July 15, 2010
Vol 3, Issue 7
Jean Keener
Greetings!
Jean Keener
Good morning.  I hope you're having a great summer and got to enjoy some fireworks over the fourth.
 
June was another rough month in the stock market.  Fortunately for us, the market is off to a much better start in July!  As of the end of June, the large-cap S&P 500 Index lost 11.5% for the quarter, and was down 6.7% year to date. The small-cap Russell 2000 benchmark lost 10% in the second quarter, though thanks to a strong first-quarter, was down just 2% year to date.  Internationally, the Vanguard Total International Stock Index dropped 13.3% in the second quarter, bringing its year-to-date loss to 12%. The Vanguard Emerging Market Stock Index lost over 9% for the quarter and nearly 7% year to date.  On the flip side, bonds continued to provide portfolio gains with The Vanguard Total Bond Market Index Fund, a proxy for high-quality, intermediate-term bonds, gaining 3.6% over the second quarter and 5.3% for the year through June.
 
On another note, mortgage rates are extremely good right now -- as low as 4.375%.  If you still have a higher interest rate and plan to be paying on it for awhile, it makes sense to review whether refinancing would be beneficial.
 
Voting for the Best of Keller is going on.  I was so pleased to be voted Best Financial Planner for 2009 and would sincerely appreciate your vote again this year.  You don't need to be a resident of Keller to vote, but you do need to know enough businesses in Keller to vote in at least 25% of the categories.  
Go to www.KellerCitizen.com to vote.   Thank you!
 
In this month's newsletter, we have information on college scholarship strategies, 2010 Required Minimum Distributions,  and more.  I was also interviewed for the Wall Street Journal blog on the importance of keeping investment costs low, and the link to that article on the Wall Street Journal website is below.  As always, feel free to e-mail me at jean@keenerfinancial.com with requests for newsletter topics you'd like to see covered. Thank you, and live well.
In This Issue
College Scholarship Strategies
Required Minimum Distributions for 2010
Protecting Yourself from Identity Theft
WSJ Interview on Keeping Investment Costs Low
Keller Public Library free college planning workshop next Tuesday
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College Scholarship Strategies
College Scholarship StrategiesI attend a quarterly financial planning study group to sharpen my skills, and this month we had an outstanding guest speaker on the topic of maximizing college scholarships.  Her name is Catherine Marrs, and she is a Certified Educational Planner in Dallas.
 
According to Catherine, merit-based scholarships are often much easier to qualify for than need-based.  Colleges are often seeking different student profiles to round out their freshman class, so applying to multiple schools increases the opportunity for an attractive scholarship package.  Filling out the FAFSA is often necessary to receive merit-based aid as well as need-based, so you should always fill it out even with high household incomes or assets.  There are of course many factors that  affect scholarship offers, but here are some of the top ones that your child has some degree of control over. 
  1. Gradually increasing level of difficulty in the 4-year high school curriculum -- Honors, AP, International Baccalaureate Certificate Programs, and increasing number of years in core subjects all help in this area
  2. Grade Point Average -- Strong effort and upward trend matter, so even if student has a slow start their freshman year, improving over the remainder of high school enhances their scholarship profile
  3. Test Scores -- Good test scores are the easiest way to get scholarships.  Be strategic about which test or tests your student takes.  The SAT has more "puzzles" and the ACT is more knowledge-based, so if the school accepts either, use the test that plays to your strenghths.
  4. Recommendation Letters -- offer an opportunity for student to "be seen" by colleges for more of their whole personality; students should develop relationships with teachers, coaches, or counselors to enable these letters to be more specific
  5. Passionate involvement in a few activities -- depth, not breadth, of experience is most important with sports, clubs, community organizations, and religious activities
  6. Examples of leadership
  7. Special talent or experiences -- colleges are looking for a well-rounded class of students more so than well-rounded individuals, so highlighting unique attributes can strenghthen the application 
  8. Well-written essay -- give insight into a student's unique personality
  9. Demonstrated enthusiasm -- visits to campus, staying in touch with admissions counselor, applying early in the regular application cycle
  10. Out of school experience -- community service and work experience -- do a little bit in this area even if the student doesn't love it because it demonstrates responsibility, dedication, and development of areas of interest
  11. Demonstrated intellectual curiosity -- reading books, research projects, internships
Catherine is truly an expert in this area.  She visits numerous college campuses annually to stay in touch with actual scholarship decision making trends.  She provides group workshops for students and is available for individual consulting programs as well.  Her website is www.marrscaa.com.
Required Minimum Distributions for 2010
required minimum distributions 2010Required minimum distributions, often referred to as RMDs, are amounts the federal government requires you to withdraw annually from traditional IRAs and employer-sponsored retirement plans after you reach age 70 (or, in some cases, after you retire). RMDs are also required if you inherit an IRA (traditional or Roth) or employer plan account. You can always withdraw more than the minimum amount from your IRA or plan in any year, but if you withdraw less than the required minimum, you'll be subject to a federal penalty tax equal to 50% of the shortfall.

