Can't Afford to Save for Retirement? The Retirement Saver's Tax Credit May Help You
If you are like other Americans, you may be having difficulty finding a way to save for your retirement. Even with the tax deduction, workers that make less than $40 - 50,000 per year may be strapped to find room in their budgets for a qualified plan contribution, especially if they have dependents. Once the mortgage, car payment, insurance, utilities and other monthly living expenses have been paid, there may be little or nothing left to save.

Credit Rate	Married Filing Jointly	Head of Household	All other filers
50%	$0-$31,000	$0-$23,250	$0-$15,500
20%	$31,001-$34,000	$23,250-$25,500	$15,501-$17,000
10%	$34,000-$52,000	$25,500-$39,000	$17,000-$26,000

But now there is a way for cash-strapped workers to be able to either start or at least increase their retirement savings by a few hundred dollars each year. The Economic Growth and Tax Relief Act of 2001 created a new retirement incentive called the Retirement Saver's Tax Credit. This is a nonrefundable credit that can reduce any eligible taxpayer's total tax owed on a dollar-for-dollar basis, depending upon how much the taxpayer contributes to his or her retirement plan or IRA.

To be eligible, you must be at least 18 years of age and cannot be a full-time student with someone else claiming you as a dependent on their tax return. This credit can be in addition to any deductions that you can claim as a result of making retirement plan contributions. Any contribution to a traditional or Roth IRA, SEP, SIMPLE IRA, 401(k), 403(b) or 457 plan will count towards the credit. The amount of the credit will range from 10% to 50% of your eligible contribution amount up to $2,000. This places the highest possible credit amount at $1,000. The chart breaks down the amount of credit that can be claimed.

The lower your adjusted gross income is, the higher the credit. For example, if you are married filing jointly, your AGI is $26,700, and you each make Roth IRA contributions of $2,000, you will receive the full credit of $1,000. The Pension Protection Act of 2006 made this credit permanent and also added an annual cost-of-living adjustment for inflation.

If you are behind in saving for retirement and want to use this opportunity to start catching up, call us. We will be glad to assist you in determining your eligibility for this credit.

Consider These Issues before Choosing an Early Retirement Package
If you are five years from retirement you may be offered an early retirement package - i.e. an offer of money in return for retiring at an earlier time than you had planned. What should you consider before choosing to accept it?

You must look at your financial situation, your family's needs, and whether or not you have enough money to finance your lifestyle for the next several years.

The issues of concern are:

• Evaluating your retirement plan and stock option issues.
• Maintaining insurance for health and life insurance.
• Generating income for the duration.

The retirement plan and stock option issues

Your company's plan administrator must provide a written explanation of your options 30 to 90 days before the final date on which you must take action. Make it clear when you can start receiving plan benefits, what form they take, and what the consequences are of beginning benefits early.

Health Insurance

Find out if your employer offers any permanent health insurance for your retirement years. If so, how much does it cost? Employer-provided coverage may end on the day you are laid off or soon after. But, by U.S. law, the Consolidated Omnibus Budget Reconciliation Act (COBRA) allows you to continue your current coverage, including qualified physician, hospital, dental, vision and other medical expenses, at group rates plus a small administration fee. You have a limited time to elect COBRA coverage before it lapses.

Life Insurance

Is it in your plan? Life insurance is not provided under COBRA. But your ex-employer may pay it for a month or more as part of your severance pay and benefits, and then offer a continuance option. It usually is not cheap either; and you may be able to find a better deal. But as with health insurance, new private plans may not cover you for previous or existing conditions. Investigate them thoroughly, before you decline your ex-employer's plan.

Income

How will you generate income? Will you qualify for unemployment benefits - and if so, how long will you need to wait before qualifying? Determine other options to work for the duration.

Give us a call or fill out the reply coupon so we can help you consider suitable options for you under an early retirement package.

Closed End Funds
If you own a bond mutual fund, most likely it is an open-end version that holds an assortment of municipal, government, or corporate notes. The price you paid for your shares was equal to the value of your portion of the bonds in the portfolio. And at the end of any trading day, you can redeem your shares by selling them back to the fund. But what if there was a way to buy a similar portfolio at a discount? You could then possibly end up with a higher yield on your investment.

Closed-end funds have a fixed number of shares and trade on the exchanges, just like stocks. The result, however, is two prices for its shares: a Net Asset Value (NAV) price and a market price. The NAV is based on the actual value of the bonds in the portfolio, just like an open-end fund; whereas the market price constantly fluctuates throughout the day and depends on changes in investor sentiment.

