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Today’s average student borrower takes out more than $25K in loans. Education debt has reached record levels in America – more than $1 trillion. In the face of those numbers, parents and students are looking for assorted ways to pay for college without incurring big liabilities.1

In addition to grants, loans, merit-based aid and your student holding down a job, there are other ways to reduce college cost – some little recognized.

First, how expensive will college be? Can you project the total cost of your student’s college education? Assuming five years in school (which is the average for today’s undergrads) and no change in majors along the way, can a financial aid officer give you a ballpark figure? If not, an online resource such as Alltuition.com may be able to estimate it for you.1,2

Presumably, you opened a 529 plan or some other form of college savings fund for your student years ago. If those funds aren’t enough, where can you find other resources to meet a projected shortfall?

What about outright gifts of cash? If you or relatives or friends have the money, that is an option. Will you suffer gift tax consequences as a result? No. If the money constituting that completed gift is used directly to pay tuition expenses at an educational institution, that gift is not taxable. It will not cut into your annual gift exclusion amount ($13,000 for 2012) or your lifetime unified credit (currently set at $5.12 million).3,4

One caveat, however: if you make any kind of tuition payment on behalf of your student, that will be characterized as untaxed income on the FAFSA (Free Application for Federal Student Aid). That could wipe out your student’s chances of getting any need-based financial aid. This is why some families elect to put off tuition gifts until a student’s senior year.4

Can you reduce your taxable income to get your student more financial aid? You may be able to do so. If getting federal student aid is your objective, knocking down your taxable income (through moves big and little) might make a big difference.

On the FAFSA, family income matters more than family assets. Retirement account balances, net worth attributable to home values and small businesses – none of this matters, it doesn’t factor into the needs analysis. The FAFSA is used to determine the expected family contribution (EFC), which is the combination of funds that the parent(s) and student can make available for a school year. The gap between the EFC and the expected total education costs of the school year represents the level of financial need weighed in determining federal student aid.5

So the lower your EFC is, the greater your level of financial need will be – and the greater amount of federal student aid that may be available. This is why many parents and students elect to spend down their combined savings and assets set aside for college during the freshman year. With no assets left for the sophomore year (and by this same logic, subsequent academic years), eligibility for federal student aid is wide open. Of course, you may be also opening a door to potential long-term debt.

There are other ways to alter your tax picture to get your student some financial aid –aid not linked to lingering debt.

Have you heard of “tax scholarships”? No, not scholarships linked to a state tax credit (though those may be worth a look). These are de facto scholarships that you may be able to create for your student with the help of a CPA or financial advisor (and the IRS). If you can find or arrange new tax deductions this year, you can redirect that money toward your student’s college expenses. Savvy business owners and professionals often make this move.

What about untraditional scholarships? For example, CollegeNet.com currently offers a “weekly scholarship” running between $3,000-10,000. Collegians themselves decide which applicant deserves the funds. There are other such examples.1

Can you negotiate tuition? At first instinct, does that seem rude, uncouth? It may prove smart – and it is done. There are such things as tuition discounts (and grant programs) offered to those who negotiate, even those not eligible for need-based aid. If a university really wants your student, you may have some leverage.

Are you willing to go the JC route, or the online route? Going to a local junior college for the first two years of study toward a bachelor’s degree can save a student and family tuition, housing and travel and auto expenses, and maybe a little anxiety – if your student decides he or she wants to major in oceanography instead of marketing, you haven’t paid $10,000 or $20,000 a year to arrive at that conclusion.

Recognizing the costs of housing, commuting and parking permits, some colleges are offering parts of their curriculum online or in more accessible settings – for example, Virginia Tech offers introductory math courses through computer labs and the University of Minnesota’s new Rochester campus uses part of a local shopping mall to hold classes. While taking classes on a computer or at some obscure satellite campus may not give you the full university experience, it may help to reduce expenses.2

Need help with college planning? Talk with a financial professional well versed in the matter – sooner rather than later.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

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Why are they made again and again?

Much has been written about the classic financial mistakes that plague start-ups, family businesses, corporations and charities. Aside from these blunders, there are also some classic financial missteps that plague retirees.

Calling them “mistakes” may be a bit harsh, as not all of them represent errors in judgment. Yet whether they result from ignorance or fate, we need to be aware of them as we plan for and enter retirement.

