Newsletter Dec 2008


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Newsletter Dec 2008

  1. 1. THE LINK Newsletter Provided by Nexus Financial Management December 2008 Nexus Financial Management LLC Exceptions to the Early Distribution Penalty Bryan Dudones 4600 Touchton Road E. homebuyer, you can take pre-59½ IRA with- Building 100, Suite 150 Generally, drawals if they're used to pay the costs of ac- Jacksonville, FL 32246 taxable Phone: 904-334-1376 quiring, constructing, or reconstructing your amounts you principal residence up to a $10,000 lifetime withdraw limit. You also can take penalty-free IRA distri- from an IRA, butions up to the cost of health insurance pre- 403(b), or Hi Everyone, miums you pay during a qualifying period of qualified The stock market continued to unemployment. experience substantial declines retirement during the month of November, plan before reaching its lowest level in over Exceptions for non-IRA retirement plans 5 years. The DJIA slipped 5.3% age 59½ are subject to a federal 10% penalty for the month, while the S&P Distributions made pursuant to a qualified tax (and possibly a state penalty tax, too) in 500 and Nasdaq fell 7.4% and domestic relations order (QDRO) are not sub- 10.8%. The good news is that addition to any federal (and possibly state) the market rebounded ject to the penalty. Also, you can take penalty- income tax due. SIMPLE IRAs are subject to a significantly during the last free withdrawals from a qualified plan after week and oil prices dropped 25% penalty for premature distributions made further. As has been the case separating from service with the employer during the first two years of participation. For- for a few months now, the maintaining the plan if your employment ends markets (both equity and credit) tunately, Section 72(t) of the Internal Revenue are experiencing wild price during or after the year you reach age 55. You Code lists several exceptions to this prema- swings every day. I don't see may also be able to take qualifying distribu- ture distribution penalty tax. any changes taking place over the near term to diminish this tions of dividends from your employer's em- activity, so you should continue Exceptions applicable to all plans ployee stock option plan without penalty. to expect sharp rallies followed by sudden declines in the A qualified transfer or rollover from one retire- markets. However, like I stated Substantially equal payments exception last month, the markets will ment plan to another generally isn't subject to provide some good An important exception that applies to all IRA the penalty tax. Also, distributions made to opportunities, especially for and qualified retirement plans is the substan- investors with a longer time your beneficiary or your estate after your horizon. tially equal periodic payments exception. To death aren't subject to the early withdrawal Wishing you a happy Holiday comply with this exception, you must withdraw season and prosperous New penalty. Other exceptions include: Year! funds from your retirement plan at least annu- Bryan • Distributions not exceeding the amount of ally based on an IRS-approved distribution your tax-deductible unreimbursed medical method. For qualified plans (but not IRAs), expenses. you also must have separated from service In this issue: with the employer maintaining the plan. • Distributions made because of a qualify- Exceptions to the Early ing disability. Distribution Penalty There are three IRS-approved methods for calculating payments, but regardless of the • Amounts levied by the IRS directly from Don't Let a Natural Disaster method you choose, you generally can't Demolish Your Finances your qualified retirement plan. This ex- change or alter the payments for five years or ception doesn't apply if you withdraw As 2009 Dawns, Is There until you reach age 59½, whichever occurs funds from a plan to pay the IRS. Hope on the Horizon? later (although the IRS has held that owners can make a limited one-time switch between • Ask the Experts Qualified reservist distributions pursuant certain methods without incurring the penalty to the Pension Protection Act of 2006. tax). Otherwise, if you modify the payments Exceptions applicable only to IRAs (e.g., by taking amounts smaller or larger than required distributions or none at all), you will The 10% penalty doesn't apply if the distribu- be subject to the 10% premature distribution tion is made for you, your spouse, or your tax on the taxable portion of all pre-59½ distri- child or grandchild to pay qualified postsec- butions (unless another exception applies). ondary education expenses, such as tuition, and room and board. If you're a first-time
  2. 2. Page 2 Don't Let a Natural Disaster Demolish Your Finances coverage for hurricanes, floods, earthquakes, It seems as though there's always a hurri- or other disasters. Consult your insurance cane, tornado, earthquake, flood, fire, ice agent to determine whether you have ade- storm, or mudslide happening somewhere in quate coverage given the likelihood of such the United States. While a storm or other events occurring in your area. natural disaster could destroy your home, business, or workplace and put you in finan- Post-Disaster cial straits, there are things you can do both File insurance claims immediately before and after the event to help you recover quickly. Contact your insurance agent and file claims as soon as possible. The quicker you do so, Pre-Disaster the sooner you can get back on your feet. Create a financial emergency kit Protect your income Put together a kit that contains some cash If you end up out of work, take advantage of and checks, a list of important contacts (e.g., any employee assistance programs that your your insurance agent), and copies of impor- employer may offer. Seek unemployment tant documents, including identification cards, compensation from your state and ask about birth and marriage certificates, insurance special