As bond prices vary, the NAV of the closed-end fund will as well. But then buyers and sellers might push the market price up or down in an emotional response to a changing NAV. This presents an opportunity for investors since the market price could possibly be lower than the NAV.

As with all investments, closed-end bond funds do not come without risks. They normally trade below NAV, and there is no guarantee that closed-end funds will trade at or above their NAV. And some can be chancier than others. For example, a manager might borrow money to buy the bonds in the portfolio. While this strategy has the ability to magnify yields, it also exposes the shares to increased volatility and can cut into your return if short-term rates rise quickly. Therefore, you should not base your buying decision on yield alone.

For a list of the closed-end bond funds that I am recommending to my clients, please check off and return the enclosed coupon.

Is Your IRA Contribution Deductible?
Like millions of other Americans, you may be participating in a 401(k) or other type of qualified plan. In addition to this, you may also be making contributions to a traditional IRA. While making contributions to both retirement savings vehicles at once is commendable, you may be costing yourself at least part of your tax deduction by doing so. When qualified plans were first created, active participants in these plans were prohibited from opening IRAs. But the Economic Tax Recovery Act of 1981 eased this restriction and allowed virtually all workers not only to participate in IRAs, but also to claim a full deduction for their contributions.

2008 Contribution and Deduction Limits for Active Participants in Qualified Plans

	Traditional IRAs (Deductible Contribution Limits)	Roth IRAs (Contribution Eligibility Limits)
Single, Head of Household	$53,000 - $63,000 AGI	$99,000 - $114,000 MAGI
Married Filing Jointly	$85,000 - $105,000 AGI	$156,000 - $166,000 MAGI

Then the Tax Reform Act of 1986 further modified IRA participation by placing certain restrictions on the amount of contributions that active participants could deduct from their income. This act defines an active participant as any employee who participates in any kind of qualified, government, 403(b), SEP, or SIMPLE plan, even if only for one day out of the calendar year. The contribution restrictions involve a graduated phase-out of deductibility for active participants who also contribute to IRAs. The following chart breaks down the deductibility of these phase-out thresholds:

As the chart indicates, a qualified plan participant can make a full contribution to a Roth IRA at much higher income levels than with traditional IRAs. (Chalk up another victory for the Roth IRA over the Traditional IRA.) Of course, as an active participant, you could still make a nondeductible contribution to a traditional IRA, but there would obviously be absolutely no advantage to doing so instead of contributing to a Roth IRA. Therefore, for participants seeking the maximum available tax deduction, the prudent choice will be to maximize their retirement plan contributions and also contribute to their IRAs to the extent that they are deductible. Then they could contribute the remainder to a Roth IRA if they are eligible.

If you are unsure whether your traditional IRA is fully deductible, call us. We will be glad to review your situation and help you determine the best possible route for your retirement savings.

Consider Rolling Your 401(k) into an IRA for Investment Options
You have accumulated a lot of money in your 401(k) at work, but want to take charge of it now as you begin retirement. What strategy could you use for the benefit of you and your spouse?

Purposes for your money include paying for everyday living expense now and later. With retirement just beginning, you have many years to enjoy. So you need to consider preserving the value of that money in addition to withdrawing some to live on.

You preserve its value against inflation by investing at least a portion of you money into growth stocks for the long term. Inflation over the long run has been 3.1%. This will halve the value of money in just over 20 years.

At the same time you want to have another portion of your money not subject to the ups and downs of the equity markets. Your income needs mean you want to rely on investments that produce income first, such as income funds.

Lastly if you want to change your mind later about where to put your money or leave it for a legacy, you need to have control over it too.

Begin by rolling your 401(k) into an IRA . An IRA gives a wide variety of investment choices for your money. Within it you can easily invest a portion in equity-based mutual funds, as well as income-based mutual funds. Earnings in an IRA are tax-deferred, which will allow faster compounding of any earnings than if you held your investment outside tax-deferred investment. What you withdraw will be taxed at your ordinary income rate, since all your original contributions to your 401(k) at work were tax deductible. You are required to make minimum distributions from your IRA beginning after you reach 70½, but you are planning to take withdrawals anyway.

By making a direct rollover from your 401(k) to your IRA, you will avoid losing a large chunk of it through the ordinary income tax. You would be pushed into a higher bracket too.

Be sure to set the beneficiary designations for the IRA. You can assign your spouse as the beneficiary, and one or all of your children as secondary beneficiaries. This will take care of some estate planning issues for this money.