Leaving work too early. The full retirement age for many baby boomers is 66. As Social Security benefits rise about 8% for every year you delay receiving them, waiting a few years to apply for benefits can position you for greater retirement income.¹

Some of us are forced to make this “mistake”. Roughly 40% of us retire earlier than we want to; about half of us apply for Social Security before full retirement age. Still, any way that you can postpone applying for benefits will leave you with more SSI.¹

Underestimating medical expenses. Fidelity Investments says that the typical couple retiring at 65 today will need $240,000 to pay for their future health care costs (assuming one spouse lives to 82 and the other to 85). The Employee Benefit Research Institute says $231,000 might suffice for 75% of retirements, $287,000 for 90% of retirements. Prudent retirees explore ways to cover these costs – they do exist.²

Taking the potential for longevity too lightly. Are you 65? If you are a man, you have a 40% chance of living to age 85; if you are a woman, a 53% chance. Those numbers are from the Social Security Administration. Planning for a 20- or 30-year retirement isn’t absurd; it may be wise. The Society of Actuaries recently published a report in which about half of the 1,600 respondents (aged 45-60) underestimated their projected life expectancy. We still have a lingering cultural assumption that our retirements might duplicate the relatively brief ones of our parents.³ 

Withdrawing too much each year. You may have heard of the “4% rule”, a popular guideline stating that you should withdraw only about 4% of your retirement savings annually. The “4% rule” isn’t a rule, but many cautious retirees do try to abide by it.

So why do some retirees withdraw 7% or 8% a year? In the first phase of retirement, people tend to live it up; more free time naturally promotes new ventures and adventures, and an inclination to live a bit more lavishly.

Ignoring tax efficiency & fees. It can be a good idea to have both taxable and tax-advantaged accounts in retirement. Assuming that your retirement will be long, you may want to assign that or that investment to it “preferred domain” – that is, the taxable or tax-advantaged account that may be most appropriate for that investment in pursuit of the entire portfolio’s optimal after-tax return.

Many younger investors chase the return. Some retirees, however, find a shortfall when they try to live on portfolio income. In response, they move money into stocks offering significant dividends or high-yield bonds – which may be bad moves in the long run. Taking retirement income off both the principal and interest of a portfolio may give you a way to reduce ordinary income and income taxes.

Account fees must also be watched. The Department of Labor notes that a 401(k) plan with a 1.5% annual account fee would leave a plan participant with 28% less money than a 401(k) with a 0.5% annual fee.⁴

Avoiding market risk. The return on many fixed-rate investments might seem pitiful in comparison to other options these days. Equity investment does invite risk, but the reward may be worth it.

Retiring with big debts. It is pretty hard to preserve (or accumulate) wealth when you are handing chunks of it to assorted creditors.

Putting college costs before retirement costs. There is no “financial aid” program for retirement. There are no “retirement loans”. Your children have their whole financial lives ahead of them. Try to refrain from touching your home equity or your IRA to pay for their education expenses.

Retiring with no plan or investment strategy. Many people do this – too many. An unplanned retirement may bring terrible financial surprises; retiring without an investment strategy leaves some people prone to market timing and day trading.⁴

These are some of the classic retirement planning mistakes. Why not plan to avoid them? Take a little time to review and refine your retirement strategy in the company of the financial professional you know and trust.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – moneyland.time.com/2012/04/17/the-7-biggest-retirement-planning-mistakes/ [4/17/12]

2 – money.usnews.com/money/blogs/planning-to-retire/2012/05/10/fidelity-couples-need-240000-for-retirement-health-costs/ [5/10/12]

3 – www.forbes.com/sites/ashleaebeling/2012/08/10/americans-clueless-about-life-expectancy-bungling-retirement-planning/ [8/10/12]

4 – www.post-gazette.com/stories/business/personal/shop-smart-avoid-seven-common-errors-in-retirement-plans-635633/ [5/13/12]

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Six questions to contemplate before the transition.

Do you see yourself retiring in the near future? In planning for that transition, you might want to consider the state of your mortgage, the state of your property taxes, and the state of your living quarters.

Could you pay off your mortgage in the next few years? If your home is paid off, great. If you are close to paying it off, think about putting whatever extra cash you can spare toward your home loan. (Not money from your retirement accounts, of course – funds from other sources.) If your mortgage balance is just too big to pay down, you can always attempt to refinance. If you can, structure your loan so that you can pay it off in what will presumably be the first part of your retirement.

