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1 Copyright ©2010 Copyright 2007 Asset Accumulation, Protection, Preservation, and Transfer, LLC
2 Copyright ©2010 Copyright 2007 North Georgia Technical College March 18, 2010
3 Copyright ©2010 Copyright 2007 Big Canoe March 23, 2010
4 Copyright ©2010 Copyright 2007 Woodstock, Georgia May 13, 2010
5 Copyright ©2010 Copyright 2007 Asset Accumulation, Protection, Preservation, and Transfer, LLC Go Navy!
6 Copyright ©2010 Copyright 2007 Registered Investment Advisory Firm John A. Cory, Member (Your Wealth/Legacy Planner/Practitioner TM ) Securities offered through Resource Horizons Group, LLC, broker-dealer, Member NASD, SIPC Asset Accumulation, Protection, Preservation, and Transfer, LLC
7 Copyright ©2010 Copyright 2007 Resource Horizons Group, LLC commission FINRA AAPPT, LLC fee SEC ADV Compensation generally
8 Copyright ©2010 Copyright 2007 Fee versus Commission RIA: Fiduciary duty Broker Dealer: Suitability Compensation: Investment vehicle or product
9 Copyright ©2010 Copyright 2007 Relationship Advisory Services through AAPPT, LLC Securities through Resource Horizons Group, LLC AAPPT, LLC is not otherwise affiliated with Resource Horizons Group, LLC
10 Copyright ©2010 Planning Financial Investment Retirement Estate Tax Implementation
11 Copyright ©2010 Copyright 2007 Uncertain World Political: Afghanistan, Iran, Terrorists, Congress Economic: Budget Deficits, Uncontrolled Spending, Oil and Gas, Greece, PIIGS
12 Copyright ©2010 Funding Conversions Distributions Trust Beneficiaries Examples Investments Estate Tax Questions and Answers Agenda
13 Copyright ©2010 What’s a Roth IRA? New Individual Retirement Account introduced in 1998 – Named after Senator William Roth of Delaware, who led the fight to establish it Same annual contribution amounts as traditional IRA Different income restrictions Contributions permitted after age 70½ if still employed No required distributions (RMDs) from a Roth after reaching age 70½ But the BIG difference is… Taxes!
14 Copyright ©2010 Roth IRAs Similar to traditional IRAs except for these important differences: – No deductible contributions – Tax-free qualified distributions – Owner has no required distributions
15 Copyright ©2010 Roth IRA: Pay Tax Now Instead of Later Contributions Not Tax Deductible EARNINGS TAX FREE Qualified Withdrawals Investments inside a Roth IRA grow tax-free After-tax Money Tax-Free Income Roth IRA
16 Copyright ©2010 FundingContributionsConversions Rollovers from employer plans Rollovers from Roth 401(k)/403(b) Four Ways
17 Copyright ©2010 Contributions for 2010 $5,000 (or $6,000 if 50 or older by end of year) Two requirements – Earned income at least equal to amount contributed – Below modified adjusted gross income (MAGI) thresholds
18 Copyright ©2010 MAGI Phase-out Ranges Married filing jointly $167,000–$177,000 Single $105,000–$120,000
19 Copyright ©2010 What Is MAGI? Plus certain deductions, including deductions for: Traditional IRAQualified bond interest Minus RMDs from IRAs Roth conversion amounts Roth rollovers from employer plans Adjusted gross income (AGI) A rollover of assets from:
20 Copyright ©2010 Traditional IRA SEP IRA SIMPLE IRA Eligible Employer Plan [ including 403(b) and 401(k) ]* What’s a “Roth conversion”? Roth IRA TO *Other examples include profit sharing plans, stock bonus plans, pension plans and government 457 plans.
