it is a cash value policy. A surrender or lapse of a Term policy usually means you stop paying the premiums and the policy terminates with no value at all. Now there may be another choice. Sell the policy on the secondary market.
Today, there is an entirely new reality to owning life insurance. Policy owners should have their policies appraised, especially when considering a surrender or lapse. Armed with accurate information about what they would likely receive for a policy on the secondary market, consumers can now make educated financial decisions and exercise a new degree of control over their assets.
With new options come new responsibilities. A robust secondary market changes, too, what financial advisors must know and do to help their clients make the most of their policies. The possibility that a client’s insurance policy will have a market value well above its surrender value has at least three major consequences for advisors:
~When estate planners inventory the market value of a client’s assets, they’ll need to know the fair market value not only of stocks, bonds, and real estate, but of life insurance policies as well.
~In estimating death taxes, advisors need to consider whether the Internal Revenue Service will value any life insurance policies on others? lives at their fair market value.
~In advising clients how to exit from an unwanted insurance policy, planners need to consider whether a life settlement at fair market value is the most suitable choice.
In short, the professional or fiduciary obligations of advisors such as banks who may be serving as a trustee, may mean they should consider treating life insurance policies as a fully evolved property on par with other financial assets.
Life insurance is far more valuable than ever before, offering consumers new power to plan for the future and new levels of financial freedom. Not all policies are eligible to be sold on the secondary market and there may be tax implications to the sale of a life insurance policy. Be sure to consult qualified insurance, financial, legal and tax advisors for more information before you decide if selling your life insurance policy is right for you.
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Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health,? Coffman’s exclusive weekly financial column every week at www.LakeOrionReview.com.
These views are those of the author and should not be construed as investment, tax or legal advice. Past performance is no guarantee of future results. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Investment, Tax and/or Legal Advisor for further information and advice about application to your specific circumstances.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Lighthouse 436 S. Broadway, Suite F, Lake Orion, MI 48362