Are you paying too much in property taxes? Did you know that many cities and counties make an effort to lower property tax rates for homeowners older than 65? Call or visit the office of the assessor or recorder where you live. Ask about this, and see if you qualify. Even if you don’t, by doing some online research (or gently asking a neighbor or two) you might discern that your property tax rate is too high. You can officially appeal it on your own (there are commonly forms available at city halls and county offices) or with the assistance of a real estate professional.¹

What needs to be done to your residence? Wouldn’t it be nice to have a home with a yard requiring less upkeep as you age? How about a home you can safely get around in? Landscaping changes and the installation of certain senior safety features can be well worth the expense. It is wise to arrange home improvements while you are still salaried.

Should you sell your home? Some retirees are moving out of big homes into smaller quarters – yes, even in today’s market. Is that really worth doing?

While the answer to that question will vary per homeowner, some real estate analysts and financial industry professionals believe downsizing in this market may be worth it for many retirees. While home equity has diminished since 2006, they contend that it could take several more years for home values to return to anywhere near those levels – economic conditions in this decade may not create the kind of “sweet spot” the market benefited from in the 2000s.²

If you wouldn’t buy your home today because of financial, neighborhood or family factors, that is a signal that you might want to consider downsizing.

Should you take in a renter? Let’s say you love your home and you are thinking about deriving more income from it. You could optionally rent a room, a furnished basement or a guest house to … your kids, or a graduate student, or a senior living alone. Income aside, do you have a mom or dad who requires help with everyday living? It may be emotionally and even financially appropriate for that parent to move in with you.

Should you get a reverse mortgage? While the Consumer Financial Protection Bureau released a dismissive report on reverse mortgages this summer, these financial instruments may come in handy for many retirees in the coming years.³

You may be familiar with the arguments against them – their mechanics are too complex to readily understand, one spouse may not absorb all the details as well as the other spouse, people are increasingly taking them out at younger ages and sometimes using the funds for investment purposes. All that said, less than 3% of eligible homeowners arrange them.³

The size of a reverse mortgage relates to three factors: the value of the home, the age of the borrower and the interest rate on the loan. HUD-insured reverse mortgages are available tohomeowners older than 62 who have either paid off their primary residence or can easily do so via the loan.³

An income stream can result from reverse mortgages (for as long as the borrower remains in the home, of course). A lump sum or a HELOC is also possible. While the marketing of these financial instruments still leaves much to be desired, you may want to examine the option as you retire.

Rick Gardner may be reached at 919-881-1641, or contact us here.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – www.bankrate.com/financing/retirement/get-your-home-ready-for-retirement/ [7/12/12]

2 – www.cnbc.com/id/46311497/Christakos_Getting_Ready_to_Retire_Start_by_Rightsizing_Your_Home [2/8/12]

3 – blogs.smartmoney.com/encore/2012/08/07/reversing-the-negative-view-of-reverse-mortgages/ [8/7/12]

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Today’s yields can’t beat inflation.

 CD investors are effectively losing money. According to Market Rates Insight, a research firm tracking bank rates, annualized inflation has surpassed long-term certificate of deposit rates since February. In April, 12-month inflation hit 3.16% while the highest-yielding 5-year callable CD on the market offered a 2.4% interest rate. May’s Consumer Price Index put annualized inflation at 3.6%; as of mid-June, the highest-yielding nationally available 5-year CD was at 3.05% APY.^1,2,3

Still, the Federal Reserve found that almost $9 trillion of American wealth was held in CDs, bank accounts and various FDIC-insured products as of April.⁴

It’s a case of déjà vu. This is the second time in recent history that CD investors have been punished for assuming so little risk. During the period from January-July 2008, the negative yield on 5-year CDs was 1.8% according to MRI.⁵

They might come out ahead … should inflation diminish. As Bankrate.com senior financial analyst Greg McBride reminded Bloomberg, “Investing in a CD isn’t compensating you for last year’s inflation; it’s compensating you for next year’s inflation, which is unknown.” Will inflation ease in the long term? Many analysts aren’t betting on it.

The appeal of CDs remains strong. After all, not many investments are federally insured. MRI vice-president Dan Geller said it best to Bloomberg: “Right now, people are more concerned about the return of their deposits rather than a return on their deposits.

With 63% of Americans still believing the nation is in a recession (according to a recent Rasmussen Reports poll), there is still plenty of skittishness about equity investment. Even with the Fed’s bond-buying campaign sending yields on short-term Treasuries and CDs toward all-time lows, some investors really aren’t hungry for risk.

Are CDs still worth it? There is no pat answer. Your own answer will depend on your preferred investment style, your risk tolerance and your financial objectives. Many people choose to park some of their invested assets in CDs and other savings instruments as part of a diversification approach. The inflation-adjusted return is dismal at the moment, but knowing that your principal is safe certainly has its appeal.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

Citations.

