Wealth-O-Nomics

Tax Credit and Unemployment Extended

2009-11-06T15:53:00.002-06:00

After unanimous passage in the Senate and a 403-12 passage in the House of Representatives, President Obama signed H.R. 3548 into law on November 6. The bill extends and expands a key tax credit for homebuyers while also offering more help for those out of work.

The $8,000 credit for “first-time” homebuyers continues. This tax break is now extended until May 1, 2010. If you have never owned a home or haven’t owned a home in the previous three years, you are considered a “first-time” buyer and therefore eligible for the credit (it is a credit of up to $8,000, by the way). You must sign your purchase agreement before May 1, 2010 and close the transaction before July 1, 2010 to qualify for this tax break.

The $6,500 tax break for move-up buyers. Okay, maybe you aren’t a “first-time” buyer. You may still qualify for this new real estate credit. Have you lived in your current home for more than five consecutive years? You may be eligible for a credit of up to $6,500 if you move out of that home and buy another. Again, you have to sign your purchase agreement before May 1 and close before July 1 to get the tax break.

Worth noting: BusinessWeek.com contacted Sen. Chris Dodd’s office (the Connecticut lawmaker chairs the Senate Banking Committee) and received word that move-up buyers can qualify for this $6,500 credit even if they have signed a purchase contract prior to November 6, provided the purchase closes before July 1.

Does everyone qualify for these credits? Not quite. They phase out for individuals with adjusted gross incomes of more than $125,000 a year and couples with AGI of more than $225,000 a year. (The old phase-outs respectively kicked in at $75,000 and $150,000. These higher phase-outs mean that the credit can now help an additional segment of the housing market.)

You can’t buy a vacation home and claim one of these credits – they only apply to principal residences. In fact, the home you buy has to have a sale price of $800,000 or lower.
What will this do for the economy? “Every economist will tell you we have to steady the housing market before the economy will turn around,” Sen. Dodd expressed on November 5. “We can't afford to let this tax credit expire now.” Respected Moodys.com economist Mark Zandi agrees, saying that “from a macroeconomic perspective, nothing is more important than stabilizing housing values.” Zandi thinks that the $8,000 credit has led to 400,000 additional home sales in 2009. On the other hand, Dean Baker, the co-director of the Center for Economic and Policy and Research, questions why the extension is necessary: “For the most part, you're just giving people money for something they would have done otherwise.” The Joint Committee on Taxation estimates that extending these credits into 2010 will cost $10.8 billion across the next decade.

An extension of unemployment benefits. H.R. 3548 – sponsored by Rep. James McDermott (D-WA) – additionally extends state jobless benefits by up to 20 weeks. This will happen as a result of another extension – an extension of the federal unemployment tax on employers until June 30, 2011.

If you are one of nearly two million Americans whose jobless benefits are set to run out at the end of 2009, this extension will help you. Your benefits will last at least another 14 weeks into the new year – in fact, they will last for another 20 weeks if you live in a state where the unemployment rate exceeds 8.5%. Have our unemployment checks already stopped? You may reapply for benefits.

A chance for companies to convert losses into cash. What? Really? Yes. There is one provision of the new legislation that many have overlooked: it widens the window of time on the net-operating loss carryback. It lets all businesses apply losses from either 2009 or 2008 to any five years prior to 2008. So business owners, by virtue of the new legislation, have the potential for an IRS refund on the taxes they paid for the five years prior to 2008. There are two asterisks here. One, refunds for taxes in the fifth year of the carry back shrink by 50%. Two, any business that received TARP funds can’t take advantage of this tax break.

Interest Rates Will Rise! When is the Question!

2009-10-30T16:40:00.000-05:00

How long can the federal funds rate stay so low? The Federal Reserve has publicly stated that it will keep the federal funds rate between 0% and 0.25% for an “extended period”. Many economists don’t see the Fed raising rates until well into 2010. Yet rates will move north someday. How soon might that happen? And how could the Fed delicately move rates north without hampering the recovery?

The Barron’s argument. On October 19, Barron’s published a piece titled “C’mon, Ben!” in which senior editor Andrew Bary called for short-term interest rates of 2.0%. Why? “Super-low short rates are fueling financial speculation, angering our economic partners and foreign creditors, and potentially stoking inflation.” One concern is that by keeping rates so low for so long, the Fed might risk an asset bubble – recall how the housing bubble was aided by low interest rates. The article called for the Fed to exit the crisis mode policy of the last 12-18 months.

What would raising short-term interest rates to 2% possibly accomplish? Well, the tactic could prove a decisive and wise move to control inflation (CPI is on track to come in at 2% for 2009, so Bary argues that inflation is indeed back) and aid the dollar. The downside, of course, is that the move would amount to a right cross to the jaw for the stock market (and possibly the commodities markets)..

The challenge for the Fed. The stock market is having a great year; the economy is not, with unemployment currently around 10% and the business and real estate sectors taking a long time to recover. Given this, most economists and market analysts see no incentive for the Fed to make a move. (In fact, St. Louis Fed President James Bullard has cited “jobs growth and unemployment coming down” as a “prerequisite” for increasing interest rates.) The challenge for the Fed is how to signal or hint at a move in the coming quarters in a way that seems reasonable or non-disruptive to the recovery.

There are possible hints of inflation here and abroad (renewed strength in emerging market economies, gold prices soaring and the dollar hurting). On October 22, Philadelphia Fed President Charles Plosser told Bloomberg Radio that he felt the time to raise rates would come sooner than most Fed officials believed. The next day, a Bloomberg data survey showed that traders had increased the probability of a federal funds rate hike in 1Q 2010 to 48% from 37% the day before.

The prevailing notion. TheStreet.com published a rebuttal of sorts to the Barron’s article – a piece titled “It’s Absolutely Not Time to Raise Rates, Ben!” in which author Ron Insana argued that the recovery was too fragile to prompt any notion of raising the federal funds rate. Many analysts feel that a rate increase is simply unwarranted without a demonstrably healthier job market, housing market and banking system.