A gift to charity may prove to be a great financial favor to you. Some charitable gifting methods offer you notable tax advantages. Here’s a brief look at some popular options.
Charitable remainder trusts (CRTs). These trusts can be useful estate planning tools. People with highly appreciated assets ? such as stocks or real estate ? are often hesitant to sell those assets and reinvest the proceeds because of the capital gains taxes that could result from the sale. Could the CRT offer a solution to this problem?
CRTs are tax-exempt trusts. In transferring highly appreciated assets into a CRT, you get: a) a tax deduction for the present value of your future charitable gift, b) income payments from the CRT for up to 20 years, and c) tax-free compounding of the assets within the CRT. You avoid paying capital gains taxes on the amount of your gift, and you can exclude an otherwise taxable asset from your estate.1
After you die, some or all of the assets in the CRT will go to the charity (or charities) of your choice. (What about your heirs? You can structure a CRT in conjunction with an irrevocable life insurance trust so that they are not disinherited as a result.)1
A charitable remainder annuity trust (CRAT) pays out a fixed income based on a percentage of the initial fair market value of the asset(s) placed in the trust. In a charitable remainder unitrust (CRUT), income from the trust can increase as the trust assets grow with time.2
Charitable lead trusts (CLTs). This is the inverse of a CRT. You transfer assets to the CLT, and it periodically pays a percentage of the value of the trust assets to the charity. At the end of the trust term, your heirs receive the assets within the trust. You don’t get an income tax deduction by creating a CLT, but your gift or estate tax could be markedly reduced.3
Charitable gift annuities. Universities commonly suggest these investment vehicles to alumni and donors. (The concept has been around since the mid-1800s.) Basically, you donate money to a university or charity in exchange for a flow of income. You (and optionally, your spouse) receive lifelong annuity payments. After you pass away, the balance of the money you have donated goes to the charity. You can also claim a charitable deduction on your income tax return in the year you make the gift.4
Pooled income funds. In this variation on the charitable gift annuity, the assets you donate are unitized and ‘pooled? with the assets of other donors. So essentially, you are buying ‘units? in an investment pool, like an investor in a mutual fund. The rate of return on your investment varies from year to year.
Pooled income funds often appeal to wealthier donors who don’t have a pressing need for fixed annuity payments. As just interest and dividends are paid out of a pooled income fund, it is possible to shield the whole gain from, say, a highly appreciated stock through such a fund. You get an immediate income tax deduction for a portion of the gift, which can be spread over a few consecutive tax years. Also, the balance of the assets left to the charity at your death may be greater than if a charitable gift annuity is used. Another nice option: you can put more assets in the fund over time, whereas a charitable gift annuity is based on one lump sum gift.5
Donor advised funds. A DAF is a variation on the ‘family foundation? concept. Unlike a private foundation, it is not subject to excise taxes, and it does not require employees and lawyers to implement and administer. You establish a DAF with a lump sum gift to a public charity. The gift becomes property of the charity, which manages the assets. (You can continue to contribute to the fund.) Each year, the charity determines the percentage of the value of the fund which will become available for grants or other programs. You advise the charity how to spend the money. DAF contributions are tax-deductible in the year that they are made. You may avoid capital gains taxes and estate taxes on the gift, and the assets may grow tax-free.6
Scholarships. These can be created at a school in your own name or in memory of a loved one, and you can set the criteria. Commonly, you and your advisor can work directly with a school to create one.
Life insurance and life estate gifts. Some people have unwanted or inadequate life insurance policies that may end up increasing the size of their taxable estates. In such cases, a policyholder may elect to donate their policy to charity. By doing this, the donor reduces the size of his or her taxable estate and enjoys a current tax deduction for the amount of the cash value in the policy. The charity can receive a large gift at the donor’s death, or they can tap into the cash value of the policy to meet current needs.7
Life estate gifts are an interesting option allowing you to gift real estate to a charity, university, or other non-profit ? even while you live there. You can take a tax deduction based on the value of property, avoid capital gains tax, and live on the property for the rest of your life.8 (If somehow you can’t remain at that residence, the charity may opt to lease or sell it. You can gift all of a property or just some of a property as appropriate.)9
Give carefully. If you are thinking about making a charitable gift, remember that the amount of your tax deduction will ultimately depend on the kind of assets you contribute, and the variables of your individual tax situation. Remember also that some charitable gifts are irrevocable. Be sure to consult qualified financial, legal and tax advisors for more information before you decide if, when and how to give.
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Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health?,Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.
These views are those of the author and should not be construed as investment, tax or legal advice. Past performance is no guarantee of future results. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Investment, Tax and/or Legal Advisor for further information and advice about application to your specific circumstances.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Lighthouse 436 S. Broadway, Suite F, Lake Orion, MI 48362
***
Citations.
1 library.findlaw.com/1997/Dec/1/128372.html
2 giving.mit.edu/ways/planning/trusts/index.html
3 360financialliteracy.org/Life+Stages/Retirement/Articles/Charitable+giving/Charitable+giving.htm
4 plan.gs/CategoryDetailList.do’orgId=327&categoryId=228
5 cmu.edu/giving/planned/pooled.shtml
6 worldlawdirect.com/article/570/What_are_donor_advised_funds.html
7 younglife.org/Giving/LifeIns.htm
8 purdue.edu/udo/planned_giving/life_estate_gift.shtml
9 ucsf.edu/support/trustsandbequests/realEstate.html