1 – bloomberg.com/news/2011-05-23/savers-lose-as-long-term-cd-yields-fall-below-inflation.html [5/23/11]

2 – bls.gov/news.release/cpi.nr0.htm [6/15/11]

3 – depositaccounts.com/blog/2011/06/highest-5year-cd-rate-in-the-nation-at-fort-knox-federal-credit-union.html [6/17/11]

4 – articles.philly.com/2011-06-13/news/29653033_1_inflation-rate-mutual-funds-stock-market/2 [6/13/11]

5 – online.wsj.com/article/BT-CO-20110523-712255.html [5/23/11]

6 – montoyaregistry.com/Financial-Market.aspx?financial-market=roth-ira-rules-and-regulations&category=1 [6/19/11]

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Spain Debt

• Is it a valid concern that the world’s 11th largest economy could bust? –> Not the same scenario as Greece
• Spain’s situation is manageable unlike Greece’s
• Is it contagious? What are the effects on US investments?
  • Like Asian debt crises, other economies bounced back.
  • Things insulating US from Europe:
    • Job losses in Europe come back to US.
    • Gasoline prices come down because demand for gas falls in Europe.
    • Natural gas production brought back to US

Play of the Week: The Household Budget

Things to include:

1.  Housing: Mortgage/ Rent + Taxes
2.  Insurance
3.  Car Payments
4.  Entertainment
5.  Personal Care Cash
6.  Education & Self Improvement/ Child Care
7.  Debt Payments
8.  Vacations & Holidays
9.  Charitable Contributions
10.  Savings
11. Be generous on estimates

Live within your budget. If you do not have enough income, make cuts. Do not pretend your income will drastically change.

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Another downturn? Or something much less severe?

If Greece leaves the eurozone in the coming months, what kind of financial ripples could reach America?

Nobody can predict the endgame yet; Greece may even stay in the euro, although that is looking less and less likely. The big concern isn’t what happens in Greece – it is about what could happen in Spain or Italy as a result of what happens in Greece.

The effects from a Greek default (and eurozone exit) would likely be felt on four fronts in America – but first, an economic chain reaction would almost certainly play out in Europe.

A Greek default could imperil Spain & Italy. If Greece leaves the euro, then Greek bondholders lose their money. A crisis of confidence in the euro could prompt institutional investors to either walk away or demand even higher interest rates on Italian and Spanish bonds. The European Central Bank could then step up and provide emergency lending, bond buying and recapitalization efforts. If those efforts were to fall short, the worst-case scenario would be a default in Italy and/or Spain.

It could also hurt U.S. banks that aren’t sensibly hedged. If Italy and/or Spain default, a severe downturn could hit EU economies and U.S. lenders would be looking at a huge potential problem. If they are capably hedged against the turmoil in the EU, they could possibly ride through it without a lot of damage. If it turns out they have made foolishly speculative bets (cf. Lehman Brothers, JPMorgan), you could have a big wave of fear, which in the worst scenario would foster a credit freeze reminiscent of 2008. Would the Fed step in again to unfreeze things? Presumably so. Without its intervention, you could have a Darwinian scenario play out in the U.S. banking sector, and few economists and investors would see benefit in that.

The good news (relatively speaking) is that U.S. banks have cut their exposure to Greece by more than 40% as that country’s sovereign debt crisis has unfolded. Pension funds and insurers have joined them.¹

Stocks could fall sharply & the dollar could soar. The greenback would become a premier “safe haven” if foreign investors lose faith in the euro. At the same time, a crisis of confidence would imply big losses for equities (and by extension, the retirement savings accounts and portfolios of retail investors).

U.S. companies could be hurt by fewer exports to Europe. Right now, 19% of U.S. exports are shipped to EU nations. If a deep EU recession occurs, demand presumably lessens for those exports and that would hurt our factories. If institutional investors run from the euro, it would also make U.S. exports more costly for Europeans. Additionally, the EU is the top trading partner to both the U.S. and China; as Deutsche Bank notes, the EU accounts for 25% of global trade.²

Our recovery could be hindered. Picture higher gas prices, a markedly lower Dow, the jobless rate increasing again. In other words: a double dip.

