2010 Window Open for Roth IRA Conversions

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

In 2010, anyone, regardless of income level, may open or transfer funds from an IRA account to a Roth IRA, thanks to the Pension Protection Act of 2006.

Prior to this year, only taxpayers with an Adjusted Gross Income of $100,000 or less have been allowed to convert funds from their (individual retirement account)  IRA into a Roth IRA. With a Roth IRA, all contributions are after-tax (i.e. non-deductible), however, earnings from the account can be withdrawn free of federal income taxes once the individual reaches retirement.


Earnings from assets transferred from an IRA account, are not available for tax free withdrawal until five years have passed since conversion and the account holder is at least 59½ years old. There are no minimum distribution requirements for a Roth IRA.

To convert existing IRA funds to a Roth IRA, taxes must be paid on any pre-tax IRA contributions, but there's another benefit to converting in 2010. For funds converted in 2010, the tax liability can be paid one half in tax year 2011 and half in tax year 2012. Convert in 2011, and taxes will be due on the full conversion amount for tax year 2011.

Before you opt to convert to a Roth, however, you need to run the numbers. Although all earnings from a Roth IRA are exempt from federal income taxes, by paying taxes on all contributions in advance you lose the earning power of those funds. You may also be paying taxes at a higher rate than you might if you held your IRA into retirement when your tax rate might be less.

Typically, a Roth conversion will make the most sense for individuals with years to go before they retire. The closer you are to retirement, the less value a Roth might have unless your goal is to pass on the IRA to your heirs.

There are no distributions required from a Roth IRA during your lifetime and by converting to a Roth and paying the necessary taxes, you will shrink your taxable estate. That could mean bequeathing a pool of income-tax-free money to your heirs.If you have an IRA in which after-tax contributions have been made, you only need to pay taxes on accumulated earnings to convert to a Roth IRA.

As always, please consult your tax and/or financial advisor before making any irreversible decisions!

Please feel free to email me with any questions or comments at Paul@investfortomorrow.com.

Until next time…

Paul Schatz

Heritage Capital LLC
http://www.investfortomorrow.com/

Federal court orders SEC to return $795,000 lost in Connecticut fraud scheme

The federal district court in New Haven has ordered the U.S. Securities Exchange Commission to return $795,000 to the Connecticut Retirement and Trust Funds for the benefit of investors who were harmed investors by a fraudulent scheme perpetrated by the former president of the Connecticut State Senate, William A. DiBella.

On May 18, 2007, following a seven-day trial, a jury returned a verdict finding DiBella liable for aiding and abetting violations of various securities laws.

In its 2004 complaint, the SEC alleged that DiBella and his consulting company, North Cove, participated in a fraudulent scheme with former state Treasurer Paul Silvester, concerning Silvester's investment of $75 million on behalf of the Connecticut Retirement and Trust Funds with investment advisor, Thayer Capital Partners.

Although neither Mr. DiBella nor North Cove had any role in the investment of the funds with Thayer, and performed no meaningful work related to the investment, Silvester nevertheless requested that Thayer pay DiBella fees based upon a percentage of the total investment with Thayer.

Thayer ultimately paid DiBella a total of $374,500 through North Cove, according to court records.

On March 24, 2008, the court entered a final judgment against DiBella ordering him to pay a civil penalty and disgorgement and prejudgment interest. Due to Mr. DiBella's continued non-payment of the judgment, the SEC instituted contempt proceedings with the federal court in New Haven.

DiBella finally paid more than $795,000 on March 12, and the money will now be distributed to the Connecticut Retirement and Trust Funds.

Weigh Your Retirement Options and Plans

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

One casualty of the recent bear markets has been many people's faith in their ability to retire. Retirement plans based on what once seemed a reasonable 10% annual rate of appreciation have instead seen 10 years of minimal, if any, real appreciation in their equity investments. The question now is what should you do with respect to planning for retirement?

The first step is simply to spend less and save as much as you can.

