Can't Afford to Save for Retirement? The retirement Saver's Tax Credit May Help You
To get the most for your buck, you need to take charge of your income and expenses – maximize the former and minimize the latter. In retirement, many estimate that you can probably live on about 75% of your pre-retirement income comfortably. This assumes that some 25% of your pre-retirement income went to work and its associated taxes, transportation and clothes – and savings toward retirement.

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 $40,000 to 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.

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 inset chart breaks down the amount of credit that can be claimed.

The lower your adjusted gross income, the higher the credit. For example, if you are married filing jointly and 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.

Heading to Florida This Winter - Don't Forget Your Renter's Insurance
Perhaps you like to spend those winters in Florida or another warm, sunny place. If you rent, maybe you should pick up some renter's insurance to safe guard the value of your possessions and liabilities.

So what could happen?

Quickly coming to mind is that there's always a chance of a fire. You are careful but a neighbor may not be with her cigarettes. Then there is theft. Although you are careful about who you buzz in, one of your fellow renters may not be. While your landlord's insurance may cover the building you rent in, it won't generally cover the contents of your apartment.

Beyond these examples, a visitor to your apartment may harm herself tripping over your rug. You may find yourself in a suit for damages.

You can protect yourself against such potential problems with renter's insurance. Renter's insurance is relatively inexpensive - perhaps only about $20 a month, which is affordable for most people. It is a small price to pay for the peace of mind it can give you.

It covers the contents of your rented dwelling. But it may also cover the contents of your car and your luggage while traveling. A typical policy component will cover the loss of use of your apartment if it burns down, providing you with some money to pay for temporary housing.

If you have unusually expensive items such as electronic equipment or jewellery, you may need additional insurance to cover them. Most rental insurance policies have some liability coverage too. so you will be protected up to a certain amount in the event you are sued for an injury incurred at your home.

Do not forget to photograph or videotape everything you own. Write down any serial numbers too to help in making future claims.

If you use a sizeable deductible in your policy and pay all at once, you can reduce the expense even more. And if you have any existing policies, you may get family rates or package deals (for example, if you purchased both home and car insurance together) to further reduce your costs.

Give us a call so we can help find a suitable way to protect your situation when you rent.

Convert Your Traditional IRA to a Roth IRA for Tax-Free Savings!
Imagine an investment account that grows tax free and you can take as much or as little out of it for as long as you live. That's what a Roth IRA is! Unlike a traditional IRA, though, you can only put money that has already been taxed into a Roth IRA.

A Roth IRA¹ gives you a few benefits over a traditional IRA. First, you are not subject to the minimum required distribution rules of the traditional IRA, which is geared to depleting it while you live. Second, having to take money out for you traditional IRA undermines the compounding growth of what you have invested in it. Third, because you do not have to take anything out of a Roth IRA, it is an ideal long-term saving vehicle for tax-free growth of your investment. And fourth, whatever you take out of it is tax free forever.

The chart shows how fast a $100,000 investment can grow in a tax-free account for two hypothetical annual growth rates of 5% and 7% annually over 20 years. The illustration is hypothetical in nature, does not represent any specific investment, does not account for any fees or expenses associated with an actual investment, but if it had, returns would be lower and must be included.

The chart shows how fast a $100,000 investment can grow in a tax-free account for two hypothetical annual growth rates of 5% and 7% annually over 20 years. The illustration is hypothetical in nature, does not represent any specific investment, does not account for any fees or expenses associated with an actual investment, but if it had, returns would be lower and must be included.

These benefits mean that if you can delay taking money out of it for a number of years - as the chart shows - you can take advantage of the tax-free growth it can give you. Then take tax-free use of the money when either you or your spouse wishes.

And it can grow tax-free even for your designated Roth IRA beneficiary. When he receives it, he will be required to take a minimum amount out each year based on his life expectancy, but it will still as a tax-free distribution.