In mid-May, economists polled by Reuters forecast 2.3% growth for the U.S. economy in 2012 and 2.4% growth in 2013. These economists also believe that were the fate of Greece not on the table, U.S. GDP might prove to be .1-.5% higher.²

If politicians play their cards right, we may see better outcomes. For example, Greece could elect a new government that decides to abide by the requested austerity cuts linked to EU/IMF bailout money. Greece could remain in the EU and banks in Spain, Italy, Germany and France could ride through the storm thanks to sufficient capital injections. Global stocks would be pressured, but maybe on the level of 2011 rather than 2008. (Maybe the impact wouldn’t even be that bad.)

In a rockier storyline, Greece becomes the brat of the EU – a newly radical government rejects the bailout terms set by the EU and IMF, Greece leaves the EU and starts printing drachmas again. The EU, IMF and maybe even the Federal Reserve act rapidly to stabilize the EU banking sector. Early firefighting by central banks results in containment of the crisis after several days of shock, with U.S. markets recovering in decent time (yet with investors still nervous about Italy and Spain).

Containment may be the key. If a Greek default can be averted or made orderly by the EU and the IMF, then the impact on Wall Street may not be as major as some analysts fear – and who knows, the U.S. markets might even end up pricing it in. Greece only represents 2% of eurozone GDP; our exports and credit exposure to Greece are minimal at this juncture. Our money market funds have mostly stopped investing in Europe. So with diplomacy and contingency planning afoot, a “Grexit” might do less damage to the world economy than some analysts believe.²                                 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – www.csmonitor.com/USA/Latest-News-Wires/2012/0514/Greece-s-economic-woes-may-hurt-US [5/14/12]

2 – www.cnbc.com/id/47562567 [5/25/12]

Little details worth paying attention to as April approaches.

Every year, the IRS institutes big and little changes – and some don’t get as much notice as they should. This year is no exception. Here is a rundown of some of alterations and asterisks affecting taxpayers this year.

Don’t forget Form 8949. If you are reporting capital gains or losses for 2011, you must file this new form along with your return. Speaking of new paperwork, if you own foreign financial assets whose total value exceeds the applicable reporting threshold, you will need the new Form 8938.¹

Be sure to report Roth rollovers. Back in 2010, did you convert or roll over a traditional IRA to a Roth IRA or other Roth account? If you didn’t report the amount of the rollover on your 2010 federal return, you can report half the amount on your 2011 return 2011 and the remaining half in 2012.¹

 A select few can still take the first-time homebuyer credit. By 2011, the credit had disappeared for just about everybody … but select military personnel and intelligence agents are still able to claim the credit for 2011.¹

 If you’re deducting mileage, rates changed in the middle of 2011. The IRS is giving taxpayers a better break given the recent hikes in gas prices. So, if you’re deducting mileage driven while operating an automobile for business, the rate for the first six months of 2011 is $0.51 per mile, and the rate for the last six months of 2011 is $0.555 per mile. The standard deduction rate for medical or moving mileage was also raised: $0.19 a mile from January 1-June 30, $0.235 a mile from July 1-December 31. The mileage deduction rate for providing services for charitable organizations got no boost – for all of 2011, it is $0.14 per mile.²

Fewer cars qualified for the alternative motor vehicle credit last year. Only new fuel cell motor vehicles qualified for the tax break in 2011.¹

 Three healthcare changes to note. If you qualify for the health coverage tax credit (HCTC), that credit might be larger for 2011 thanks to recent law changes. Did you receive the 65% tax credit in any of the last 10 months of 2011? If so, you get to claim an additional 7.5% retroactive credit on your 2011 federal return – the HCTC was bumped up to 72.5% from 65%.³

The IRS altered the definition of qualified medical expenses for HSAs, MSAs, FSAs and HRAs last year. As IRS Publication 969 now notes, “a medicine or drug will be a qualified medical expense only if the medicine or drug 1) requires a prescription, 2) is available without a prescription (an over-the-counter medicine or drug) and you get a prescription for it, or 3) is insulin.” Another asterisk worth noting: if you took a distribution from an HSA or MSA last year that wasn’t used for a qualified medical expense, the tax penalty for that has increased to 20% for 2011.⁴

Also, a note about the self-employed health insurance deduction for 2011: if you are looking at Schedule SE and wondering where it went, it has migrated over to line 29 of Form 1040.¹

The AMT exemption amount got another COLA. Thanks to this adjustment, you are subject to the AMT for tax year 2011 only if you earned more than $48,450 as a single filer, $37,225 if married filing separately, or $74,450 if filing jointly.¹

