As another year comes to a close, you will have the chance to make many decisions that affect your financial well-being in the year ahead. In particular, these last months are the last chance that you will have for moves that will alter your 2009 tax obligations. This year’s financial market roller coaster may make this unusually complicated for some taxpayers.
• Should you take additional capital gains or losses? As you review your investment activity for 2009, note any additional sales that seem appropriate from an investment standpoint—then check with your
Showing posts with label Protecting wealth. Show all posts
Showing posts with label Protecting wealth. Show all posts
Sunday, November 1, 2009
Thursday, October 1, 2009
Is it over?
October 1, 2009. Speaking on the anniversary of the collapse of Lehman Brothers, Fed Chairman Ben Bernanke said that from a technical perspective, “The recession is very likely over at this point.” He cautioned, however, that the economy may remain weak. In its final meeting of the quarter, the Fed seemed to confirm that view, suggesting that economic activity had “picked up.”
Still, short-term interest rates were left unchanged. Stock markets were in agreement, as the recovery in the Dow Jones Industrial Average off its March low has been spectacular.
Unemployment
Employment tends to be a lagging indicator for economic recoveries, which is why no one expects much good news on this front for the rest of the year. But the bad news just seems to keep on coming.
• Nationally, unemployment hit 9.7% in August, the highest level in 26 years.
• Teen unemployment was at 25.5%, the highest rate since the Bureau of Labor Statistics began breaking out this figure in 1948.
• California’s unemployment reached a 70-year high. El Centro, California, recorded an astounding 30.2% jobless rate in July.
• The broader measure of unemployment, one that accounts for those who have given up on looking for work, reached 16.8% in August. That’s the highest since this measure was adopted in 1994.
Hopefully, the lag between the end of the recession and a return of job growth won’t be too long, or the recovery will be short-lived.
Given these grim statistics, it’s not surprising that the housing market continues to struggle. Some 7.58% of home mortgages were at least 30 days late on payments in August, a record. About 1.5 million mortgages are in the early stages of foreclosure, and another 1.2 million are in limbo—the borrower is in serious default, but the bank hasn’t begun foreclosure proceedings.
Inflation
In the fiscal year that ended September 30, the federal government issued a total of $7 trillion in bonds. Net borrowing needs were $1.7 trillion, nearly $1 trillion more than in the final year of the Bush presidency.
Many observers expected that the borrowings would have an inflationary impact, but there is no sign of that to date. Perhaps the poor employment numbers and slack in the economy are responsible. For the 12 months that ended August 31, the Consumer Price Index (CPI) was down 1.5%. Health care costs are rising relentlessly, but otherwise inflation remains tamed.
Some CPI components:
% change
Food at home -1.6
Food away from home 3.0
Gasoline -30.0
New vehicles 0.5
Used cars and trucks -5.4
Medical care services 3.2
Energy
The upside of higher oil prices is that it stimulates more exploration. Good news—more than 200 discoveries of oil and gas deposits already have been announced this year. Roughly 10 billion barrels of oil were discovered in the first half of the year. At that pace we could reach the best rate of discoveries since 2000.
However, much of the newly found oil is only worth recovering when the price of oil is $60 per barrel or more. The fact that the price fell to $34 per barrel last December worries some oil executives, especially when coupled with continuing U.S. economic weakness.
(October 2009)
© 2009 M.A. Co. All rights reserved.
Still, short-term interest rates were left unchanged. Stock markets were in agreement, as the recovery in the Dow Jones Industrial Average off its March low has been spectacular.
Unemployment
Employment tends to be a lagging indicator for economic recoveries, which is why no one expects much good news on this front for the rest of the year. But the bad news just seems to keep on coming.
• Nationally, unemployment hit 9.7% in August, the highest level in 26 years.
• Teen unemployment was at 25.5%, the highest rate since the Bureau of Labor Statistics began breaking out this figure in 1948.
• California’s unemployment reached a 70-year high. El Centro, California, recorded an astounding 30.2% jobless rate in July.
• The broader measure of unemployment, one that accounts for those who have given up on looking for work, reached 16.8% in August. That’s the highest since this measure was adopted in 1994.
Hopefully, the lag between the end of the recession and a return of job growth won’t be too long, or the recovery will be short-lived.
