Financial Stewardship June 2010
Angela Giboney, CFP®
Financial Advisor Inherited IRAs - What you need to know
22108 1st Pl W
Bothell, WA 98021 What You Should Know about Inherited Spouse beneficiary: If you roll the inherited IRA
425-415-6029 IRAs The rules governing inherited IRAs are over to your own IRA, or treat it as your own,
firstname.lastname@example.org complicated. Here are the major issues. then the RMD rules apply to you the same way
www.hbwcoach.com they apply to any IRA owner--you'll need to
Transferring inherited IRA assets begin taking RMDs from a traditional IRA after
you turn 70½; no lifetime RMDs are required at
If you inherit an IRA from someone who isn't all from a Roth IRA. If you don't roll the IRA
School is out this month. Spend your spouse. You can transfer the assets to a assets over or treat the IRA as your own, then
time with those you love, then
give me a call 425-415-6029 and different IRA provider, as long as the the same rules described above for nonspouse
we'll update your financial plans. registration of the account continues to reflect beneficiaries generally apply to you, except that
Thanks, that the IRA is an inherited IRA and not your you can defer receiving distributions until your
Angela Giboney CFP® own. You may be able to stretch the IRA spouse would have turned 70½.
distribution over your estimated lifetime and
benefit , so you and your beneficiaries may be Special rules--inherited Roth IRAs
Advisory services offered through able to reduce the taxes on earnings.
HBW Advisory Services LLC, 3355
Cochran St, Suite 100, Simi Valley, Qualified distributions to a beneficiary from an
CA 93063, Angela Giboney is an inherited Roth IRA are free from federal income
Representative. Securities offered If you inherit an IRA from your spouse, you taxes. To be qualified, the distribution must be
through HBW Securities LLC, have many more options. You can roll all or made after a five-year holding period. The
Member FINRA/SIPC, 3355 part of the IRA proceeds over to your own IRA. five-year period begins on January 1 of the
Cochran St, Suite 100 Simi Valley,
CA 93063 (800)473-3856. Angela You become the owner of the IRA assets, and year the deceased IRA owner first established
Giboney is a registered the rules that apply to IRA owners, apply from any Roth IRA, and ends after five full calendar
Representative. HBW Insurance &
Financial Services, Inc. is a that point on. If you're the sole beneficiary of years. If you take a distribution from an
separate entity from HBW the IRA, you can also generally treat the inherited Roth IRA before this five-year period
Securities LLC and a separate
entity form HBW Advisory Services inherited IRA as your own by retitling the IRA in ends, earnings you receive will be subject to
LLC. HBW Securities LLC does not your name. But you aren't required to assume federal income taxes (earnings generally come
give legal or tax advice nor does ownership of an inherited IRA. You can instead out last). If you're a spouse beneficiary, and
HBW Advisory Services LLC.
continue to maintain the inherited IRA as a you roll the inherited Roth IRA over to your own
beneficiary. You might want to do this if you Roth IRA or treat the inherited IRA as your
inherit a traditional IRA and you'll need to use own, then you'll be eligible to take tax-free
the funds before you turn 59½ (distributions distributions of earnings only after you reach
In this issue: from inherited IRAs aren't subject to the 10% age 59½, become disabled, or have qualifying
penalty that typically applies to early first-time homebuyer expenses. The five-year
Inherited IRAs - What you
need to know distributions from IRAs you own). period for your Roth IRAs will be deemed to
have started on January 1 of the year you or
Student Loan Repayment your spouse first established any Roth IRA,
Options whichever is earlier.
Returning to Work After Requiredminimum distributions (RMDs)
Nonspouse beneficiary: Federal law requires Additional rules apply if...
How have stocks performed that you begin taking distributions (called
after a recession?
required minimum distributions, or RMDs) from You're sharing the inherited IRA with other
the inherited IRA after the IRA owner dies. If beneficiaries. This can impact when and how
the IRA owner died after turning 70½ and didn't you must begin receiving RMDs from the IRA.
take a required distribution for the year of
death, you'll need to make sure to take that You don't want or need the IRA funds. You may
distribution by December 31 of the year of be able to disclaim the IRA and have it pass to
death in order to avoid a 50% penalty. another beneficiary.
