Newsletter 2010 1001

Newsletter 2010 1001

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  October 2010 Abel FinancialStrategies Augustus W. Abel, CFP® Financial Advisor Medicare Annual Enrollment Season Is Here 3775 Attucks Dr. Powell, OH 43065 If you're currently enrolled in What's new? 614-389-2075 Medicare, you've probably begun This year, it's especially important to carefully Cell 614-499-1201 receiving information about your [email protected] review your coverage, because legislation coverage. That's because the www.awabelfinancial.com passed in 2010 will affect your Medicare annual enrollment period for coverage next year. Some costs and coverages Medicare runs from November will be different. For example, starting in 2011, Can you believe the summer is 15 through December 31. During if you're enrolled in original Medicare, you'll be over and we are rapidly heading this period, you can make to the end of the year. entitled to a free annual physical and wellness changes to your Medicare coverage that will be plan, and other preventive care services will be effective on January 1, 2011. Even if you like I am adding a focus to my fully covered. If you have a Medicare practice - "Financial Planning for the Medicare coverage you already have, it's a prescription drug plan, and you have families with Special Needs". It good time to explore your options, especially if turns out that a lot of families prescription costs high enough to put you into your health or financial circumstances have with members who have a the coverage gap known as "the donut hole," changed. disability of one type or another you'll receive a 50% discount on brand-name don't know where to get advice. Reviewing your Medicare plan drugs and a small discount on generic drugs. I've worked with families with Special Needs in the past and Your Medicare plan sends you two important Medicare Advantage plans will be affected too. have recently added another documents every year. The first, called the The open enrollment period that used to be resource to increase my abilities in these cases. Please call Evidence of Coverage, gives you information available each year from January 1 through or pass my name to a family you about what your plan covers, and its cost. The March 31 is changing; starting next year, this know who may need help in this second, called the Annual Notice of Change, period will run from January 1 through February area. lists changes to your plan for the upcoming 15. If you're enrolled in a Medicare Advantage Thank you to the many clients year (these will take effect in January). You can plan, the only option you'll have during this who have shared me with their use these documents to evaluate your current period is to disenroll from your plan and switch family and friends already! plan and decide if you need different coverage. back to original Medicare (formerly you could If you haven't already gotten one, you should switch to a different Medicare Advantage plan God Bless, soon receive a copy of Medicare & You 2011, during this time). However, if you return to A.W. the official government Medicare handbook. It original Medicare and lose drug coverage contains detailed information about Medicare provided by your Medicare Advantage plan, that should help you decide if your current plan you'll also be able to enroll in a Medicare is right for you. prescription drug plan. In this issue: Here are a few points to consider as you review What if you want to keep your current plan? Medicare Annual Enrollment your coverage: Season Is Here If you're happy with your current coverage, you • Will your current plan cover all the services don't need to switch plans. You can keep the They're Baaack: RMDs for 2010 you need and the health-care providers you plan you have if it still meets your needs. need to see next year? Year-End Investment Planning If you have any questions or concerns about Is More Challenging in 2010 • Does your current plan cost more or less than your coverage or need help comparing your other options? Make sure you consider options, call 1-800-Medicare. Or, you can find a What does a stronger dollar premiums, deductibles, and other tool on the official Medicare website, mean for my portfolio? out-of-pocket costs you pay such as www.medicare.gov, that compares Medicare co-payments or coinsurance costs, and plans, Medigap plans, and Medicare determine if any of these costs are changing. prescription drug plans available in your area. • Do you need to join a Medicare drug plan? When comparing plans, consider the cost of drugs under each plan, and make sure the drugs you take will still be covered next year.
