May 2010


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May 2010

  1. 1. May 2010 John Stokes Financial John Stokes President A Mid-Year Financial Review: More Time to Plan 4590 Macarthur Blvd Suite 500 Mid-year is an ideal time can be as simple as dedicating a folder in your Newport Beach, CA 92660 to take a look at your file cabinet to this year's tax return so that you (949) 477-1245 finances, because the can keep track of important paperwork. (800) 477-1245 demands on your time Retirement planning may be fewer, and the planning opportunities If you're working and you received a pay greater, than if you wait increase for this year, don't overlook the until the end of the year. opportunity to increase your retirement plan Here are a few tips to get you started. contributions by asking your employer to apply a higher percentage of your salary. This year, Identifying your needs you may be able to contribute up to $16,500 to Financial plans often need to be modified when your retirement plan at work ($22,000 if you're personal circumstances change. Answering age 50 or older). If you have a traditional IRA, these questions can help you identify the you may also want to weigh the benefits of Securities by financial issues you want to address within the converting it to a Roth IRA this year, when you Licensed Individuals next few months. may be able to take advantage of a special deferral rule that applies only to 2010 offered Through • Are any life-changing events coming up soon, conversions. This deferral rule gives you the Investacorp, Inc. A such as marriage, the birth of a child, option of reporting half of any resulting taxable Registered retirement, or a career change? income that results on your 2011 tax return and BrokerDealer Member • Will your income or expenses substantially half of the income on your 2012 return. FINRA, SIPC increase or decrease this year? If you're already retired, take a new look at your • Are you concerned about the performance of retirement income needs and whether your your investment portfolio? current investments and distribution strategy • Do you have any needs or concerns that you will continue to provide enough income. would like to address? Investment planning Tax planning Have you recently reviewed your portfolio to Completing a mid-year estimate of your income make sure that your asset allocation is still in tax liability can reveal tax-planning line with your financial goals, time horizon, and In this issue: opportunities. You can use last year's tax return tolerance for risk? Though it's common to as a basis, then make any anticipated rebalance a portfolio at the end of the year, if A Mid-Year Financial Review: the market is volatile, you may need to More Time to Plan adjustments to your income and deductions for this year. Check your withholding, especially if rebalance more frequently. Back to Basics: Reviewing you owed taxes when you filed your most Your Budget Insurance planning recent income tax return or if you received a How Much Life Insurance is large refund. Doing that now, rather than Do you know exactly how much life and Enough? waiting until the end of the year, will help you disability insurance coverage you have? Are avoid a big tax bill or having too much of your you familiar with the terms of your Can I buy gold and silver in my money tied up with Uncle Sam. If necessary, homeowners, renters, or auto insurance IRA? policies? If not, it's time to add your insurance adjust the amount of federal or state income tax withheld from your paycheck by filing a new policies to your summer reading list. Insurance Form W-4 with your employer. needs frequently change, and it's possible that your coverage hasn't kept pace with your One of the easiest things you can do right now income or family circumstances. to help avoid missed tax-saving opportunities for the year is to set up a system for saving receipts and other tax-related documents. This
  2. 2. Page 2 Back to Basics: Reviewing Your Budget Do you ever wonder where your money goes Irregular expenses can't be predicted, but they each month? Does it seem like you've gotten always occur: car repairs and home sidetracked when it comes to reaching your maintenance are good examples. Remember to financial goals? If so, you may want to review include these types of expenses in your and perhaps revise your budget. Doing so can accounting. For example, if you buy tires for help you determine how you're spending your your car every 3 years, one-third of the total is money, and that might show you what you need your annual expense. to do to get back on track. Caution: While you may find it easy to use your "Oh, we don't need a budget," you might be credit card for irregular expenses, do so only as saying. "We have plenty of money." If that's a convenience. Be prepared to pay off the true, great! But if you aren't reaching your credit card charge with funds you have set financial goals, there's a reason for that. aside in your budget for these expenses. Reviewing (or simply creating) your budget Finally, prioritize the funds you'll need to meet might help you find out what that reason is. both your short- and long-term goals as regular Examine your financial goals expenses in your budget. The first part of reviewing your budget should And the answer is... be an examination of your financial goals. After Once you've added up your income and all, planning any trip's itinerary depends in part expenses, you'll need to compare the totals. on knowing where you want to go! Make a list Are you spending exactly what you're making? of both your short-term and your long-term Congratulations, your budget is perfectly goals, and prioritize them. How much will you balanced! Even better, if you're spending less need to save for each one, and how long will than you're making, you have a surplus. If that's "The first part of you have to reach them? Should you forestall the case, you can allocate that surplus to either reviewing your budget some of lower priority to reach others of higher reaching your goals faster or funding new should be an priority? investment opportunities. examination of your Keeping track financial goals. After all, But if you're spending more than you're making, planning any trip's Budgeting is largely about tracking