Out west, San Francisco Fed President Janet Yellen told reporters that she didn’t anticipate a rate increase or any tightening of the Fed’s rescue programs in the next several months. So the question remains “when” – and the Fed must move as carefully as ever.

Year End Planning

2009-10-27T18:37:00.000-05:00

The end of the year is a good time to review your personal finances. What are your financial, business or life priorities for 2010? Try to specify the goals you want to accomplish. Think about the consistent investing, saving or budgeting methods you could use to realize them. Also, consider these year-end moves.

Think about adjusting or timing your income and tax deductions. If you earn a lot of money and have the option of postponing a portion of the taxable income you will make in 2009 until 2010, this decision can bring you some tax savings. You might also consider accelerating payment of deductible expenses if you are close to the line on itemized deductions – another way to potentially save some bucks.

Max out your IRA contribution at the start of 2010. If you can do it, do it early. The sooner you make your contribution, the more interest those assets will earn. For 2010, the contribution limits are unchanged for both traditional and Roth IRAs: $5,000 if you are age 49 and below, $6,000 if you are age 50 and above. Remember that you can still make an IRA contribution for the 2009 tax year through April 15, 2010.

While we’re talking about maxing things out, don’t forget your 401(k), 403(b) or Thrift Savings Plan if you are still working. You can contribute up to $16,500 to these plans in 2010, with a $5,500 catch-up contribution also allowed if you are age 50 or older.

Consider a Roth IRA conversion for 2010. Next year, anyone may convert a Roth IRA. The $100,000 modified adjusted gross income (MAGI) ceiling that often prevented that move will be gone - forever. The MAGI phase-out limits for contributing to Roth IRAs will be $167,000 for joint filers and $105,000 for single filers in 2010, but if your MAGI will exceed those limits, you may still contribute to a traditional IRA in 2010 and immediately roll it over to a Roth.

More good news: if you do a Roth conversion during 2010, you can choose to divide the taxes on the conversion between your 2011 and 2012 federal returns. This nice opportunity won’t be available if you make a Roth conversion in 2011.

Another detail to remember: in 2009, withdrawals from a traditional IRA may be used to fund a Roth IRA. (This relates to the 2009 suspension of Required Minimum Distributions.) So even if you don’t want to convert a traditional IRA to a Roth account, you may still fund a Roth IRA using a withdrawal from a traditional IRA through the end of this year (provided your 2009 MAGI is $100,000 or less).

Be sure to consult a tax or financial advisor before you arrange a Roth conversion or make any IRA moves. You will want see how it may affect your overall financial picture. The tax consequences of a Roth conversion can get sticky if you own multiple traditional IRAs.

Should you take a distribution from your IRA this year? It’s an interesting question. Barring an act of Congress, RMDs will be back for 2010. If you think taxes will be higher next year, you could opt to take a distribution before the end of this year to lower your IRA balance as of the end of 2009. As RMDs are based on an IRA’s value as of Dec. 31 of the previous year, taking a distribution in 2009 will reduce a 2010 RMD.

If you are age 70½ or older, you may want to make an IRA charitable rollover. It will lower your 2009 IRA balance and your 2010 RMD. The sun is setting on this tax break: the IRA charitable rollover option is currently set to expire at the end of 2009.

You may wish to make a charitable gift before New Year’s Day. If you make a charitable contribution this year, you can claim the deduction on your 2009 return.

You could make December the “13^th month”. Can you make a January mortgage payment in December, or make a lump sum payment on your mortgage balance? If you have a fixed-rate mortgage, a lump sum payment can reduce the home loan amount and the total interest paid on the loan by that much more. In a sense, paying down a debt is almost like getting a risk-free return.

Are you marrying next year, or do you know someone who is? The top of 2010 is a good time to review (and possibly change) 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. 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.

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 revoke any power of attorney you may have granted to another person. Don’t delay – get it done.

Choosing A New Bank

2009-10-21T09:17:00.000-05:00

It is surprising how many people will put their money in just any bank. All banks are not created equal, and let’s just say that some have proven more solvent than others. Besides FDIC insurance, what other characteristics should you seek – and what questions should you consider?

How close is this bank? Is there a branch near where you live and close to where you work? How is the online banking setup? (Yes, you should value convenience, but it shouldn’t be the only factor in mind as you choose a bank.)

How cheap is it to bank there? You’ve heard of overdraft fees and ATM fees. But how about wire fees, notary fees, and fees on cashier’s checks and money orders? Returned-deposit fees? Stop-payment fees? Fees to check your balance? Fees to talk to a teller? (No kidding, some banks do charge for that.) Is it bad taste to ask a bank to detail its potential fees? No, it’s smart. Some banks offer you a free checking or savings account and a whole lot of potential charges besides. Some have plans that cover a whole range of services, plans that could save you some money.

What else can this bank do for me? Can the bank provide your business with credit card processing? Will your checking account give you any interest? What kind of CDs does the bank offer? How about mortgage and loan types? Could you send money overseas via this bank? Do they do any trust planning?

How friendly is this bank? When you walk into the bank, what’s the reception? Do people greet you and ask how they may help you? Or are you ignored for a prolonged period? What happens may hint at the level of service coming your way.

Ask to see a bank officer, if possible. Set down a list of what you want, and see how close your potential new bank comes to providing it. Don’t be afraid to make the bank work for your business - they are working hard than ever for it.

What can you do to make a banking relationship better for you? If you bring major amounts of cash to a bank, of course you’re going to be treated as a VIP. If you don’t, it may help you to establish a relationship or two. So often, we go to a bank and we look at the tellers – and even the loan officers and mortgage consultants – as mere functionaries instead of human beings.

If you have a lousy experience at the bank or you get dinged with some weird fee all of a sudden, ask someone why – maybe the customer service staff can address the matter and work out a solution. Make yourself known – a good way to do that is to bank when it isn’t “rush hour”. A friendly, recognizable customer who wants the best from his banking relationship can turn into a valued banking client.

