Retirement & Financial Planning Report Issue Thursday, September 9, 2004
FEDweek is the largest information resource in the federal government with now over one million weekly readers. *********************************************************** Valuable Information for the Federal Family 2004 Interactive Federal Leave Record at http://www.fedweek.com/Services/default.asp FEDweek Weekly Electronic Newsletter Go to http://www.fedweek.com to Sign Up-FREE! Brand New Federal Manager's Daily Report http://www.fedweek.com/subscribepopup.htm Job Bulletin Board Federal Job Search http://www.fedweek.com/Jobs/default.asp ********************************************************** In This Week's Issue: 1. Cleaning Up 2. Cut A Double Tax In Half 3. Out Of The Penalty Box 4. By The Numbers 5. Keep The Cash Flowing 6. Dollars And Sense 7. The Complete Guide to Writing a Federal Resume Just Published-- Available for Immediate Shipment Order Yours at http://www.fedweek.com/Publications/default.asp *********************************************************** 1. Cleaning Up Whenever you take a loss on a stock, bond, or mutual fund, you must be careful how you reinvest the sales proceeds. If you violate the so-called wash-sale" rules, you won't be able to use the tax loss you've incurred. In order to sustain your tax loss, use one of these methods: Reinvest in a security thats not identical to the one you've sold. If you sell a bank stock at a loss, for example, you can't immediately buy back the same stock. You can buy another stock, though, even if it's a bank expected to go up or down in sync with the bank stock you sold at a loss. Wait for 31 days. After that time period, you can buy back the stock you've sold, if you still want to own it. You might, for example, buy a no-load financial stock fund for 31 days, maintaining a position in the banking industry. Then you can sell the fund and buy back the same bank stock on which you've taken a tax loss. Double up. Before selling, you could buy another lot that duplicates your original position. After 31 days, you can sell your original lot and take a tax loss while retaining the second lot. If you are interested in this tactic, you must begin before the end of November in order to take a tax loss for this year. 2. Cut A Double Tax In Half If you inherited an IRA from an estate that paid estate tax, you may be paying too much tax on distributions. You are entitled to an offsetting income tax deduction in the future, but many people don't take the deduction. Say you inherit a $250,000 IRA from an estate that paid $200,000 in federal estate tax. Without this IRA the estate tax bill would have been $150,000. So the IRA added $50,000 to the estate tax bill. That is a 20 percent rate because $50,000 is 20 percent of $250,000. Thus, you can take income tax deductions for that $50,000 when you receive distributions from the inherited IRA. These deductions can be taken at the IRD ratio: 20 percent in this example. Suppose you withdraw $10,000 from the inherited IRA this year. You would be entitled to a $2,000 deduction--20 percent of the $10,000 distribution--so you would owe income tax on an $8,000 distribution instead of a $10,000 distribution. After taking this $2,000 deduction, you would have $48,000 worth of IRD deductions left to use: $50,000 minus $2,000. If you withdraw $12,000 from the IRA next year you could take a $2,400 deduction, at 20 percent, and owe tax on only $9,600. And so on, until you use up the entire $50,000. 3. Out Of The Penalty Box Normally, IRA withdrawals before age 59 1/2 are subject to income tax plus a 10 percent penalty. There are certain exceptions to the 10 percent penalty, though. The so-called 72(t)" rules permit penalty-free early withdrawals. Under the 72(t) rules, you can avoid a penalty if you take money from your IRA in substantially equal periodic payments." These payments (have your tax pro calculate the amounts) must go on for five years, or until age 59 1/2, whichever comes later. Once you get started with 72(t) withdrawals, if you don't keep them up until the five-year or age-59 1/2 mark, all of your cumulative withdrawals become subject to the 10 percent penalty, plus interest. You can start 72(t) distributions at any age. Once you start these payments, you must take distributions at least annually but more frequent payments are permitted. The bottom line is that you can take out any amount at any time during the year as long as you wind up withdrawing the required annual payment: no more and no less. 4. By The Numbers At quantitative" mutual funds, portfolio managers don't spend their time meeting with company management or dialing in to analysts' conference calls. Instead, they seek factors that have some ability to predict stock market performance and then invest in companies where those factors are present. Such factors might include relative strength (how well a stock has done recently, vs. other stocks), insider trading trends, earnings momentum, and revised earnings estimates. Quant managers spend their time looking at data that go back five or ten years or more to detect trends. This approach seeks to determine whether a stock seems overvalued or undervalued, in comparison to its historical performance. A quant manager might back-test 50 different factors for each stock, then select the factors with the most predictive value for the company's operations and stock price. So-called macro" data may be studied, too. For example, if the economy appears to be coming out of a recession quants will look to see how the company did the last time the economy rebounded. Fund families known for quant investing include Bridgeway, Numeric Investors, Hennessy Funds, and Bogle Funds. According to one study, a group of 68 popular quant funds gained 60 percent from early 1999 to early 2004. During that time the overall stock market, measured by the Standard & Poor's 500 Index, went down by 1 percent. 