21 Copyright ©2010 Conversions Rollover of assets from a traditional IRA, SEP-IRA or SIMPLE IRA to a Roth IRA – Two-year period must be met if converting a SIMPLE IRA IRA owner pays taxes on pretax dollars 10% penalty does not apply
22 Copyright ©2010 Conversion Process IRAIRA Roth IRA 2) Direct rollover 1099R reporting No 60-day rule 3) Indirect rollover 1099R reporting 60-day rule applies No 12-month restriction 1) Redesignation 1099R reporting
23 Copyright ©2010 Who’s Eligible to Convert? Through 2009 Filing StatusIncome Limit SingleMAGI does not exceed $100,000 Married, filing JointMAGI does not exceed $100,000 Married, filing SeparateIneligible *Tax Increase Prevention & Reconciliation Act of 2005 (TIPRA) Starting January 1, 2010* Income LimitFiling Status Eligible & no income limit No income limit Married, filing Separate Married, filing Joint Single
24 Copyright ©2010 Conversions in 2010 Convert to Roth IRA No MAGI limits – Anyone can convert regardless of income level IRA Roth IRA
25 Copyright ©2010 Conversions in 2010 You can pay tax on the conversion in 2010 OR split the bill, defer tax and pay: ■ One-half in 2011 ■ One-half in 2012
26 Copyright ©2010 To Convert…or Not To Convert? Roth IRA Considerations
27 Copyright ©2010 What Will Your Tax Rate Be? “New” income tax rates scheduled to sunset; “old” rates scheduled to return to your tax bill Current highest rate: 35% Sunset highest rate: 39.6% (2011 and later)
28 Copyright ©2010
29 Copyright ©2010 Conversion Caution Using assets outside of the IRA to pay tax: – Reduces taxable estate – Maximizes long-term tax deferral Using IRA assets to pay tax may: – Subject some assets to income taxation – Incur a 10% early withdrawal penalty if under 59 ½
30 Copyright ©2010 Converting IRA After Age 70½ RMD amounts cannot be converted or rolled to a Roth IRA IRAIRA Roth IRA 1.Distribute RMD amount from IRA 2.Convert balance to Roth IRA RMD
31 Copyright ©2010 You Can Now Convert from an Employer Plan Two Sets of Rules: Conversion rules Rollover rules of the plan from which rollover occurred Beginning 1/1/08
32 Copyright ©2010 Who Let the Roth Out? You can now also convert an inherited account Applies only to eligible rollover distributions from employer plans Spouse only can roll to an inherited Roth IRA Which distributions must be taken from Roth IRA? Does it make sense for you?
33 Copyright ©2010 Are You Looking to Accelerate a Deduction? Section 691(c) deduction Itemized deduction for estate taxes paid Conversion causes you to pay income taxes sooner, BUT also accelerates use of this deduction, potentially reducing tax bill in half
34 Copyright ©2010 Conversion Do-overs Recharacterization First do-over – By tax return due date, including extensions Reconversion Doing over the do-over – In year following year of conversion – 30 days after recharacterization
35 Copyright ©2010 Do-over Timeline Conversion Period 10/15 Last day to recharacterize Reconversion Period After 30 days 1/1 to 12/31 Year 1 Year 2 1/1 to 12/31
36 Copyright ©2010 Reconversion Examples ScenarioConversionRecharacterizationReconversion 14/1/108/1/101/1/11 24/1/1012/25/101/24/11 34/1/104/15/115/15/11 Time restrictions for eligible recharacterizations and the earliest reconversion date
37 Copyright ©2010 Roth 401(k) and 403(b) Established 1/1/06 No MAGI limits for contributions Required distributions Tricky rollover rules
38 Copyright ©2010 Roth IRA Distributions Qualified Nonqualified Required (for beneficiaries)
39 Copyright ©2010 Qualified (Tax-free) Distributions Two requirements 1.Five years since you established a Roth IRA 2.Distribution is made for one of the following reasons: – Age 59½ or older – Disabled – Deceased – First-time home buyer
40 Copyright ©2010 When Can I Withdraw Converted Assets? There is no income tax when converted amounts are withdrawn However, there will be a 10% penalty unless: – The amount was converted at least 5 years ago, OR – The IRA owner is one of the following: 1 Age 59½ or older Deceased Disabled 2 Taking “substantially equal periodic payments” Paying medical expenses in excess of 7.5% of AGI Eligible for a qualified disaster recovery assistance distribution The bottom line: After 5 years, converted amounts come out tax- and penalty-free 1.IRC Sec. 72(t) 2.Social Security definition of “disabled” essentially means you are unable to perform ANY kind of meaningful work, i.e. not simply that you are unable to continue to perform the work you were doing prior to your disability. 3.After being unemployed for 12 consecutive weeks Paying health insurance premiums 3 Paying college expenses Withdrawing $10,000 to buy a “1st time” home A qualified reservist on active duty Withdrawing funds to satisfy an IRS levy on a qualified plan or IRA