your income you're running a deficit. You might not feel the itinerary depends in and expenses. You can do this with a pen and pinch if you're very good at juggling or funding it part on knowing where paper, or you can use one of the many software with increasing credit card debt or a home you want to go!" programs or web-based applications designed equity line of credit. But even the best of for this purpose. The most important element of jugglers drop the balls sometimes, and this process is to do it consistently. increasing your debt can be dangerous. If that's what you're doing, you're sidetracking your Should you count every penny? Not budget into a dead-end spur. necessarily, although to some extent you can't control the dollars if you don't track the cents. So, to balance your budget and get back on But focus primarily on meeting the basic track toward meeting your goals, you'll have to expenses of life and then allocating what it will either increase your income or reduce your take to meet your goals. expenses--or both. As you may have seen while tracking your expenses, it's often your Income and expenses discretionary spending that leads to a Much of your income may come from your derailment when it comes to meeting your regular paycheck or (if you're retired) from goals. Rather than shortchange your goals government benefits such as Social Security, a (you'll only be shortchanging yourself if you do), pension, or retirement account distributions. But work on reducing discretionary expenses. don't forget to include all forms of income, such Staying on track as child support and/or alimony, and even irregular or seasonal income, such as tax You'll need to monitor your budget to keep it on refunds, dividends, or interest. track. Remember that, like life itself, you'll need to keep your budget as flexible as your Expenses generally fall into two categories. changing circumstances may demand. Fixed expenses are the "have-to" basics: housing, utilities, food, clothing, and transportation. Discretionary expenses are "want-to" items: eating out, entertainment, vacations, and hobbies.
  3. 3. Page 3 How Much Life Insurance Is Enough? Your life insurance needs often depend on a • Debts, including credit cards and mortgages: number of factors, including whether you're $317,000 married, the size of your family, the nature of • Emergency fund: $100,000 your financial obligations, your career stage, and your goals. Subtotal: $459,500 There are a number of approaches you can use Next, they estimate ongoing income needs, to figure out how much insurance you should such as: have. One method, called the "family needs • Providing for their dependent children's needs approach," focuses on the amount of life for a period of time: $500,000 insurance it would take to allow your family to meet its various financial obligations and • Wendy's income needs until her retirement: expenses in the event of your death. $450,000 Family needs approach • Wendy's retirement income needs: $380,000 Subtotal: $1,330,000 With the family needs approach, you divide your family's financial needs into three main Adding the sub totals together, John and categories: Wendy estimate that, should John die, their family would need $1,789,500. They then • Immediate needs at death, such as cash determine that assets available to offset their An insurance needed for estate taxes and settlement costs, needs include: coverage review is a credit card and other debts including mortgages (unless you choose to include • Bank savings: $40,000 periodic reassessment mortgage payments as part of ongoing family of your insurance • Investments: $220,000 needs. The main needs), an emergency fund for unexpected costs, and college education expenses. • Retirement assets: $250,000 objectives are to • Existing life insurance on John's life: $300,000 confirm that the level • Ongoing income needs for expenses related of insurance coverage to food, clothing, shelter, and transportation, Subtotal: $810,000 you have is still among other things. These income needs will adequate, to alert you vary in amount and duration, depending on a The difference between their family needs ($1,789,500) and their available assets to shortages in number of factors, such as your spouse's age, coverage that can your children's ages, your surviving spouse's ($810,000) equals their life insurance need ($979,500). occur due to changes capacity to earn income, your debt (including in your life, and to mortgages), and whether you'll provide funds Review your coverage ensure that any cash for your surviving spouse's retirement. value policies are Trying to figure out how much life insurance is • Special funding needs, such as college enough isn't always easy, and that amount will performing as funding, charitable bequests, funding a likely change with your changing expected. buy/sell agreement, or business succession circumstances. By examining your family's planning. anticipated expenses during various periods Once you determine the total amount of your after your death, you get a more realistic family's financial needs, you subtract from this estimate of your life insurance needs. total the available assets that your family could Unfortunately, many people underestimate their use to defray some or all of their expenses. The insurance needs and are underinsured. Often, difference, if any, represents an amount that life the purchase of life insurance is based on cost insurance proceeds, and the income from instead of what's needed. By the same token, future investment of those proceeds, can cover. it's possible to have more insurance than you Example: John and his wife, Wendy, are need. You may have purchased a large policy estimating the appropriate amount of life during a particular point in your life, and then insurance to buy on John's life. They first didn't adjust your coverage when your estimate their immediate needs as follows: insurance need was reduced. Both of these circumstances are reasons to review your • Final medical expenses: $5,000 insurance coverage periodically with your • Estate settlement costs including funeral and financial professional. Doing so can reveal burial expenses: $37,500 opportunities to change your levels of coverage to match your current and projected life insurance needs.