Don’t send your return to an obsolete filing address. Some of the filing locations for federal tax returns have recently changed. Visit www.irs.gov to see where you should send your return this year – it is probably the same address as always, but check and see as it may be different.¹

Finally, you get two extra days. Procrastinators, take heart: once again, the federal filing deadline this year falls on Tuesday, April 17. That’s because April 15 is a Sunday and April 16 is a holiday within the District of Columbia (Emancipation Day).¹

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – www.advisorone.com/2012/03/05/irs-top-12-tax-law-changes-for-2012 [3/5/12]

2 – www.irs.gov/newsroom/article/0,,id=240903,00.html [6/23/11]

3 – www.irs.gov/individuals/article/0,,id=109960,00.html [2/24/12]

4 – www.irs.gov/pub/irs-pdf/p969.pdf [1/13/12]

Right now, there are dozens of mutual funds and ETFs devoted explicitly to investing in China’s impressive emerging market. Even with the risk of asset bubbles, the promise of China is simply too tantalizing to ignore for many.

The question is whether its economy can maintain its powerful momentum in 2012. If not, the impact on global investors could be significant.

Is China headed for a soft landing… or a hard one? Recent data out of the PRC has given economists pause. China’s official manufacturing index fell to 49.0 last November, indicating sector contraction; since then, it has barely crept above 50 (51.0 in February, 50.5 in January). Its red-hot GDP cooled slightly to 8.9% in Q4 2011 following a series of interest rate hikes by the People’s Bank of China to try and rein in inflation. Still, consumer prices are on the rise in China – the inflation rate rose 0.4% in January to 4.5%.¹

Other troubling signs emerged in January: a 23.8% monthly drop in auto sales, a fifth consecutive monthly dip in property prices, a third straight monthly decrease in foreign direct investment, and month-over-month declines in exports and imports.²

While China has one of the best debt-to-GDP ratios in the world – 16.3% at the end of 2011 – that ratio may reflect the “official story” rather than the reality of its “hidden liabilities”.

What if the yuan appreciates? Until recently, this was the trend. The People’s Bank of China elected to loosen the yuan from the dollar about two years ago, and the currency now “floats” within a narrow band. In February the yuan reached an all-time high versus the U.S. dollar (6.3287). The PBC projects about 3% appreciation for the currency in 2012.⁴

An even stronger yuan would alter the exchange rate between China and the U.S. and theoretically lessen American consumer demand for Chinese imports. If the yuan continues to appreciate against the dollar, there may be three macroeconomic effects. One, American firms would have to pay more for Chinese goods they buy. Two, American companies might try to source out new suppliers and cheaper factories in nations like India, Thailand and the Philippines – or they might even direct some dollars back into our own manufacturing sector. None of this can be done overnight, so in this scenario our trade balance with China could worsen before showing any long-run improvement.

A fast-appreciating yuan would mean more purchasing power for the rising Chinese middle class, less emphasis on exports in China’s economy, and some deflation – and a little price deflation might be welcomed by China’s citizenry. However, a gradually appreciating yuan (on the level of 2-3% annually) might amount to the best-case scenario for the global economy and investors.

What if the yuan depreciates? China is poised for political change in late 2012 – a Communist Party congress will occur and Vice President Xi Jinping is in line to become the nation’s new leader. Will the new administration elect to reverse any yuan appreciation? ²

For some time, China has bought dollars in the forex markets to keep the yuan undervalued, and that has served as a tonic to its export-driven economy. A weak yuan policy (and low labor costs) also helped to encourage direct foreign investment in China. Weakening the yuan again would drive up the cost of imports for the Chinese consumer, and China would be prompted to boost exports anew – implying more economic growth, less unemployment and renewed price advantage in global markets – in other words, an antidote to a slowdown.⁴

The cloudy near-term future of the yuan makes investing in China something of a wild card. While some economists think a stronger yuan would be good for the world economy in the long run, the fear of a hard landing (and its impact not only on the Chinese economy but the world economy) may prompt the nation’s leaders to move in a different direction.

