We would like to wish you and your family and very Happy Thanksgiving! Please remember our armed forces throughout the world as you celebrate with family and friends.
Below is a small collection of funny video clips we have either received or come across over the years, which we thought you would find enjoyable. Enjoy the clips and have a wonderful holiday!
Thursday, November 26, 2009
Friday, November 20, 2009
2010 Roth Conversion Opportunity
In 2010, any taxpayer regardless of income will be eligible to convert an existing IRA to a Roth IRA. As the law stands right now, you can’t convert from a traditional IRA to a Roth IRA if your modified adjusted gross income (MAGI) on your federal income tax return is over $100,000. Beginning in 2010 (and beyond) that limitation is abolished (unless there are changes to the tax code in the future). In addition, there's a special rule in place for 2010 only that will allow you to recognize 100% of the conversion income in 2010 or split it equally between the next two tax years.
Even though you will have to pay current income tax on the amount you convert to a Roth IRA, it still might make sense if:
1) You think you will be in the same or a higher tax bracket at retirement.
2) You have a long enough time horizon.
3) You can pay the tax from sources other than your IRA.
4) You don’t need the money and want to leave tax-free funds to your heirs.
A few important notes about paying the conversion tax:
If you pay the tax from your IRA, you would lose the potential benefit of tax-free growth on that amount, defeating the purpose. Of course, if you’re under 59½, withdrawing money from your IRA to pay the tax would be an even worse idea, since you would also incur a 10% federal penalty. (State penalties may also apply.)
Ideally, you will have cash on hand to pay the income tax. If you need to sell appreciated assets to pay the conversion tax, the additional capital gains tax would work against the case for a Roth conversion. Assuming you have the cash available elsewhere to pay the conversion tax, you still need to account for the “opportunity cost” of what that money could have earned had it remained invested in a taxable account.
Income taxes aside, individuals may find that converting part or all of a traditional IRA to a Roth is advantageous for estate-planning purposes, especially if there is a significant IRA balance that doesn’t need to be tapped during the owner’s lifetime. Though the value of a Roth will still be included in the gross estate, because there are no required minimum distributions, the account could grow larger than it otherwise might under traditional IRA distribution rules; leaving more for heirs to withdraw income-tax-free over their lifetimes. What's more, the income tax paid at the time of conversion (preferably from assets other than the IRA) will reduce the owner’s gross estate. In effect, the account owner is prepaying income tax on behalf of future beneficiaries without it really counting as a taxable gift.
We will be discussing Roth Conversions with clients in the coming months to determine if a conversion would be advantageous as we do expect future tax rates to be higher than they are today. In the meantime, if you have any questions please let us know.
Even though you will have to pay current income tax on the amount you convert to a Roth IRA, it still might make sense if:
1) You think you will be in the same or a higher tax bracket at retirement.
2) You have a long enough time horizon.
3) You can pay the tax from sources other than your IRA.
4) You don’t need the money and want to leave tax-free funds to your heirs.
A few important notes about paying the conversion tax:
If you pay the tax from your IRA, you would lose the potential benefit of tax-free growth on that amount, defeating the purpose. Of course, if you’re under 59½, withdrawing money from your IRA to pay the tax would be an even worse idea, since you would also incur a 10% federal penalty. (State penalties may also apply.)
Ideally, you will have cash on hand to pay the income tax. If you need to sell appreciated assets to pay the conversion tax, the additional capital gains tax would work against the case for a Roth conversion. Assuming you have the cash available elsewhere to pay the conversion tax, you still need to account for the “opportunity cost” of what that money could have earned had it remained invested in a taxable account.
Income taxes aside, individuals may find that converting part or all of a traditional IRA to a Roth is advantageous for estate-planning purposes, especially if there is a significant IRA balance that doesn’t need to be tapped during the owner’s lifetime. Though the value of a Roth will still be included in the gross estate, because there are no required minimum distributions, the account could grow larger than it otherwise might under traditional IRA distribution rules; leaving more for heirs to withdraw income-tax-free over their lifetimes. What's more, the income tax paid at the time of conversion (preferably from assets other than the IRA) will reduce the owner’s gross estate. In effect, the account owner is prepaying income tax on behalf of future beneficiaries without it really counting as a taxable gift.
We will be discussing Roth Conversions with clients in the coming months to determine if a conversion would be advantageous as we do expect future tax rates to be higher than they are today. In the meantime, if you have any questions please let us know.
Liquidity, Liquidity, Liquidity
The chart below is only a few days old and can be found on the St Louis Federal Reserve website (stlouisfed.org). It shows a very clear historical picture of how much liquidity is being pumped into the system. At some point, this liquidity is going to have unintended consequences.