If the market experiences an average return of 5.5% (which looks quite rosy at this point), building a nest egg of $1 million will take either hefty investments now, or a longer period until retirement. Each year you delay saving, the more you will need to set aside.



Source: Investopedia


Remember that risk is very real when you invest your savings.

Before working with a financial adviser or money manager, ask what they will do to protect your savings in the event of another market downturn, because there will be one. If they don't have a plan that you can buy into, don't invest.

Consider alternative retirement goals.
Work longer, which will increase your Social Security payments and give your retirement investments more time to grow. IRS regulations allow participants in a 401(k) and other workplace retirement plans to delay their required minimum distributions well beyond 70.5 as long as they continue to work

Phase in your retirement.
Gradually reduce your work hours until you can afford to fully retire.
Plan to work part-time in retirement. But be careful because this will impact the amount you receive from Social Security if you opt for early retirement.

Hit reset on your lifestyle.
A smaller house, renting a vacation home instead of owning, cutting back on club memberships... these are all ways to free up funds that you can use for retirement. Look for ways to minimize monthly expenses such as property maintenance, loan payments etc. Even when expenses seem small individually, added together they become real money. If you are assisting younger members of your family with their expenses, this may be the time to cut the strings.

Retirement is not beyond your reach. In fact, it may be much more feasible than you think. The important thing is to not wait until the last minute to start planning. The earlier you put a plan in place the greater your chances of succeeding. For help with achieving your retirement goals, let's talk.

Please feel free to email me with any questions or comments at Paul@investfortomorrow.com.

Until next time…

Paul Schatz

Heritage Capital LLC
http://www.investfortomorrow.com/

Gateway Community College talks green jobs

Gateway Community College’s Center for a Sustainable Future tonight will launch a series of forums related to building a “green” economy for the region.

The first event, which is free and open to the public, will be held at 5 p.m. in Room 160 at the college’s 60 Sargent Drive campus here in New Haven.

It was originally going to be held at the college’s North Haven campus. David N. Cooper, dean of corporate and continuing education at Gateway, said the “ReNew Haven” series continues local discussions sparked by the White House Jobs Forum in December. Gateway held a community discussion as part of that initiative and submitted a report and video to the White House.

Tonight’s featured speaker will be Jean Williams, founder and chief executive officer of 5milliongreenjobs.com, who worked with Cooper and other members of a think-tank that helped develop the Center for a Sustainable Future.

“Now, the company will continue to work with the center to develop online training programs and resources for the sustainable green economy,” Cooper said. Williams’ online network links people, jobs, training and other resources that could foster economic growth.

Other forums to be held are: May 26, “GREENandSAVE’s Home and Office Energy Efficiency Program: Calculate Your Return on Practical Energy Saving Improvements,” and June 17, “Food Cooperatives are Leading the Transition to the New Economy.”

Both will be held from 5 to 7 p.m. at the New Haven campus.

CT House passes bill banning dormancy fees

State Rep. Ryan Barry (D-Manchester), House Chairman of the legislature’s Banks Committee, says HB 5045 would prohibit a financial institution from imposing a dormancy fee on an inactive deposit account for which periodic statements are not provided if the primary account holder has another active account with them.

It now goes to the state Senate, where it died last year.

“This bill protects all consumers, and in particular senior citizens who have fixed incomes,” Barry said. “If a customer has at least one active account with a bank, the bank should not charge an inactive account fee on another account that the customer maintains with the bank. This is only fair to the customer and certainly not burdensome on a bank.”

It is not unusual for senior citizens to have two or more passbook accounts and be subject to dormancy fees of up to $25 for each of their accounts, he said.

To avoid dormancy fees, the customer must be the primary account holder on a second account maintained primarily for personal, family, or household purposes. The account must also be currently filed in the institution's records for tax reporting purposes.

If signed into law by the governor, the provisions would take effect Oct. 1.

Listen Up Congress. The Survey Says...

