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Learning to give yourself a fiscal ‘lift’

Tom and Erin, clients from Coeur d’Alene, Idaho, contacted us prior to year-end. They are 65 and 64, semi-retired, and moderate-conservative in their investment risk tolerance. Like many Americans, hearing ad nauseam about the “fiscal cliff”…they were nervous.

Erin said several friends had been in “cash” for months, if not for years, out of fear for markets, politics, and the economy. She shared with her friends that the Dow Jones Industrial Average had gone from 7,900 on 1.2.09 to 13,384 on 1.7.13, for a net gain of 59 percent since our current President was first elected. Erin explained, that investors like Warren Buffett invest in times of investor fear, and make tactical adjustments in times of investor “elation”. Tom, a retired law enforcement officer, added “…managing one’s money just prior to, or during, retirement takes a great deal of discipline, constantly challenged against following the crowd”.

The fiscal cliff “fizzled”. The more serious problems of a balanced budget, were kicked like a can down the road. Tom and Erin who currently have $180,000 of combined income, and both still work, noted that under the new tax law their Federal taxes will not change, which includes $25,000 in deductions and $52,000 in investment income (Wall Street Journal, 1.5.13). While there may be many changes in store for their friends, they did have 5 suggestions they wanted to share:



Make 2012-2013 Roth IRA contributions now…The anticipation of future higher taxes makes the Roth attractive. Any wage earner over age 50, may contribute $6,000 for 2012, and $6,500 for 2013, on an after-tax basis. This will accrue tax-free, even upon withdrawal. Roth’s are not subject to required mandatory distributions at age 70-1/2.

Set up a 529 Plan for your grandchildren…529 Plans grow tax-free, and can be withdrawn tax-free for any secondary education. Should the child decide against secondary education, the plan may be eligible to be transferred free of penalty, free of taxation, to any member of the family, up to and including a second cousin. See your Certified Financial Planner® or Financial Advisor for a comparison to traditional children’s custodial accounts.*




Should you have friends, or parents over the age of 70-1/2, taking “required mandatory distributions” from traditional IRAs or Pension Plans…consider a charitable contribution…While taking money from an IRA is generally taxable, making donations of that IRA distribution for taxpayers age 70-1/2 and older (up to $100,000) eliminates the taxable nature of the distribution. This donation may reduce the Adjusted Gross Income, minimize Medicare premiums, and taxes on Social Security benefits.

Rollover your 401(k) Plan to a Roth 401(k), or your traditional IRA to a Roth IRA…If you have 5 or more years before retirement, anticipate higher future taxes, and have cash on-the-side to pay resultant taxes, changing to the “Roth”, may provide the opportunity for stronger future growth-after-taxes. Roth 401(k)s and Roth IRAs not only grow tax-free, but are also tax-free upon withdrawal.

Be wary of warnings of near financial demise. Take a more active role of reallocating your investments…Even, if you had investments which provided double-digit returns in 2012, discuss with your Advisor whether sectors in the economy, such as pharmaceuticals, biotech, real estate, energy, foreign currencies, and emerging and developed markets might provide better opportunities.

Tom and Erin are as concerned as anyone about our country’s financial future. They learned long ago that, while they don’t have control over broad political issues, they do have control and responsibility, to make timely changes that can “lift” opportunity for their family’s financial future.

*Prior to investing, please consult state specific rules, as they may vary.

Allen Ostrofe, MBA CFP, is president of Ostrofe Financial Consultants Inc., a fee-based registered investment advisor. Securities and advisory services offered through National Planning Corporation, member FINRA/SIPC, a registered investment advisor. Ostrofe Financial and NPC are separate and unrelated companies. For questions or suggestions, visit ostrofefinancial.com or head to 565 Brunswick Road, Suite 15, Grass Valley.


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