41 Copyright ©2010 Nonqualified Distributions If you take a distribution but fail to meet requirements for a qualified distribution, then the distribution is made in the following order: ■ Regular contributions ■ Conversion and rollover contributions 10% penalty if within five years ■ Earnings Taxes and 10% if no exception
42 Copyright ©2010 Tricky Rollover Rules New Roth IRA, then new five-year period Existing Roth IRA, then rollover tracks Roth IRA five-year period Roth 401(k)/403(b) Roth IRA
43 Copyright ©2010 Tricky Rollover Rules Qualified Distribution Rollover amount treated as basis in Roth IRA Nonqualified Distribution Rollover amount divided into basis and earnings in Roth IRA
44 Copyright ©2010 DRAC (Designated Roth Account) Rollover Example Amount includes $65,000 after-tax contributions and $35,000 earnings Qualified distribution – $100,000 included as Roth IRA basis Nonqualified distribution – Basis and earnings track to Roth IRA
45 Copyright ©2010 You May Wish to Get Started In anticipation of a DRAC rollover, establish a Roth IRA now with either: Contributory Roth IRA Nondeductible IRA that is then converted to Roth IRA – BUT beware of the aggregation rule
46 Copyright ©2010 Required Distributions at Death Death before required beginning date (RBD) rules Designated beneficiary (DB) – May use five-year rule or life expectancy No DB – Must use five-year rule
47 Copyright ©2010 Death Distributions and the Five-year Rule Required distributions waived for 2009 Five-year rule is currently a six-year rule – For deaths occurring between 2004 and 2009
48 Copyright ©2010 Nonqualified Death Distributions Roth IRA owner dies before end of five-year period beginning with: ■ First taxable year for which a contribution was made ■ Year of conversion contribution from traditional IRA or rollover
49 Copyright ©2010 Qualified Death Distributions Spousal rollover – Earlier of spouse’s or decedent’s five-year holding period All others – Decedent’s five-year holding period
50 Copyright ©2010 Who’s Your Beneficiary? Designated beneficiary (DB) – Spouse – Non-spousal individual – Qualifying trusts Non-DB—estates, charities, etc.
51 Copyright ©2010 Spouse Lump sum Five-year rule Inherited Roth IRA – Annuitization – Spouse’s recalculated life expectancy Delayed until owner would have reached age 70½ Rollover
52 Copyright ©2010 Non-spousal Individual Lump sum Five-year rule Inherited Roth IRA – Annuitization – Life expectancy of beneficiary
53 Copyright ©2010 Qualifying Trusts as Designated Beneficiaries (DBs) Valid under state law Irrevocable at death Identifiable beneficiaries Trust documentation by 10/31 of year following year of death
54 Copyright ©2010 Qualifying Trusts Lump sum Five-year rule Trust-owned inherited Roth IRA – Life expectancy of oldest trust beneficiary
55 Copyright ©2010 Trusts Balancing Control with Flexibility (the terms of your trust) and Cost. Revocable, irrevocable, contingent, or testamentary. Assets: securities, real estate, life insurance, retirement plan/IRA (Traditional or Roth). Provisions: disability, asset/creditor protection (spendthrift), educational, income and estate tax reduction, second marriage issues, attempted value incentives, special needs, generation skipping, and dynasty provisions. Assets to be accumulated, protected, preserved and transferred. (AAPPT, LLC).
56 Copyright ©2010 Non-designated Beneficiaries Lump sum Five-year payout
57 Copyright ©2010 Multiple Beneficiaries Five-year rule DB and non-DB Life expectancy of oldest All DBs
58 Copyright ©2010 Important Dates for the Year AFTER Death DB determination 9/30 Separate accounts 12/31
59 Copyright ©2010 Copyright 2007 Stretch IRA No Stretch IRA Loses Tax Deferral Taxes Due on Full Amount No Legacy Left for Children ® IRA ACCOUNTS OWNERSONGRANDCHILD IRA ACCOUNTS IRA ACCOUNTS IRA ACCOUNTS OWNER SON
60 Copyright ©2010 Roth IRA and Social Security ● Distributions from Traditional IRA’s and 401(k)’s are included in provision income (in excess of two thresholds). ●Distributions from Roth IRA’s are not.