job considerations for disaster victims. policies and inventories, wills, trusts, and Find out if special unemployment benefits are deeds. Make sure your kit is stored in a safe, available through the Department of Labor. secure place in your home, is easy to reach and carry, and is water and fire proof. You'll Get help from emergency sources ... want to stash enough cash (or a credit card) Protect your credit to pay for immediate expenses such as gas, If you need immediate financial help, disaster and your identity food, and lodging. relief funds and special programs (for exam- • ple, housing assistance) may be available Maintain effective Tip: While you're at it, you might also keep through the Federal Emergency Management debt management your most precious items in the kit, such as Agency (FEMA) or your state and local gov- by communicating your photo albums and family heirlooms. ernments, as well as the American Red Cross, your circumstances United Way, Salvation Army, social services, to your creditors Protect your assets and local churches. • If you need to Take some commonsense precautions to … and from the federal government ... negotiate with safeguard your home, business, car, boat, creditors, consider and similar assets against damage from wind, Tax law allows taxpayers to deduct certain seeking water, fire, or other damage. For example, unreimbursed casualty losses in the year in assistance from a install an emergency generator and paperless which they are incurred, subject to certain consumer credit drywall, keep loose objects (e.g., grills and limitations. In certain Presidentially declared counseling service patio furniture) secure, cut down overhanging disaster areas, individuals can claim the loss tree limbs, park your car in the garage, and (again, subject to certain limitations) in the • Only give out your invest in storm windows, doors, and shutters. prior tax year by filing an amended return. Social Security Moreover, special relief (for example, bonus Take inventory number to verified depreciation for business property) has been agencies Create and maintain an inventory of your valu- granted in the case of specific disaster events. ables, including appliances, electronics, furni- • Monitor your bank Be sure to consult your tax professional about ture, clothing, jewelry, and artwork. Record account and credit any tax relief that may be available to you. models and serial numbers, and take pictures report for … and get legal help, if necessary or a video of the items. This will help when it unauthorized comes time to file insurance claims and activity If you experience legal difficulties, you may purchase replacements. want to consider hiring an attorney who spe- cializes in the complex area of natural disaster Check your insurance law. Make sure your insurance policies (e.g., homeowners, auto) include all the coverage you need, and understand that damage caused by natural disasters may not be covered under these general types of policies. You may need to consider buying separate
  3. 3. THE LINK Newsletter Page 3 As 2009 Dawns, Is There Hope on the Horizon? versions of textbooks to help control costs There's little doubt that 2008 will be remem- bered as a tumultuous year. Rising food and • The maximum Pell Grant will increase fuel prices, turmoil in the credit and housing from $5,800 to $9,000 per academic markets, inflation pressures, and the volatility year, and will be available year-round of the stock market all contributed to eco- • nomic pressures. But buried within the nega- The federal student aid application tive headlines was some good news you may (FAFSA) will be streamlined, making it Economic woes have missed--here's a recap. easier to apply for financial aid will likely result Expanded education benefits for the Financial help for homeowners in new military initiatives and If you're a homeowner, you may benefit from relief measures, a new income tax deduction. When you're August 1, 2009, marks the debut of a new GI so keep your filing your 2008 federal income tax return in bill, which has been hailed as the first major eyes open for 2009, you may be able to take a deduction for expansion of education benefits for the mili- developments property taxes you've paid--even if you don't tary since World War II. Active duty service- on the road itemize. Taxpayers who claim the standard members (including members of the Guard ahead. deduction may be able to claim an additional and Reserve) may be eligible for the new pro- deduction of up to $1,000 if married or $500 if gram. Education benefits will be payable for up to 36 months, and will cover tuition costs single. and fees. Eligible veterans may also receive a If you're a first-time homebuyer, you may be monthly stipend for books and supplies, and a able to take a refundable tax credit of 10% (up monthly housing allowance. In some cases, to a maximum of $7,500 or $3,750 for married benefits may even be transferable to spouses persons filing separate returns) of the pur- and dependent children. You can find more chase price of a home you've purchased after information on the Department of Veterans April 8, 2008, and before July 1, 2009. How- Affair's website, ever, this credit is phased out for individuals with adjusted gross incomes ranging from New quot;greenquot; vehicles $75,000 to $95,000 ($150,000 to $170,000 if Gas-saving vehicles have been rolling off as- married filing jointly). And keep in mind that sembly lines for several years. Up until now, this tax credit functions more like a loan--you'll most have been passenger cars, and smaller need to repay the credit over 15 years in SUVs and trucks. But these are now sharing equal installments on your annual tax return the road with larger and sportier models, in- (possibly sooner if you sell your home or don't cluding a hybrid version of an infamous gas use it as your main residence). guzzler--the Cadillac Escalade. Admittedly, the 2009 Escalade's estimated 