Be sure to open a new IRA for the rollover so as not to mix your 401(k) money with any other IRA money you may have. This preserves the credit protection that federal law now allows for the full value of your IRA investment when it all comes from a 401(k) plan.

Give us a call or fill out the reply coupon so we can show you the best way to do the rollover and recommend an IRA family of funds suitable to your needs.

Note: If you are considering an investment in any type of mutual fund, please carefully consider investment objectives, risks, charges, and expenses before investing. For this and other information about any mutual fund investment, always obtain a prospectus and read it carefully before you invest. Funds in a qualified employer plan have ERISA creditor protection, while funds rolled over to an IRA do not.

Catch-Up Savings and Tax-Free Income for 'Soon-to-be' Retirees with Nonworking Spouses
Generally to make IRA contributions, you need working income from which you contribute. The exception is for a nonworking spouse. The non-working spouse can make contributions to either a deductible (traditional) IRA or a Roth IRA based on his working spouse's income. This exception gives 'soon-to-be' retirees both a way to pack more into their retirement savings, and reduce taxable income. Both--using a Roth IRA--can create non-taxable income for later use.

Deductible and Roth Contributions for Both Spouses: one working, the other nonworking in 2008
Maximum Contribution: $5,000 (plus additional $1,000 if 50 or older)
Requires: filing status to be 'married filing jointly'; working spouse's income must cover both spouses' IRA contributions

'At work' status of working spouse	Spouse	IRA type	Contribution	Working spouse's Income range
Covered by retirement plan	Working spouse	Deductible IRA	Maximum	Below 85K
"	"	"	Partial	85K to 105K
"	"	"	None	Above 105K
Not covered by retirement plan	Both working and nonworking spouse	Deductible IRA	Maximum	No income limit
Whether covered or not covered	Nonworking spouse - for Roth and Deductible IRA, Working spouse - for Roth only	Deductible IRA or Roth IRA	Maximum	Below 159K
"	"	"	Partial	159K to 169K
"	"	"	None	Above 169K

The maximum contribution that each spouse can contribute in 2008 is $5,000 plus an additional $1,000 'catch-up' contribution if you are 50 or older. That is an extra $6,000 savings contribution by the nonworking spouse per year for those last five or so years before a 'working spouse' retires.

To take advantage of nonworking spouse IRA contributions, two conditions must be met:

• Both spouses must file jointly.
• The income of the working spouse must cover the total contributions of both spouses.

Roth IRA Contributions

Both spouses can contribute the maximum to their own Roth IRAs as long as the working spouse's income is below $159,000 (or $159K for short). Between $159K-169K contributions of both spouses are phased to $0. Roth IRA contributions are not deductible but are made with after tax contributions. And there are not limitations based on the working spouse being covered by a retirement plan at work.

Deductible (traditional) IRA Contributions

Both spouses can contribute to their own deductible IRAs. But each spouse's contribution has different limits associated with the working spouse's income, depending on whether or not the working spouse is covered by a retirement plan at work.

In the case where there is no retirement plan at work, both the working and nonworking spouse can make the maximum contribution no matter how high the working spouse's income is.

If the working spouse has a retirement plan at work, his contribution will be limited and phased out starting when his income reaches $85K (see table for complete contribution limits). However, the nonworking spouse's contribution will not begin to be phased out until the working spouse's income reaches $159K.

As an example, if Mr. Smith is covered by a retirement plan at work and makes $120K, he will not be able to make a deductible contribution to an IRA. His nonworking wife, however, can make the maximum contribution to her deductible IRA or her Roth IRA. Mr. Smith, as an alternative could contribute the maximum to his Roth IRA.

Give us a call or fill out the reply coupon so we can help you contribute to your IRAs.

Keep to a Budget to Travel More during Retirement
Most retirees aspire to spend some time traveling--long put off during their busy working days. But traveling presents an occasion for excessive spending that can cut into retirement income and investments. Here are some tips not only to eliminate travel overspending, but making traveling an option for those on a tight budget.

Check for promotions well in advance

Surf the web and call various tourist agencies to see what's being offered for promotion on transportation and accommodations. Do this as early as possible to assure yourself a 'slot' if you find a promotion that suits your pocket book

Be flexible on places to travel to. Make a list of options. Promotional deals come and go; one geared to one place will later be directed to another place.

Set aside some 10% of your monthly income for the trip

Try to squeeze your travel money out of your monthly income. Perhaps put aside 10% for about five months before your trip. That way you are not robbing your savings but just skimming your income a little bit at a time – hopefully painlessly – to fund your travel.