There are 13 types of 1099 forms1, and you may have received one or more of them in the mail. Here’s a brief rundown of what they report.
1099-A. This form is a consequence of foreclosure or bank repossession of secured real property ? ‘acquisition or abandonment?, in IRS terms. Lenders send it to the foreclosed party and the buyer. It shows the date the lender acquired the property or learned it had been abandoned, the balance of principal outstanding, the fair market value, and a description of the property. The lender states on the form whether you are still liable to repay the debt. If the lender elects to sue you for a deficiency, you will not owe any taxes on this ‘unforgiven? debt.2 If the lender forgives the debt, the difference between the fair market value of the property and the amount you owe represents ‘income? to you, taxable unless you have filed bankruptcy or were technically insolvent at the time of the sale.2
1099-B. Brokers and barter exchanges have to report proceeds from securities, futures, commodities or barter exchange transactions with a 1099-B, and it is also issued when a corporation in which you are a stockholder has had a ‘change in control or a substantial change in capital structure.?3
1099-C. The 1099-C reports debt cancellation of $600 or more. You must claim the indicated amount on the 1099-C form as income in the year the debt was forgiven. When you pay income taxes on that amount, the creditor cannot come after the debt again. This form sometimes follows a foreclosure.
1099-DIV. When you receive dividends, capital gain distributions or liquidation distributions of $10 or more, you get one of these.1 For example, when a mutual fund sells off funds and realizes a capital gain, the fund informs you of your share of the capital gain through a 1099-DIV.
1099-G. This form reports payments from government agencies and qualified state tuition programs ? everything from state and local tax refunds and unemployment benefits to agriculture payments, gambling winnings, and taxable grants. It is usually issued to show unemployment benefits or a state tax refund.
1099-INT. Who hasn’t gotten one of these? This form reports interest income of $10 or more1, and sometimes other tax items related to interest income (such as federal tax withholding or early withdrawal penalties).
1099-LTC. As the LTC part hints, these forms report distributions (payments) from long term care insurance contracts and accelerated death benefits paid out as a result of a life insurance contract or a viatical settlement.
1099-MISC. You will get one of these if you receive $600 in ‘miscellaneous income? or more than $10 in royalties or ‘substitute? dividend payments in lieu of dividends or tax-exempt interest. What falls under ‘miscellaneous income?? Well, the category includes everything from compensation, commissions, bonuses and awards for non-employees (i.e., independent contractors) to punitive damages to office rents to landlords to fish purchases for cash and Indian gaming proceeds paid to tribal members.1
1099-MSA. This form simply reports distributions from Medical Savings Accounts (MSAs), including Medicare+Choice MSAs.
1099-OID. The 1099-OID reports original issue discounts of $10 or more.1 That is, the difference between the stated redemption price of a bond at maturity and the issue price of that bond. An OID is considered interest by the IRS, hence the form.
1099-PATR. This obscure form reports patronage dividends ? defined by the IRS as ‘distributions from cooperatives to their patrons.?1 If you have invested, in, say a farm cooperative or a clean energy plant, you are in 1099-PATR territory. Cooperatives ‘primarily engaged in the retail sale of goods or services that are generally for personal, living, or family use of the members? may apply for an exemption from the 1099-PATR.4
1099-R. The 1099-R reports distributions from all types of retirement, pension and profit-sharing plans, and any IRA or annuity contract. This includes distributions resulting from Section 1035 exchanges (the tax-free exchange of one annuity contract for another), charitable gift annuities and Education IRAs, and PS 58 costs of split dollar life insurance plans. It also reports IRA recharacterizations (when an IRA contribution is reassigned to another IRA), and excess deferrals, excess contributions and distributions.
1099-S. The 1099-S reports gross proceeds from real estate transactions or exchanges. By federal law, a closing attorney or real estate agent must provide a 1099-S to the person(s) receiving proceeds from the transaction. The recipient of the form does not need to fill it out.
Questions? If you think you should have gotten one of these forms but didn’t get one ? or if you think one of these forms might or might not apply to your situation ? be sure to talk with a qualified tax professional or qualified financial advisor today. He or she can help you identify, request and understand the 1099 forms in question.
***
Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email advisor@WPSinvestments.com. See ‘The Science of Financial Health,? Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.
These views are those of the author and should not be construed as investment, tax or legal advice. Past performance is no guarantee of future results. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Investment, Tax and/or Legal Advisor for further information and advice about application to your specific circumstances.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Lighthouse 436 S. Broadway, Suite F, Lake Orion, MI 48362
***
Citations. 1 irs.gov/efile/article/0,,id=98114,00.html
2 ci.el-paso.tx.us/DBT/foreclosure.asp
3 irs.gov/pub/irs-pdf/f1099b.pdf
4 irs.gov/instructions/i1099ptr/ar02.html

Economists seem to be unable to agree: America may or may not be in a recession. Important economic indicators show declining manufacturing, a constricting retail and service sector, and poor GDP, but not negative GDP. So is the sky falling? Is this the end of the world? We don’t think so. Whether we are in a recession or not, Recessions have occurred throughout our history, and the economy has historically bounced back.

The National Bureau of Economic Research has identified ten American recessions since World War II; if we are in one now, this would be the eleventh.1 Let’s take a look at some notable recessions in recent decades, and the way Wall Street reacted to them.

The 2001 recession. This one lasted eight months, by NBER’s estimation, and it followed the longest economic expansion in U.S. history (1991-2001).2 It accompanied the last bear market, which lasted roughly from mid-2000 to late 2002. In 2002, stocks tanked: the Dow Jones Industrial Average was down 16.8% for the year, the S&P 500 sank 23.4%, and the NASDAQ fell 31.5%.3 But in 2003, the market made a powerful comeback: the Dow gained 25.3% on the year, the S&P 500 26.4%, and the NASDAQ an amazing 50%.4 The bulls kept running right on through 2007.

