Happy New Year, may you have a very healthy and prosperous 2010. This newsletter reviews 2009, looks forward to 2010, and gives an update on WWEE.
2009 REVIEW
A family member asked me during a Christmas party in 2008 what should be done with their investments for 2009? My response was this was the greatest buying opportunity for stock in our lifetime. While this looks like a good statement now, this family member may have thought that I was crazy about March when we reached the lows for the year.
2009 was the last year in the 2000-2009 decade. The biggest news was that during this decade the stock market indexes went down. In the history of the S&P 500 index, it has always been higher during any given any decade. So what does this mean?
The idea of buy and hold stocks and everything will be OK in the future is now a very bad strategy. You need to know when to hold-em and when to fold-em to borrow a line from a Kenny Rogers song "The Gambler". You need a strategy that indicates what to own, when to own it, and when to sell. The strategy that I use is Business Cycle Investing which follows the actions of the Federal Reserve and the growth rate of the economy rather than some expert in the news, except for Warren Buffet.
The investment categories that did the best during this decade were commodities and international stocks. Commodities rose because of worldwide growth in demand due to growth in emerging and developing countries. This trend should continue for the next decade. During the decade, mutual funds that had exposure to commodities gave the best returns.
2010 AND BEYOND
While I am not smart enough to predict the future, as many experts believe that they have this divine power, it is easy to see major trends. So what do I see for 2010?
2010 should give higher commodity prices, higher interest rates, and higher stock market prices. The mutual funds that invest in the stock market are still well positioned. My biggest concern is the interest rate increase and may make some moves in mutual funds that invest in bonds. In the past, stocks have moved esentially sideways for long time periods followed by a significant move higher. While it is impossible to predict the timing of this move, it will happen.
UPDATE ON WWEE
We are in the midst of a Worldwide Wireless E-commerce Explosion, WWEE. The signs are all around us, this is what I have seen lately:
* Smart phones are moving more deeply into the consumer market as phone makers are forming alliances to move forward. The latest entrant is Droid from Motorola and the alliance is with Google, 2 powerful companies.
* 3G advertisements between AT&T and Verizon shows that data coverage is now very important to consumers.
* Introduction of MiFi technology, where up to 4 data devices such as computers and smart phones can connect to a single node. You have seen the commercial of people in a car going down a road connected to a node in the car with this node communicating to a satellite. This is important to consumers as it lowers cost for internet connections.
* Adoption of MiFi by Ford as new Ford vehicles will offer this option.
WWEE is moving forward, make sure not to miss it.
Showing posts with label 2009. Show all posts
Showing posts with label 2009. Show all posts
Saturday, January 2, 2010
Monday, January 12, 2009
Change in Required Minimum Distribution (RMD) - 2009
For 2009 the Required Minimum Distribution from a tax advantaged account such as an IRA or 401(k). This means that the RMD for 2009 has been suspended. Below is an article that does a good job of explaining the change and the ramifications of the change. This change is only for 2009.
Congress Revises Retirement-Fund Rules
A new tax law will allow retirees to skip required withdrawals from individual retirement accounts and related accounts this year. The change -- signed into law by President Bush last month -- is intended to give beaten-down nest eggs time to rebound from the brutal bear market. But the new law may also create confusion, particularly for those just starting to take required withdrawals.
Here are answers to questions about the new law:
How do the existing rules governing IRA withdrawals work?
Normally, IRA owners over age 70½ must withdraw money each year. For your first withdrawal, however, the deadline is extended until April 1 of the year after you turn 70½. People who turned 70½ in 2007, for example, had until April 1, 2008, to take their first required distribution.
In a typical year, to calculate how much to withdraw, you look at your account balance as of the previous Dec. 31 -- and then divide that figure by your remaining life expectancy. (Life-expectancy tables can be found in Internal Revenue Service Publication 590.) Most people who inherit IRAs or 401(k)s can spread withdrawals over their own life expectancies.
These requirements also apply to 401(k)s and some other employer-sponsored plans, but not to defined-benefit pension plans or Roth IRAs. (If you are still working, you aren't required to take distributions from your current employer's retirement plan.)
What impact will the new law have?
The new law suspends required distributions in 2009. This gives those who can afford to leave their nest eggs alone a better chance of recovering some of the investment losses they sustained last year.
"They'll have more dollars working for them in the event of a stock-market rebound," says Elizabeth Drigotas, a principal at Deloitte Tax.
If you don't need to pull money out of retirement accounts for living expenses, the new law will also delay the tax you would have owed on your 2009 distribution.
Unless Congress decides to extend the moratorium, those over age 70½ -- along with those who have inherited IRAs or 401(k)s -- will be forced to resume taking withdrawals in 2010. (Note: Neither Congress nor the Treasury Department took any action involving withdrawals, or taxes on withdrawals, for 2008.)
If I turned 70½ in 2008 and had planned to take my first withdrawal by the April 1, 2009, deadline, does the new law permit me to skip it?
No. The law suspends distributions only for 2009. Although first-timers are allowed to delay 2008's distribution until April 1, 2009, the withdrawal still counts toward your obligation for 2008, Mr. Slott says. So, if you turned 70½ last year and decided to wait until close to April 1 of this year to make your first withdrawal, that deadline still applies. To calculate this distribution, you would use your account balance as of Dec. 31, 2007.
What if I turn 70½ this year?
This gets a bit more complicated. In effect, you will have until Dec. 31, 2010 to take your first withdrawal -- even though the IRS will consider that withdrawal to be your second distribution. Here's how it works:
Under the usual rules, people who reach age 70½ in 2009 -- and who wait until early 2010 to take their first withdrawal -- would have to take two distributions in 2010: one for 2009 (their first distribution) and one for 2010 (their second distribution). That second distribution would have to be taken by Dec. 31, 2010. Of course, the new law suspends distributions for 2009. Thus, first-timers -- anyone who turns 70½ in 2009 -- won't be required to make a withdrawal in 2009, or in the first three months of 2010. In short, such individuals simply can skip that "first" distribution.