Would it be better to bank online? How often do you need to go inside your bank? If you really don’t require much in the way of in-person services, maybe an online bank is a better option – after all, why should you pay to support your bank’s branches if you never set foot in them?

Thinking small may help. People were leery of small banks in this last economic downturn, but the customer service can be considerably better at such institutions. When a community bank is bought by a bigger one, bigger does not necessarily mean better in terms of attention.

Self-Employed Retirement Plan Options

2009-10-18T15:16:00.000-05:00

What options do hands-on owner-operators have? If you have a small company and want a retirement program, you want to consider these plan choices.

The SIMPLE IRA. These plans are very easy to create, and they have very low administrative costs and no annual IRS reporting requirements. You set up traditional IRAs for each eligible employee; they can contribute to the IRA on a tax-deferred basis (via payroll deductions, and you can either match the contributions of plan participants or contribute a fixed percentage of all eligible employees’ pay. The employees own the money in their IRAs.

The SEP. A Simplified Employee Pension plan lets you make contributions toward your retirement and your employees’ retirements. (You can even have a SEP and another kind of retirement plan at your business simultaneously.) A SEP allows business owners annual tax-deductible contributions equal to 25% of your compensation (if you have a corporation) or 20% of self-employment income (for a sole proprietor).

The solo 401(k). Yes, you can have a 401(k) when you are self-employed. A business owner may establish one and include their spouse in the plan, provided the spouse is an employee of the business. A solo 401(k) throws in a profit-sharing twist on the standard 401(k). Solo 401ks may be funded by the employee (deferred compensation) and the business (a percentage of profit). As an employee of your business, you can contribute an amount up to the standard yearly 401(k) contribution limit (catch-up contributions permissible if you are 50 or older). Additionally, solo 401(k) plans allow you to make tax-deductible profit-sharing contributions equal to 25% of your compensation (corporate entity) or 20% of self-employment income (sole proprietor). It is even possible to have a solo Roth 401(k). These plans do require a TPA (third-party administrator).

Profit-sharing plans. Here’s one way to compete with larger companies for prime employees. Contributions are usually deductible at both the federal and state level, with contribution limits equivalent to a SEP. Contributions aren’t mandatory. If your business has a bad year, you don’t have to make them. The assets placed within the plan grow tax-deferred. Again, annual tax-deductible contributions may be made according to the 25%/20% rule depending on your business entity.

New comparability plans. Basically, this is a form of profit-sharing plan that rewards senior or key employees more than others. The classic situation for this plan is when you have a small business whose multiple owners take home similar earnings, but are of different ages. The plan must be tested to meet Internal Revenue Code nondiscrimination requirements, of course. It allows different levels of compensation to different groups within a small business.

What plan might work for you? If you are reading this, you are probably thinking about putting a plan into place or switching to a retirement program more easily administered than the one you have now? But which one should you choose – and what is the next step? Take a big step today and take advantage of all that is available in the marketplace - consult an independent financial advisor to review your options and find the program that fits your needs.

What NO COLA Increase?

2009-10-16T16:54:00.001-05:00

SSI will remain flat for the first year since 1975. Social Security benefits are keyed to inflation. So what happens when year-over-year inflation becomes negative? No cost-of-living adjustment (COLA) occurs to increase your Social Security income. On October 15, the Social Security Administration announced that there would be no COLA for 2010. (The 2009 SSI COLA was 5.8%, the largest boost since 1992.)

“What do you mean, negative inflation?” That’s the question some SSI recipients are asking. Aren’t prices seemingly going up at the grocery store every day – and going up everywhere else?

Unfortunately, the federal government doesn’t measure consumer inflation with a price check on aisle six. It uses the Consumer Price Index (CPI), which is really an estimation of the average prices of consumer products we buy. There is also core CPI, which excludes food and energy costs.

From September 2008 to September 2009, overall CPI fell by 1.3%. Across that span, overall food prices actually fell 0.2% and prices on dairy products and fruits and vegetables respectively dropped 9.5% and 6.4%. Food prices only account for about a seventh of CPI, and rents actually constitute about 40% of the “prices” measured by core CPI. In September, rents fell in the United States for the first time since 1992. (We also have a decline in retail gasoline prices from last fall to this fall.)

With year-over-year inflation negative, the SSA has no logical reason for a COLA. Yet roughly two-thirds of America’s seniors live on less than $20,000 a year, some entirely on SSI.

Another stimulus check? President Obama is urging Congress to authorize one-time $250 stimulus payments to Social Security and Supplemental Security income recipients, veterans, railroad retirees and government retirees. That $250 would equal about 2% of the average annual SSI benefit for a retiree. These checks would be mailed sometime in 2010 to about 57 million people. Recipients could not qualify for multiple checks.

Retirement plan contribution limits will stay the same. These are also inflation-indexed. On October 15, the Internal Revenue Service chimed in with a statement that 401(k) contribution limits will remain at $16,500 for 2010. The maximum contribution limits for other types of defined-contribution and defined-benefit retirement plans will also remain the same for 2010.

While we’re referencing the IRS, some other important figures aren’t changing next year. The standard deduction will remain at $11,400 and $5,700 for joint and single filers; it will go up $50 to $8,400 next year for heads of household. The yearly gift tax exclusion will stay at $13,000 for 2010, and the value of a personal exemption will remain at $3,650.

No COLA … but more purchasing power? A former deputy Social Security commissioner who now works for the conservative American Enterprise Institute contends that the average retiree will actually have $725 more in purchasing power in 2010 thanks to falling prices and the freeze in Medicare Part B premiums (which will not increase in 2010 for most Social Security recipients). A senior policy analyst for the non-partisan Center on Budget and Policy Priorities told the Christian Science Monitor that if Social Security income was wholly determined by consumer prices, SSI recipients would have their checks cut by 2.1% next year.