The 1990-91 recession. Some trace the roots of this one back to Black Monday in 1987, others to the S&L failures and junk bond collapses of the late 1980s. The first three quarters of 1991 represented the depths of this recession, which did much to thwart the reelection of President George H.W. Bush. Interestingly, this one occurred in the middle of an 18-year bull market. Between the start of 1990 and the end of 1991, the Dow rose from 2,810 to 3,100.5,6

The 1981-82 recession. This one was quite severe, lasting 16 months.1 Some historians blame this recession on the Federal Reserve, which tightened its monetary policy in response to the runaway inflation of the late 1970s. But economists see it differently, arguing that Fed chairman Paul Volcker had to do something ? and something drastic ? to get the economy back on its feet. The Fed ended up hiking interest rates all the way to 21.5% in December 1980 (the all-time record), and during this recession, the jobless rate was higher than at any time since the Great Depression.7 But the Fed’s tactic worked. By 1983, inflation was down from double digits to 3.2%.7 Between February 1983 and August 1987, the Dow climbed from the 1,100s to 2,700.5,6

The 1973-75 recession. Ah, yes. Remember waiting in line for gas? Remember buying gas only on even or odd days according to your license plate? This one occurred not only due to the OPEC embargo, but also as a byproduct of the U.S., U.K., and other key nations going off the gold standard in the early 1970s. That move devalued the dollar and other benchmark currencies. So in October 1973, OPEC decided to price oil relative to the price of gold instead of the value of the dollar. Its member nations also cut production levels. Over the next few months, crude oil prices quadrupled.8 Commodities prices took off. The bull market in commodities lasted until the dawn of the 1980s. When the OPEC embargo hit, Wall Street was already in the middle of a bear market. Yet just a short time later, in July 1976, the Dow hit 1,011, its highest point between January 1973 and October 1982.6

Some perspective. Until the last quarter-century or so, recessions commonly and cyclically occurred every few years. Only two post-WWII recessions have lasted longer than a year.1 Some analysts feel this is due to the evolution of the U.S. economy over the years: today, consumer spending and the service sector are huge drivers, not just manufacturing. While no one has a crystal ball, what may be the first recession in seven years may fall in line with recent economic examples, to have only brief and temporary effects, but no one has a crystal ball. What we do know, is that with enough time, disciplined, systematic, science driven investment planning has been very successful. The key to remember when dealing with Wall Street is, check your emotions at the door and investing in the equity market is not for the faint of heart.
***
Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email Advisor@WPSinvestments.com. See ‘The Science of Financial Health?,Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.
These views are those of the author and should not be construed as investment, tax or legal advice. Past performance is no guarantee of future results. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Investment, Tax and/or Legal Advisor for further information and advice about application to your specific circumstances.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Lighthouse 436 S. Broadway, Suite F, Lake Orion, MI 48362
***
Citations.
1 cnbc.com/id/20510977/
2 money.cnn.com/2001/11/26/economy/recession/index.htm
3 usatoday.com/money/markets/us/2003-01-02-charts-intro_x.htm
4 query.nytimes.com/gst/fullpage.html’res=9B01E2DE1F3EF932A35752C0A9629C8B63&scp=1&sq=January+1%2C+2004&st=nyt
5 answers.com/topic/closing-milestones-of-the-dow-jones-industrial-average
6 http://www.incontext.indiana.edu/2002/nov-dec02/spotlight.html
7 marketwatch.com/news/story/have-you-gone-paul-volcker/story.aspx’guid=%7BFC39F929-B835-431D-90E7-C48585790133%7D
8 cbc.ca/news/background/oil/

Options, options, options ? There are many misconceptions about what must be done with a 401(k) when someone leaves a company. Some people think they have to cash out their 401(k) upon leaving a job. Others think they must ‘roll it over? into a new 401(k). Still others believe that they must leave the 401(k) where it is. None of these are true ? and none are false. These aren’t ‘musts,? they are options. The big question is which option is the right option for YOU?

Leaving it where it is ? If you have enough money in your current 401(k) to meet the minimum requirement, you could leave your money where it is. Should you? Well, it depends. If you are retiring before 59 ? , and you need to access the account for income, you may want to see what options the plan has for early distribution. If you feel you have enough control over the investment choices and beneficiary distribution planning is not an issue, leaving your money there to mature could be a good option for you.

Direct rollover into a new 401(k) ? If your new employer offers a 401(k), you could choose to ‘roll? your money into that plan, but then you will be limited to the new plan’s investment options. So should you? Once again, it depends. You’ll want to look into the structure of the new plan. One question may be, if you rollover to the new plan, can you do an in-service rollover? That is, if you change your mind and you want to set up an IRA at a later date, while you are still working for the company offering the plan, do you have the option to roll any part of your new 401(k) to your own self directed IRA?

Moving the money into an IRA rollover account? If managing where your account is held and how it is invested is important to you, this option gives you a great deal of flexibility. It also offers you more distribution options, once you are eligible. Once your retirement plan assets are in an IRA, you can invest them in practically any way you choose ? in mutual funds, CDs, stocks, money market funds, annuities, real-estate, commodities, and even more possibilities. You can also set up your IRA to make systematic payments to you. If done correctly, you may save some income tax upon distribution that wasn’t available from the 401(k).