5. Keep The Cash Flowing Retirees should keep 12-18 months' of spending money in a cash reserve such as a money market fund. Say you want to spend $20,000 over the next 12 months, in addition to what you'll get from a pension and from Social Security. If so, you should keep $20,000-$30,000 in a money market fund, for ready access. As your cash bucket will be drained, you can replenish it in this manner. Use investment income. Move your interest and dividends into your cash reserve. Investment income in a taxable account will be taxed anyway so it might as well be used for spending. Sell your winners. Cash in what's up rather than what's down. If stocks have pulled ahead of bonds, in your asset allocation, you might sell stocks or stock funds to re-balance your portfolio. Sell your losers. If your portfolio doesn't need re-balancing, sell the securities where you have paper losses in a taxable account. You'll recognize immediate tax losses while deferring taxable gains Sell your bonds. Finally, lighten up on bonds. Hold onto stocks, which can be expected to do best over the long term. 6. Dollars And Sense American travelers often pay too much for foreign currencies by patronizing exchange booths in airports, hotel lobbies, and tourist sites overseas. If you're going abroad, savvy shopping for foreign money can pay off. * Use your credit cards. Even after paying conversion fees, you still will do better to use plastic for your purchases. MasterCard, Visa, and American Express give cardholders the wholesale exchange rate used by banks in their own currency transactions, rather than the higher retail rate. Call the customer-service number on each of your credit cards to find out exactly what percentage you'll be charged as a foreign currency conversion fee, then use the card with the lowest fees. * Access friendly ATMs. ATM, too, may offer a better deal than other currency exchanges. Call your bank for ATM locations abroad where you won't be charged an extra fee. Then, withdraw maximum amounts at the ATM to avoid being charged fees each time on smaller withdrawals. The fee is the same no matter how much you withdraw. 7. The Complete Guide to Writing a Federal Resume Just Published-- Available for Immediate Shipment Order Yours at http://www.fedweek.com/Publications/default.asp >From the Publishers of FEDweek, the federal government's largest information resource... We are proud to announce the launch of The Complete Guide to Writing a Federal Resume. This book was written specifically for you and is designed to help you meet the requirements for written materials in seeking a new federal job or advancement within the federal government. There is no longer a single, required method of applying for federal employment. In fact, most federal agencies are moving toward the resume (either paper or electronic) as the preferred method of applying for jobs. That's why we've just published The Complete Guide to Writing a Federal Resume and all current federal employees, retirees, military members and private sector professionals who are looking for a federal job need this all-inclusive guide. Note to Military Members: Many of the federal job openings at this time require security clearances. As a military member, a large percentage of you have the security clearance and the qualifications needed to fill these positions. This all-new guide will show you how to compose your resume to accentuate your strengths and experiences. Here's a partial list of the table of contents: Finding a Federal Job Should I Apply Using a Resume or an Application Form? The Federal Resume Preparing to Draft Your Resume What to Cover (and not cover) in a Resume The Designing of Your Federal Resume Your Accomplishments (including a worksheet) What if You Use an OF-612? Knowledges, Skills and Abilities (KSAs) Cover Letters and Thank You Letters Interactive Worksheets The Do's and Don't's for Federal Resume Cover Letters Contains Many Sample Federal Resumes and Cover Letters And Much More! This book is a "must have" for: All federal employees Military personnel interested in civil service careers Federal managers and supervisors Human resources professionals and federal libraries Military retirees beginning their second career with the federal government All private sector workers that wish to apply for federal government positions. Simply put, designing and writing your resume is not an easy task. You must highlight your accomplishments, qualifications, experience, etc. all while keeping it brief and easy to follow. The Complete Guide to Writing a Federal Resume will show you how to do this. It also gives a complete list of "result and action" words to use in your cover letter and resume as well as a list a frequently misspelled or misused words or phrases. "In today's competitive job market, especially the federal job market, this new interactive resume book is a must have and is guaranteed to help you, whether you are writing a new resume from scratch, making minor changes depending on the position you are applying for or just fine tuning and error checking it." Don Mace, Publisher FEDweek *********************************************************** Order it Today and Have it Shipped to You Tomorrow! Go to http://www.fedweek.com/Publications/default.asp to order online or see below for other ways to order. The Cost of The Complete Guide to Writing a Federal Resume is only $9.95 (plus s&h) and here are the ways to order it: Place Your Secure Order Online With Credit Card http://www.fedweek.com/Publications/default.asp Call or toll-free order line (888) 333-9335. We have representatives ready to take your order 24 hours per day. By Mail Send $13.95 ($9.95 plus $4) to FEDweek, PO Box 5519, Glen Allen, VA 23058 *********************************************************** FEDweek 11551 Nuckols Rd. Suite L Glen Allen, VA 23059 (804) 288-5321 Website: http://www.fedweek.com [EMAIL PROTECTED] --- You are subscribed to financialplanningreport as [EMAIL PROTECTED] To unsubscribe, send a blank email to [EMAIL PROTECTED] ------------------------ Yahoo! Groups Sponsor --------------------~--> Make a clean sweep of pop-up ads. Yahoo! Companion Toolbar. Now with Pop-Up Blocker. 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