61 Copyright ©2010 Roth IRA Advantages Potential for profits without tax No required lifetime distributions Not included in definition of income for taxation of social security benefits
62 Copyright ©2010 Roth IRA Disadvantages No deduction for contributions Pay tax on conversions
63 Copyright ©2010 Do the Math Analysis is required, because everyone’s situation is different Assumptions include: When distributions will be taken What tax rates will be at the time of distributions Earnings during the interim
64 Copyright ©2010 Possible Opportunities You don’t need your traditional IRA for income and wish to leave it to someone. You need your IRA to fund your credit shelter trust. You are willing to pay income tax on conversion to reduce your estate (and thus your estate tax). You have charitable deduction carryovers, investment tax credits, etc., that will offset income on conversion.
65 Copyright ©2010 Case Study $750,000 Roth IRA 75-year-old owner dies having named two beneficiaries Grand- daughter, Age 25 Son, Age 50
66 Copyright ©2010 Opportunity for Separate Accounts Separate accounts established by 12/31 of the year following the year of owner’s death Son has 34.2 years during which to take distributions Granddaughter of deceased daughter has 58.2 years during which to take distributions
67 Copyright ©2010 Thanks, but No Thanks Disclaimers Son executes a qualified disclaimer His sons, ages 22 and 20, inherit his interest Separate accounts established by 12/31 deadline 22-year-old son’s distribution period is 61.1 years 20-year-old son’s distribution period is 63 years
68 Copyright ©2010 Conversion Scenario: The Chen’s At ages 68 and 67, Lee and Grace Chen are already retired Lee has a $100,000 Traditional IRA Tax bracket: 25% Depending upon how their other investments perform, in some years the Chen’s may need $10,000 from Lee’s IRA after-tax to cover their retirement expenses. If there is anything left in Lee’s IRA, they would like to leave it to their grandson. The Chen’s want to know if converting makes sense for them. They would pay the $25,000 income tax bill using the money in a CD
69 Copyright ©2010 Conversion Comparison for the Chen’s Assumptions: Hypothetical IRA Average Annual Total Return: 8% Hypothetical CD Annual Fixed Rate of Return: 2.5% Retirement Tax Bracket: 25% Withdrawals are taken at start of each year
70 Copyright ©2010 70 Conversion Comparison for the Chen’s Assumptions: Hypothetical IRA Average Annual Total Return: 8% Hypothetical CD Annual Fixed Rate of Return: 2.5% Retirement Tax Bracket: 25% Withdrawals are taken at start of each year This chart is for illustrative purposes only and does not reflect the performance of any Franklin, Templeton or Mutual Series fund. Please consult with tax and legal professionals for specific individual recommendations and advice. Tipping Point: Roth will have more money after 11 years
71 Copyright ©2010 71 Tipping Point: Roth will have more money after 11 years Conversion Comparison for the Chen’s Assumptions: Hypothetical IRA Average Annual Total Return: 8% Hypothetical CD Annual Fixed Rate of Return: 2.5% Retirement Tax Bracket: 25% Withdrawals are taken at start of each year This chart is for illustrative purposes only and does not reflect the performance of any AAPPT,LLC or Resource Horizons Group LLC investment. Please consult with tax and legal professionals for specific individual recommendations and advice. Tax-Free Amount Left to Lee’s Grandson (if no withdrawals): $466,096
72 Copyright ©2010 Leaving a Roth IRA to a Young Beneficiary Assumptions: 1.AAR on investments: 8%. 2.Jason withdraws just the minimum amount required each year For illustrative purposes only. This illustration does not reflect actual investment results of any,AAPPT,LLC or Resource Horizons Group, LLC investment and is not a guarantee of future results. Jason is age 6 in the year after he inherits grandpa’s Roth IRA Tax-Free! Total Cumulative Income Received by Age 82: $2,142,458!