In response to deteriorating economic conditions in 2008, Congress (as part of the Worker, Retiree, and Employer Recovery Act of 2008, or "WRERA") waived RMDs from IRAs and defined contribution employer plans for the 2009 calendar year. This allowed individuals to avoid having to deplete retirement plan assets while the value of those assets was suddenly depressed. But RMDs are back for 2010. Here's how the rules apply.

IRA Owners and Employer Plan Participants

If you turned 70 before 2009, your RMD for the 2009 calendar year, which was due by December 31, 2009, was waived. You must now resume taking RMDs. Your next RMD (based on your December 31, 2009, account balance) must be taken no later than December 31, 2010.

If you turned 70 in 2009, your first RMD (for the 2009 calendar year) was due by April 1, 2010. This RMD was waived. You must now take your first RMD (for the 2010 calendar year, based on your account value as of December 31, 2009) no later than December 31, 2010. You'll need to take your second RMD from the account (for the 2011 calendar year) no later than December 31, 2011.

If you turned 70 in 2010, your RMDs are not impacted by the 2009 waiver at all. Your first RMD (for the 2010 calendar year) is due by April 1, 2011, and is based on the value of your account on December 31, 2009. You'll need to take a second RMD from the account no later than December 31, 2011.

Inherited Accounts

In general, if you inherit an IRA (traditional or Roth) or employer-plan account, you must begin taking RMDs over your life expectancy ("life expectancy" rule) starting with the year following the year of the account owner's death. Alternatively, you may elect, or your plan may require, that you withdraw the entire account by December 31 of the calendar year containing the fifth anniversary of the account owner's death ("five-year" rule).

  • Per the WRERA, if you inherited an IRA or employer account, and you were using the life expectancy payout rule, then your RMD for the 2009 calendar year was waived. You must take an RMD for the 2010 calendar year no later than December 31, 2010.
  • If you inherited an IRA or employer account, and you were using the five-year rule for RMDs, you ignore 2009 when determining when your five-year period ends. So, for example, if your original five-year deadline was December 31, 2009, you ignore 2009 and you now have until December 31, 2010, to complete withdrawals from the account. Similarly, if your original five-year deadline was December 31, 2013, your new deadline, ignoring 2009, is December 31, 2014.
  • If you inherited an employer plan account, you may have been given the right to elect whether to use the five-year rule or the lifetime expectancy payout rule for taking RMDs. This election is generally required no later than December 31 of the year following the year of the account owner's death. Per IRS Notice 2009-82, if your deadline for making the election was December 31, 2009, you now have until December 31, 2010, to make that election.
  • If you inherited an employer account from someone other than your spouse, and the five-year rule applies to your benefit, you generally have until December 31 of the year following the year of the account owner's death to make a direct rollover of the account to an inherited IRA, and use the lifetime expectancy payout rule for distributions from the IRA. If the account owner died in 2008, you generally would have needed to complete your rollover by December 31, 2009. Per Notice 2009-82, you have until December 31, 2010, to complete the rollover.
Protecting Yourself from Identity Theft
Protecting from Identity TheftTips on avoiding identity theft are everywhere, and we probably all know someone who's had to deal with this issue.  But even though we're all aware of the risk, it's sometimes easy to become lax in taking regular precautions.  So here's your reminder to stay on top of this, and some easy reference points to help make it take less time.  We can never protect ourselves completely, but we can certainly make identity theft a lot more difficult and less likely.
 
Rreview your credit report periodically. Check to make sure that all the information contained in it is correct, and be on the lookout for any fraudulent activity.  You may get your credit report for free once a year. To do so, contact the Annual Credit Report Request Service online at www.annualcreditreport.com or call (877) 322-8228.
 
If you need to correct any information or dispute any entries, contact the three national credit reporting agencies:
  1. Equifax: www.equifax.com
    (800) 685-1111
  2. Experian: www.experian.com
    (888) 397-3742
  3. TransUnion: www.transunion.com
    (800) 916-8800
 
Secure your Social Security number (SSN). Never carry your Social Security card with you unless you'll need it. Don't have your SSN preprinted on your checks, and don't let merchants write it on your checks. Don't give it out over the phone unless you initiate the call to an organization you trust. Ask the three major credit reporting agencies to truncate it on your credit reports. Try to avoid listing it on employment applications; offer instead to provide it during a job interview.
 