Chinese government researchers have told Reuters that the PRC has set a target of 7.5% growth for 2012; the PRC usually sets GDP targets it can comfortably meet, so results might exceed projections. Even so, growth might not approach the 9.2% GDP China saw in 2011. In February, Standard & Poor’s gave China a 10% chance of a hard landing in 2012 (5% GDP) and a 25% chance of a “medium landing” (7% GDP).^2,5

Which way in? If you are thinking about investing in China, keep in mind that its economy has a relatively high inflation rate. This may encourage Chinese companies to overstate or overestimate factors like sales growth, operating margins, debt-to-asset ratios and fixed asset turnover. So while an individual investor may at first be enticed by a large-cap international Chinese company, he or she may opt for an ETF or index fund after further consideration. Quite a few stock market analysts think these vehicles provide sensible entry into China for the small investor.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – www.chinadaily.com.cn/china/2012-03/02/content_14735838.htm [3/2/12]

2 – www.forbes.com/sites/gordonchang/2012/02/20/rearranging-the-deck-chairs-on-the-ss-chinese-economy/ [2/20/12]

3 – www.forbes.com/sites/gordonchang/2012/02/26/how-will-china-pay-off-its-debt/ [2/26/12]

4 – www.cnbc.com/id/45788856/Yuan_at_Record_High_vs_Dollar_On_Track_for_4_Gain_in_2011 [2/9/12]

5 – www.nasdaq.com/article/sp-sees-china-soft-landing-as-most-likely-scenario-20120202-00090 [3/2/12]

CAN THE LAST QUARTER OF 2011 LIVE UP TO HISTORICAL AVERAGES?

Presented by Rick Gardner

Is a rally ahead? You may have heard that stocks tend to do well in the fourth quarter. History affirms that perception: while past performance is no guarantee of future results, the last quarter of the year has historically been the best quarter of the year for U.S. equities. As data from Bespoke Investment Group notes:

• The S&P 500 has averaged a +2.44% performance in fourth quarters since 1928.
• In the last 20 years, it has averaged +4.57% in fourth quarters.
• In the last 30 years, it has advanced in 24 of 30 fourth quarters with an average price return of better than 7%.¹

Will the Street put its anxieties aside? Right now, you have a lot of uncertainty. Many analysts see a stock market unimpressed by tepid domestic growth and waiting fearfully for the other shoe to drop (meaning Greece).They see more pain ahead for U.S. investors. On the other hand, there is also talk of when a point of capitulation might be reached, i.e., is Wall Street simply ready to rally even in the face of the debt troubles in Europe and the slow recovery here.

You could argue that certain Wall Street psychologies (and tensions) aid 4Q rallies. After all, the pay of money managers relates to performance and there is renewed pressure on them to come through as the end of a year looms.

Could new optimism surface? Perhaps it is surfacing now. As the third quarter wrapped up, Reuters polled 350 stock market analysts worldwide. Their consensus forecast was that 18 of 19 major world stock indices would either advance or suffer insignificant losses in the fourth quarter (Taiwan’s TAIEX was the lone exception in the forecast).²
They also felt that two indices would achieve 2011 gains: South Korea’s Kospi, and the Dow Jones Industrial Average. They think the Dow will end 2011 up about 2%. The Dow was at -5.74% YTD at the closing bell on September 30.^3,4

On a particularly bullish note, Bloomberg surveyed 12 Wall Street strategists in early October and found them collectively forecasting the greatest 4Q rally in 13 years. They think that the S&P 500 will rise 15% this quarter, which would mean a push to 1,300 by New Year’s Day.⁵
Stocks certainly are cheap. Bloomberg data also indicated that when the S&P nearly closed at bear market levels in early October, it was down to 12x reported earnings; valuations were lower than they had been at any point since 2009. At the end of September, the MSCI World Index was trading at just above 10x its 12-month forward earnings, well under its average of 14.3x earnings since 2001.^2,5

Some analysts are optimistic about the coming quarters. Indeed, the 350 analysts surveyed by Reuters are envisioning some impressive bull runs. They think Russia’s RTSI will advance 32% between now and mid-2012; they feel Brazil’s Bovespa will rise approximately as much in the next three quarters. If you follow emerging markets, forecasts like these may not surprise you much. However, they also see double-digit advances for the Dow, Nikkei 225, All Ordinaries, CAC 40 and DAX by mid-2012.²

Historically, stocks have had impressive resilience. Here are two other encouraging statistics in the wake of the Dow and S&P’s double-digit third quarter drops:

• The Dow had 14 quarterly losses of 10% or more in the period from 1962-2009. In 79% of the ensuing quarters, the Dow pulled off a quarterly gain.
• The S&P suffered 11 quarterly losses of 10% or more during a stretch from 1981-2009. In 80% of the following quarters, it posted a quarterly gain.⁶

Another 4Q rally depends on many variables, but if Greece avoids default and 3Q earnings don’t disappoint, we might see a better end to 2011 than the bears anticipate.

COULD YOUR SOCIAL SECURITY INCOME BE TAXED?