Keep to a budget when you're traveling

Credit cards perform well to pay for emergencies that come up. Unfortunately, they also allow you to overspend easily with their seemingly unlimited purchasing power. Stick to paying with cash. Budget for it and let the amount of cash in your pocket rein in your purchases.

Give us a call or fill out the reply coupon. We can help you set up a program to help fund you travels - or other endeavors.

Can You Avoid Tax on What You Give Away?
You transfer your assets by actively giving them away or by dying. The federal government demands its share of both! Active giving can trigger a federal gift tax whereas dying triggers the federal estate tax.

When you make a gift of anything to someone, it can trigger a gift tax. But some gifts escape gift taxation; others need to be below the annual exclusion level. We list some examples below.

Year	Highest Gift Tax Rate	Gift Tax Exclusion on Estate Tax Return
2007-9	45%	$1 million
2010	35%	$1 million
2011	Return to pre-2001 Tax Act	Return to pre-2001 Tax Act

If the value of your gift exceeds the annual exclusion level, then you must file a gift tax form when you do your yearly taxes. But you do not pay the gift tax then. You simply need to keep track of it, and pay it when you die, i.e. when someone fills out your estate tax form.

At that point, the federal government allows'final' gift tax exclusion. The sum of all those gift values that were in excess of your annual exclusion level, but below this 'estate-filing gift tax' exclusion, are not taxed. Anything above this gift tax exclusion is taxed at the gift tax rate. This graduated rate is significant with a top rate of 45% in 2007 through 2009. Now in addition to this Gift Tax, the federal government has another tax called the federal Generation-Skipping Transfer Tax (GSTT). This is a tax on transfers of property you make, either during life or at death, to someone who is two or more generations below you, such as your grandchild. This GSTT is also imposed on you at death. And it's applied in addition to--and not instead of--your federal gift tax or federal estate tax!

So keep track of all the cumulative generation-skipping transfers you make. The GSTT also has an exemption amount which is $2 million in 2008. Any amount transferred above that is taxed at a flat rate equal to the highest estate tax rate in the year you make the transfer. And that can be quite steep!

Below are those yearly tax free gifts you can make:

• Gifts that are not more than the annual exclusion for the calendar year, $12,000 in 2008
• Tuition or medical expense you pay directly to a medical or educational institution for someone
• Gifts to your spouse who is a citizen
• Gifts to charity or political organizations for their use

The table gives the Gift Tax rates and exclusion when filing the Estate Tax Return.

Dealing With Mental Incapacity Problems in Your Estate Planning
As we Americans live longer, we increase our chance for suffering dementia or other mental incapacities in our waning years. You must decide before hand to whom you will give the power to handle your affairs when that happens--or even before as you become increasingly unsure of your own judgment.

The person you – as the grantor – appoint can be your adult child or anyone else; but you should trust him or her implicitly. You give this power by forming a 'power of attorney' – through a document – whereby you appoint a person to act in your place. That person becomes the 'attorney-in-fact' for you. But be sure you assign the type of power you want. Let's take a look.

A power of attorney may be a limited power of attorney, restricted to one specified act or type of act. Or it may be a general power of attorney entitling that person to make all your decisions.

If you grant the power of attorney to take affect before you are mentally incapacitated, under the common law, it becomes ineffective when you become 'incapacitated' unless you specify that it should continue to remain in effect. If you do so, it is called a durable power of attorney.

In some jurisdictions, a durable power of attorney can also be a "Health Care Power of Attorney" or 'living will' that empowers the attorney-in-fact to make health care decisions for you, up to and including terminating care that keeps a critically and terminally ill patient alive. New York State has enacted a Health Care Proxy law that requires a separate document be prepared appointing one as your health care agent.

In some states it is possible to grant a springing power of attorney. This power only takes effect after you become incapacitated. After that, it is identical to a durable power, but cannot be invoked before incapacity. Use it to allow a spouse or family member to manage your affairs in case illness or injury makes you unable to act. If a springing power is used, you should specify exactly how and when the power springs into effect.

Unless you make the power of attorney irrevocable, you may revoke the power of attorney by telling the attorney-in-fact that it is now revoked. You should then notify others that the power was revoked.

Some individuals who have acquired a power of attorney unscrupulously waste or steal the assets of vulnerable individuals such as the elderly. If you are unsure of how well someone will handle your affairs, you may want to grant him power of attorney only for a while to see how he or she does.

Give us a call or fill out the reply coupon and we can tell you where to get these forms to complete