Now What: A Guide to Retirement During Volatile Times

A Roadmap for 2010

by ken | 08:24 in |

A Roadmap for 2010

By Ken Mahoney

2009 was a year during which you needed more than a roadmap to navigate the financial markets. It was a year of volatility and amplifying investors’ mistakes. It was a year when a lot of ‘scared’ money moved out of Wall Street. It was a year with the lowest levels. And if investors did not enter the markets they missed one of the biggest rallies ever - the Dow Jones bounced more than 60% from the low to the high in 2009.

Some thought I ‘nailed it’ for 2008. In a December 2007 article about predictions for 2008, I was quoted as saying I was concerned about subprime lending and that perhaps that the bond market would do better than stocks and that perhaps stocks would be down. I did not know that the ‘wheels’ would come off the economy and that we would experience one of the greatest crashes in a generation. I had simply reviewed pre- 2008 statistics and averages – as the market was up for the fifth year. In an early 2009 blog posting I spoke about the need to re-balance. It was my opinion that although the stock market was ailing perhaps it was time to rebalance and add to stock holdings. These were not predictions for 2008 or 2009 but rather examples of how money management and rebalancing can work to your benefit.

As we begin our journey into 2010 I would like to share some thoughts, not predictions, about where we are headed financially. Following are some factors you should keep on your radar screen.

The Federal Reserve Bank

Ben Bernanke, Chairman of the Federal Reserve Bank, was named Time magazine’s Person of the Year for 2009. According to Time, he saved us from going into a depression. He cut rates and was creative in implementing programs to help the ailing mortgage and real estate markets. I am not so sure he will receive the same distinction for 2010. Sooner or later Mr. Bernanke will have to take away the proverbial ‘punch bowl’ and raise rates. During the last meeting of the Federal Reserve Bank in December 2009, the Fed stated that they will keep rates low for an extended period of time. What the Fed means by “an extended period” and when that extended period will end will play a key



role in the future of our economy. This does not mean you need to ‘duck and cover’ should the Fed raise rates but you will need to monitor the situation. The question for most market observers will be how fast and how much the Fed will raise rates?

Washington, DC and Taxes

As always, we have to watch what Washington does. Government policies shape our economy, impacting the various sectors differently and affecting the stock market. Many investors will be watching how the Government will raise taxes. Will higher taxes be a burden to businesses and/or consumers and/or investors? How will capital gains be treated? Will owning stocks be advantageous or disadvantageous? Until we can get a better handle on what Washington plans to do there are several avenues for investors to consider - converting your IRA to a Roth IRA, reviewing your portfolio positions in relation to a potential increase in the long term capital gains tax rate and maintaining a balanced portfolio.

Smaller is Bigger?

As consumers we are looking for smaller and smaller electronics - we started with desktops then downsized to laptops and now our cellular phones, often just larger than a credit card, meet many of our computing and communicating needs. In the works are smaller and more efficient mobile chips as well as enhanced software programs. With newer and more efficient technological developments emerging almost every day worth looking at are the companies behind them.

Oil

Oil prices play a significant role for consumers in the U.S. Oil prices indicate levels of worldwide demand. Most consumers, needless to say, would like to see gasoline at two dollars a gallon and crude at forty dollars a barrel but what would that say about the state of our economy? And the world economy? Oil gives us a lot of clues as to what is going on in the world. As the world economy emerges slowly from recession, developing countries will increase the demand for oil with almost every expert predicting significantly higher prices. While that in turn will benefit the producers it will certainly negatively impact the consumers.

China

Can you imagine China as the world’s engine? There are some reports that put China’s gross domestic product growth at 8 percent. The Chinese consumer is seeking more and driving global demand. In November of 2009 our trade deficit shrank as our exports increased - and where are so many of these exports going? To China. So, keep in an eye out for China in the coming year.

In 2010 we will have some tailwinds in our favor as the global economy rebounds but we will continue to face the headwinds with consumer leveraging and high unemployment. There are of course many factors to consider but the factors noted above are certainly worth tracking as you and/or your financial advisor plan for the future.



I wish you and your family peace and prosperity in 2010.

I welcome the opportunity to discuss this email with you in greater detail. Please feel free to call me at 845/371-0101 or email me at kmahoney@auroracapital.com.

And don’t forget to visit my blog for additional articles and comments – http://kenmahoney.blogspot.com




Mr. Mahoney is a registered broker with Aurora Capital, LLC, an SEC registered broker-dealer and member FINRA and SIPC. Aurora Capital Brokerage, trades cleared by Legent Clearing.