What is the price for this benefit? You need to pay tax on any money you put into it. You can convert your IRA holding - as much as you wish - to a Roth IRA, but you need to pay the tax on what you roll into the Roth within the year of rollover. This conversion can only be made in a year that you earn not more than $100,000 (and you are not married filing separately that year) - not counting the IRA money you roll into the Roth IRA.

According to IRA single life expectancy, you have statistically 21 years left when you are 65. The chart shows that an untaxed investment only takes 10 years to double under a hypothetical 7% annual growth rate. The trade off between converting your traditional IRA to a Roth or leaving it alone until you're 70½ and then paying the tax on your distributions, depends on your retirement income level and your ability to defer your Roth investment for later use.

Give us a call so we can help you decide if converting to a Roth IRA is best for you.

1 Information in article take from IRS publication 590

Catch-up Strategy for Soon to Retire Part-time Freelancers
If you are rushing to pack as much into your savings in the last few years before retirement, here is a catch-up strategy if you do some freelance work on the side. You can set up your own individual 401(k) plan.² It's limited to owner-only businesses.

With it you can contribute up to 25% of compensation plus $16,500 (plus $6,000 more for age 50 or over) in salary deferrals - for a maximum contribution of $49,000. So add on that $6,000 for being 50 or over.

That means you can deduct 100% of what you earn up to $22,500 per year just to begin with. That is over $100K of contributions in just five years - for as little as $22,500 earnings per year for freelance work.

Like all defined contribution plans, your contributions are tax-deductible and their earnings grow tax-deferred. You can also take loans from your account just as you can with a traditional 401(k) - but that will cut into your earnings. Nevertheless, if you need the money, you can sacrifice some of the loan money's earnings to later pay it back into the 401(k) account.

If you have a 401(k) as an employee at your 'daytime' job, both your daytime contribution plus your freelance salary deferrals must together total $16,500 plus $6,000 for over 50. But irrespective of whatever your daytime 401(k) contributions are, you can still contribute 25% of self-employed business earnings.

Give us a call or fill out the reply coupon so we can help you find a solo 401(k) plan to use.

2 IRS Publication 560.

Laddering Combines Long-Term Rates with Short-term Liquidity
Income seekers often wait with their money in short-term CDs for liquidity to buy long-term bond when rates increase. But if they do invest in the high rates of long-term bonds, how can then they take advantage of increasing rates - without taking a loss in principal? The best way to remedy these dilemmas is to use the laddering for interest-based instruments - such as bonds and annuities.

The Laddering Principle

Laddering is based on dividing your investment money into equal parts - three, four, even up to 10 - at different, evenly spaced 'times-to-maturity'. That way, you will always have one part - the one closest to maturity that will soon become liquid to reinvest at a new higher long-term rate without suffering a loss in principal.

Continually reinvesting each part at its maturity in new long-term rates will eventually get all your parts invested at the high rates of long-term maturities. But you will always have one part close to maturity for new reinvestments. That gives you long-term rates with short-term liquidity.

Part of your principal will be allocated to higher interest rates. Even if rates fall, part of your principal will have higher rates locked in. You can look forward to investing future maturities when rates go up again.

Here is how laddering works:

For simplicity, we will divide your $30,000 'income investment' into three parts - refer to the table. Begin your 1^st year by investing each part at a different 'years-to-maturity' - not all at the longest maturity (which gives the highest rate)! These parts are investments A, B, and C in the table. (The 'maturity term' reflects the term of the bond.)

The 1^st year summary shows the average maturity term is '2 years'; the average rate is '3.5%, and the total earnings you get on your $30,000. Let's assume that rates at each maturity stay the same (i.e. interest rates do not change for awhile).

At the beginning of the 2^nd year when the shortest time to maturity occurs, you reinvest money from A into the longest term bond (highest rate) as D. The other two bonds' 'years-to-maturity' shorten by one year. Now see that the 2^nd year summary gives a longer average maturity, a higher average interest rate, and increased annual earnings.

By the 3^rd year, following the same reinvestment procedure, your earnings come from all the longest maturities, at the highest rates, but you still have some short liquidity, as 1/3 of your investment matures each year.