What can you do in response here? Even if you are really wealthy, your SSI is a big chunk of money. If you were hoping for a COLA and want and need to have more money on hand for 2010, this is the time of year to meet with a financial advisor or tax advisor who may work with you and help you plan to find it.

Are You Retirement Ready?

2009-10-16T15:03:00.000-05:00

64% of Americans have no financial strategy at all. That’s right – no plan whatsoever to build wealth or keep it. That finding comes from the 2009 National Consumer Survey on Personal Finance conducted by the Certified Financial Planner Board of Standards, Inc. (The survey collected data from 1,700+ U.S. residents.)

Only 17% of us have a written financial plan that is updated regularly. So congratulate yourself if you are in that group. The CFP Board found that just 17% of the 36% polled who did have a written financial plan had reviewed it in light of changing times. Notably, 48% said they had benefited from having a written plan.

Just 38% of the 36% having written financial plans retain a financial advisor. The really troubling part: 37% of those with written plans are doing their financial planning on their own. Another 12% of respondents with written plans have consulted a friend or family member who isn’t a financial services professional for advice.

Why don’t more people have a financial plan? After all, Americans of all incomes and savings levels certainly are free to set financial goals. In the survey, the reasons varied. Some cited the expense of engaging a financial advisor; some said they get along just fine without a financial plan, and others felt their finances weren’t complicated enough to warrant one. Others were hazy about financial services industry qualifications - 40% of respondents had no idea that there were professional credentials or designations for financial advisors.

Syndicated financial columnist Humberto Cruz recently noted that when he told some fellow vacationers in Orlando that he wrote about financial planning, they all asked him if he gave stock tips. He had to explain that he was simply a journalist, not a financial planner.

Defined goals lead to definite plans. If you set financial objectives and plan for them, you vault ahead of most Americans – at least according to the CFP Board’s findings. A written financial plan does not imply or guarantee wealth, of course; nor does it ensure that you will reach your goals. Yet that financial plan does give you an understanding of the distance between your current financial situation (where you are) and where you want to be. Too many Americans, it seems, have little comprehension of their financial situation or their financial potential.

How much planning have you done? Retiring without a financial plan is an enormous risk; retiring with a financial plan that hasn’t been reviewed in several years is also chancy. A relationship with a financial advisor can help to bring you up to date about what you need to do, and provide you with more clarity and confidence when it comes to the financial future.

2009 Quarterly Market Outlook Session #1

2009-10-07T10:22:00.001-05:00

Topic: 2008 To Date and Beyond

Recession Post Mortem
Key Strategies and Indicators
Asset Class Review
Special Situation Opportunities
Year End Planning

Guests Are Welcome and Encouraged. Beverages and Hors D'oeuvres will be Served.

Place: The Minneapolis Club, 729 Second Ave South, Minneapolis, MN 55402
Complimentary Parking is available in The Minneapolis Club ramp on 8th St

Date: Thursday, October 15

Time: 5:00 - 7:00 PM

RSVP Deadline is Monday, October 12. Please RSVP to micki@whiteoakswealth.com

Positive Money Habits Are The Difference

2009-10-04T22:03:00.001-05:00

Many of us plan thoughtfully for all kinds of life goals. Yet many of us spend impulsively, using our money on the moment rather than saving or investing it for the future.

This last recession caused us to take a second look at where our dollars go. If you seem to be making adequate money and yet dollars still appear to be slipping away from you, maybe it is time to break some budgeting and spending habits.

First of all, have a budget. Many people live without one – and that includes many affluent people. This exercise is starkly simple, but might be illuminating: make a two-column chart, with the left column listing your monthly income and the right column detailing your expenses. Detail them as best as you can, type and monthly amount. Include your credit card expenses. This little exercise shows you how much you are spending on essentials and how much of your income you are assigning to comparative frivolities. Perhaps you will find some dollars you could reassign to planning for your financial future.

Distinguish needs from desires. Do you need that material item or merely want it? Slick marketing and advertising leaves many consumers unable to tell the difference. They run up debts to buy what they want, rather than what they need. How many of them understand that by borrowing, they are actually spending away future earnings?

Discern the difference between good & bad debt. Do you know the difference? A bad debt is a debt you incur on a disposable item or a durable good that will depreciate. It is a debt on something that has no potential to gain value. You want to avoid as many bad debts as you can. Of course, there is also good debt – for example, a mortgage, a business loan or a student loan. These are so-called “investment debts” that can potentially create value down the road.

Educate yourself. Some people are very cavalier when it comes to spending and saving money. Others are convinced that they will never be able to build wealth, so they spend their days addressing short-term financial needs and give no thought to the wealth and income they will need in maturity.

In both cases, the root problem is a lack of education. Those who spend money like water don’t understand its value; those who shun financial planning and investing don’t understand its potential. People with greater degrees of financial education tend to be more rational when it comes to financial decisions. (Not always, but often.)

Set financial goals and take them seriously. When people educate themselves about money – the ways to potentially make it, the ways to plan to protect it – they start to see how the financial world “works” and they tend to explore their own financial potential. This exploration may lead them to meet with a financial advisor. That conversation can inspire them to set and plan for specific objectives, and get a relationship going - a shared commitment to wealth building. If you haven’t had such a conversation, today is as good as any day for that to happen.

Are You Passing On Your Money Vaues?

2009-10-01T06:01:00.000-05:00

When you were 20 or 25, what was your level of financial literacy? What did you think of when the nightly news mentioned Wall Street or the Federal Reserve? Did you even care about those things at that time?

Few young adults fully understand how wealth can be built. That’s a shame. Decades from now, many will wish they had started planning to amass wealth earlier in life. How can you encourage your children to start that process?

Help them start before they turn 18. If your child is a minor, there are still several ways she or he can get a head start on growing wealth. Besides the basic move of opening a savings account, it is possible for your child to open a Roth IRA. The I.R.S. sets no minimum age limit for IRA contributions; if your son or daughter has earned income from a job and filed taxes, he or she can open a Roth or traditional IRA with your assistance and contribute to it. Your child may also buy a government bond with your help, or buy equity shares or make a direct stock purchase via a guardian account or custodial account.