Cashing out your 401(k) ? The temptation to get a lump sum of money can be too great for some, especially if they have just lost their job or feel that they are in some sort of financial bind. They may choose to cash out their 401(k) upon leaving a job. But what are they giving up? Well, 10% for starters. If they are younger than 59 ? years old and cash out their 401(k), most of them will incur a 10% penalty. Additionally, they will owe taxes on the amount they cash out. But here’s what really hurts: they are giving up part of their retirement fund or (in many cases) starting over from zero.

Fighting temptation now could lead to big rewards later ? For example, let’s say a 35-year-old leaves a job and rolls over $15,000 from a 401(k) into an IRA earning an average of 7% annually, letting the money mature over 30 years ? by the time of retirement, that money could potentially grow to over $100,000.

Making a decision ? If you’re unsure which choice is best for you, or if you’d like to learn more about your options, I would recommend speaking with a qualified financial advisor. Additionally, you may want to consider working with a tax professional if you own company stock in your previous 401(k). If you own the stock of the company you work for in your 401(k), you should ask your advisor about NUA. You’re likely to want some assistance in sorting through the IRS rules that may apply.
***
Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email Advisor@WPSinvestments.com. See ‘The Science of Financial Health,? Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.
***
These views are those of the author and should not be construed as investment, tax or legal advice. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Investment, Tax and/or Legal Advisor for further information and advice about application to your specific circumstances.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Lighthouse 436 S. Broadway, Suite F, Lake Orion, MI 48362

When should you start saving for retirement? When do you really need to get serious about planning your retirement transition? Well, it depends on many factors. But along the timeline of life, there are certain things you might consider doing at certain ages. Your retirement planning can begin early in life, and remember that today is never too late.
In your thirties. Hopefully, you joined the retirement plan at your workplace right after you were hired, and you’ve contributed to that plan consistently. If not, you can start doing so. If your employer matches employee contributions, then contribute enough to trigger that match. Think about contributing slightly higher percentages of your income to the plan each year. This is also a good time to think ahead and adopt a long-range investment strategy, with defined goals in mind.
In your forties. This is a time when too many people go on autopilot when it comes to saving and planning for the future. At some point in your forties, it will be wise to confer with a qualified financial advisor to measure your retirement planning progress. You may not be saving enough, and you may need to catch up.
In your fifties. Of course, the federal government will let you ‘catch up? when you hit 50 ? at least in terms of IRA contributions. At 50, you can not only contribute the maximum annual amount to your IRA ($5,000 for 2008, with an April 15 postmark deadline to earmark your contribution for tax year 2007), you can add $1,000 more each year in ‘catch up? contributions.1 If you choose to retire in your fifties, you can pull penalty-free distributions out of your 401(k) beginning at age 55 if you really need the liquidity (but those withdrawals are subject to income tax).2 At 59.5, you can tap into your IRA and other retirement accounts without a 10% early withdrawal penalty (if you have a traditional IRA, your withdrawal will generally be subject to tax unless you are using the money to buy a first home or fund education expenses).3
In your sixties. At 62, you can receive early Social Security benefits, but your SSI will be correspondingly cut by 25% or greater for the duration of your lifetime.4 You can receive full benefits between 65 and 67. You may also choose to review and modify your portfolio at this point, adjusting for risk. A retirement plan rollover will encourage further tax-deferred growth of your accumulated assets.
In your seventies. At 70, even those who work have to sign up for Social Security benefits. At 70? comes the first mandatory IRA distribution. At this stage of life, you should also have a relationship with a retirement advisor you trust.
***
Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email Advior@WPSinvestments.com. See ‘The Science of Financial Health?,Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.
***
These views are those of the author and should not be construed as investment, tax or legal advice. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Investment, Tax and/or Legal Advisor for further information and advice about application to your specific circumstances.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Lighthouse 436 S. Broadway, Suite F, Lake Orion, MI 48362
***
Citations. 1 investopedia.com/articles/retirement/04/111004.asp
2 kiplinger.com/columns/starting/archive/2007/st1003.htm
3 bankrate.com/brm/itax/tips/20030410a1.asp
4 money.cnn.com/2007/06/06/pf/retirement/social_security_early/index.htm