Any estate taxes were paid that are attributable
to the inherited IRA. You may be entitled to an
Student Loan Repayment Options
At one time, there was only one Example: Assume the same facts as before--a
student loan repayment $20,000 loan at a fixed 6.8% interest rate.
option--the standard 10-year Under an extended repayment plan, if the term
plan. Now, there are an were increased to 20 years, your monthly
assortment of flexible repayment payment would be $153 (lower than the $230
options to help borrowers meet monthly payment under the standard 10-year
their loan obligations. And it plan), but your total payment over the term of
couldn't have come at a better the loan would be $36,640--$9,021 more
time. According to an analysis of interest than under the standard plan.
the government's National Postsecondary
Income contingent plan
Student Aid Study by financial aid expert Mark
Praise for IBR Kantrowitz, the average federal student loan An income contingent repayment plan is for
According to Lauren debt load was $23,186 last year--a figure that federal student loans (including graduate Direct
Asher, President of the doesn't include private student loan debt, which PLUS Loans) made under the government's
Project on Student Debt has exploded in recent years along with the William D. Ford Direct Loan program only.
and the Institute for cost of college. Monthly payments are based on the student's
College Access and income, family size, and amount of loans. After
Success,"[income based 25 years of repayment (not counting time spent
repayment] was Under a standard repayment plan, you pay a in deferment or forbearance), any remaining
supported by a broad certain amount each month over a 10-year balance on the loans will be discharged (you
coalition of student, term. If your interest rate is fixed, you'll pay a may have to pay taxes on the amount
parent, loan industry, and fixed amount each month; if your interest rate is discharged, however). A public service loan
higher education groups variable, your monthly payment will change forgiveness component will discharge any
to make college more from year to year (but will be the same each remaining debt after 10 years of full-time
affordable and month for the 12 months that a certain interest employment in public service. Borrowers with
accessible," and the rate is in effect). federal student loans obtained via private
President's budget lenders under the Federal Family Education
proposal is "a way to Loan program can ask their lenders about an
make the program even Under a graduated repayment plan, payments income sensitive repayment option.
more helpful to start out low in the early years of the loan
Income based repayment plan
responsible borrowers." (presumably when a new college graduate has
the lowest earning potential), then increase in The federal government's new Income Based
the later years of the loan. With some Repayment (IBR) program went into effect July
graduated repayment plans, the initial lower 1, 2009. Monthly payments are based on the
payment includes both principal and interest, student's income and family size. Borrowers
while under other plans, the initial lower pay 15% of their discretionary income to
payment includes interest only. student loan payments, with any remaining debt
forgiven after 25 years. According to Lauren
Example: Assume you have a $20,000 student
Asher, President of the Project on Student Debt
loan at a fixed 6.8% interest rate. Under a
and the Institute for College Access and
standard 10-year repayment plan, your monthly
Success, a student will generally qualify if he or
payment would be $230, and your total
she owes about as much in federal student
payment over the term of the loan would be
loans as the student's current annual salary.
$27,619, of which $7,619 is interest payments.
Under a graduated 10-year repayment plan, if This program is open to graduates with a
you chose a 4-year interest-only option, your Stafford Loan, graduate PLUS Loan, or
monthly payment would be $113 for the first 4 consolidation student loan made under either
years, then $339 for the remaining 6 years, for the Direct Loan program or the Federal Family
a total payment over the term of the loan of Education Loan Program. The loans can be for
$29,852, of which $9,852 is interest payments. undergraduate, graduate, or professional
studies, as well as for job training. The
Department of Education has an IBR calculator
Under an extended repayment plan, you extend on its website at http://studentaid.ed.gov.
the time you have to pay the loan, typically
And thanks to recent legislation, borrowers who
anywhere from 15 to 30 years. Your monthly
take out a federal student loan after July 1,
payment is lower than it would be under a
2014, will pay just 10% of their discretionary
standard plan, but you'll pay more interest over
income to student loan payments, with any
the life of the loan because the repayment
remaining debt forgiven after 20 years.
period is longer.