Encourage them to set life and financial goals. Why not? It is not far-fetched if your teen wants to become a millionaire; given inflation over time, we may need to be millionaires down the road. Even if your son or daughter simply sets a life goal – for example, to start a business someday or to graduate from a prestigious university - he or she will start to think about what that will take financially.

Wean them off plastic. As your children become young adults, the great lesson is a simple one – spend less than what you make. If they have to go into big debt, it better be for education’s sake and not for comparatively frivolous reasons. Remind them that it is possible to pay off debt and plan to build wealth at the same time.

Look back over your life for a moment. What shaped you more – the material things you bought when you were 18 or 21, or the experiences you had when you were 18 or 21? It is wiser for your son or daughter to spend money on an experience that may “pay off” in life skills and character development, rather than on a material item that will inevitably depreciate.

Convey that is not what you own, but what you do that counts. Hopefully, your son or daughter will start investing early – and sensibly. Some young investors like the thrill of day trading - of looking for the next hot stock that will be the talk of Wall Street. It is better for your son or daughter to learn principles of diversification from the start (and not retrospectively). Getting rich slowly is not a bad idea. Investing seriously means staying invested through market cycles.

Remind them of the power of compounding. If your child opens an IRA or 401(k) before age 30, that does so much in terms of retirement savings potential. Yet few young adults focus on these retirement savings tools. The tax information service CCH took a poll in 2007 and found that just 4% of employees aged 25 and younger were maxing out retirement plans. That same year, Charles Schwab conducte a survey and learned that only 40% of adults aged 26-40 were contributing to an IRA.⁴

Looking back, what did you wish you had known? Today is as good as any day to let your son or daughter know about some investment and asset-building principles. At first glance, it may seem boring to them – but making money sure isn’t. The more they know now, the more years they have on their side to grow wealth.

Getting Older Happens

2009-09-30T15:41:00.002-05:00

In many ways the financial planning movement is quite new. Many point to the origins of financial planning starting in the late 1960's and early 1970's. I consider myself fortunate to have started my career near the beginning in 1975. But I consider myself more fortunate to have had the opportunity to be around some of the true pioneers who had the passion and dedication to push the idea of objective financial advice forward.

One of those pioneers is a gentleman by the name of Ben Coombs. Ben was in the FIRST class of Certified Financial Planners to receive their designations in 1973. He has served in various leadership positions in the professional associations over the years. Ben is always a man with ideas that are timely and relevant to consumers and planners alike. One of his recent causes was to create a mentoring environment for new advisors in the growing profession. Another is the creation of his new content delivery system entitled "Getting Older Happens" designed to be a resource for the over 70 age group and their families/advisors. The link is http://www.gettingolderhappens.com/.

Take a look and pass it along to those who may receive some value from it.

Buffett's Views On An Improving Economy

2009-09-27T09:22:00.001-05:00

I wonder how much it will take???????

2009-09-26T12:16:00.000-05:00

A very common question is how much will it take to be financially independent and join the "Take This Job and Shove It" club. Of course, that is part of what we do to help our clients and have some pretty sophisticated tools to determine "a number" based on a wide variety of assumptions. As good as these tools are sometimes we just are looking for the quick answer either for reassurance or additional validation.

This post at Millionaire Mommy Next Door goes through four of these short answer results. Since I'm kind of a "belt and suspenders" type of person I tend to look at these as the minimum hurdle to jump over to feel financially secure. Clearly a more analytical approach will provide additional validation and likely should be done but for when your tossing and turning in the middle of the night these may come in handy.

2009 Quarterly Market Outlook Session #1

2009-09-25T09:16:00.006-05:00

Topic: 2008 To Date and Beyond

Recession Post Mortem
Key Strategies and Indicators
Asset Class Review
Special Situation Opportunities
Year End Planning

Guests Are Welcome and Encouraged. Beverages and Hors D'oeuvres will be Served.

RSVP Deadline is Monday, October 12. Please RSVP to micki@whiteoakswealth.com

2009 Tax Reminders

2009-09-24T13:15:00.000-05:00

The year goes by, you get busy … and tax-saving opportunities slip away. So as a reminder, this article is here to reacquaint you with some of the notable federal tax breaks offered this year.

The first-time homebuyer credit. This is the up-to-$8,000 credit available in 2009 to anyone who hasn’t owned a home during the previous three years. (It is subject to phase-outs at certain income levels.) The home you buy has to be your principal residence, and you have to buy it before December 1, 2009. The credit does not have to be paid back.

The IRA charitable rollover. This is the move that lets your IRA trustee make a tax-free direct transfer of up to $100,000 from your IRA to a charitable organization. This option is scheduled to go away in 2010. You must be age 70½ or older to do this.

3 don’t-miss deductions for businesses. When it comes to new cars and light trucks used for business means, the maximum first-year depreciation deduction has been increased by $8,000 for cars placed in service before 2010. The Section 179 deduction (that’s the one that lets you write off the costs of certain new and used business assets during their first year of use) is still at $250,000 for 2009, instead of the prior $133,000. The first-year bonus depreciation break of $50,000 is still in place for 2009, and even the biggest businesses can take advantage of it.

The new car sales tax deduction. Okay, “cash for clunkers” is over, but you still may be able to deduct state and local sales and excise taxes if you buy a car, motorhome, motorbike or light truck. You can itemize the deduction or just add it to the amount of your standard deduction.

A major tuition tax break. In 2009, you can claim an above-the-line deduction for “qualified tuition and related expenses” relating to the enrollment or attendance of you, your spouse or your dependent at an eligible college or university. While it is subject to phase-outs at higher income levels, the deduction can be as large as $4,000.

The classroom teacher credit. Are you a primary or secondary school teacher? If you were an educator who worked more than 900 hours on campus in 2009, you can claim an above-the-line deduction for up to $250 of personal expenses for schoolbooks and school supplies that see classroom use. You don’t even have to itemize.

