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
bryan@nexusfm.com
principal residence up to a $10,000 lifetime
withdraw
www.nexusfm.com
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. 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. 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, www.gibill.va.gov.
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, www.irs.gov.
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. 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 www.fafsa4caster.ed.gov.
Phone: 904-334-1376 And, if your financial circumstances change,
bryan@nexusfm.com you'll get the opportunity to update any an-
To complete the FAFSA4caster, gather the
www.nexusfm.com
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
profileonline.collegeboard.com 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 www.fafsa.ed.gov. A paper version takes