Returning to Work After You've Retired
No matter how much you've looked forward to for every $2 you earn over the annual earnings
retirement, you might find yourself missing the limit of $14,160. A higher earnings limit applies
social interaction and financial benefits you in the year you reach full retirement age. If you
enjoyed when you were employed. Perhaps earn more than this limit ($37,680 in 2010), $1
getting a full- or part-time job will enable you to in benefits will be withheld for every $3 you
rely less on your retirement savings, leaving earn over that amount, until the month you
more to potentially grow for the future. Or reach full retirement age--then you'll get your
maybe you're looking forward to pursuing your full benefit every month thereafter, no matter
dream of owning a business. Whether working how much you earn. (But note that even if your
during retirement is a choice--or a benefits are withheld, that reduction isn't
necessity--make sure you understand the permanent. Your benefit will be increased at full
financial implications. retirement age to account for the amount
withheld because of your earlier earnings.)
Finding the right work opportunity
Not all income reduces your Social Security
Many people spend 20 years or more in
benefit. In general, Social Security only takes
retirement, so it's important to do something
into account wages you've earned as an
you love. If you don't quite know what that is, or
employee, net earnings from self-employment,
you aren't ready to commit to a permanent
and other types of work-related income, such
position, you might try working in a contract job,
as bonuses, commissions, and fees. Pensions,
or signing up with a temporary employment
annuities, IRA payments, and investment
agency that will allow you to work when, and
income won't reduce your benefit.
where, you wish. Some agencies even offer
health and retirement benefits. If it's been a Also, keep in mind that working may enable you
while since you searched for work, get in touch to put off receiving your Social Security benefit
with a local career counselor to get tips on until a later date. In general, the later you begin
preparing a job application or resume, and to receiving benefit payments, the greater your
learn more about the jobs available in your benefit will be. Whether delaying the start of According to the U.S.
community. Social Security benefits is the right decision for Department of Labor,
you depends on your personal circumstances. 29% of Americans age
To help you determine your salary 65 to 69 are currently
requirements and how many hours you'll work, What about income taxes? In general, your employed.
spend some time reviewing your retirement Social Security benefit won't be subject to
plan, focusing on your retirement income income tax if that's the only income you receive
needs. Then limit your job search to businesses during the year. But if you work during
that offer the right combination of pay, benefits, retirement (or you receive any other taxable
and working environment. income, or tax-exempt interest), a portion of
your benefit may become taxable. IRS
Working for yourself
Publication 915 has a worksheet that can help
Once you retire, you may finally be ready to you determine if any part of your Social
turn your ideas and talents into a business. Security benefit is subject to income tax.
Mature entrepreneurs often have the time and
Will working affect your pension?
experience necessary to become successful
business owners. However, make sure you Unless you plan to return to work with your
have enough capital to start up and run your former employer, your pension benefit won't be
business--it may take longer than you think for affected--you can work, receive a salary from
your business to become profitable. And don't your new employer, and also receive your
jeopardize your retirement security by relying pension benefit from your former employer.
on your credit cards, life savings, and home However, if you are considering taking another
equity to finance your business. job--even part-time--with your former employer,
check with your plan administrator. Some plans
Will working affect your Social Security
require that your pension benefit be suspended
if you retire and then return to work for the
If you're receiving Social Security retirement same employer.
benefits and you're younger than your full
retirement age (65 to 67), your benefits will be
reduced if you earn more than a certain
amount. In 2010, $1 in benefits will be withheld
Ask the Experts
How have stocks performed after a recession?
Mark Twain said it best: • December 1970-November 1971: 1.3%
"History doesn't repeat itself; • April 1975-March 1976: 23.2%
at best it sometimes
rhymes." Past performance • August 1980-July 1981: 28.4%
is no guarantee of future • December 1982-November 1983: 14.4%
results, and history can be
an uncertain guide in terms of what might • April 1991-March 1992: 14.8%
happen with stocks this time around as the • December 2002-November 2003: 5.2%
Angela Giboney, CFP® economy begins to stagger out of a recession.