Given these grim statistics, it’s not surprising that the housing market continues to struggle. Some 7.58% of home mortgages were at least 30 days late on payments in August, a record. About 1.5 million mortgages are in the early stages of foreclosure, and another 1.2 million are in limbo—the borrower is in serious default, but the bank hasn’t begun foreclosure proceedings.
Inflation
In the fiscal year that ended September 30, the federal government issued a total of $7 trillion in bonds. Net borrowing needs were $1.7 trillion, nearly $1 trillion more than in the final year of the Bush presidency.
Many observers expected that the borrowings would have an inflationary impact, but there is no sign of that to date. Perhaps the poor employment numbers and slack in the economy are responsible. For the 12 months that ended August 31, the Consumer Price Index (CPI) was down 1.5%. Health care costs are rising relentlessly, but otherwise inflation remains tamed.
Some CPI components:
% change
Food at home -1.6
Food away from home 3.0
Gasoline -30.0
New vehicles 0.5
Used cars and trucks -5.4
Medical care services 3.2
Energy
The upside of higher oil prices is that it stimulates more exploration. Good news—more than 200 discoveries of oil and gas deposits already have been announced this year. Roughly 10 billion barrels of oil were discovered in the first half of the year. At that pace we could reach the best rate of discoveries since 2000.
However, much of the newly found oil is only worth recovering when the price of oil is $60 per barrel or more. The fact that the price fell to $34 per barrel last December worries some oil executives, especially when coupled with continuing U.S. economic weakness.
(October 2009)
© 2009 M.A. Co. All rights reserved.
Tuesday, September 1, 2009
IRAs and bankruptcy
In personal bankruptcy proceedings, the general rule is that IRAs and other qualified retirement assets are protected; they not subject to the claims of the individual’s creditors. However, a recent Florida court case showed that every rule has its exceptions.
Ernest Willis filed for bankruptcy in 2007. Among his assets were a $1.2 million Merrill Lynch IRA and two smaller IRAs of less than $150,000 each. The IRAs had favorable determination letters from the IRS, which created a presumption that they would be exempt from the claims of Willis’ creditors. However, the bankruptcy court ruled that the creditors had an opportunity to rebut that presumption, which they did.
In December 1993 Willis took a $700,000 distribution from the Merrill Lynch IRA to take care of a delinquent mortgage on property that he owned with his wife. The money was returned to the IRA in February 1994, 64 days later. Had the money been restored to the IRA within 60 days, there would have been no problem. However, because Willis crossed the 60-day line, the bankruptcy court ruled that the loan was a prohibited transaction, one that cost the IRA its tax-qualified status. The entire $700,000 should have become a taxable distribution, and the redeposit of the money should have been penalized as an excess contribution. However, the IRS never noticed the problem. Nevertheless, the bankruptcy court now holds that because the IRA ceased being a qualified retirement plan in 1993, it was no longer a protected asset in bankrupcy.
What’s more, in 1997 Willis made a series of eight transfers between his regular brokerage account and the Merrill Lynch IRA. Transfers from the IRA were all returned to it within 60 days, but the tax law allows for only one 60-day rollover per year. The Court held that this “check-swapping” scheme also amounted to prohibited borrowing from the IRA, so that if the IRA hadn’t become invalid in 1993, it certainly did become so in 1997.
The other two IRAs were traceable to funds received from the Merrill Lynch IRA after 1997, so they were similarly unprotected.
The statute of limitations has run for the 1993 and 1997 tax years, so the IRS isn’t likely to get the tax money that arguably came due then. But the shield created by the lapse of time with respect to the tax claims offers no protection in the bankruptcy context. Thus, it’s important to handle tax-qualified assets with utmost care, to be certain that they will be available during retirement.
(September 2009)
© 2009 M.A. Co. All rights reserved.
Ernest Willis filed for bankruptcy in 2007. Among his assets were a $1.2 million Merrill Lynch IRA and two smaller IRAs of less than $150,000 each. The IRAs had favorable determination letters from the IRS, which created a presumption that they would be exempt from the claims of Willis’ creditors. However, the bankruptcy court ruled that the creditors had an opportunity to rebut that presumption, which they did.
