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January 2006 |
Capital Retirement Strategies, Inc.
Specializing in retirement plans
and personal investment management
In This Issue
Happy New Year! Now that the blur of the Holiday Season is behind us, many people see January as a great time for a fresh start. For some, that means getting in shape. For others, it means getting organized or finding a new job. For still others, it means getting their finances in order. If you’re one of those who is looking to get a jump on becoming “fiscally fit” in 2006, I hope you’ll find a few items of interest in this issue. Leading off is an article about the Roth IRA. Potentially one of the most powerful investment vehicles we have available to us, it is still misunderstand- and under appreciated- by many investors. Our guest contribution this month comes from Tom Matthews, a leading real estate professional with Prudential Prime Properties. The spring market is just about upon us- in real estate terms, not weather, unfortunately- and many people are thinking about putting their house on the market in the upcoming months. If you or someone you know is considering selling, please check out Tom’s article entitled, “Preparing Your Home for Sale.” I have also listed the 2006 Retirement Plan Contribution Limits to assist those in planning their retirement savings strategies for the year ahead. Our new feature, “Nickels & Dimes,” can be found at the bottom of the newsletter. I’d like to use this section to highlight the achievements and good fortune of my clients, friends and associates, as well as to give you updates about my practice from time to time. If you would like me to mention something about you or your business (awards or professional honors, new marriages, babies, graduations or promotions, etc.) in an upcoming issue of Capital Concepts, please send an email to dave@capretirement.com . If you read something you like, I hope you’ll consider forwarding my newsletter to someone who may also find it of value. Thanks for reading!
Best regards,
Is the Roth IRA a Better Choice? The Roth IRA turned 8 years old this month and many Americans still don’t fully appreciate the benefits of this retirement plan. The Roth IRA was named for the late Senator William V. Roth, Jr. of Delaware. The basic premise of the Roth is that contributions are invested on an after-tax basis and generally withdrawn during retirement completely tax-free. In a traditional IRA, contributions are tax-deductible; that is, we get our tax savings when we put the money in. All withdrawals from traditional IRAs are taxable as ordinary income, so we pay taxes when we take money out. As I tell my clients, Uncle Sam will always get his cut- it’s either going in or coming out. With the Roth IRA, he gets it at the beginning. In a traditional IRA, Uncle Sam gets his share (taxes you pay) when you take money out at the end. Roth IRA AdvantagesBefore discussing the advantages of the Roth IRA, I should point out the main disadvantage. There is no tax deduction for investing in a Roth. For many people accustomed to getting that break on their taxes each year, this may be an unwelcome sacrifice. In addition, many tax preparers look for ways to reduce their clients’ taxes this year, so they’ll often suggest the old-fashioned, tax-deductible Traditional IRA. For most people, however, the advantages of the Roth far outweigh the disadvantages. Tax-free retirement income- Most retirement plans that Americans participate in require that you pay taxes on withdrawals during retirement. This is the case with 401(k) plans, 403(b)’s, SIMPLE IRA’s and SEP accounts, as well as others. The Roth IRA is different. All earnings withdrawn from a Roth- assuming you’re over 59 ½ and the account has been open for at least 5 years- are tax-free. In addition, the withdrawal of the money that you put into the account is always tax-free. No Required Minimum Distributions- Traditional IRA’s require that you begin taking money out of the account by the age of 70 ½, even if you don’t need the money. Again, this is Uncle Sam’s way of making sure he gets his tax revenue before you die. In a Roth, there are no Required Minimum Distributions, so your account can continue to grow tax-free even longer! Flexibility- The fact that the Roth gives you easier access to your money is another great advantage. If you need to withdraw money from a Traditional IRA, the withdrawals are taxed as ordinary income and accessed a 10% early withdrawal penalty if you’re younger than 59 ½. Because contributions to a Roth IRA can always be withdrawn with no taxes or penalties, this gives us one more option if we need money in a pinch. EligibilityYou can make a contribution to a Roth IRA- up to $4,000 in 2006 or $5,000 if you’re over 50- even if you participate in an employer-sponsored plan like a 401(k). You can contribute up to the maximum level as long as your income is below $95,000 for a single taxpayer or $150,000 for married taxpayers filing jointly. Who should consider a Roth IRA?The Roth IRA is a sensible choice for almost everyone. The best candidates for a Roth believe their income (and their tax-bracket) will increase in the future, so they’d rather pay taxes now at a lower rate in exchange for the tax-free income later. The younger you are, the better off you tend to be in a Roth as well. Hot tip: Many clients ask me how much they should contribute to their 401(k) plan. Most financial planners agree that you should contribute at least as much to qualify for the maximum employer match- that is, if your company provides a matching contribution. Any contributions above that should be made to a Roth IRA.