Carry only the cards and/or checks you'll need for any one trip.  Most of us carry our checkbooks and all of our credit cards, debit cards, and telephone cards with us all the time. That's a bad idea; if your wallet or purse is stolen, the thief will have a treasure chest of new toys to play with.  Also keep a written record of all your account numbers, credit card expiration dates, and the telephone numbers of the customer service and fraud departments in a secure place--at home.
 
Keep your receipts.  When you make a purchase with a credit or debit card, you're given a receipt. Don't throw it away or leave it behind; it may contain your credit or debit card number. And don't leave it in the shopping bag inside your car while you continue shopping; if your car is broken into and the item you bought is stolen, your identity may be as well.  Save your receipts until you can check them against your monthly credit card and bank statements, and watch your statements for purchases you didn't make.
 
When you toss it, shred it.  Before you throw out any financial records such as credit or debit card receipts and statements, cancelled checks, or even offers for credit you receive in the mail, shred the documents, preferably with a cross-cut shredder.
 
Keep a low profile. The more your personal information is available to others, the more likely you are to be victimized by identity theft. While you don't need to become a hermit in a cave, there are steps you can take to help minimize your exposure:
  • To stop telephone calls from national telemarketers, list your telephone number with the Federal Trade Commission's National Do Not Call Registry by calling (888) 382-1222 or registering online at www.donotcall.gov
  • To remove your name from most national mailing and e-mailing lists, as well as most telemarketing lists, write the Direct Marketing Association at 1120 Avenue of the Americas, New York, NY 10036-6700, or register online at www.dmachoice.org
  • To remove your name from marketing lists prepared by the three national consumer reporting agencies, call (888) 567-8688 or register online at www.optoutprescreen.com
  • When given the opportunity to do so by your bank, investment firm, insurance company, and credit card companies, opt out of allowing them to share your financial information with other organizations
  • You may even want to consider having your name and address removed from the telephone book and reverse directories
Be aware of electronic data theft.  Install a firewall to prevent hackers from obtaining information from your hard drive.  Virus protection software also helps with this.  Protect sensitive information with a strong password--one that's six to eight characters long, and that contains letters (upper and lower case), numbers, and symbols.  It shouldn't be a dictionary word, your name, birthdate, etc.  Make it hard to guess.
 
Opening e-mails from people you don't know, especially if you download attached files or click on hyperlinks within the message, can expose you to viruses, infect your computer with "spyware" that captures information by recording your keystrokes, or lead you to "spoofs" (websites that replicate legitimate business sites) designed to trick you into revealing personal information that can be used to steal your identity.  This can also happen when friends' address books are hacked, so exercise caution with any message that doesn't seem like something your friend would typically send.
 
If you wish to visit a business's legitimate website, use your stored bookmark or type the URL address directly into the browser. If you provide personal or financial information about yourself over the Internet, do so only at secure websites; to determine if a site is secure, look for a URL that begins with "https" (instead of "http") or a lock icon on the browser's status bar.
 
And when it comes time to upgrade to a new computer, remove all your personal information from the old one before you dispose of it. Using the "delete" function isn't sufficient to do the job; overwrite the hard drive by using a "wipe" utility program. The minimal cost of investing in this software may save you from being wiped out later by an identity thief.
Importance of Keeping Investing Costs Low
Aside from asset allocation, keeping investment costs low is one of the biggest factors in our investment performance.  Last month I had the opportunity to talk with Harper Willis, a reporter for the Wall Street Journal's blog, about this issue and was featured in a Wall Street Journal Voices column.  I've already had discussions with many of you on investing costs and techniques to minimize them, but if you're interested in the Wall Street Journal article, it's available at www.blogs.wsj.com.
Free College Planning Workshop Tuesday July 20
Keller Public Library Free Financial Education SeminarsI am providing a free college planning workshop on Tuesday, July 20 at 6:30 pm at the Keller Public Library. It's entitled "Saving for College in Texas" and will focus on options based on your child's age to cost-effectively save for college and take advantage of tax savings.
 
Space is limited and registration is encouraged to ensure your space. RSVP to library@cityofkeller.com.
 
Future months topics include (always the third Tuesday of the month):
August: Maximizing social security benefits
September: Retirement Planning (repeat of April's popular program)
October: How much insurance do you really need?  Will focus on the basics of life, disability, and long-term care insurance -- who needs them, when you need them, what kind, and how much
 
The Keller Public Library is located at 640 Johnson Road.
I hope you found this newsletter informative.  KFP offers a free, no-obligation initial consultation to start the financial planning process for new clients.  To learn more or schedule a time, call 817-993-0401 or e-mail jean@keenerfinancial.com.
 
Sincerely,
 
Jean Keener, CRPC, CFDP
Keener Financial Planning

Keener Financial Planning is an hourly, as-needed financial planning and investment advisory firm working with individuals at all financial levels.
 
All newsletter content Copyright 2010, Keener Financial Planning, LLC.