20 mpg city New ways to manage college costs isn't going to break any fuel conservation re- Student loans staged a disappearing act in cords, but its emergence is a sign that Detroit 2008, as the credit crisis drove some lenders is focused on developing even more fuel effi- out of the student loan market and forced oth- cient vehicles in 2009 and beyond, due to ers to become more selective. But the Higher growing demand. Good news for Education Opportunity Act, which became law Medicare in August, contains several provisions that will As in previous years, when you purchase a beneficiaries help families and students better manage the qualified hybrid or other alternative fuel vehi- For the first time since high cost of college. These will be phased in cle, you may be entitled to claim a tax credit 2000, the monthly during 2009 and in future years. Some when you file your federal income tax return. standard premium for highlights: This credit will reduce your tax bill dollar-for- Medicare Part B won't dollar. You can find a list of qualified vehicles • Individuals who have worked for at least be rising. In 2009, on the IRS website, ten years in certain public service occu- individuals enrolled in The road to recovery is paved with good pations (e.g., teachers, nurses, law en- Medicare Part B will intentions--and probably new legislation forcement officers, firefighters) may qual- pay $96.40 per ify to have their federal student loan debt month--the same Will an economic recovery take place in the forgiven (up to $10,000) premium they paid in first half of 2009, the second half of the year, 2008. or even later? No one knows for sure. But • Colleges will be encouraged to control economic woes will likely result in new initia- price increases, and textbook publishers tives and relief measures, so keep your eyes will be required to provide complete retail open for developments on the road ahead. price information and sell unbundled
  4. 4. Ask the Experts Can I get an estimate of my child's financial aid eligibility before we officially apply for aid? To get as accurate an estimate as possible, Yes. Last year, the U.S. you should answer all the questions on the Department of Education tool, even if you have to estimate or guess. launched an online finan- cial aid tool to help families better prepare for Using the FAFSA4caster isn't exactly a quick the cost of college. Called the FAFSA4caster, process, but when you're ready to apply offi- it's modeled on the government's official aid Nexus Financial cially for federal aid, the FAFSA4caster will Management LLC application, the FAFSA (Free Application for automatically transfer all of your data (that's Bryan Dudones Federal Student Aid). The tool examines a password protected and saved securely) to 4600 Touchton Road E. family's financial data and estimates how your online FAFSA application, saving you the Building 100, Suite 150 much aid a student might expect to get. To hassle of keying in all your information again. Jacksonville, FL 32246 use the tool, visit Phone: 904-334-1376 And, if your financial circumstances change, you'll get the opportunity to update any an- To complete the FAFSA4caster, gather the swers on the FAFSA that you originally sub- following information for you and your child: mitted on the FAFSA4caster. • Social Security numbers Nothing in this document should By providing an advance estimate of federal be construed as specific • Federal tax information or tax returns, aid eligibility, the FAFSA4caster can help you investment advice. For investment and tax concerns forecast how much money you and/or your including W-2 information specific to your needs, please child may need to come up with to meet col- request a personal consultation. • Information on savings, investments, and lege costs--information that can also come in business and farm assets handy in the college selection process. By having an idea of the numbers ahead of time, • Records of any untaxed income (such as you can help minimize unwelcome surprises. Social Security or welfare benefits) When does my child need to submit financial aid applications? The FAFSA is the federal about four to six weeks to process; the online government's financial version takes only one week. The better route aid application. It should is the online application. Not only is the proc- be submitted as soon as essing faster, but the form notifies you of in- possible after January 1 putting errors and does the math as you go of your child's senior year along. Plus, if you've previously filled out the in high school (and after FAFSA4caster, the government's online finan- every January 1 in any year your child is cial aid tool, the online FAFSA will be auto- seeking aid). Several financial aid programs matically populated with your data. operate on a first-come, first-served basis, so Along with the FAFSA, some colleges require getting your child's application in early in- you to submit one or more additional financial creases his or her chances of securing aid. aid forms to determine your child's eligibility Your FAFSA relies on the previous year's tax for the college's own grants, loans, and schol- information. For example, a FAFSA filed in arships. These colleges may have their own early 2009 would rely on information from forms, or, more commonly, they require you to your 2008 tax return. Because most parents complete the College Board's PROFILE appli- have not yet completed their federal income cation. The PROFILE application can be sub- tax return in January, one option is to com- mitted in the fall, before the FAFSA, but it's a plete an estimated tax return, which can then good idea to check with individual colleges be used to complete the FAFSA, a practice regarding their submission rules. Go to to file the the federal government considers acceptable. Prepared by Forefield Inc, PROFILE online. Copyright 2008. You can fill out the FAFSA on paper or online at A paper version takes