  4. 4. Ask the Experts Can I buy gold and silver in my IRA? Yes, but you'll need to • American Eagle gold, silver, and platinum establish a self-directed IRA bullion coins with a trustee/custodian who • Coins issued by any state has experience with precious metals and is able Also allowed is any gold, silver, platinum, or to take physical possession palladium bullion, in coin form or otherwise, that of the assets. The company you purchase the meets certain purity requirements (for example, metals from will generally have a relationship gold coins and bars must be at least 99.5% John Stokes Financial with a trustee/custodian who can set up a pure). Currently this includes: John Stokes precious metals IRA for you. President • Canadian gold, silver, and platinum Maple 4590 Macarthur Blvd Suite Under IRS rules, holding certain collectibles, Leaf coins 500 including metals, gems, or coins, in your IRA • Australian Philharmonic, Kangaroo/Nuggets, Newport Beach, CA 92660 can result in a prohibited transaction. That Kookaburras, and Koala coins (949) 477-1245 doesn't mean you can't do it. But if you do, (800) 477-1245 there can be serious tax consequences--the • Mexican Silver Libertads value of the collectible will be treated as a • Isle of Man Noble platinum coins distribution to you, and will be subject to income • Gold, silver, platinum, and palladium bars and Email is not intended for transmitting orders nor tax and a 10% penalty (unless you're 59½ or rounds of specific purity instructions regarding your account nor any other another exception applies). critical or time sensitive information. Information Of course, you can also buy mining stocks, as contained in this communication is not considered an official record of your account and However, certain precious metals are well as gold and silver ETFs, in your IRA. For does not supersede normal trade confirmations or statements. Any information provided has specifically excluded from the definition of some, this is a more convenient way of adding been prepared from sources believed to be reliable but its accuracy is not guaranteed. This "collectible." The following are currently this asset class to an IRA portfolio. e-mail does not constitute a recommendation of any kind. If this e-mail contains any projections, permitted as IRA investments: forecasts, guarantees and/or predictions of any kind you are required to ignore the same. Furthermore, this e-mail is privileged and/or confidential, and the sender does not waive any related rights and obligations. Any distribution, use or copying of this e-mail by other than the intended recipient is unauthorized. If you receive this e-mail in error, please contact the sender immediately and delete the material from your computer. Information received by or sent from Frequently asked questions about 2010 Roth IRA this system is subject to review by Investacorp Supervisory Personnel. This e-mail is retained and may be produced by Investacorp to conversions regulatory authorities or others with legal rights to the information. Securities are by licensed 1. How does the special those funds into a Roth IRA, the taxation is individuals offered through Investacorp, Inc., a Registered Broker/Dealer, Member FINRA and deferral rule for 2010 similar to a conversion of a traditional IRA to a SIPC. conversions work? I've Roth IRA. You can report all of the resulting heard that I calculate the income on your 2010 tax return, or half on your conversion tax in 2010, but can pay half in 2011 2011 return and half on your 2012 return. and half in 2012. 3. Is it true that anyone can make annual No, this is a common misconception. If you contributions to a Roth IRA beginning in 2010, make a conversion in 2010, you will calculate regardless of how much they earn? the amount of taxable income in 2010. But then No. You can contribute to a Roth IRA only if you have a choice: you can either report all of your income is within prescribed limits. These the taxable income on your 2010 tax return, or limits have not been repealed. What has been instead report half of the income on your 2011 repealed are the income limits that used to return and half on your 2012 return. So, your apply to Roth conversions, beginning in 2010. tax liability will depend on your marginal tax But even if you can't contribute to a Roth IRA rates in 2010, 2011, and 2012. (Note that tax directly in 2010 because of the income limits, rates will increase in 2011 if the Bush tax cuts there's an easy workaround: you can make are allowed to expire.) your annual contribution first to a traditional IRA 2. Does the special deferral rule for 2010 apply (virtually anyone under age 70½ can make to distributions I roll over from my 401(k) plan to nondeductible contributions to a traditional a Roth IRA in 2010? IRA), and then convert that IRA to a Roth. Remember, though, that when you calculate Prepared by Forefield Inc, Yes. If you receive a distribution of non-Roth the taxable amount due as a result of the Copyright 2010 funds from your 401(k) plan in 2010 and roll conversion, you need to aggregate all of your traditional IRAs. See IRS Form 8606 for additional details.