Many economists define a recession as at least two consecutive quarters of decline in a country’s GDP, (Gross Domestic Product). So whether you call this market, a recession or a slump, diversification is proving to be important.
Investments uncorrelated or indirectly correlated to the stock market ? such as CDs, Treasuries and annuities ? are getting another look these days. Here’s a look at some of the options that are helping investors diversify their portfolios.
Banking on the future. Under recessionary conditions, short-term CDs, money market accounts and Treasury notes sometimes appeal to those who want to receive a competitive yield versus stocks and bonds over six months or a year with less risk. Treasuries are also free from state income tax, and some Treasuries are TIPS (Treasury Inflation Protected Securities), meaning they are hedged against inflation. The comparative certainty of all these investments appeals to people seeking diversification and mitigating market risk.
Bonding together. In this kind of economic climate, some investors may also be attracted to bonds and bond funds. Bonds, after all, have the potential to offer the investor a reliable payment stream. It is important to remember that the ability to repay principal is only as good as the organization that backs the bond. Besides municipal and government bonds, there are also corporate bonds, including fixed-rate capital securities offering predictable monthly, quarterly or semiannual income. Some investors like short-term bond funds, which typically invest in commercial paper, bills, and certificates of deposit. Often, bond funds generate monthly income, and some allow check-writing so people can meet emergency cash needs. Some exchange-traded funds (ETFs) are bond ETFs, which tend to favor investment in inflation-protected bonds.
A contractual choice. Annuities are another type of investment with little or no correlation to the stock market. Under these contracts, you make payments to an insurance company which in turn agrees to make payments to you, immediately or in the near future. A fixed annuity offers ‘guaranteed? income payments and a ‘guaranteed? rate of return (‘guaranteed? by the insurance company’s claims paying ability, that is, not the FDIC or SIPC). A variable annuity usually allows you the choice of stock market participation (usually via mutual fund investment) with possible protection of your principal. An equity-indexed annuity offers returns tied to an equity index, but with a minimum rate of return ‘guaranteed? by the insurer.
Is it time to diversify? You may want to learn more about these investments, and others that may help you modify your portfolio for a recession or downturn. Before you make any investment decision, be sure and talk with a qualified financial advisor.
***
Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached online at www.WPSinvestments.com, by phone (248)693-5599, or by e-mail Advior@WPSinvestments.com.
See ‘The Science of Financial Health,? Coffman’s exclusive weekly financial column on the web every Wednesday at www.lakeorionreview.com.
***
These views are those of the author and should not be construed as investment, tax or legal advice. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Investment, Tax and/or Legal Advisor for further information and advice about application to your specific circumstances.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Lighthouse 436 S. Broadway, Suite F, Lake Orion, MI 48362
***
Citations. 1 www.usatoday.com/money/economy/2008-01-10-bernanke-interest-rates_N.htm – 51k –

Before the new year begins, let’s take a look at three notable tax law changes for 2008 involving IRAs.
Higher IRA contribution limits. If you have a Roth IRA or Traditional IRA, you can contribute up to $5,000 to it during 2008. That’s up from a $4,000 limit for 2007. (If you will be 50 or older at the end of 2008, you can add up to another $1,000 to your IRA as a catch-up contribution.)1
This raised contribution limit allows you to take more advantage of the power of compounding. Hypothetically, let’s say your IRA earns a consistent 5% annual return for the next five years. Do the simple math, and you will see that $1,000 at 5% annual growth compounds to $1,276.25 in five years, and $5,000 at 5% annual growth compounds to $6,077.54.
If you have both a Roth IRA and a Traditional IRA, your total contribution to both accounts cannot exceed $4,000 in 2008 ($5,000 if you are age 50 or older).2
The end of the IRA charitable rollover. Charities and universities are rightly mourning the loss of a great gifting opportunity. The 2006 Pension Protection Act allowed taxpayers over age 70? the chance to reduce their taxes through an IRA gift during 2007 ? a direct IRA rollover to the non-profit of their choice. But in 2008, the opportunity will disappear, as Congress took no last-minute action to save it.2
You can still make charitable gifts in 2008 using your IRA. You just have to do it the old-fashioned way: you report the IRA withdrawal as income, and declare an offsetting income tax deduction for the charitable contribution. But the AGI cap on charitable contributions and the itemized deduction phase-out may restrict this.
A possibility to do a direct rollover from a 401(k) to a Roth IRA. Previously, assets from a 401(k) had to be rolled into a Traditional IRA before they could be rolled into a Roth IRA. During 2008, certain 401(k) plan participants can make a direct rollover.3 Inquire with a qualified, knowledgeable financial advisor to see about your eligibility.
In fact, when it comes to any decision regarding your IRA, it is wise to consult a qualified financial advisor. This is certainly one of your most important investments, and any choice you make with it should be made with utmost care and knowledge.
***
Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email Advior@WPSinvestments.com. See Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.
These views are those of the author and should not be construed as investment, tax or legal advice. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Investment, Tax and/or Legal Advisor for further information and advise about application to your specific circumstances.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Lighthouse 436 S. Broadway, Suite F, Lake Orion, MI 48362
***
Citations.
1 money.aol.com/retirement/fct1/_a/retirement-planningdefined-contribution/20050225134209990013
3 newsday.com/news/columnists/ny-kidtwo5424352oct21,0,1528134.column
3 ncpg.org
4 nytimes.com/2006/09/17/business/yourmoney/17fund.html?_r=1&pagewanted=print&oref=slogin