COBRA continuation. Did you get laid off this year? Were you insured under an employer-sponsored health plan? Well, you may qualify for up to nine months of (COBRA) coverage. As for the company where you worked, it can claim a credit for the COBRA subsidy it extends to you.

$2,400 in unemployment income tax-free. That’s right: this year, the first $2,400 of federal unemployment compensation benefits you receive are excluded from gross income.

An extra deduction for state and local property taxes. Do you usually claim the standard federal deduction? If that’s your plan, this year you can take an additional deduction for state and local property taxes. The ceiling is $500, $1,000 if you are filing jointly.

The capital gains tax break. If you are in the 10% or 15% tax bracket, note that the current tax rate for long-term capital gains is 0% - and it is slated to stay at 0% through 2010.

The homebuilder tax credit. Do you build homes? If so, you may claim a credit of up to $2,000 for each qualified energy-efficient home constructed and acquired from you for use as a residence. This credit is set to expire December 31, 2009; President Bush’s signature extended it into this year.

And of course, the exemption from required IRA distributions. The federal tax mandate requiring IRA owners age 70½ to take Required Minimum Distributions (RMDs) was suspended for 2009, but it will be reinstated for 2010. Worth noting: in 2010, anyone will be able to convert a traditional IRA into a Roth IRA.

This is just a sampling. There are other tax breaks out there during this unusual year for the federal tax code, and it is worth asking your accountant to do some research and/or collaborate to find you as many as possible.

I never thought I'd see it but.....

2009-09-21T09:52:00.004-05:00

I have to admit I was more than a little skeptical when I started reading the WSJ piece "From Bear to Bull" by Jim Grant. I've been following Mr. Grant's work since the 70's when he was a frequent guest of Wall Street Week with Louis Ruykeser. By his own admission he often has not had a positive outlook for the economy. He seemed to relish in the role of being the early warning system for the problems our economy had and/or was about to have.

I've always respected his thought process but not always his conclusions but find his current ideas very compelling. Take a look. I felt it was a piece well done.

Hmmmm

2009-09-17T13:24:00.006-05:00

Hmmm..... I wonder what else this could apply to?

Click on image to make larger.

2009 Annual Client Appreciation Event

2009-09-14T12:22:00.014-05:00

This year's client appreciation event was a huge success as we set course on Lake Minnetonka for a wonderful boat cruise with Al & Alma's in Mound, MN. Clients were able to relax and unwind, while enjoy the beautiful view and weather. We had a great turnout and we thank each and every one of our clients for your support. WE APPRECIATE YOU!

-The White Oaks Team

Finding A Trustworth Advisor

2009-09-14T11:44:00.000-05:00

How do you avoid the Bernie Madoffs and the Allen Stanfords? Recently, we’ve seen two supposed financial wizards revealed as charlatans. Given recent headlines about Ponzi schemes and fraud, you may be wondering - how can you avoid getting duped by an unscrupulous financial advisor?

Do a little legwork (online, that is). If you want to check out an investment advisory firm, visit adviserinfo.sec.gov/IAPD/Content/IapdMain/iapd_SiteMap.aspx. That is the website at which the Securities and Exchange Commission keeps Form ADVs – the forms which reveal disciplinary actions taken against that advisory firm and/or its key employees. You can also make sure a firm is properly registered there.
If you want to check up on a specific investment advisor, go to the FINRA BrokerCheck website tool (finra.org/Investors/ToolsCalculators/BrokerCheck/index.htm). Here you can learn about the professional backgrounds of advisors and firms through the Financial Industry Regulatory Authority.

Now that we’ve mentioned that, let’s accentuate the positive. Visit the websites of the Financial Planning Association (fpanet.org) and the National Association of Personal Financial Advisors (napfa.org). Search functions on both sites will allow you to find a respected independent financial advisor near you.

Why look for an independent financial advisor? Well, when you search for an independent advisor, you have a better chance of finding someone who gets paid for their advice and/or their fee-based asset management, instead of deriving the bulk of their income from trades or product sales. Many of these independent advisors set flat or hourly fees for specific services. Some earn a fee that corresponds to a small percentage of the invested assets they manage for you. If your portfolio does well, they do well.
Look for meaningful professional designations. In fact, this article is a good starting point: investopedia.com/articles/01/101001.asp. This explains the most respected financial services industry credentials and what it takes to earn them. These designations signify advisors committed to upholding ethical as well as professional standards.

In the summer of 2009, there were more than 60,000 CERTIFIED FINANCIAL PLANNER™ certificants. In an average year, the Certified Financial Planner Board of Standards, Inc. conducts about 80 ethics code investigations. This means 99.9% of CFP® practitioners are abiding by the Board’s ethical and behavioral standards. You can visit cfp.net to check that a financial planner has maintained the designation (and you can also learn if they have been publicly disciplined).

Look for a communicator who wants to establish a true relationship. A good and conscientious financial advisor will meet with you at regular intervals and assist you to adjust your financial strategy in response to life changes and changing objectives. He or she will communicate with you in a forthright, open way – and that includes returning your calls or e-mails within 24 hours.

Your advisor should not “disappear” six months or a year after helping you invest. (No one wants to call their advisor only to find out that their IRA or portfolio has become a “house account”.) Look for someone who respects your preferred investment style. If you want to invest conservatively, a good financial advisor should respect that and offer suggestions that correspond to your wishes. If your advisor maintains that you need to invest more aggressively, you should receive a reasoned and considerate explanation why, supported by a detailed model scenario. Beware the advisor who seems to want to arm-wrestle you into investing they way they would invest, irrespective of your preferences.

Look at what your advisor is doing. If you are pressured to invest in a way you don’t want to, or if you happen to notice a lot of unwarranted buying and selling with regard to your portfolio, ask why. If you don’t get a straight answer in response, ask why you’re not getting one. Or simply take your investable assets elsewhere.