73 Copyright ©2010 Conversion Scenario: The Parkers Janet and Brian Parker are both 46 years old Janet has a $50,000 Traditional IRA Tax bracket: – Today: 25% – In retirement: 15% When they retire at age 66 they will need to withdraw $20,000 from Janet’s IRA each year on an after-tax basis. The Parkers want to know if it makes sense to convert Janet’s Traditional IRA to a Roth IRA. They would pay the income tax using the $12,500 they have in a CD (Certificate of Deposit)
74 Copyright ©2010 Conversion Comparison for the Parkers Assumptions: Hypothetical IRA Average Annual Total Return: 8% Hypothetical CD Annual Fixed Rate of Return: 2.5% Current Tax Bracket: 25% Retirement Tax Bracket: 15% No further contributions to IRA Withdrawals are taken at start of each year
75 Copyright ©2010 75 Conversion Comparison for the Parkers This chart is for illustrative purposes only and does not reflect the performance of any AAPPT, LLC. and Resourec Horizons Group, LLC.lRelease consult with tax and legal professionals for specific individual recommendations and advice. Assumptions: Hypothetical IRA Average Annual Total Return: 8% Hypothetical CD Annual Fixed Rate of Return: 2.5% Current Tax Bracket: 25% Retirement Tax Bracket: 15% Withdrawals are taken at start of each year Tipping Point: Roth will have more money after 7 years
76 Copyright ©2010 76 Conversion Comparison for the Parkers Assumptions: Hypothetical IRA Average Annual Total Return: 8% Hypothetical CD Annual Fixed Rate of Return: 2.5% Current Tax Bracket: 25% Retirement Tax Bracket: 25% Withdrawals are taken at start of each year This chart is for illustrative purposes only and does not reflect the performance of any AAPPT, LLC and Resource Horizons Group, LLC. Please consult with tax and legal professionals for specific individual recommendations and advice. Tipping Point: Roth will have more money after 3 years
77 Copyright ©2010 What About Taxes? If you convert, you must pay income tax on amounts not previously taxed Type of IRA AssetsTaxable at Conversion? IRA Contributions (deducted)Taxable EarningsTaxable Pre-tax rollovers from retirement accounts Taxable IRA Contributions (not deducted) Not taxable
78 Copyright ©2010 What About Taxes? (Cont’d) Best to use non-IRA money to pay the tax More assets go into Roth 10% penalty and income tax on all amounts withdrawn (or withheld) prior to age 59½—even if used to pay conversion tax If you later “re-characterize” (un-do) the conversion, money taken from an IRA to pay the conversion tax cannot be returned to the IRA it came from
79 Copyright ©2010 What About Taxes? (Cont’d) When do I pay the tax? Taxable portion of conversion is reported as “income” in the year you do the conversion – Could push you into higher tax bracket – Could make you subject to AMT (Alternative Minimum Tax) – Could require you to make quarterly estimated tax payments Special option for 2010 conversions only – Declare as income on 2010 tax return OR – Declare 50% as 2011 income and 50% as 2012 income – Consider: when might your tax bracket be lower? Must file Form 8606 with federal tax return
80 Copyright ©2010 Retirement Plan/IRA Taxation Federal Income Tax State Income Tax Too Soon Penalty: 10% Too Late Penalty: 50% Federal Estate ax State Estate Tax How much shrinkage is in your retirement plan? Consider giving it to charity or you own Donor Advised Fund.
81 Copyright ©2010 81 Reasons to Convert ReasonBenefit Lock in today’s tax ratesDo you know your retirement tax bracket? Achieve tax diversification Conversion adds flexibility to choose which accounts to pull income from Manage your tax consequences Turn investment losses into a positive Lower IRA value means lower tax bill to convert assets No required distributions at age 70½ Assets continue to appreciate tax-free
82 Copyright ©2010 82 Reasons to Convert (Cont’d) ReasonBenefit Roth withdrawals don’t affect taxation of Social Security income May prevent up to 85% of Social Security income from being taxed You can withdraw conversion amounts without penalty No penalty applies after five years if you are under 59½ The five year requirement does not apply if you are 59½ or older Estate planning considerations Taxes paid on the conversion will reduce your taxable estate Leave Roth IRA to a beneficiary: spouse, children, grandchildren Beneficiary receives tax-free income for life
83 Copyright ©2010 Considerations Keep in mind Expected return on Roth IRA investments Conversion amount How long will assets remain in the Roth IRA Use non-IRA assets to cover the tax bill Consider your beneficiaries
84 Copyright ©2010 Roth Conversions : Key Factors How old is the investor? How much does the investor spend relative to portfolio value? How much relative wealth is held in taxable vs. tax-deferred (or tax-free) accounts? What is the investor’s asset allocation? Can the investor afford to pay the income tax cost of conversion from taxable assets? What is the investor’s blended income tax rate currently? – What is it expected to be in 2010? – In 2011 and 2012 – Thereafter? Will the designated beneficiary take only minimum required distributions?
85 Copyright ©2010 Potential Candidates for Roth Conversion Do not expect significant decline in effective tax rate in retirement years. Intend to transfer IRA to family member who will stretch. Don’t expect to spend meaningfully (or at all) from IRA in retirement. Can pay conversion taxes from other (non-retirement) assets. Don’t plan to leave IRA to charity but that begs the question… SHOULD these assets be going to charity?
