April 15th is a little over a month away. As such, anyone interested in making their 2009 traditional or Roth IRA contribution needs to have them in the mail / postmarked by that date. The contribution limits are $5,000 for taxpayers under 50 and $6,000 for those 50 and over. Please note that your contributions could be limited by your income or spouse’s retirement plan. Feel free to contact our office or your tax professional for the specific details. For those who qualify, I strongly recommend you take advantage of contributing to a Roth IRA (it is one of the few tax-free investment options currently available to you).
Along this line, the big financial / tax item for 2010 is whether to convert your IRA to a Roth IRA. By converting an IRA (tax-deferred investment) to a Roth IRA, you are paying normal income taxes on the amount you convert, but all future earnings grow tax-free. In addition, you are no longer subject to required minimum distributions upon obtaining age 70 ½. If this is something that may be of interest to you, please let us know. We have a program that allows you to analyze your specific situation and access whether it may be advantageous for you to convert. That being said, you can then take this information directly to your tax professional and let them guide you as to what may be best for you. Thus far, I have not seen a big demand for individuals to convert to a Roth IRA because they are very reluctant to pay any additional income taxes now.
The following is a link to an article on 10 tax breaks for parents. I recommend you click on it and see if any of the items listed may be helpful to you or at least be something to run by your tax professional.
http://finance.yahoo.com/taxes/article/109033/10-tax-breaks-for-parents?mod=taxes-advice_strategy
ARC Loans – Interest-Free Funds for Small Businesses
“America’s Recovery Capital” loans are being offered by the Small Business Administration as part of last year’s stimulus package. These loans are designed to help distressed businesses and are limited to $35,000. They are interest-free to the borrower, who has a one-year grace period before starting the repayment process and then another five years to completely repay the principal.
ARC loans can only be used to pay down existing debt such as other loans, accounts payable and credit cards.
If you are a small business owner, I recommend you click on the following link and see if this loan program could be of benefit.
What is fair?
I work with several doctors, attorneys, and other professionals who may be classified as “rich” under society’s perceived common belief. However, what is glossed over is that these professionals, in pursuit of advanced degrees, go to graduate, medical, dental or law school for several years after college. As a matter of fact, I would wager to bet that the average American has been in the workforce 10 years or more before many of these professionals graduate. In addition, these professionals may take out large loans (in some cases hundreds of thousands of dollars) while in school, work extremely long hours, and exist on a small salary during their training, internship or residency.
That being said, many individuals argue that the U.S. needs a more fair / progressive tax code, (a tax that takes a larger percentage from the income of high-income people than it does from low-income people). Based upon The Congressional Budget Office calculations from 2006 data (as shown below), it is clear that the U.S. currently has a very progressive tax code:
Average Pretax Income Effective Federal Tax Rate
Lowest Quintile (20%) $ 17,200 4.3%
Second Quintile 39,400 10.3%
Middle Quintile 60,700 14.2%
Fourth Quintile 89,500 17.6%
Highest Quintile 248,400 25.8%
Top 1 percent 1,743,700 31.2%
Unfortunately, the above referenced professionals find that once their many years of sacrifice come to an end, (i.e., they graduate and enter the workforce) they are faced with a rude awakening that they are now part of the commonly perceived “rich.” Yes, they may see their incomes increase dramatically. However, they are now on the hook for large monthly student loan payments which they have been deferring. In addition they still have the normal day-to-day expenses and higher incomes taxes. In many cases, these student loan payments are more than the monthly payments for an upper-end home and luxury car payments combined. As such, the joy of graduation and the respect that goes with their hard earned degree is somewhat offset by the higher income taxes they are now expected to pay. The U.S. tax code is designed so that successful dentists, doctors, attorneys and advanced degreed professionals’ sacrifices do not end once they graduate and have a diploma in hand.
Quotes
This week’s quotes are from author Harold Coffin:
“The fellow who thinks he knows it all is especially annoying to those of us who do.” “A status symbol is anything you can’t afford, but did.”
“When George Washington threw the dollar across the Rappahannock River, he didn’t realize he was establishing a precedent for government spending.”
“Middle age is the awkward period when Father Time starts catching up with Mother Nature.”
Tony Moeller, President
Integrity Investment Advisors
12721 Metcalf, #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074
The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.
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