However rates change you will be able to invest in the 'long-term' rates with your 'soon to mature' investment part. Note that there is no assurance that the strategy of laddering will be successful in achieving investment objectives.

Give us a call so we can help you suitably ladder your income investments

Note: Interest rates shown above are hypothetical for illustration purposes only. Annuities once annuitized cannot be surrendered for value. Income from deferred annuities is taxed as ordinary income and withdrawals prior to age 59½ are subject to a 10% penalty. Income from annuitization is taxed part as ordinary income and part as return of capital. Any guarantees are based on the claims-paying ability of the insurance company. Annuities should be considered long-term investments. Annuities are insurance products and subject to insurance related fees and expenses.

Internationalize Your Income Investments
While setting up your 'income-generating portfolio, you may want to consider adding international bonds. Bonds issued in foreign markets and those issued domestically are structured similarly.

You will - in 'part' - be able to buy into higher long-term interest rates. Even if they fall, though you have invested a 'part' in them, you are still invested in earlier higher rates. You can look forward to investing future maturing parts when rates go up again.

But why invest in foreign bonds?

The main benefits of investing in international bonds include portfolio diversification and currency benefits. International debt offers portfolio diversification to U.S. debt - both government and corporate since the two generally track each other. Japanese corporate bonds or European Union issues generally will not be affected to the same degree as U.S. debt by shifts in U.S. interest rates.

Foreign bonds are a natural hedge on U.S. currency since the interest payments and principal are made in the foreign currency. If the U.S. currency falls in relation to the currency paid on the foreign bond, the bond investor will gain, as the foreign currency will convert into a greater amount of U.S. dollars. Of course an opposite move in exchange rates represents a currency risk to your investment.

Fund managers often use hedges to reduce the risk of the global bonds. They will hedge the currency risk by using future contracts or buying positions in foreign exchange markets to counteract interest rate swings that impact currency values.

Most international bond issues are difficult to purchase directly from the sovereign government or offshore corporation that issues them. In some cases foreign governments do not allow the purchase of government bonds by non-residents.

In each of these cases, you have increased your cash or income, yet maintained your rental property for its future appreciation and future rental income. Note that refinances will incur fees and commissions and refinancing for more than your current balance will increase your debt, which may not be appropriate

Alternatively, you could try an international bond fund offered by a U.S. investment house. Most have at least one fund that specifically invests in global bonds.

Give us a call so we can show you ways to diversify your income investments.

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. Investments abroad entail additional risks including instability of foreign governments and currency fluctuations. Diversification does not ensure a profit and does not protect against loss.

Don't Put Off Discussing Disability and Death Issues with your Children
While you are in retirement, be sure to get one issue resolved - and the sooner the better: discussing with your children how your affairs should be handled and by whom when your disability and death occurs.

Although you may have your 'active' retirement life planned out, you need to bring your children on board about finances, long-term care, insurance, and perhaps housing when attending to yourself becomes a problem. How can you approach this?

You do not have to make everything known in terms of your exact finances if you do not want to. But you do have to groom your children - or at least one of them - for stepping in when you are not able to take care for yourself well, make competent decisions, or die.

You can begin by discussing your intentions or just an opinion about how you would like long-term care handled for you at various levels of mental and physical disability. Speaking with them may bring out their concerns for you and other options they may have for you.

You may list out your sources of income - Social Security, pension, or one or several IRAs - that you rely on. Again, you do not need to discuss just how much you have, but they should know where your living expenses are coming from, how you hold your wealth, and how to take charge of them when the time comes.

Let them know what important documents you have and where they are located. These may include your will, house papers, trusts, insurance policies, investment papers, etc. Make sure they have access to them when they need to. You legacy to them may be diminished by what they cannot find!

You may suggest how assets would be divided and according to what type of device - a will or trust. Attempting this may cause you to update and create documents that are more appropriate.

If you feel that discussing some of these matters are not appropriate until your death, you can talk to a financial expert, lawyer, or trusted friend, or sibling in whom you can confide. That way he or she may best explain the situation to your children when you cannot or after you die.