86 Copyright ©2010 13 Roth Conversion Traps Part 1 1.60-Day Rollover Mistakes 2.Partial Conversions Involving After-Tax Money and Mid- year Rollovers 3.RMDs Must be Taken First 4.Some Funds are Not Eligible for Conversion or Contribution 5.Non-Spouse Beneficiaries Can't Convert Inherited IRAs 6.On a 2010 Conversion the lncome is Split, Not the Tax
87 Copyright ©2010 13 Roth Conversion Traps Part 2 7.The 10% Penalty Trap/ SIMPLE IRA 25% Penalty 8.Not Using Separate New Roth IRA 9.New Roth Accounts Need New Beneficiary Forms 10.Loss of Credits, Exemption, Deductions 11.Social Security Taxation and Medicare Costs 12.Financial Aid Loss 13.Net Unrealized Appreciation (NUA)
88 Copyright ©2010 Frequently Asked Questions If I convert in 2010 and want to spread the tax over the next two years, what income tax rate will apply? Whatever rates are in effect for the year in which you declare the converted amount as income. Do I have to convert all of my non-Roth IRAs? No. You can convert as much—or as little—as you wish. Do I have to convert everything I want to in a single year? No. You can spread it out, converting as much as you wish — or none — from year to year.
89 Copyright ©2010 Frequently Asked Questions (Cont’d) In some years my income was too high to allow me to deduct my IRA contribution, so I used after-tax money for this. Will I have to pay income tax on this again when I convert? No. But figuring how much of your conversion will be taxable is a bit tricky, so you should consider working with a professional to get it right. AAPPT, LLC has created a worksheet that will help us estimate this. However, the final calculation includes certain amounts that won’t be known until the end of the year, so we won’t be able to compute the exact amount until then.
90 Copyright ©2010 Frequently Asked Questions (Cont’d) If I have a Roth option in my 401(k) or 403(b) plan at work, can I convert my pre-tax assets to the tax-free Roth option in the plan? No. However, when you retire or leave your job, you can roll assets in the Roth side of your 401(k) into a Roth IRA. Pre-tax assets in your 401(k) can either go into a traditional IRA or a Roth IRA. If you roll them into a Roth IRA, you will owe income tax on the amount.
91 Copyright ©2010 Copyright 2007 There have always been reasons not to invest
92 Copyright ©2010 Copyright 2007 9/11
93 Copyright ©2010 Copyright 2007 9/11
94 Copyright ©2010 Copyright 2007 9/11
95 Copyright ©2010 Copyright 2007 Impact of Events
96 Copyright ©2010
97 Copyright ©2010 IT’S THE TOTAL DEBT
98 Copyright ©2010 Perspective | Defining recessions A recession is… Determined by the National Bureau of Economic Research Based on significant declines in industrial, production, employment, real income and wholesale-retail trade Ten previous recessions since World War II, each lasting between 6 and 18 months Recessions are not officially confirmed until months after they begin, including the current recession The current recession, which was confirmed in December 2008, started in December 2007 Source: National Bureau of Economic Research, http://www.nber.org/, 2008http://www.nber.org/
99 Copyright ©2010 United States Recessions Since 1945 Duration in Months Perspective | Previous recessions Source: National Bureau of Economic Research
100 Copyright ©2010 Perspective | Stock Market Has Delivered Long Term From 1968 through 2008, the S&P 500 has returned an average of 9.03%. However, the returns received each year varied greatly, from -37% to +37% 1 The two worst years of performance (1974 and 2008), prior to 2008, were followed by the two best performing years, 1975 (+37%) and 2009 (29%). Past performance does not guarantee future results. Sources:1 Ibbotson Associates, SEI, 2008 The benefits of patience… 9.5% 14.1% Average gain 10 years after market high Average gain 10 years after market low Markets have recovered in 8 bear markets since 1956:*
101 Copyright ©2010 Perspective | Market Recovers Before Recession Ends 1050 1100 1150 1200 1250 1300 1350 1400 1450 1500 -12-11-10-9-8-7-6-5-4-3-20123456789101112131415161718 Average Stock Market Performance (Last 10 Recessions)1990-91 Recession Start of recession 18 months after start of recession 12 months before start of recession NBER Recession Start Date and Average Length of 10 months Recoveries begin before recessions end
102 Copyright ©2010 Looking forward: | Prospects through 2010 What are economists saying? Source: Blue Chip Economic Forecast, 2009
103 Copyright ©2010 Source: Bureau of Economic Analysis Tailwinds: | Country is more productive Gross Domestic Product 1st quarter 2007 to 3 nd quarter 2009