It’s about that time of year. The end of the year is a good time to review your personal finances, and to refocus your wealth-building efforts. How much financial progress did you make? What are your financial, business or life priorities for 2008?
Dust off your financial goals and take a good look at them. Have they changed? Do they read more like wishes, or are they specific objectives? Try to specify the goals you want to accomplish, and a timeframe. Think about the consistent investing, saving or budgeting methods you could use to realize them.
Max out your IRA contribution at the start of 2008. If you can do it, do it early. Remember that the contribution ceiling increases to $5,000 per person (and therefore, $10,000 per couple) in 2008. The sooner you make your contribution, the more interest those assets will earn.
Before 2007 ends ? think about making charitable contributions. If you make them this year, you can claim deductions on your 2007 tax return. Also, see if you can prepay next year’s property taxes this year; if your lender receives that payment before December 31, that’s also a 2007 deduction you can take.1
For additional deduction ideas see my previous article on the web at www.LakeOrionReview.com entitled;
LIMITED TIME ONLY
Extra tax benefits due to expire January 1, 2008
Are you marrying next year, or do you know someone who is? The top of 2008 is a good time to review (and possibly change) your beneficiaries to your 401(k) or 403(b) account, your IRA, your insurance policy and other assets. You may want to change beneficiaries in your will. It is also wise to take a look at your insurance coverage to determine if you will be underinsured, to identify any coverage gaps, and to cancel duplicate policies. If your last name is changing, you will need a new Social Security card. Lastly, assess your debts and the merits of your existing financial plans.2
Are you returning from active duty? If so, go ahead and check the status of your credit, and the state of any tax and legal proceedings that might have been preempted by your orders. Review the status of your employee health insurance, and be sure to revoke any power of attorney you may have granted to another person, even a family member.3
Don’t delay ? get it done. Talk with a qualified financial or tax professional today, so you can focus on being healthy and wealthy in the New Year.
***
Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email Advior@WPSinvestments.com. See Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.
These views are those of the author and should not be construed as investment or tax advice. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Tax and Financial Advisor for further information.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Lighthouse 436 S. Broadway, Suite F, Lake Orion, MI 48362
***
Citations.
1www.newyorklife.com/cda/0,,16527,00.html
2mymoneymanagement.net/FINANCIALHELP/LifeEvents/Marriage/TyingTheKnotAFinancialToDoList/tabid/852/Default.aspx
3www.bankrate.com/brm/news/advice/20030611b1.asp

As retirement approaches ? money decisions become increasingly major. One big decision concerns what to do with the money in your company retirement plan.
? Consider a direct rollover. For most people, the most attractive option is an IRA rollover. In other words, you transfer the money from your 401(k), 403(b) or 457 plan into an IRA. It is not hard to accomplish, provided you have the guidance of a qualified financial advisor.
Basic steps. When you leave a company, you usually have three options with your retirement plan: you can leave the money in the plan, roll it over into a new plan (if you elect to keep working for a new employer), or do a direct rollover into an IRA.
A direct rollover is not the same thing as a direct payment to you. Yes, your employer can actually write you a check for the full amount of your 401(k) account, but 20% of that money will be withheld for taxes.
Do you want to avoid that 20% withholding? A direct rollover is the solution. It is a ‘trustee to trustee? rollover, which works like this: your employer writes a lump sum check not to you, but in the name of the trustee or custodian of the IRA account that you set up to hold the funds. You then let your company’s retirement plan administrator know that you’ll be doing a direct rollover. (There is almost always a form to be filled out, on which you can state the specific instructions for the distribution check.)
Your company makes the check payable to the IRA trustee, with no withholding, and you have 60 days to deposit it in the IRA; day 1 is the day after you get the check. (Sometimes a wire transfer of assets occurs instead, between one investment custodian and another.) If you don’t complete the direct rollover in 60 days, you will pay tax on the entire amount. (There’s no grace period for weekends or holidays.)
If you want to leave work before age 59? or you own shares of company stock, you should consider the tax implications created by those circumstances before attempting any kind of rollover. If you own shares of your company stock in your plan, ask your tax or financial advisor about a different type of rollover that take into account NUA and may create a permanent tax break on that stock.
What you can and can’t do. You can make unlimited direct rollovers of your retirement account assets, and you can add the money in your retirement plan to an IRA you already have, if you don’t intend to go back to work and put those assets into a new employer plan. Once your retirement plan assets are in an IRA, you can invest them in practically any way you choose ? in mutual funds, CDs, stocks, money market funds, annuities, and even more possibilities. You can also set up your IRA to make systematic payments to you.
You can’t roll over the assets from your retirement plan directly into a Roth IRA. You have to put them in a Traditional IRA first, and then convert to a Roth IRA by paying tax on the assets you want to convert before you can realize that tax-free growth.
Is it time to roll over your retirement money? If that time is here or getting closer, you need to be very careful with what could possibly be the largest lump sum you ever receive. Be sure to ask a qualified financial advisor about your IRA rollover options today.
Don’t forget to be careful how you set up your beneficiaries. Choose wisely the type of ultimate distribution plan you design. Tax traps and unintended heirs may be in your future if you don’t plan carefully. Be sure to ask a qualified advisor that can help you with beneficiary planning to accomplish what you want, the way you want, when you want, to whom you want. There are multiple types of beneficiaries such as spouse, non-spouse, natural and non-natural. There are multiple classifications as well. Creating an IRA distribution plan is an integral part of your overall financial plan.
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Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by e-mail Advior@WPSinvestments.com. See Coffman’s exclusive weekly financial column on the web every Wednesday at www.LakeOrionReview.com.
These views are those of the author and should not be construed as investment or tax advice. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Tax and Financial Advisor for further information.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Lighthouse 436 S. Broadway, Suite F, Lake Orion, MI 48362