Lastly, do not wait until it is too late to get these things aired. Too often we procrastinate on things that really matter. Do it now while you are in good health and are well in control of your finances and 'doings'. Just breaking the ice on these matters may often present options you were not aware of.

Give us a call or fill out the reply coupon so we can show you how to organize your records and help you create or update tools you need.

Give us a call or fill out the reply coupon so we can show you how to organize your records and help you create or update tools you need.

Divorced and Remarried? Don't Disinherit Your Kids
With the national divorce rate more than 40 percent,³ a large percentage of retirees and pre-retirees will have to contend with dividing their assets between their most recent spouse and children from a previous marriage. This common dilemma can often be rectified via a type of trust called a "QTIP" trust, or Qualified Terminal Interest Property trust. The acronym describes the function of the trust, which is to allow for a "terminal interest", meaning an interest (for the most recent spouse) that terminates upon death. This type of trust, therefore, allows the trust owner's (who in this case will also be the deceased) most recent spouse to control the assets of the trust for the duration of the spouse's life. Then upon the death of that spouse, his or her interest in the trust will cease and the trust will determine how the assets are distributed.

QTIP trusts were designed to prevent divorce and remarriage from disinheriting children from prior marriages. QTIP trusts allow for temporary, lifetime provision for the spouse that was married to the grantor (owner) of the trust at the time of his or her death. Therefore, if a couple with children gets divorced and the ex-husband remarries, then a QTIP trust will ensure that his new wife does not get all of his assets upon his death. She will get to use the assets, within certain parameters (i.e. there are often provisions here that can prevent the spouse from selling off certain assets, such as family heirlooms, etc.). Then, after she dies, the trust assets will be distributed according to the trust owner's (husband's, in this case) instructions. If you have divorced and remarried, this type of trust can prevent much antagonism and legal action by your children or other heirs, who will be certain to get what you want to leave to them after your (and your current spouse's) death. This can be especially helpful if your current spouse is not close with your children, or has very different ideas about what to do with the trust's assets.

If you are concerned about what will happen to your assets after you are gone and are not sure that they will go where you want them to, please call us. We will be glad to review your situation to see what needs to be done to help reduce friction in the distribution of your estate.

3 "The National Center for Health Statistics reports that 43
percent of first marriages end in separation or divorce within 15 years. The study is based on the National Survey of Family Growth, a nationally representative sample of women age 15 to 44. Bramlett, Matthew and William Mosher. "First marriage dissolution, divorce, and remariage: United States," Advance Data From Vital and Health Statistics; No.323. Hyattsville MD: National Center for Health Statistics: 2 1.

Should You Add Your Adult Child's Name to Your Accounts?
Retirees sometimes add their child's name to their accounts in an effort to transfer ownership and remove assets from their estate. But doing so may cause problems later.

First, you are not realizing any tax savings by putting your child's name on a bank or brokerage account-i.e., registering it as joint tenants with rights of survivorship (JTWROS). JTWROS assets bypass the probate court process upon your death and go directly to the surviving joint tenant, so there will be fewer time delays and court costs. However, the account will still be included in your estate.

Moreover, adding your child's name to your account could expose you to legal woes - and leave you without any money for retirement. Let's say you are getting older, and you are not able to manage your affairs well, so you add your adult child's name to your bank and brokerage accounts. Your child can write checks on the accounts, and if you die, he or she will inherit the accounts, avoiding probate.

But there could be problems. First, since assets registered as JTWROS are owned jointly during your lifetime, they thus can be accessed (and liquidated!) by your joint tenant while you are living. In other words, your child could potentially liquidate the account without your consent.

Perhaps more worrisome: If your child gets sued, you could lose all of your money. And do not think you can change the title of the assets once legal proceedings begin - that is called fraudulent conveyance, and it is a big legal no-no.

A better option may be a durable power of attorney, which gives your child access to your accounts without placing the assets at risk.