104 Copyright ©2010 Purchasing Managers Index January to December 2009 Source: Institute for Supply Management Tailwinds: | Manufacturers increasing production
105 Copyright ©2010 U.S. Unemployment Rate (%) January to December 2009 Source: U.S. Bureau of Statistics Headwinds: | Unemployment remains too high
106 Copyright ©2010 New Home Sales January 2009 to January 2010 Source: National Association of Home Builders Winds: | Housing market
107 Copyright ©2010 Looking forward: | Sizing up the recovery What will recovery look like? V = Quick recovery U = Lengthy recovery W= Double dip recovery
108 Copyright ©2010 Capital Market Outlook 2008: $X Trillion of assets disappeared Central Banks print money (stimulus) How will governments “unwind” Political Events/Health Care County Debt/Budget Deficits (Sovereign risks) Bank Debt/Credit Markets Weak dollar (Currency) Low interest rate (deflation/inflation) Economy: Square Root Unemployment Manufacturing Sector Stock Market/Regulation Commodities/oil Taxes: income Bush tax cuts/estate Residential/Commercial real estate
109 Copyright ©2010 Think positive, remain cautious But be realistic….. Economic tailwinds Improving equity markets Increased manufacturing activity Reviving auto market Economic headwinds Employment level remains troubling Commercial real estate Cautious consumer spending, but perking up
110 Copyright ©2010 Investing : Ask the right questions What are your investment objectives? What role does the investment vehicles you’re considering play in meeting objective? How will the timing of your buy affect your return? Are you willing to practice patience and not sell after a negative year? Are you properly diversified beyond the investment you’re making in any one fund? Are you willing to keep your sights focused far down the road?
111 Copyright ©2010 Investing: Believe in asset allocation Consider changing your allocation only... – When your situation changes – When there is a change in the risk-reward tradeoff in markets Recent events have not altered our assumptions about the markets Do not change you asset allocation o ut of fear or greed We can help you modify an allocation appropriate for your goals
112 Copyright ©2010 Investing: Rebalance regularly January 1, 2010 June 30, 2010 60% 40% 60% Your advisor can help you keep your portfolio on target Steep market changes can alter allocation dramatically For illustration purposes only, not related to any investment
113 Copyright ©2010 Copyright 2007 The Right Investments Traditional IRA Inside IRA Inside IRA Growth Mutual Funds Short-Hold Stocks Taxable Bonds Outside IRA Outside IRA Index/Low Turnover Mutual Funds Long-Hold Stocks Tax-Free Bonds Roth IRA Risk/Return Analysis Time Horizon
114 Copyright ©2010 Moderate Growth Managed Futures Target Asset Classes Cash5% Global Bonds24% Global Equity45% Alternatives25% Total100% Contemporary Portfolio Allocation
115 Copyright ©2010 Target Asset Classes Cash 5% Global Bonds 24% Global Equity 45% Alternatives 25% Total100%
116 Copyright ©2010 Planning and Implementation Financial Investment Retirement Estate Tax What is your blend of taxable, tax deferred, and tax free investments?
117 Copyright ©2010 Copyright 2007 Portfolio Review Diversification Asset Allocation
118 Copyright ©2010 Work with Your Financial and Tax Advisors To estimate the tax on a Roth conversion To choose the right investments for your Roth IRA To file the proper paperwork
119 Copyright ©2010 Copyright 2007 2009 $3.5M 2002 $1M 2004 $1.5M 2006 $2M Unified Credit The federal estate tax was repealed on 1/1/10 until 12/31/10. Beginning 2011, the federal estate tax will be reinstated with a federal estate tax exemption amount of $1,000,000 and a maximum estate tax rate of 55%. Congress continues to discuss and consider legislation that, if passed, could change the estate tax exemption and estate tax rates for 2010 and beyond.
120 Copyright ©2010 Copyright 2007 History of Estate Tax 1797: Stamp Act 1802: Repealed 1862: Civil War 1870: Repealed 1898: Spanish American War 1902: Repealed 1916: WW I 1924,1930’s,1976 – 1993 (9 Acts) 2001: EGTRRA
121 Copyright ©2010 Estate Tax 2010 Zero? $1M Gift Tax Exclusion No Generation Skipping Tax Retroactivity ? $1M Estate Tax Exclusion in 2011 Will Codicils and Trust Amendments
122 Copyright ©2010 Copyright 2007 Don’t Procrastinate! Because…
123 Copyright ©2010 Copyright 2007 Don’t Procrastinate! Because…
124 Copyright ©2010 Copyright 2007 Question What are you doing with your life’s resources, gifts, talents, opportunities, and abilities?
