There was an income limit as to who was eligible to do a conversion.  Previously, only taxpayers with Modified Adjusted Gross Income ("AGI") of less than $100,000 were eligible.  This restriction has been removed for 2010.

There is an extra tax benefit for conversions done in 2010.  You have the option to spread the income one half into 2011 and the other half into 2012.

What's the benefit to a Roth IRA?  If the account is open for at least five years and the taxpayer is over age 59½, all distributions are income tax free.

What is the downside to making a conversion?

• The income tax needs to be paid on the amount distributed from the IRA account.  No tax is due on any IRA contributions that were nondeductible.
• If there is a distribution from the IRA that is not converted, in addition to the income tax, there is a federal income tax penalty of 10% for taxpayers under age 59½.

Who should consider a conversion?

• Someone who has the cash available from another source to pay the tax so that the entire IRA can be converted.
• Someone who expects to be in a higher tax bracket in retirement.
• Someone who doesn't expect to "need" their IRA to live on and wants to transfer wealth to the next generation.
• A younger taxpayer that will have many years of tax-free growth in their Roth IRA.

Separate from doing a conversion, taxpayers may also be eligible to contribute to a Roth IRA annually.  For 2009, the income limit as to who is eligible to make contributions to a Roth IRA based on your AGI as follows:

          Single:  $105,000 – $120,000
          Married Filing Joint:   $166,000 – $176,000

ACTION Item:  If you have the cash to pay the income tax, see if a Roth Conversion makes sense for you.  If it does, it could be a home run!

Thomas F. Scanlon, CPA, CFP®
 

You don’t have to be in the real estate industry to know we are in a tough market. Government is making changes to compliance in the lending industry that is slowing down the process. We keep hearing about “bank reform”, but oddly enough the reins keep getting tighter and tighter on lending.

Recently, Georgia announced that they banned “yield spread premiums” on all loans. This is great news for lenders but bad news for brokers. This announcement basically shut down all the brokers in Georgia and I’m sure other states will follow.

This ultimately means fewer options for consumers to qualify for loans and the possibility of potential higher rates due to less competition in the market place. Competition is healthy. It ensures that consumers receive a higher level of service and be given the opportunity to shop and seek fair rates and fees from the lender or broker they choose.

Jeff Daniels

email: jdaniels@primeres.com

website: www.jeffdaniels.biz

The Savings Incentive Match Plan for Employees of Small Employers ("SIMPLE") is designed for small employers that want to offer a retirement plan for their employees.

Eligible employers are:

• Employers with less than 100 employees.
• Employers that do not offer any other qualified retirement plans.

Employees that earned a minimum of $5,000 in the past year are eligible to participate in the plan.

The most an employee can put into a SIMPLE plan in 2010 is $11,500.  Taxpayers over age 50 are allowed to contribute an additional $2,500 as a "catch up" contribution.  These contributions are made from payroll deductions on a pre-tax basis.

Employers must match dollar for dollar up to 3% of the employees' earnings (before their contribution).  This match is made only to employees that are participating in the plan.

Alternatively, an employer can elect to make "non-elective contributions" of 2%, not to exceed a wage base of $245,000 for 2010.  Therefore, the maximum employer match would be $4,900.  Under this option, the employer would contribute for eligible employees whether they were participating in the plan or not.

One major benefit of a SIMPLE plan is that the cost to adopt and manage this plan is very modest.  With other qualified retirement plans such as the 401(k) plan and a profit-sharing plan, the IRS requires reports to be filed.  This increases the administrative costs of the plan.  There are no annual reporting requirements with a SIMPLE plan, which helps keep expenses down. 

ACTION ITEM:  Smaller employers looking to offer a retirement plan for their employees should consider a SIMPLE plan.

Thomas F. Scanlon, CPA, CFP®
 

For 2010, the maximum contribution to a Roth 401(k) plan is $16,500.  For taxpayers over the age of 50, an additional $5,500 is allowed as a "catch up" contribution.  This amount can be put into a 401(k) plan, a Roth 401(k) plan or any combination of the two.

Why would participating in a Roth 401(k) plan make sense for you?

• If you thought your income tax bracket was going to be higher in retirement.
• Younger people will have many years of tax-free growth and can accumulate a significant amount of money.

There is a phase out for Roth IRA's based on your AGI.  In 2009 it is as follows:

• Single:   $105,000–$120,000
• Married Filing Joint:   $166,000–$176,000

What if your employer doesn't offer a Roth 401(k) plan?

Have a conversation with them and see if they would be willing to adopt this plan.  There may be some administrative costs, so not all employers will want to participate.

If your employer offers a match, first of all, be grateful.  The match, however, will need to be made to the 401(k) plan and not the Roth 401(k) plan.

Action Item:  Find out if your employer offers a Roth 401(k) plan.  If so, review the items above to determine if this retirement plan makes sense in your situation.

Thomas F. Scanlon, CPA, CFP®

For 2010, an employee can contribute up to $16,500 into a 401(k) plan.  Taxpayers over age 50 are allowed to contribute another $5,500 as a "catch up" contribution for a total of $22,000.  This catch up provision was implemented because Congress did not think people were saving enough for retirement.  Imagine that—for once they got it right.

Why should you contribute to your 401(k) plan?

• You are on your own with your retirement.  That's right,  Long gone are the days when someone would go and work for an employer for 30 years and then retire.  They would be eligible for a pension and get their social security benefits.  Now most companies no longer offer a pension plan.
• Although some employers have eliminated their pension plan, many will still offer a company match.  If your employer offers a match, participate in the 401(k) plan at least up to the amount the company is going to match.

What is another big benefit to a 401(k) plan?  Having the money taken out of your paycheck automatically.  This is huge.  Remember, you can't spend money you don't have.