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  Page 2 They're Baaack: RMDs for 2010 Required minimum distributions, often referred following the year of the account owner's death. to as RMDs, are amounts the federal Alternatively, you may elect, or your plan may government requires you to withdraw annually require, that you withdraw the entire account by from traditional IRAs and employer-sponsored December 31 of the calendar year containing retirement plans after you reach age 70½ (or, in the 5th anniversary of the account owner's some cases, after you retire). RMDs are also death ("five-year" rule). required if you inherit an IRA (traditional or • Per the WRERA, if you inherited an IRA or Roth) or employer plan account. You can employer account, and you were using the life always withdraw more than the minimum expectancy payout rule, then your RMD for amount from your IRA or plan in any year, but if the 2009 calendar year was waived. You must you withdraw less than the required minimum, take an RMD for the 2010 calendar year no you'll be subject to a federal penalty tax equal later than December 31, 2010. to 50% of the shortfall. • If you inherited an IRA or employer account, In response to deteriorating economic and you were using the five-year rule for conditions in 2008, Congress (as part of the RMDs, you ignore 2009 when determining Worker, Retiree, and Employer Recovery Act of when your five-year period ends. So, for 2008, or "WRERA") waived RMDs from IRAs example, if your original five-year deadline and defined contribution employer plans for the was December 31, 2009, you ignore 2009 and 2009 calendar year. This allowed individuals to you now have until December 31, 2010, to avoid having to deplete retirement plan assets complete withdrawals from the account. while the value of those assets was suddenly Similarly, if your original five-year deadline depressed. But RMDs are back for 2010. was December 31, 2013, your new deadline, Here's how the rules apply. ignoring 2009, is December 31, 2014. IRA owners and employer plan participants • If you inherited an employer plan account, you If you turned 70½ before 2009, your RMD for may have been given the right to elect the 2009 calendar year, which was due by whether to use the five-year rule or the December 31, 2009, was waived. You must lifetime expectancy payout rule for taking now resume taking RMDs. Your next RMD RMDs. This election is generally required no (based on your December 31, 2009, account later than December 31 of the year following balance) must be taken no later than December the year of the account owner's death. Per 31, 2010. IRS Notice 2009-82, if your deadline for making the election was December 31, 2009, If you turned 70½ in 2009, your first RMD (for you now have until December 31, 2010, to As you can see, the the 2009 calendar year) was due by April 1, make that election. 2009 waiver 2010. This RMD was waived. You must now significantly take your first RMD (for the 2010 calendar year, • If you inherited an employer account from complicates the RMD someone other than your spouse, and the based on your account value as of December landscape for 2010. If five-year rule applies to your benefit, you 31, 2009) no later than December 31, 2010. you're taking RMDs generally have until December 31 of the year You'll need to take your second RMD from the from an IRA or following the year of the account owner's account (for the 2011 calendar year) no later employer-sponsored death to make a direct rollover of the account than December 31, 2011. retirement plan, you to an inherited IRA, and use the lifetime may want to consider If you turned 70½ in 2010, your RMDs are not expectancy payout rule for distributions from reviewing your situation impacted by the 2009 waiver at all. Your first the IRA. If the account owner died in 2008, with your financial RMD (for the 2010 calendar year) is due by you generally would have needed to complete professional. April 1, 2011, and is based on the value of your your rollover by December 31, 2009. Per account on December 31, 2009. You'll need to Notice 2009-82, you have until December 31, take a second RMD from the account no later 2010, to complete the rollover. than December 31, 2011. As you can see, the 2009 waiver significantly Inherited accounts complicates the RMD landscape for 2010. If In general, if you inherit an IRA (traditional or you're taking RMDs from an IRA or Roth) or employer-plan account, you must employer-sponsored retirement plan, you may begin taking RMDs over your life expectancy want to consider reviewing your situation with ("life expectancy" rule) starting with the year your financial professional.
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  Page 3 Year-End InvestmentPlanning Is More Challenging in 2010 If you don't normally review your investments at gains in 2010. That's because you're able to the end of each year, 2010 might be a good report the taxable ordinary income from the time to start. And if year-end investment conversion on either your 2010 return or in the planning is already part of your routine, you 2011 and 2012 tax years (half of the income in might want to pay special attention this year. each year). Your decision about when you will Why? Because significant changes in the tax account for the taxable income that results from code that are scheduled to go into effect in a Roth conversion may affect your decision 2011 could substantially alter the taxation of about the timing of investment sales, or vice your portfolio next year. That could in turn affect versa. If you choose to report the income your investment strategy. And since many resulting from your Roth conversion on your expect additional changes that will affect next 2010 return, consider whether it makes sense year's tax landscape, it's even more important to realize sizable capital gains this year. If you than usual to think about whether your portfolio feel it's to your advantage to sell assets and needs fine-tuning. pay the capital gains tax in 2010, you may want to consider opting to postpone payment of the Begin planning before December 31 taxes owed on the Roth conversion until 2011 If you plan to sell a profitable investment at and 2012. That would mean the total taxes some point, you'll want to assess whether you owed would be spread over three years rather should sell before the end of the year. That's than one (though as noted above, your future especially true if you're in a low tax bracket or tax bracket also should be factored into the you have investments that have appreciated calculation). substantially. Investors in the 10% and 15% tax Consider the tax status of dividends brackets currently owe no capital gains taxes on long-term capital gains. That is scheduled to Qualifying dividends are scheduled once again change in 2011, when the long-term capital to be taxed next year as ordinary income, as gains rate at this level is scheduled to increase they were before 2003, rather than at long-term from 0 to 10%. If you're in the 25% bracket or capital gains rates, which are typically lower. If higher this year, you'll also need to think about you'll be in the 15% tax bracket, that represents this issue, though the scheduled increase from an increase of 15%. And if you'll be in the 28% the current 15% to 20% isn't quite as dramatic tax bracket or higher next year, the change in as the leap from 0 to 10% that those in the the tax status of dividend payments could also lower income brackets will face. (Special, have an impact; the higher your tax bracket in slightly lower rates for investments held for 2011, the greater the impact. more than five years will apply beginning in Don't forget the usual suspects Federal tax brackets 2011.) In addition to staying on top of the tax issues for ordinary income Also, the tax brackets themselves are are scheduled to that complicate this year's investment planning scheduled to change next year (see sidebar). If change in 2011 as efforts, there are some tasks that are useful you plan to harvest a tax loss and think you follows: every year. A portfolio review can tell you may be in a higher tax bracket next year, it whether it's time to adjust your holdings to 10% becomes 15% might make sense to first determine whether maintain an appropriate asset allocation. Also, the loss would be more valuable later. Though 15% remains 15% if you have losses, you may be able to harvest tax considerations shouldn't be the sole factor those losing positions to offset some or all of 25% becomes 28% in a decision to buy or sell, they shouldn't be any capital gains. Be sure to consider how long ignored, either--especially this year. 28% becomes 31% you've owned the asset; assets held a year or Complicating your decisions, of course, is the less generate short-term capital gains and are 33% becomes 36% uncertainty about whether the scheduled taxed as ordinary income. changes will undergo further revision before the 35% becomes 39.6% If you're selling an investment but intend to end of the year. One possibility is to have a repurchase it later, be careful not to buy within game plan based on the current scenario, and 30 days before or after a sale of the same adjust it as warranted. It may seem like a security. Doing so would constitute a violation burden, but for those in higher tax brackets, the of the "wash sale" rule, and the tax loss would extra effort could pay off come tax time. be disallowed. Finally, if you're considering the Think about your overall tax burden purchase of a mutual fund outside of a tax-advantaged account, find out when the fund If you converted an IRA to a Roth IRA this year will distribute dividends or capital gains, and or are thinking about doing so before the end of consider postponing action until after that date the year, you may need to take that into to avoid owing tax on that distribution. account when deciding whether to book capital
• 4.