But Uncle Sam will still want you to take the "second" distribution -- the one for 2010 -- even though, as far as your retirement savings are concerned, it's your first withdrawal. Again, you would have until Dec. 31, 2010, to take that "second" distribution.
Can I still donate money from my IRA to charity without paying income taxes first?
Yes. In October, lawmakers resurrected a tax break available to those who make donations directly from their IRAs to charity in 2008 and 2009. Under the law, individuals age 70½ or older can donate as much as $100,000 from an IRA to a public charity. No taxes are due on the withdrawal, and the donation counts toward a person's required annual withdrawal. This year, of course -- with mandatory distributions suspended -- the tactic loses a bit of its luster. But those who wish to make a direct donation from an IRA can still do so -- income-tax free, says Mr. Slott.
Can I convert some or all of my IRA to a Roth IRA in 2009?
Yes, provided your adjusted gross income is $100,000 or less, you'll be eligible to make such a move. Typically, those taking mandatory distributions from a traditional IRA aren't allowed to turn around and deposit that money into a Roth IRA, Mr. Slott says. (You can take your required payment and then convert all or part of the IRA balance if you wish.) But in 2009, any withdrawals can be used to fund a Roth, he says.
Congress Revises Retirement-Fund Rules
A new tax law will allow retirees to skip required withdrawals from individual retirement accounts and related accounts this year. The change -- signed into law by President Bush last month -- is intended to give beaten-down nest eggs time to rebound from the brutal bear market. But the new law may also create confusion, particularly for those just starting to take required withdrawals.
Here are answers to questions about the new law:
How do the existing rules governing IRA withdrawals work?
Normally, IRA owners over age 70½ must withdraw money each year. For your first withdrawal, however, the deadline is extended until April 1 of the year after you turn 70½. People who turned 70½ in 2007, for example, had until April 1, 2008, to take their first required distribution.
In a typical year, to calculate how much to withdraw, you look at your account balance as of the previous Dec. 31 -- and then divide that figure by your remaining life expectancy. (Life-expectancy tables can be found in Internal Revenue Service Publication 590.) Most people who inherit IRAs or 401(k)s can spread withdrawals over their own life expectancies.
These requirements also apply to 401(k)s and some other employer-sponsored plans, but not to defined-benefit pension plans or Roth IRAs. (If you are still working, you aren't required to take distributions from your current employer's retirement plan.)
What impact will the new law have?
The new law suspends required distributions in 2009. This gives those who can afford to leave their nest eggs alone a better chance of recovering some of the investment losses they sustained last year.
"They'll have more dollars working for them in the event of a stock-market rebound," says Elizabeth Drigotas, a principal at Deloitte Tax.
If you don't need to pull money out of retirement accounts for living expenses, the new law will also delay the tax you would have owed on your 2009 distribution.
Unless Congress decides to extend the moratorium, those over age 70½ -- along with those who have inherited IRAs or 401(k)s -- will be forced to resume taking withdrawals in 2010. (Note: Neither Congress nor the Treasury Department took any action involving withdrawals, or taxes on withdrawals, for 2008.)
If I turned 70½ in 2008 and had planned to take my first withdrawal by the April 1, 2009, deadline, does the new law permit me to skip it?
No. The law suspends distributions only for 2009. Although first-timers are allowed to delay 2008's distribution until April 1, 2009, the withdrawal still counts toward your obligation for 2008, Mr. Slott says. So, if you turned 70½ last year and decided to wait until close to April 1 of this year to make your first withdrawal, that deadline still applies. To calculate this distribution, you would use your account balance as of Dec. 31, 2007.
What if I turn 70½ this year?
This gets a bit more complicated. In effect, you will have until Dec. 31, 2010 to take your first withdrawal -- even though the IRS will consider that withdrawal to be your second distribution. Here's how it works:
Under the usual rules, people who reach age 70½ in 2009 -- and who wait until early 2010 to take their first withdrawal -- would have to take two distributions in 2010: one for 2009 (their first distribution) and one for 2010 (their second distribution). That second distribution would have to be taken by Dec. 31, 2010. Of course, the new law suspends distributions for 2009. Thus, first-timers -- anyone who turns 70½ in 2009 -- won't be required to make a withdrawal in 2009, or in the first three months of 2010. In short, such individuals simply can skip that "first" distribution.
But Uncle Sam will still want you to take the "second" distribution -- the one for 2010 -- even though, as far as your retirement savings are concerned, it's your first withdrawal. Again, you would have until Dec. 31, 2010, to take that "second" distribution.
Can I still donate money from my IRA to charity without paying income taxes first?
Yes. In October, lawmakers resurrected a tax break available to those who make donations directly from their IRAs to charity in 2008 and 2009. Under the law, individuals age 70½ or older can donate as much as $100,000 from an IRA to a public charity. No taxes are due on the withdrawal, and the donation counts toward a person's required annual withdrawal. This year, of course -- with mandatory distributions suspended -- the tactic loses a bit of its luster. But those who wish to make a direct donation from an IRA can still do so -- income-tax free, says Mr. Slott.
Can I convert some or all of my IRA to a Roth IRA in 2009?
Yes, provided your adjusted gross income is $100,000 or less, you'll be eligible to make such a move. Typically, those taking mandatory distributions from a traditional IRA aren't allowed to turn around and deposit that money into a Roth IRA, Mr. Slott says. (You can take your required payment and then convert all or part of the IRA balance if you wish.) But in 2009, any withdrawals can be used to fund a Roth, he says.
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