Lastly, ask around. There are financial advisors who have grown their businesses entirely by referral. The best advisors tend to get referred – and whether the referral comes from a professional, a business owner, a golf partner, or a relative, it signifies real trust in that advisor. If a friend or colleague refers a name to you, press him or her for more information and ask what the relationship has been like. Ask what qualities about that financial advisor have inspired the referral.

There are so many trusted financial advisors in this country – hardworking, ethical and compassionate financial services professionals who work for their clients assiduously. It is easier – much easier - to find one than the skeptics would have you believe.

What Is The Status of The Real Estate Market?

2009-08-31T07:17:00.000-05:00

Signs point to a rebound. As this recession emerged, many economists felt that it would only fade away when the sector where it all began healed itself. It was in late 2006 when the U.S. real estate bubble began to pop, setting off a chain reaction of shocks that hurt homeowners, lenders, and the entire U.S. economy.

Three years later, we have new hope in the real estate sector – and the numbers to support it.

Existing home sales rose 7.2% in July. This was not only the largest monthly gain ever recorded, but the fourth consecutive monthly gain. As the National Association of Realtors noted, the last time residential resales increased for four straight months was in June 2004. Additionally, the number of existing home sales in July 2009 was greater than a year earlier – and that hasn’t happened since November 2005.

Existing home prices seem to be moving north. In late August, the S&P/Case-Shiller Home Price Index brought more good news. Prices in 18 of 20 major U.S. housing markets improved in June. On top of that, the Federal Housing Finance Agency’s home price index gained 0.5% in June, on the heels of a revised 0.6% May gain.

Wellesley College economics professor Karl E. Case (the Case in Case-Shiller) was delighted. “When I saw these numbers, I danced a jig,” he told the New York Times. “It appears that the housing market is stabilizing quicker than people thought it would.”

New home sales jumped an amazing 9.6% in July. Guess what: that was the fourth straight monthly increase. The Commerce Department put the seasonally adjusted annual sales rate at 433,000 – the strongest sales pace since September 2008. New home sales increased by an astonishing 16.2% in the South in July. When you lower prices enough, someone will buy.

Not only that, equilibrium is slowly being restored in terms of supply and demand. At the end of July, the Commerce Department estimated that 271,000 new homes were for sale in the U.S. – the smallest number since March 1993. At the end of June, there was an 8.5-month supply of new homes on the market; in January, there was a 12.4-month supply.So inventory is being cleared out. That would seem to warrant a revival in home construction.

The statistics on housing starts bear this out. Single-family housing starts increased for the fifth consecutive month in July.

Mortgage rates are still low. On August 27, interest rates on conventional 30-year fixed-rate mortgages were averaging 5.14%, according to Freddie Mac’s weekly nationwide survey. Contrast that with 2006-2007, when rates on a 30-year FRM averaged more than 6.3%.

The real leading indicators may be in real estate. David Berson, chief economist at California mortgage insurer PMI Group, has tracked real estate market recoveries in relation to the seven American recessions since 1960. He has concluded that all of these recoveries were characterized by – or driven by – gains in housing starts and home sales. On average, his findings indicate that residential resales start improving four months prior to the end of a recession. In the average recovery, single-family housing starts improved for seven months in a row, and new home sales improved for eight straight months.

Here in late August, new and existing home sales have both increased for four straight months, and single-family housing starts have improved for the last five months.

As Zip Realty’s Patrick Lashinsky told Voice of America, “Affordability is at an all-time high. You have home prices that have dropped 25-30%. You have interest rates at very low amounts and you have consumers who have been waiting to buy. Combine that with the $8,000 tax credit you get if you're a first-time buyer, and it's creating a solid demand.” Here’s hoping that demand brings about a great and prompt economic recovery.

9 Trillion? Think Again!!

2009-08-27T15:48:00.003-05:00

Many people were shocked when the Obama Administration raised it's forecast of the projected deficit from $7 Trillion (the previous shocking number) to $9 Trillion dollars. For me it is hard to fathom. A client tried to help me this morning get a grasp of it when he said if you connected 1 trillion dollar bills length ways it would reach the planet of Saturn.

Greg Mankiw's post today stretched my mind more when he added in the anticipated new programs. Click here to see the numbers. If you dare!

Decisions, Decisions, Decisions.....

2009-08-24T09:56:00.001-05:00

We all make a variety of decisions throughout our lives that have an impact on our relationships, careers and yes, even our finances. If you’re like me you might find that we’ve made a “few” mistakes along the way. In our efforts we seek to make corrections along the way to avoid the same mistakes again. Solutions are often best discovered when the heat of the moment has passed and we are more open to looking at all the factors we should have had top of mind at the time.

For many, the last 18 months have financially been one of those “heat of the moment” times. Things seem much calmer now, and while I’m sure we will see difficulty ahead, now is a good time to review a portfolio strategy and prepare ourselves to meet our long-term goals and objectives. This article in today’s Wall Street Journal may help in avoiding common errors in building finances. No matter what the worthwhile endeavor, having a sound financial plan and carrying it out in a non-emotional manner is the high probability path to success.

Corporate Profits Up

2009-08-21T19:21:00.001-05:00

Corporations are making money again. Earnings reports amount to some of the most powerful indicators on Wall Street, so it has been great to see some of the headlines in the news this month. On August 6, with 80% of S&P 500 firms having shared 2Q 2009 earnings, CNBC.com rounded up data and found that 74% of S&P 500 companies had beaten estimates - a seismic shift from the first quarter.

While some of these profits reflected corporate decisions to downsize into smaller, leaner firms, others were attributable to the power of the global economy. After all, corporations such as Microsoft, Caterpillar, Intel and IBM now earn most of their revenue overseas, with surging/emerging economies in Asia often playing a big role in their profitability.

AIG feels confident it can repay the government. Shares of the insurance titan shot up 21% on August 20. Its newly appointed CEO, ex-Met Life CEO Robert Benmosche, told Bloomberg News that “we believe we will be able to pay back the government and we hope we will be able to do something for our shareholders as well.” Edward Liddy, AIG’s former CEO, again stated this month that it could probably pay the entirety of the federal bailout funds back within 3-5 years.