Why are investors looking into commodities? Remember years ago when ‘invest in soybeans? was just a sitcom wisecrack and kruggerands were being sold in low-budget TV commercials? To a lot of people, that was the image of commodity investing: an exotic, left-field opportunity that wasn’t for the average person. In fact, the individual investor faced hurdles even trying to enter the commodities market.
But with the recent surge in gold, silver and oil prices, all kinds of investors are taking a look at commodities, and finding ways to invest in them ? through exchange-traded funds, closed-end funds, publicly traded entities, non-publicly traded entities (all regulated and registered), and even mutual funds.
It’s a chance to have assets outside the stock market. Commodities like timber and coal, crude oil, commercial real estate and gold, silver, and copper are not correlated to stock market performance. These non-correlated assets have been praised for their potential to add diversity to portfolios. In fact, Ibbotson Associates, the world-renowned financial research firm, noted that including such negatively correlated assets in a portfolio actually improved investment return over time while reducing risk. An Ibbotson study concluded that with just a 10% allocation of these ‘real? assets, the expected return of even a low-risk portfolio went up to 8.6% from 8.1%.1
In 2006, Ibbotson shared the results of a commissioned study on 35 years of the commodity market. It found that $1 invested across major commodity indexes in January 1970 would have grown to $71.62 by October 2005, while $1 invested in U.S. stocks would have grown to only $42.21 across the same stretch.2
What Yale does, others do. Some big endowments put healthy allocations of commodities in their investment portfolios. Look at the Yale Endowment, which generated a 28% return for fiscal year 2007. Its CIO, David F. Swensen, is allocating 28% of its funds to real estate, timber, oil and gas and other ‘real assets? for FY 2008, following a similar allocation in FY 2007.3 In recent years, many other endowed institutions have diversified into commodities.
While we’ve certainly seen a bull run in commodities this year, many analysts do not believe the market has peaked. If you would like to learn more about commodity investing, be sure to speak with a qualified financial advisor so that you have knowledge, education and guidance as you explore the possibilities.
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Loran S. Coffman is a Representative with H. Beck, Inc. and may be reached on the web at www.WPSinvestments.com, by phone (248) 693-5599, or by email Advior@WPSinvestments.com.
These views are those of the author and should not be construed as investment advice. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.
Securities offered through H. Beck, Inc. Member FINRA, SIPC. Investment advisory services offered through M.R.Spencer Advisory Services, LLC. WPS-Investments, Inc. is unaffiliated with H. Beck, Inc. Lighthouse 436 S. Broadway, Suite F, Lake Orion, MI 48362
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Citations.
1 www.smartmoney.com/tradecraft/index.cfm’story=20011105
2 www.pionline.com/apps/pbcs.dll/article’AID=/20060515/PRINTSUB/605150727/1031/TOC
3 www.nytimes.com/2007/09/27/business/27yale.html’ex=1348545600&en=d25ce62d9bf197a1&ei=5088&partner=rssnyt&emc=rss