In December 1993 Willis took a $700,000 distribution from the Merrill Lynch IRA to take care of a delinquent mortgage on property that he owned with his wife. The money was returned to the IRA in February 1994, 64 days later. Had the money been restored to the IRA within 60 days, there would have been no problem. However, because Willis crossed the 60-day line, the bankruptcy court ruled that the loan was a prohibited transaction, one that cost the IRA its tax-qualified status. The entire $700,000 should have become a taxable distribution, and the redeposit of the money should have been penalized as an excess contribution. However, the IRS never noticed the problem. Nevertheless, the bankruptcy court now holds that because the IRA ceased being a qualified retirement plan in 1993, it was no longer a protected asset in bankrupcy.
What’s more, in 1997 Willis made a series of eight transfers between his regular brokerage account and the Merrill Lynch IRA. Transfers from the IRA were all returned to it within 60 days, but the tax law allows for only one 60-day rollover per year. The Court held that this “check-swapping” scheme also amounted to prohibited borrowing from the IRA, so that if the IRA hadn’t become invalid in 1993, it certainly did become so in 1997.
The other two IRAs were traceable to funds received from the Merrill Lynch IRA after 1997, so they were similarly unprotected.
The statute of limitations has run for the 1993 and 1997 tax years, so the IRS isn’t likely to get the tax money that arguably came due then. But the shield created by the lapse of time with respect to the tax claims offers no protection in the bankruptcy context. Thus, it’s important to handle tax-qualified assets with utmost care, to be certain that they will be available during retirement.
(September 2009)
© 2009 M.A. Co. All rights reserved.
Card check
The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 was signed by President Obama last May, after passing both Houses of Congress by wide, bipartisan margins. The law provides for a number of changes that credit card holders will welcome:
• When multiple interest rates apply to the same credit line, payments will apply first to the balance with the highest interest rate, the opposite of past practice.
• A minimum of 21 days must be allowed to pay a bill.
• Card contracts must be available online, not just sent as fine-print forms to cardholders.
• At least 45 days’ notice must be given before the APR is increased.
• New restrictions apply to providing cards to those under 21. In many cases, a parent will be required to cosign for the card.
The restrictions for younger cardholders were included based upon evidence that many college students have been having trouble handling their debt, getting in over their heads. On the other hand, there is some concern that young people will have a harder time establishing their own independent credit histories once the new rules take effect.
That doesn’t happen until February 22, 2010. The delayed implementation date gives credit card companies time to adjust to the new requirements. Some of the adjustments include taking a much more conservative approach to issuing credit. Some cardholders have found their credit limits reduced, sometimes unexpectedly. A big decline in the use of “teaser rates” is expected.
These developments are a predictable response given the prospective curtailment of profit opportunities for the card issuers.
It will be important to monitor communication from card companies during the coming months. Best of all, implement a plan to pay down debt aggressively, strengthening your financial foundation and reducing your vulnerability to shifts in the economic winds.
(September 2009)
© 2009 M.A. Co. All rights reserved.
• When multiple interest rates apply to the same credit line, payments will apply first to the balance with the highest interest rate, the opposite of past practice.
• A minimum of 21 days must be allowed to pay a bill.
• Card contracts must be available online, not just sent as fine-print forms to cardholders.
• At least 45 days’ notice must be given before the APR is increased.
• New restrictions apply to providing cards to those under 21. In many cases, a parent will be required to cosign for the card.
The restrictions for younger cardholders were included based upon evidence that many college students have been having trouble handling their debt, getting in over their heads. On the other hand, there is some concern that young people will have a harder time establishing their own independent credit histories once the new rules take effect.
That doesn’t happen until February 22, 2010. The delayed implementation date gives credit card companies time to adjust to the new requirements. Some of the adjustments include taking a much more conservative approach to issuing credit. Some cardholders have found their credit limits reduced, sometimes unexpectedly. A big decline in the use of “teaser rates” is expected.
These developments are a predictable response given the prospective curtailment of profit opportunities for the card issuers.
It will be important to monitor communication from card companies during the coming months. Best of all, implement a plan to pay down debt aggressively, strengthening your financial foundation and reducing your vulnerability to shifts in the economic winds.
(September 2009)
© 2009 M.A. Co. All rights reserved.
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