By Tom Matthews You have been thinking about moving for sometime and finally have had your local real estate agent over to give you a comparative market analysis (CMA), but now what? How do you maximize the equity gain in your property? Today, I will discuss my number one recommendation for maximizing your profit. When we buy our homes we have home inspections to make sure that the property has no hidden defects. Typically, the home inspector gives you a report that is a checklist of items to address while you live in the home. However, occasionally there are major items that arise which are a great surprise to the sellers and the buyers alike. More often than not the deal has hit a major obstacle, which could derail the entire transaction. If there are no major issues, the buyer should keep the inspection report for personal use and move forward to purchase the home.
As an Accredited Buyers Representative, I have a keen understanding of the mindset of today’s buyers. With the price of real estate, buyers are looking for properties that are well maintained. When buyers find issues with homes, they often overestimate the price of the repairs. Often times at this point, sellers have a contract on a home they really want to buy and rather than let the deal fall apart, sellers find themselves in situations where they are forced to compromise to get the deal done. You do not want to put yourself in a position where you have found a house that you are in love with and want to buy, but can’t because there is a defect with your current property.
If you or someone you know is interested in learning more about preparing a home for sale in 2006, please feel free to give us a call. Tom Matthews is part of the Tom and Joanne Team at Prudential Prime Properties. They offer clients a seamless team that offers top-rated service. In 2005, Tom and Joanne ranked number 1 in their branch and 13th in the entire company of more than 275 agents. Tom can be reached at (978) 897-2781 or t_matt464@hotmail.com. Remember, when it's time... call Prime!
2006 Retirement Plan Contribution Limits Contribution limits for individual retirement accounts, Traditional and Roth IRAs, have remained the same for 2006, unless you are over 50 years old. In that case, the catch-up amount increased by another $500. The catch-up provision is designed to help people over 50 make additional contributions to their accounts to "catch-up" and get their retirement accounts back on track. The maximum contribution to a 401(k) plan is now $15,000. Contribution limits for other popular plans, as well as the "catch-up" limits are listed below. Plan Name Max Contribution Over 50 Max Contribution 401(k) $15,000 $20,000 IRA $4,000 $5,000 Roth IRA $4,000 $5,000 SEP IRA $44,000 Not Applicable SIMPLE IRA $10,000 $12,500 Individual 401(k) $44,000 $49,000
- Congratulations to Jeff and Gigi Luckett of Acton who had their first baby, Vida, on January 5th. She weighed in at 6 lbs, 8.5 oz. and looks like a real cutie. Good luck! - Susan Bent, an old friend and client, got engaged in Paris this past November. Susan and her fiancee Jim DeMichele are planning a Spring 2007 wedding. Congratulations Susan and Jim! - On January 9th, I presented "Financial Planning and Teaching Children About Money" to the Family Advisory Board of the Educational Daycare Center at Tufts University. If you know of any groups that are looking for a speaker to present on any number of financial topics, please keep me in mind. - Landon's friend Lucy turned one in December. Happy Birthday Lucy and congratulations to parents, Pete and Lisa! If you've recently had something great happen in your life or in your career, I'd love to recognize you for it! Send an email to dave@capretirement.com and I'll try to get it in an upcoming issue of Capital Concepts.
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