  Ask the Experts What does a stronger dollar mean for my portfolio? In the summer of 2008, and other derivatives to try to limit the impact of investors were watching the that fluctuation on the fund's value. Others do dollar shrink. Because not, hoping that any dollar weakness will interest rates here were still increase the fund's value for U.S. investors. relatively low, investors Before investing in an international fund, check favored riskier investments its prospectus, which is available from the fund. that offered higher returns. The euro's value In addition to carefully considering its climbed to a record of almost $1.60 at one Abel Financial Strategies investment objectives, risks, fees, and point. But with autumn came the crisis that Augustus W. Abel, CFP® expenses, don't forget the special risks of shook the global financial system. Panicked Financial Advisor global investments, including political risks, investors suddenly decided that 3775 Attucks Dr. currency risks, and different accounting Powell, OH 43065 dollar-denominated assets such as U.S. standards; all of these can vary considerably by 614-389-2075 Treasury bonds didn't look so wimpy after all. country and region. Also, find out whether the Cell 614-499-1201 Within three months, a euro was worth 30 cents fund is hedged or unhedged. A falling dollar can [email protected] less. Worries about the European debt crisis www.awabelfinancial.com enhance the returns of an unhedged fund, but and whether the euro would even survive as a the lack of a hedge leaves it unprotected if the currency has kept the dollar at roughly the dollar strengthens. Securities offered through First same level or better for much of 2010. Heartland Capital®, Inc. A stronger dollar can affect your portfolio even Member FINRA/SIPC. Advisory What does that mean for your portfolio? The if you don't think you own any foreign Services offered through First most obvious impact of a stronger dollar is on investments. Many U.S.-based multinationals Heartland ® Consultants, Inc. the value of overseas investments; the value of (Abel Financial Strategies is not get a substantial percentage of their revenues holdings denominated in a foreign currency will affiliated with First Heartland overseas. A stronger dollar can cut into those Capital®, Inc.) fluctuate with the exchange rate between that revenues as U.S. exports become more currency and the dollar. Some mutual funds expensive for overseas consumers. Also, many that invest overseas attempt to hedge their broad-based mutual funds include a percentage currency exposure, using currency futures of overseas holdings among their assets. Why should I care about Europe's debt problems? When it became apparent more capital, worried that they might need last spring that Greece might those reserves to cover any losses on their be unable to make sovereign debt holdings. Global investors worry scheduled payments on its that tighter credit could slow a fragile global government bonds, equities economic recovery or cause it to grind to a halt. plunged around the world. European businesses and consumers that How is it possible for the debt of one country to aren't able to buy U.S. exports could become a have such a profound impact on investments in problem for U.S. corporations, many of which a 401(k) plan a continent away? earn a substantial percentage of their revenues overseas. Investors were worried that Greece's problems with its budget deficit and level of sovereign Another concern is the stability of the euro debt (bonds issued by the national government) itself. If stronger European economies lose the were emblematic of issues plaguing other will to help bail out weaker countries, or if highly eurozone countries--issues that could create indebted countries are unable to make drastic global problems in economies with more global and unpopular budget cuts, investors worry that impact, such as Spain. For Europe, sovereign the euro could be in peril. Equities hate debt is the potential equivalent of the subprime uncertainty wherever it is, and the specter of mortgage market in the United States--the first chaos in the global financial system can affect domino that could spark major shocks to the markets worldwide. To combat these problems, banking industry and, by extension, the global European leaders have adopted many of the financial system. same steps taken in the United States during the 2008 financial crisis, such as establishing a Concerns about the level of sovereign debt and Prepared by Forefield Inc, massive lending facility and subjecting large the potential for default or restructuring of Copyright 2010 banks to stress tests to determine their ability to payments have already affected credit withstand financial shocks. availability internationally; banks are conserving