A CLOSER LOOK AT THE PROVISIONAL INCOME RULES.

Presented by Rick Gardner

Many new retirees assume that Social Security income is tax-free. That is not always the case. The Social Security Amendments of 1983 opened the door to taxes on some SSI, depending on the amount of income someone earns in a calendar year.⁷

How much of your SSI is potentially taxable? As much as 85% of it, under certain conditions. Four factors determine how much of your SSI will be taxed:

• The total amount of income that you earn.
• Where it comes from.
• Your taxpayer filing status.
• Your provisional income – a MAGI calculation which you can figure out by using Worksheet 34-1 in IRS Publication 915 or the Social Security Benefits Worksheet in the instruction booklets for IRS Form 1040 and Form 1040A.⁸

How is provisional income determined? In simple terms, this is calculated using your AGI, minus one-half of your Social Security benefits. (Tax-free interest from investments such as muni bonds also becomes provisional income.)⁹

How much income can you earn before your SSI is taxed? The 2011 limits are pretty straightforward:

• Single person: up to 50% of your SSI can be taxed if your provisional income is greater than $25,000, and up to 85% of your SSI can be taxed if your provisional income exceeds $34,000.
• Married/head of household: up to 50% of your SSI can be taxed if your provisional income is greater than $32,000, and up to 85% of your SSI can be taxed if your provisional income exceeds $44,000.⁹

Who doesn’t have to worry about this? If your only source of income is Social Security or equivalent retirement railroad benefits, it is unlikely that your SSI will be taxed and you may not even need to file a federal return. In 2011, Social Security benefits are tax-exempt for single taxpayers with provisional incomes under $25,000 and married/head of household taxpayers with provisional incomes under $32,000.^10,12

What can be done to reduce (or avoid) the tax? If you are close to hitting either the 50% or 85% tax levels, you may want to think twice about moves that could take your provisional income over the threshold – for example, receiving a sizable chunk of profit from selling a stock, or converting a traditional IRA to a Roth IRA. Here are some common moves people make with the input of a qualified tax or financial professional:

• Delaying some investment income, rental income or pension income until the following tax year
• Shifting assets from accounts or investments producing reportable income (like CDs) into tax-deferred alternatives
• Working less
• Ramping up pre-tax contributions to an IRA, 401(k) or 403(b)
• Lowering interest income (such as income from CDs)
• Lowering tax-exempt interest income (from muni bonds, federal tax refunds, veteran’s benefits, gifts and other sources).^11,12,13

Before April rolls around, it might be wise to consider the different ways to manage taxes on your Social Security benefits. Some new SSI recipients may be taken aback by the tax they end up paying; alternatively, you can plan to reduce it.

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This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All indices are unmanaged and are not illustrative of any particular investment. The S&P 500 is a market-capitalization weighted index of 500 Large-Cap common stocks traded in the United States on the NYSE, AMEX and NASDAQ. The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the NYSE and the NASDAQ.

Citations:

1 – moneywatch.bnet.com/investing/blog/investment-insights/stocks-ready-for-fourth-quarter-rally/2833/ [10/3/11] 2 – reuters.com/article/2011/09/29/us-markets-stocks-poll-idUSTRE78S4EK20110929 [9/29/11] 3 – montoyaregistry.com/Financial-Market.aspx?financial-market=an-introduction-to-the-stock-market&category=29 [10/7/11] 4 – cnbc.com/id/44729786 [9/30/11] 5 – bloomberg.com/news/2011-10-07/stock-index-futures-in-u-s-rally-after-employment-growth-beats-forecasts.html [10/7/11] 6 – cnbc.com/id/44677114/Third_Quarter_Pain_Fourth_Quarter_Gain [9/29/11] 7 – ssa.gov/history/InternetMyths2.html [3/22/11] 8 – investopedia.com/terms/p/provisional-income.asp#ixzz1ZTtLY5zk [9/30/11] 9 – www.house.leg.state.mn.us/hrd/issinfo/sstaxes.htm [2/11] 10 – www.irs.gov/taxtopics/tc423.html [9/23/11] 11 – montoyaregistry.com/Financial-Market.aspx?financial-market=what-is-tax-efficiency-and-why-does-it-matter&category=31 [9/30/11] 12 – kiplinger.com/features/archives/krr-strategies-to-reduce-taxes-on-social-security.html [9/1/10] 13 – investopedia.com/articles/pf/08/social-security-tax.asp#axzz1ZTpgvAFu [2/14/08]