It should be noted that this chart represents assets issued directly by the Treasury or Federal Reserve Bank and the monetary base figure changes only if the Treasury or Federal Reserve take action to permit the change.
The little blip on the chart just before the year 2000 was the Federal Reserve pumping billions of dollars into the system over fears of Y2K.
(double click on chart for bigger image)
It should be noted that this chart represents assets issued directly by the Treasury or Federal Reserve Bank and the monetary base figure changes only if the Treasury or Federal Reserve take action to permit the change.
The little blip on the chart just before the year 2000 was the Federal Reserve pumping billions of dollars into the system over fears of Y2K.
(double click on chart for bigger image)
Friday, November 13, 2009
Home Buyer Tax Credit Extension
As expected, President Obama signed into law an extension and expansion of the home buyer's tax credit this past week. It's part of the unemployment compensation extension bill.
The home Buyer's credit originated in February as part of an economic stimulus bill and was due to expire on December 1, 2009. It has now been extended to home purchases that are entered into agreement before May 1, 2010, and closed before July 1, 2010.
The original credit amount for a "first-time home buyer" remains at 10 percent of the purchase price, up to a maximum of $8,000. A first-time home buyer is defined as someone (or a spouse) who has not owned a home in the last three years. The credit was phased out for singles with Adjusted Gross Income (AGI) of $75,000 and married couples with AGI of $150,000, but the new law increases the phaseouts to $125,000 and $225,000, respectively.
In addition to the extensions of the credit for first-time home buyers, the new law allows for a tax credit for home buyers that already own homes. A new credit of 10 percent of the purchase price, up to $6,500, is available to buyers who have lived in their present homes for 5 consecutive years of the past 8 years. This credit is meant to spur on "move up" buyers. The same income phaseout limits apply.
The credit, whether used by a first-time home buyer or a long-time resident home buyer, applies only to primary residences, and the purchase price must not exceed $800,000. There seems to be general consensus that this law will not be extended again.
All homes with a purchase price of less than $800,000 qualify, including newly-constructed or resale, and single-family detached, townhomes or condominiums, provided that the home will be used as the principal residence. Vacation home and rental property purchases DO NOT qualify.
Here is one important and potentially critical oddity about this credit: you may claim it on your 2009 tax return, even if you buy your house in 2010!! So, even though the home purchase may occur in 2010, you have the right to claim it for 2009, if you extend your return or amend your already-filed 2009 return. In this way you will receive your cash much sooner than waiting until you file your tax return for 2010. However, keep in mind the AGI limits mentioned above; these limits apply to the year in which you claim the credit.
The credit is a true credit for tax purposes. Therefore, if you complete your tax return and are due a refund of let's say $1,000, you would add the $8,000 credit to this amount for a total refund of $9,000. Please consult your tax advisor for more details.
The home Buyer's credit originated in February as part of an economic stimulus bill and was due to expire on December 1, 2009. It has now been extended to home purchases that are entered into agreement before May 1, 2010, and closed before July 1, 2010.
The original credit amount for a "first-time home buyer" remains at 10 percent of the purchase price, up to a maximum of $8,000. A first-time home buyer is defined as someone (or a spouse) who has not owned a home in the last three years. The credit was phased out for singles with Adjusted Gross Income (AGI) of $75,000 and married couples with AGI of $150,000, but the new law increases the phaseouts to $125,000 and $225,000, respectively.
In addition to the extensions of the credit for first-time home buyers, the new law allows for a tax credit for home buyers that already own homes. A new credit of 10 percent of the purchase price, up to $6,500, is available to buyers who have lived in their present homes for 5 consecutive years of the past 8 years. This credit is meant to spur on "move up" buyers. The same income phaseout limits apply.
The credit, whether used by a first-time home buyer or a long-time resident home buyer, applies only to primary residences, and the purchase price must not exceed $800,000. There seems to be general consensus that this law will not be extended again.
All homes with a purchase price of less than $800,000 qualify, including newly-constructed or resale, and single-family detached, townhomes or condominiums, provided that the home will be used as the principal residence. Vacation home and rental property purchases DO NOT qualify.
Here is one important and potentially critical oddity about this credit: you may claim it on your 2009 tax return, even if you buy your house in 2010!! So, even though the home purchase may occur in 2010, you have the right to claim it for 2009, if you extend your return or amend your already-filed 2009 return. In this way you will receive your cash much sooner than waiting until you file your tax return for 2010. However, keep in mind the AGI limits mentioned above; these limits apply to the year in which you claim the credit.
The credit is a true credit for tax purposes. Therefore, if you complete your tax return and are due a refund of let's say $1,000, you would add the $8,000 credit to this amount for a total refund of $9,000. Please consult your tax advisor for more details.
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