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)


For the past few entries, I posted this link to a Very Short Survey asking your opinion on a number of “hot” topics. I’d like to focus this week’s contribution on those results and how they compare to the exact same survey I did for subscribers of my Street$marts report.

Before I begin, I received several emails questioning whether The Unsuccessful Investor (TUI) from last week's article was a real person or I just made it sound like it. TUI does, in fact, exist and it’s someone I have known for many, many, many years. Now, on to the results.

First, I am going to share the results from your answers and then I am going to share the responses from my newsletter. Growing up, I used to watch Family Feud with former Hogan's Heros star Richard Dawson. His famous line, after kissing all the women was,

"The survey says..."

The government’s TOP priority should be:

59% Job Creation
17% Healthcare Reform
16% Deficit Reduction
5% Wars

That compares to my list of:

61% Job Creation
24% Deficit Reduction
10% Healthcare Reform
6% Wars

In 2008, I voted for:

60% Obama
35% McCain

That compares to my list of:

34% Obama
59% McCain

Based in the past year, I would:

53% Reelect Obama
47% Elect someone else

That compares to my list of:

27% Reelect Obama
73% Elect someone else

Congress is doing a:

87% Poor job
13% Good job

That compares to my list of:

93% Poor job
7% Good job

My income level in 2009 was:

21% <$50,000
50% $50,000 - $125,000
28% $125,000 - $250,000 1% >$250,000

That compares to my list of:

11% <$50,000
26% $50,000 - $125,000
37% $125,000 - $250,000
26% >$250,000

Overall, you feel that job creation should be the government’s top priority and I imagine that holds true throughout the country. You voted for Barack Obama, pretty much in line with the rest of the state, which is in stark contrast to my newsletter readers who supported McCain by a sizable margin. Not surprising at all, more than half would reelect Obama, versus my newsletter readers who would elect someone else by an enormous margin. That’s expected since they didn’t vote for him in the first place.

It seems almost universal that the vast majority of folks do not think Congress is doing a good job, but do we ever? I wonder how high that’s been in the past 20 years. My guess is, not very. The total disdain and disapproval of Congress has to be at an all time low. Judging by the overwhelming number of comments, which I did not publish, there seems to be some serious venom for both parties and everyone is sick and tired of the partisan politics, lying and failure to do what their voters elected them to do.

Thank you for participating in the survey. It always interesting to see where people stand on the hot issues of the moment.

Please feel free to email me with any questions or comments at Paul@investfortomorrow.com.

Until next time…

Paul Schatz

Heritage Capital LLC
http://www.investfortomorrow.com/

2010: Will Your Small Business Claim the Health Care Tax Credit?

The Internal Revenue Service this week started mailing out postcards to small businesses and tax-exempt organizations to raise awareness of benefits that were enacted with the federal Patient Protection and Affordable Care Act last month.

The IRS mailed approximately 54,000 postcards throughout Connecticut. More information about state-by-state distribution of the postcard may be viewed here.

The health care tax credit passed by Congress and signed by President Barack Obama is one of the first health care reform provisions to take effect and is designed to make it more affordable for small businesses and nonprofits to maintain existing coverage or begin offering coverage to their employees.

“We want to make sure small employers across the nation realize that, effective this tax year, they may be eligible for a valuable new tax credit. Our postcard mailing – which is targeted at small employers – is intended to get the attention of small employers and encourage them to find out more," IRS Commissioner Doug Shulman said in a statement Tuesday. “We urge every small employer to take advantage of this credit if they qualify.”



Eligible small businesses will be able to claim the credit as part of the general business credit starting with the 2010 income tax return filed in 2011. For tax-exempt organizations, the IRS will provide further information on how to claim the credit. Click here for an online guide.

In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees in 2010. For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations, the IRS said.

The maximum credit goes to smaller employers – those with 10 or fewer full-time equivalent (FTE) employees – paying annual average wages of $25,000 or less. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.

The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more.



Please comment below on whether your business offers health coverage and you plan to claim the credit or if you are unable to offer health insurance to your staff and the credit will not help. We want to hear from you...