Disclaimer: This email and its contents is neither a solicitation nor an offer to buy/sell any insurance and/or financial product(s). Information about insurance and/or financial product(s) and/or investment products provided herein may not be suitable for all individuals and/or investors. Moreover, the information contained herein has been obtained from sources believed to be reliable; its accuracy and completeness cannot be guaranteed. Individuals and/or investors are advised to contact their appropriate professional for all personal planning, including but not limited to healthcare planning, retirement and estate planning, tax planning and/or corporate planning.

To Roth or not to Roth? by Ken Mahoney


The number of Google searches for information about Roth IRA conversions has increased dramatically recently. In fact, search data reveals that the number of people searching for the phrase “Roth IRA conversions” more than tripled between January and November 2009.1


This surge in interest about Roth IRA conversions is hardly surprising considering that starting in 2010, all taxpayers, regardless of income, are eligible to convert tax-deferred retirement assets to a Roth IRA. Prior to the change, the law prevented taxpayers with household incomes above $100,000 from converting assets to a Roth IRA.
If you are among the nearly 50% of Americans who believe their own taxes are going to increase, you may be interested in the possibility of a tax-free income that a Roth IRA conversion can bring.


A Roth IRA is a retirement savings vehicle that differs from tax-deferred retirement accounts such as traditional IRAs and most employer-sponsored retirement plans. With a Roth IRA, you make contributions with after-tax dollars, but qualified withdrawals after age 59½ are tax-free. Furthermore, a Roth IRA does not require minimum annual withdrawals after age 70½. It should be noted that there are still annual income limits in place for determining eligibility to contribute to a Roth IRA. The income limitation was eliminated only for conversions.


To qualify for the tax-free and penalty-free withdrawal of earnings and amounts converted to a Roth IRA, the account must be in place for at least five tax years and the distribution must take place after age 59½ or as a result of death, disability, or a first-time home purchase ($10,000 lifetime maximum).


Taxing Choices
When you convert tax-deferred assets from a traditional IRA and/or a former employer’s 401(k), 403(b), or 457 plan, the amount you convert in a given year needs to be declared as income on your tax return. If you are younger than age 59½ and pay the taxes from money that is not in the tax-deferred account (the recommended option), you can avoid a 10% federal income tax penalty.


Fortunately, you have options when it comes to paying the taxes on a Roth IRA conversion. In 2010 only, you can convert eligible retirement assets to a Roth IRA without having to claim the amount as income on your 2010 tax return. If you elect to do this, you must declare half of the converted amount as income in 2011 and the other half as income in 2012. In this way, you wouldn’t have to start paying taxes on a 2010 Roth IRA conversion until April 15, 2012.


However, by deferring the taxes on a 2010 conversion, the converted amount will be taxed at the income tax rates in effect in 2011 and 2012. As it stands, tax rates are scheduled to increase in 2011. Unless Congress acts to avert the tax rate increase, the taxes on Roth IRA conversions will be higher after 2010.
Also consider whether converting a sizable amount to a Roth IRA could move you into a higher tax bracket. If so, you may decide to convert smaller amounts over a period of several years.


If you have IRAs into which you have made both deductible and nondeductible contributions, the tax implications of a Roth IRA conversion can become complicated. It may be prudent to consult a tax professional.


You Can Change Your Mind Later


If you change your mind after utilizing a Roth IRA conversion, you can elect a “do over,” called a recharacterization. The assets would be converted back to tax-deferred status and you can file an amended tax return seeking a refund of the income taxes you paid on the conversion. In order to qualify, you must recharacterize the funds before October 15 of the year following the year in which you converted.


Roth IRA conversions offer the potential for tax-free income in retirement for taxpayers at all income levels. If you want more information about converting to a Roth IRA, call today. It’s critical to review your individual situation before making a decision about moving important assets.


1) InvestmentNews, November 16, 2009
2) Rasmussen Reports, September 3, 2009


The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2009 Emerald.


From the website www.thesmartinvestors.com


Disclaimer: This communication and its contents is neither a solicitation nor an offer to buy/sell any insurance and/or financial product(s). Information about insurance and/or financial product(s) and/or investment products provided herein may not be suitable for all individuals and/or investors. Moreover, the information contained herein has been obtained from sources believed to be reliable; its accuracy and completeness cannot be guaranteed. Individuals and/or investors are advised to contact their appropriate professional for all personal planning, including but not limited to healthcare planning, retirement and estate planning, tax planning and/or corporate planning