Do you want to have financial piece of mind in retirement?  Put the most you can into your 401(k) plan because you're going to need it.

Action Item:  Employees should be participating in their employer 401(k) plan.  This should be at least up to the amount of the employer match.  For employees that aren't covered by a pension plan, the 401(k) plan will likely be the foundation of their retirement plan.

Thomas F. Scanlon, CPA, CFP ®

Each time a tragedy strikes in the world, many people feel a strong sense of wanting to help the victims in any way possible.  There is a huge outpouring of support from around the globe comprised of financial and non-financial support.

As seen with Katrina, the tsunami and September 11th, many avenues are typically established for people to provide financial support (donations) to help the victims and rebuild the affected regions.

Unfortunately, not all charities are created equally (or with similar intentions).  Each time such a tragedy strikes, there are individuals who set-up what appears to be legitimate charitable organizations seeking your funds, only to learn your funds never reached the victims.  Rather, these organizations are found to be nothing more than scams established to steal your funds, preying on your emotions and vulnerabilities.  Certainly these occurred in response to Katrina, the tsunami, and September 11th.

Sadly, over a week ago the country of Haiti fell victim to a major earthquake followed by many aftershocks.  Port of Prince was all but destroyed, leaving hundreds of thousands without shelter, food and water.  In response, charities have already cropped up seeking your funds to aid Haiti.  Although too soon to prove, it is likely some of those "charities" are nothing more than scams seeking to divert your funds for personal use.

Congress is working to pass a bill to allow your donations made in 2010 to the Haitian relief effotrts to be tax deductible in tax year 2009.  We'll have to watch to see if that actually happens.

In the meantime, please be sure to research any organizations you are considering before sending any funds.  Stick with the major charities that have been around for years providing relief around the globe.  Avoid smaller, recently established charities created solely to help the Haiti efforts.  There are several well-known organizations worthy of donations—Red Cross, Americare, CARE, Feed the Children and Habitat for Humanity to name a few.

You work hard for your money, and with the state of the global economy and limited funds available, every dollar counts.  If you find yourself in a position to provide support to Haiti, please be sure your funds will actually benefit the victims affected in Haiti.

Stephen Pedneault, CPA, CFF, CFE

http://forensicaccountingservices.com

Recently, Tom Scanlon presented "The Seven Sins of Personal Financial Planning"™ to The Manchester Chamber of Commerce.

Who is eligible for a Roth IRA?

• You need to have earned income at least up to the amount of the contribution.
• There is a phase out for Roth IRA's based on your Adjusted Gross Income.  In 2009, it is as follows:

Single:  $105,000 – $120,000
Married Filing Joint:  $166,000 – $176,000

The annual contribution amount to a Roth IRA is the same as an IRA―$5,000 per year.  For those over the age of 50, there is an additional $1,000 allowed as a "catch up" contribution.

What are the significant differences between an IRA and a Roth IRA?

• Unlike the IRA, the Roth IRA is not income tax deductible.
• If the Roth IRA account is open at least five years and the taxpayer is over age 59½ , all of the earnings are income tax free. With a traditional IRA the earnings are tax deferred, not tax free.
• The Roth IRA is not subject to the Required Minimum Distribution rules.  These rules force taxpayers to begin taking distributions over age 70½.  Therefore, you are not required to take distributions from your Roth IRA, but your are required to take the minimum distribution with an IRA.

The Roth IRA is an awesome vehicle for retirement.  This is particularly true for younger taxpayers as they'll have many years of tax free growth.

Action Item:  Research if you are eligible for a Roth IRA.  If so, you have until April 15, 2010 to fund your 2009 Roth IRA.

 Thomas F. Scanlon, CPA, CFP

Let's start with the basics.  Who's eligible for an IRA?  Just about everyone.  More specifically, an individual who:

     • Has earned income of at least the amount of the contribution.
     • Is under age 70½.

That's it to have an IRA.  It is more complicated to determine if you can have a tax deductible IRA.  If you are an "active participant" in an employer sponsored retirement plan, there are eligibility limits based on Adjusted Gross Income (AGI).  An active participant is an employee that participates in a 401(k) plan, profit sharing plan, or a defined benefit pension plan.  To determine if you are an active participant just review your W-2.  If the "Pension Plan" box is checked off, then you are an active participant.

The 2009 phase out for deductible IRA's based on Adjusted Gross Income is as follows:

     • Single:  $55,000 – $65,000
     • Married couple where both spouses are active participants:  $89,000 – $109,000
     • Married couple where one spouse is an active participant:  $166,000 – $176,000

For those taxpayers who exceed the AGI limits, they are entitled to make a nondeductible IRA contribution.  Use Form 8606 to report your nondeductible contributions.

The annual contribution limit for 2009 is $5,000.  Taxpayers age 50 and over are allowed an additional $1,000 "catch-up" contribution.

Action Item: You have until April 15, 2010 to fund your 2009 IRA.  Review your 2009 tax material as soon as possible to determine if an IRA makes sense in your situation.  Remember ― IRA…all the way…to retirement!

Thomas F. Scanlon, CPA, CFP®

What's the best New Year’s resolution you can make this year?  Don't make any!  A better solution is to have goals, write them down, review and adjust every ninety days.

Affluent people know the damage taxes can inflict on their income and net worth.  These can be income, estate, gift, property, excise, and sales taxes.  Take a page out of their playbook and work at reducing these taxes and expanding your income and net worth.

Action Item:  Stick with us and we'll be your guide on this journey.  This will be much more rewarding than most New Year’s resolutions that are forgotten by Groundhog Day.

Thomas F. Scanlon, CPA, CFP®