Financial Advisor Will history rhyme this time? It's hard to say.
22108 1st Pl W That said, it's fascinating to look at how various Many economists feel the current recession
Bothell, WA 98021 subsegments of the stock market have ended sometime in summer 2009. Small-cap
425-415-6029 behaved relative to one another. Particularly stocks have certainly done well since then, but
800-499-2041 interesting is the comparison between the some experts feel large caps are best equipped
www.hbwcoach.com performance of small-cap stocks and that of to navigate a credit crisis. However, until the
large caps after each of the last six recessions. NBER retroactively declares an official end to
In each case, small caps led the way out of this recession, there's no way to know for sure.
Advisory services offered through HBW Advisory
Services LLC, 3355 Cochran St., Suite 100, Simi those downturns. During the 12 months after And don't forget that small caps historically
Valley, CA 93063, Angela Giboney is an have involved greater risk from market
Investment Advisor Representative. the recession came to an end, as declared by
Securities offered through HBW Securities LLC,
the National Bureau of Economic Research fluctuation, so a double-dip downturn could hit
Member FINRA/SIPC, 3355 Cochran St., Suite (NBER), small caps beat large caps every time. them hardest.
100 Simi Valley, CA 93063 (800)473-3856.
Angela Giboney is a registered Representative.
The average difference over the six recovery *Percentages calculated based on data from
HBW Insurance & Financial Services, Inc. is a
separate entity from HBW Securities LLC and a periods was 14.5%. In some cases, the Ibbotson SBBI Market Results for Stocks,
separate entity form HBW Advisory Services Bonds, Bills, and Inflation for small company
LLC. HBW Securities LLC does not give legal or difference was dramatic; in others, small caps
tax advice nor does HBW Advisory Services
were barely ahead. Here are the percentages stocks and the S&P 500 Composite Index.
This advertisement is not intended as legal or tax
by which small caps beat the S&P 500*:
advice and may not be relied on for purposes of
avoiding federal tax penalties. All individuals,
including those involved in the estate planning
process, are advised
to meet with their tax and legal professionals.
The individual sponsoring this newsletter will
work with your tax and legal advisors to help
How long does it take a bear market to end?
select appropriate product solutions. We do not
endorse or guarantee the content or services of A bear market, typically 30-month bear market with a roughly 3-month
any website mentioned in this newsletter. We
each website you visit. Limitations, restrictions
and other rules and regulations apply to many of market decline of at least beginning of 2002, as some market technicians
the financial and insurance products and
concepts presented in this newsletter, and they 20% over an extended argue? Or was it two independent bear
may differ according to individual situations. period, historically has markets--one from March 2000 to September
lasted an average of a little 2001 and a second from January 2002 to
over a year.* On average, bull markets tend to October 2002--that were separated by the
last almost twice as long as bear markets, but shortest bull market since the Depression
sometimes the differences can be even more summer of 1932?
dramatic. For example, the bear market that
By definition, you only know you're in either a
began in January of 2002 lasted almost nine
bear or bull market in retrospect, once the
months; it was followed by a five-year bull
market has moved consistently in one direction
market from October 2002 to October 2007.
or another. And the past isn't necessarily a
The shortest bear market on record lasted only good predictor of what will happen in the future.
about six weeks, from mid-July 1998 to the end Since investing is about the future rather than
of August. The longest? October 1939 through the past, it may make sense to focus more on
April 1942 (almost 30 months), beating out April factors such as asset allocation than on the
1930 to June 1932 (just over two years). timing of a recovery you can't control.
However, defining bear markets and *All time frames based on data from the Stock
subsequent recoveries from them isn't as Trader's Almanac 2010 on the Standard &
straightforward as it might seem. For one thing, Poor's 500, a market-cap weighted index
a long-term bear market can be interrupted by composed of the common stocks of 500 leading
Prepared by Forefield Inc, one or more shorter-term bull markets (or vice companies in leading industries of the U.S.
Copyright 2010 versa). For example, was the period between economy.
March 2000 and October 2002 a single