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Financial Life Planning & Investment Strategies
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2009 Markets
Many pundits now believe the economy is in recovery, albeit an anemic and unexciting recovery. American consumers seem to agree. The most recent University of Michigan Consumer Sentiment Index jumped 6 points to 73.4 for December. This number is strongly influenced by unemployment, gas prices and media reports. It is likely that the November drop in unemployment cheered consumers and buoyed the index.
There are other interesting signs that things are better. Net worth of Americans rose 5% last quarter, the second straight quarterly increase. The S&P 500 rose 15% in the third quarter and is up 60% since the March bottom. Americans have been reducing household debt levels for 12 months. Wiiken & Gorman does not believe it is time to celebrate just yet. We are thrilled that Americans are saving again and paying off debt, but this is money that is not being spent to invigorate the economy. Although the Federal Reserve is expected to hold rates low in the near term, many economists believe rates will rise in 2010 and inflation may reappear. Credit is still very tight and borrowers are struggling to refinance and qualify for new mortgages. We hope Americans are feeling more optimistic about their financial future, but still holding onto the memory of the downturn. If our clients can stay centered on their goals and learn to weather market volatility, they can be investing regularly, building wealth or relaxing in the knowledge that their investments fit their risk tolerance. The economic crisis is not yet resolved, but the world has recovered a bit from the panic that reigned. We hope you all enjoy your holidays with family and friends. We look forward to seeing you in the New Year. Our wish for all of you in 2010: Go confidently in the direction of your dreams; live the life you’ve imagined. –Henry David Thoreau Estate Planning ReviewsWe suggest our clients review their estate plans every five years or when something important changes. Here are some issues for you to review with your attorney. 1. Beneficiary Designations for IRAs, Retirement Plans, etc. Have you completed these as advised by your attorney? Do you have primary and contingent beneficiaries? Should you change problem beneficiaries (minors, deceased relatives, former spouses?) 2. The terms of your will or trust. Are these still your wishes? Are the dollar amounts what you intend? Are these the people you wish to name? 3. Powers of Attorney. Former power of attorney holders die or become incapacitated. Consider completing the health care power of attorney for your young adult children, especially those away at college. Roth IRA Conversions 2010Change in the Rules. Beginning January 1, 2010, there are no income limitations to convert traditional IRAs and retirement plans to Roth IRAs. Why convert? a. You can withdraw earnings income tax-free once you have met the holding requirements (age 59-1/2 and have held the Roth at least five years). b. You do not ever need to take required minimum distributions with a Roth IRA. This gives you more tax flexibility in retirement. c. You have many years before you would withdraw in retirement and you expect your income bracket to be the same or higher. d. You want to leave an income tax free Roth IRA to your heirs. e. You think a conversion and the lack of required distributions could render your Social Security non-taxable. (Note that the taxability of Social Security is hard to predict for future years.) Why not convert? a. You have to pay the tax now, either all in 2010 or split over 2010-2011. b. You do not have the money for the tax in non-retirement accounts. c. If you are a very high earner and expect to be in a lower bracket once you retire, a conversion might not be advantageous. Watch Out for Certain Traps. a. Aggregation Rule. There are rules about converting to a Roth if you have both non-deductible and deductible IRAs. You must aggregate and prorate these accounts. b. Multi-year Tax Allowance. If tax brackets rise in 2011, it might not be best to defer the tax owed over two years. c. State Compliance. Not every state is in compliance. Investors in Wisconsin are still subject to the $100,000 limit (as of this writing). d. If you convert and are on Medicare Part B, you may end up paying higher premiums in the year of conversion. Making the Decision. There is no one fact pattern that gives a ready answer. It is a case by case decision with various outcomes. We are happy to consult with you and your tax advisor about a conversion in 2010.
Mission StatementAt Wiiken & Gorman we pledge to use our expertise to help clients imagine a better financial future and develop a plan to experience more financial security and happiness in their lives.
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