Reames Financial

Flying Under the Radar

No BS Weekly Update February 13, 2012


In This Issue
Looking in the Mirror
Cool Stuff
Secret Lives of Links
Good Eats

QOTD

 

"It is the mark of an educated mind to be able to entertain a thought without accepting it." -Aristotle (384 BC - 322 BC)

 

 

 

Like us on Facebook

 

Follow us on Twitter

 

View our profile on LinkedIn 

 

Dear  ,

 

Flying Under the Radar


Many of you may recall that as far back as late 2007 we started warning that because of the governments coming massive need for money you could expect the government to do everything that they could to raise tax revenue.  Take a look at these slides from our presentation back in late 2007.

 

 

 

The question was "How much of my retirement could I lose to taxes?"  The concern was that the national debt was getting out of control.  Take a look at the numbers we were concerned about back then. 

 

 
 
The numbers seem almost quaint today.  $8 Trillion debt in 2006 and not projected to hit $11 Trillion until 2017.  Heck, we crossed $11 Trillion back in the first quarter of 2009.


Thanks for the history lesson but is there a point here? 

Yep, there sure is so let me get to the point.  I've often written about the need to read between the lines and sometimes connect the dots between different articles.  Well here is an article that caught my eye recently.

 

(Click to read article)

 
This article took me by surprise.  It was flying under the radar so to speak.  I keep a pretty close eye on this stuff and this was news to me, so I started digging.  Here is what I came up with. 

(Click to read article)

 
OK, So?

 

All right, here is why I think this is a big deal.  For most Americans, their retirement accounts are usually either the largest or their second largest asset that they have.  You've worked hard, you've saved, and now when you pass away you would like the money that you didn't need in retirement to go to your family.  Seems reasonable, right?   

When your spouse inherits your retirement account he/she gets to continue the tax deferred status of that account for the rest of his/her life if they chose to do so.  But what about when it goes to the kids or even the grandkids?  That is where the Stretch IRA came in.  It gave the child (who is an adult by this time usually) the opportunity to take a Required Minimum Distribution each year while letting the rest of the Inherited IRA accumulate tax deferred instead of having to pay the taxes all at once which is the way it was in the old days.


Sen. Baucus' proposal seeks to eliminate the Stretch IRA option as well as the option to disclaim the inheritance.  Now this isn't an issue just for the super-rich.  This is one of the great estate planning opportunities that the average American has and the government is now proposing that it be taken away.


Let's take a look at this example from Investopedia.com.  You can read the full article by clicking on the example. 

(Click to read article)

 

As you can see from the example, the younger the age of the person who inherits the account, the less they have to take out per year which leaves more of the money growing tax deferred, which potentially leads to a larger overall inheritance for the person because of the longer life expectancy.

 
Now let me give you an example of how this strategy can be used.  Let's say you pass away in your early 70's.  No surviving spouse, one child in his/her 50's, and three grandchildren in their late 20's to early 30's.  Let's say you have $100,000 in your IRA when you die.  Your only child has done well in life and doesn't really need the money.  Instead of leaving the IRA to the only child, why not leave it to the three grandchildren?  They would be able to draw an income off of that money for the next 50 years or so based on their life expectancy while the rest of the money continues to grow tax deferred.


Now why is the government looking to take away this option?  Because they need the tax revenue now!, not over the next 40-50 years.  Folks, if you think this is a benefit worth saving then please contact your elected representative and let them know how you feel.  Unlike our spouses, they're not mind readers; we have to let them know how we feel.  And if you haven't reviewed your estate plan in a while, now might be a good time to do so.  If you'd like some help with that then please give us a call!
 

Sincerely,
Phil's signature in blue

 

 

 

 

Like us on FacebookFollow us on Twitter

View our profile on LinkedIn

Week In Review
S&P Threatens U.S. With Another Downgrade In As Little As 6 Months (Aero Hedge)

RF: Here we go again. Is it any wonder? We have a government that hasn't even bothered to propose and pass a budget in three years. With no realistic plan in place to deal with the issue why would S&P have any reason to believe that debt situation is improving?

Greece: 'There's no more left to cut' (Independant)

RF: Ah but there is more to cut. Because they are so over extended they will have to cut more because of the simple fact that no one will loan them more money to keep the circus going. The only way you can keeep spending more than you bring in is if others loan that money to you or you take it from someone else. Greece as a military power doesn't make it likely that they will be taking it from any other country and I don't see many sane people or countries in a hurry to loan them money. The only people really interested in loaning them money are the people that have already loaned them so much money that they know they are screwed if Greece goes under.

 

It reminds me of a quote I once read and I can't remember who even said it but it was something like "If I owe the bank $100,000 that's my problem. If I owe the bank $100,000,000 that's their problem." Get the picture? All this talk of a rescue is just a desperate attempt to buy time. And the sad thing is as I've said in the past, the only difference between the U.S. and Greece is that we haven't reached the end of our credit limit yet.

PepsiCo to Invest $600 Million in Brands, Cut 8,700 Jobs(AP)

RF: Maybe I was wrong. Companies are sitting on record amounts of cash and they are experiencing record profitability. As I've explained there are two basic ways to profitability. Ever increasing sales with product flying out the doors, or cutting expenses to the bone which is how companies have been acheiving those record profits right now. My view has been that this couldn't go on forever. That's the part I may have been wrong about. Keep dumping people while continuing to invest in technology (robots and automation) that replaces those people. Not so good for the people who lose those jobs because they won't be coming back when sales do pick up but I can see how this could be good for a company's long term business plan. Eliminates all the uncertainty of employee costs and benefits.

Biggest Holders of US Government Debt(CNBC)

RF: Guess who owns the most U.S. debt now, you may be surprised.

Law schools face lawsuits over job-placement claims(MSNBC)

RF: LOL! What happened to professional courtesy? Looks like poetic justice to me!

Laughter

 

COD 2-13-2012
( http://www.chartoftheday.com )

Growth

Inspiration: Powerful Beyond Measure (how great are you?)
To Gail as she prepares for her first 1/2 Marathon. You're Awesome!

 

 

Link
 
Dare to take the mystery link challenge? 

 

We can't be held responsible for the time you waste or the knowledge you gain by clicking this link!

 

CLICK HERE IF YOU DARE!

Good Eats

If you like blue cheese I think you will love this recipe.  While it is a fondue recipe you don't have to do it as a fondue.  What I like to do is grill the meat according to the recipe and then serve it over a bed of fresh greens with adressing of your choice.  Now instead of doing it as a fondue I just put the blue cheese sauce in small bowls as a dipping sauce.  Save any left over sauce as a treat over scrambled eggs the next morning.  it's awesome!   
recipe
(Click here to print recipe)

 

If we're worth reading we're worth recommending.

That's no BS.

Please let others know about us!

 

Like us on FacebookFollow us on TwitterView our profile on LinkedIn

Securities offered through Foothill Securities, Inc.  Member FINRA/SIPC
Reames Financial is not an affiliate of Foothill Securities, Inc.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
 
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Google Finance is the source for any reference to the performance of an index between two specific periods.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Reames Financial and not necessarily those of Foothill Securities, Inc., and should not be construed as investment advice. Neither Phil Reames, Reames Financial, nor Foothill Securities, Inc. gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

By clicking on these links in the No BS Weekly Update, you will leave our server as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest.

Phil Reames

Reames Financial

1856 Skyler Dr.

Kalamazoo, MI 49008

269-349-3966

[email protected]