125 Copyright ©2010 Copyright 2007 Life is like the game of MONOPOLY … When it’s all over, it all goes back into the box.
126 Copyright ©2010 Copyright 2007 He was a great man, but… …the one scenario he forgot to consider in his forecast, was the certainty of Death.
127 Copyright ©2010 Copyright 2007 Death is the last big move of your Life.
128 Copyright ©2010 “provide unbiased, multi-generational, multidiscipline planning, across the board, investment, retirement, estate, business, and charitable advice and implementation, from an independent conservative/moderate but global investment prospective, enabling clients to meet and maintain material needs, instilling family values, and achieving financial goals and objectives, while making this world a better place.” Mission Statement
129 Copyright ©2010 Thank you for attending today’s session. Questions and Answers
130 Copyright ©2010 This material is not intended to be used, nor can it be used by any taxpayer, for the purpose of avoiding U.S. federal, state, or local tax penalties. This material is written to support the promotion or marketing of the transaction(s) or matter(s) addressed by this material. AAPPT, LLC and Resource Horizons Group, LLC and their respective representatives and advisors do not provide tax, accounting, or legal advice. Any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
131 Copyright ©2010 You should carefully consider an investment’s risks, charges, limitations, and expenses. This and other information are provided in the applicable product and underlying fund prospectuses. These prospectuses are available from your registered representative or by calling the toll-free numbers listed on the last page. Read them carefully before investing.
132 Copyright ©2010 Disclosures There are risks involved with investing including possible loss of principal. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Appreciation is expressed to SEI Investments, Franklin Templeton and Pacific Life for assistance in the preparation of these slides.
133 Copyright ©2010 Copyright 2007 Asset Accumulation, Protection, Preservation, and Transfer, LLC Go Dawgs!
An Opportunity to Fund Retirement with a Roth IRA
Not FDIC Insured May Lose Value No Bank Guarantee Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing.
Roth IRA Conversions Opportunities for Introduction to Roth IRAs Contributions are made on an after-tax basis There’s no up-front tax benefit.
Investment Strategies for Tax- Advantaged Accounts Chapter 45 Tools & Techniques of Investment Planning Copyright 2007, The National Underwriter Company1.
Should I convert some of my Traditional IRA assets to a Roth IRA in 2010? RELAXED ELIGIBILITY MAY MEAN NEW OPPORTUNITY ► FOR INVESTMENT PROFESSIONALS Not.
Individual Retirement Arrangements (IRAs) Traditional IRA and Roth IRA Ying Lin, Jane Fu, Anna ’ s SMD Base training only.
Shares of Oppenheimer funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency.
1 Retirement Planning and Employee Benefits for Financial Planners Chapter 9: IRAs and SEPs.
Traditional IRA Chapter 5 Employee Benefit & Retirement Planning Copyright 2011, The National Underwriter Company1 Types of IRAs Retirement accounts for.
Wealth Transfer & Estate Planning with IRA Assets Create A Legacy with Individual Retirement Accounts For Producer Use Only. Not to be Used with Existing.
Chapter 14 Annuities and Individual Retirement Accounts
Roth IRA Chapter 6 Employee Benefit & Retirement Planning Copyright 2009, The National Underwriter Company1 What is it? A form of IRA that –accepts contributions.
Lesson 16 Investing for Retirement. Key Terms 401(k) Plan Annuity Defined-Benefit Plan Defined- Contribution Plan Employer- Sponsored Retirement.
©2007 Lincoln National Corporation For agent or broker use only. Not for use with the public. LCN (FAX ) 8/07 Lincoln Living Income.
ROAD MAP TO RETIREMENT 12 IRA planning mistakes to avoid [Name] [Title] MFS Investment Management ® Date IRAE-TOPMSTK-PRES-3/ The views expressed.
How overlooking this aspect of diversification could impact a client’s retirement income A life insurance educational presentation Presented by [Name]
Federal Income Taxation Lecture 6Slide 1 Taxpayers using the Cash Method of Accounting Only assets actually received during the calendar year are taxable.
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