Budgeting and Saving in Uncertain Times

The lower real estate and stock prices brought on by the economic recession has all Americans re-examining their spending priorities. The increased savings rate comes on the back of a long-period of over spending by most households in America. Everyone should have a basic household budget or cash flow statement. Keeping track of all inflows and outflows is useful exercise. Budgeting creates awareness about spending and forces consumers to prioritize the importance behind their consumption. Identifying a shortfall in inflows early on is imperative to then take corrective actions to get back on a sustainable budget.

There are many account strategies to consider when saving money. After establishing a comfortable emergency reserve, an obvious choice is to increase your savings rate to work sponsored retirement plans (401k and 403b), IRAs and Roth IRAs. Using a taxable securities portfolio should be considered once tax advantaged accounts have been maxed out. Section 529 education accounts and Roth conversion strategies are a little less known. Your advisor at Parsec Financial can guide you through the many account strategies to determine which makes the most sense, taking into consideration your unique goals and objectives.

Rick Manske, CFP
Managing Partner

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Living Trusts

You’ve heard you might need a Living Trust and have no idea what it is or how it could be of benefit. Relax; you are not alone.

The trust world can be very intimidating and complex with its own confusing acronyms. So instead of delving deep into that world, I’ll speak to three benefits of a Living Trust. Please know that your advisor can work individually with you to help determine if you and your family can benefit from one.

First, it provides continuity. Initially, you control and manage the assets in your trust. Should you become incompetent, incapacitated or die, your Successor Trustee can step in immediately to manage the assets as you have instructed. This prevents unnecessary court involvement, saving time and expense. And, it allows for quick intervention, minimizing interruption of asset management for you or your heirs.

Second, it provides privacy. At the time of your death the assets will be managed or distributed as you have directed and are shielded from public view. This is different from a will which at death is probated and becomes a public document. Therefore, anyone can go to the courthouse, pay a fee and get a copy of a probated will. A Living Trust will never become a public document.

Third, it avoids probate. This saves time, court expense and involvement, and shields it from public view as discussed. Since a trust never “dies,” it isn’t subject to probate and the associated time consuming court involvement and expense.

Although these are not the only reasons to utilize a Living Trust, they are important ones. Please call us if you would like more information.

Michael E. Bruder, CFP®, CTFA
Senior Financial Advisor
Senior Trust Advisor

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IRA Rules for 2009

There is some tax relief for IRA account holders over the age of 70.5 this year. The Worker, Retiree, and Employer Recovery Act, initiated in late 2008, suspended required minimum distributions (RMDs) from IRAs for 2009. This means that the government is not requiring those over the age of 70.5 to withdraw any money from their IRA, thus not forcing a taxable event on the IRA account holder. It also prevents unnecessarily liquidating equities at prices that may be currently low. The suspension only applies to the year 2009.

The temporary allowance of Qualified Charitable Distributions (QCD) from an IRA has been extended through 2009. This law permits IRA account holders over the age of 70.5 to distribute up to $100,000 a year from their IRAs directly to their chosen charity without paying tax on those distributions. For those who would not spend from the IRA otherwise, this essentially eliminates the tax burden of the RMD. Further, it is gets money out of the IRA tax-free, thereby reducing the IRA level and therefore reducing future RMDs and associated taxes.

Things to consider regarding the QCD in 2009, now that RMDs are not mandated:

• If you only want to make a Qualified Charitable Distribution for the sake of eliminating the current RMD tax burden, there is no need to do so in 2009. Donations may be made from other sources.

• If you take the standard deduction on your tax return (do not itemize), there is no tax benefit for charitable contributions. In this case, donating money from the IRA may be appealing to you simply as a means of getting money out of the IRA tax-free.

• If you intend to live off of your IRA investments throughout retirement, these strategies may not make sense for you. Always consult with your tax advisor to see how such scenarios might affect you personally.

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Your Credit

With mortgages rates reaching all time lows many people are choosing to refinance. The 30 year fixed mortgage rate is below 5% which is a deal too good to ignore! Your credit score is an integral part of getting lower rates. Consequently, it is also important to continually stay on top of your credit report and your credit score. You are allowed a free credit report every 12 months and I would encourage everyone to check their report and ensure there are no mistakes. You can order the report online at http://www.annualcreditreport.com or call 877-322-8228. This is the only organization that will give you a report for free.

If you have been a victim of identity theft you can place a fraud alert on your file by calling one of the three consumer credit reporting companies:

Equifax: 1-877-576-5734
Experian: 1-888-397-3742
TransUnion: 1-800-680-7289

Barbara Gray, CFP®

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Investment Good News

The title alone should peak your interest! In the past, taxpayers who had adjusted gross income over $100,000 could not convert their IRA to a Roth IRA. That income limitation has been lifted for 2010. Of course, you will have to pay taxes on the amount you convert but you will be allowed to spread that tax burden over a two year period. Roth IRAs grow tax free as regular IRAs do, but the proceeds are tax free upon any withdrawals – AND there is no required minimum distribution on a Roth. One tactic for retirement spending is to have several pots of money to draw from (other than social security): investment assets taxed at the capital gains tax rate, IRA assets fully taxed at your income tax rate, Roth IRA assets not taxed. If you don’t need the Roth assets in retirement they can be left to your beneficiaries for them to take out over their lifetime, tax free. If you have earned income you can do a non-deductible regular IRA for 2008 and 2009 and then covert those assets over tax free.

Congress has rescinded the IRA required minimum distribution for 2009 for those ages 70 ½ or older in order to allow the accounts time to recover from the stock market decline. Consequently, nothing has to be sold while it is temporarily at a low.

Barbara Gray, CFP®

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