AIG made money in the second quarter - $1.8 billion, in fact. It still owes the federal government more than $80 billion – but that’s much less than the $182 billion in debt it once faced.

New optimism for Citigroup, other big banks. Although banks are still comparatively hesitant to lend, earnings certainly improved for some big names – Goldman Sachs, Citigroup, JPMorgan Chase and Bank of America combined for $13.6 billion in profit, just two quarters after they posted $20.8 billion in collective losses. Citi’s shares went up almost 9% on August 20 – capping a climb of about 56% during the last month – on growing faith that Citi will sell some of its troubled assets and pay back the federal government in reasonable time. Analysts liked the news that the Swiss government intended to reduce its stake in UBS, musing that the U.S. government might in turn wish to reduce its stake in Citi. Shares of State Street Corp. and SunTrust Banks Inc. also respectively rose 5.4% and 4.1% on August 20.

Speaking of UBS,its analysts recently concluded that the U.S. Treasury is up nearly $10 billion since it converted $25 billion worth of preferred Citi shares in March. They converted at $3.25 per share; as of August 21, they were trading at about $4.70 a share, about 48% north of the March level. It appears risk has brought reward.

Ford Motor Co. made money – and GM & Ford are boosting production. The C.A.R.S. program certainly was a tonic for domestic auto sales. In mid-August, Ford said it would make 10,000 more cars and trucks in 3Q 2009, and 141,000 more in 4Q 2009. General Motors said it would ramp up car/truck production by 60,000 vehicles in the second half of 2009, putting 1,350 employees back on the job and providing almost 10,000 workers with overtime. Ford made $2.3 billion in 2Q 2009 profit and was in the black by $834 million for the year’s first two quarters – largely through accounting gains, but still notable.

Can we see a strong September? As many longtime market watchers know, September is historically the weakest month for stocks. On average, the S&P 500 has lost 1.3% in September and the DJIA 1.2%. Trading volume has been light through the summer rally. It will be interesting to see if the current Wall Street optimism will translate into a September of strong gains.

Health Care Proposals

2009-08-15T10:18:00.001-05:00

The town hall debates over health care reform have ignited Americans like few recent issues. Discourses have become shouting matches. Away from the noise, here is a roundup of where things currently stand.

Who would pay for all this? Over the next 10 years, the federal government will need (by President Obama’s estimation) $950 billion to fund its health care programs. As planned, roughly a third of the money will be raised through increased revenues (i.e., limiting tax deductions for the wealthiest Americans) and two-thirds of it is supposed to come from reallocations of taxpayer money the federal government is already scheduled to receive. A coalition of pharmaceutical industry CEOs met with the President in July and have since pledged $80 billion in cost savings over the coming decade to help pay for the reform.

Would Medicare be cut? Republicans and Democrats disagree. “Nobody is talking about trying to change Medicare benefits,” President Obama stated during a July AARP teleconference. “What we want to do is to eliminate some of the waste that is being paid for out of the Medicare trust fund.” The non-partisan Congressional Budget Office figures that the House of Representatives version of the bill would trim Medicare spending by $500 billion across the next decade with no impact on Medicare benefits. AARP claims that “none of the health care reform proposals being considered by Congress would cut Medicare benefits or increase your out-of-pocket costs for Medicare services.” However, in an August 15 Republican Party radio address, Sen. Orrin Hatch contended that “hundreds of billions of dollars” will be cut from Medicare and used to “expand a financially-strapped Medicaid program and create another government-run plan.”

Would this run up the deficit further? The Congressional Budget Office says yes. It forecasts that President Obama’s reforms would add $239 billion to the federal deficit. Few on Capitol Hill think the reform effort could pay for itself.

Would health care be rationed? That’s what ex-Alaska Governor Sarah Palin contended in a Facebook post. The potential Republican presidential candidate stated that the reforms would lead to a system that would “refuse to allocate medical resources to the elderly, the infirm, and the disabled who have less economic potential.” Democrats and other supporters of the reforms counter her claim by saying that the current health care system already features “rationed” care dictated by health insurance company bureaucrats.⁶

Would there really be “death panels”? Earlier this month, Palin contended that the President’s health care reform proposals included “death panels” that would decide if seriously ill patients would live or die. In the eyes of many legislators, Palin was wildly misinterpreting a provision in the health care reform bill that would allow doctors to offer voluntary consultations about living wills, hospice care, health care directives and pain medication to patients and loved ones facing end-of-life decisions. (If the reforms pass, Medicare would pay physicians to provide this consulting.) The Senate Finance Committee has dropped this idea from its version of the proposed legislation; it remains in the House version.

Would the government (and taxpayer dollars) pay for abortions? It is uncertain. In one variant of the health care reform bill, abortions would have to be available via at least one insurance plan; however, Democrats say any abortions would be paid through patient premiums.

Would undocumented immigrants get free health care? On the CBS Evening News, Sen. Ben Cardin (D-MD) was heard stating, “Illegal aliens will not be in this bill, period, the end.” As currently written, the legislation states that only those lawfully present in the United States can qualify for health coverage. Yet what if one family member is in America legally, but others aren’t? Could his or her relatives become eligible? Republicans say that the proposed legislation offers no way to effectively stop undocumented immigrants from applying for health care benefits.

The debate rages on. Politically, the health care reform effort seems poised to end up being the story of the year – and the contention and negotiation will certainly last into fall. Stay tuned.

Wealth Management Potpourri

2009-08-07T10:03:00.002-05:00

Does the Government need to control the compensation of financial industries executives. Clearly it depends on whether or not whether or not taxpayer’s funds are involved.

The more pessimistic are now seeing brighter times ahead for the economy, Maybe those huge 2^nd quarter profits help?

History may not repeat itself with precision but it’s hard to argue that it certainly rhymes. Millions got it wrong on the market last Spring.

Another sign that the economy is on the mend.