Dominic Sitowski, CEP, LUTCF

Explaining some of the intricacies of withdrawals.

provided by Dominic Sitowski, CEP, LUTCF

Sometimes people want to access Roth IRA funds for early retirement or other purposes. Maybe you’re one of them. If you have ever thought about taking money out of a Roth IRA, be sure to consult your financial advisor first before you make a move … and keep the factors mentioned below in mind.
You can withdraw regular contributions tax-free, but not your earnings. This is a critical distinction, and many Roth IRA owners don’t seem to know about it.
When you withdraw assets from a Roth, there is a set order in which contributions and earnings must be distributed – the IRS ordering rules for distributions.1
• The IRS regards the first layer of withdrawals from a Roth as regular contributions instead of earnings. So this layer is treated as coming from your annual after-tax contributions. Therefore, if you just withdraw this layer of money, there are no taxes or penalties involved. (You can do this at any time, whether you have held your Roth for 5 years or not.) Basically, the IRS is permitting you to remove a percentage of your account before the alarm sounds on the five-year clock (see below).2,3
• The next assets to be removed from the account, according to IRS rules, are the conversion and rollover contributions to your Roth. These are removed on a so-called “first in, first out” basis. For example, the amount of a contribution to your Roth resulting from a conversion made in 2002 would come out before the amount of a contribution to your Roth resulting from a conversion made in 2008. The taxable portion of the conversion/rollover contribution comes out first (the amount claimed as income), and then the non-taxable portion.(By the way, the IRS disregards Roth-to-Roth rollover contributions in these rules.1)
• Finally, earnings accrued by the Roth IRA are distributed.
So in other words, merely withdrawing your regular contribution will not trigger tax. But if your Roth has realized earnings from contributions, the earnings will be subject to income tax if they are withdrawn.
Is your withdrawal a qualified distribution? Here’s another important consideration. If you have owned your Roth IRA for less than 5 years and/or are younger than age 59½, you risk taking a nonqualified distribution if you withdraw money from it. You know what that means – a 10% penalty for early withdrawal in addition to taxes. (There are some exceptions to this outlined in IRS Publication 590, which is certainly worth reading.)1
If you have owned your Roth IRA for more than 5 years …
• You can make a qualified withdrawal of earnings.
• You can make a qualified withdrawal of taxable conversions (conversions made in separate tax years will have to meet separate 5-year tests).
You can withdraw nontaxable conversions to your Roth IRA at any time.3
Watch the 5-year clock. Yes, how is the 5-year period preceding a qualified distribution measured? The clock starts on January 1st of the tax year of your initial contribution, conversion or rollover to a Roth IRA. For example, let’s say you opened up a Roth IRA account on January 1, 2007. On January 1, 2012, your Roth IRA will meet the five-year test.1
What if you have multiple Roths? Well, when it comes to distributions, the IRS has some aggregation rules for you. You will have to figure out the taxable amounts withdrawn, distributions and contributions using a little addition. You must …
• Add up all distributions made from all your Roth IRAs during the tax year.
• Add up all regular Roth IRA contributions made during the relevant tax year (including ones made after the close of the tax year, but before April 15 of the following year). Now add that total amount to the total undistributed regular contributions made in previous years.
• Add all conversion and rollover contributions made during the year together. To quote Publication 590: “For purposes of the ordering rules, in the case of any conversion or rollover in which the conversion or rollover distribution is made in 2008 and the conversion or rollover contribution is made in 2009, treat the conversion or rollover contribution as contributed before any other conversion or rollover contributions made in 2009.”1
There are additional rules for recharacterized contributions that end up in a Roth IRA.

If all this makes you want to talk to a financial advisor or accountant, before you take money out of your Roth IRA … well, that is a wise step to take. Confer with the financial or tax advisor you know and trust.

Dominic Sitowski is a Representative with Crown Capital Securities and may be reached at www.domsitowski.com, 503-496-3641 or dsitowski@crownmail.net.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer 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. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

Citations.
1 irs.gov/publications/p590/ch02.html#en_US_publink10006523 [12/4/09]
2 investopedia.com/ask/answers/179.asp?viewed=1 [12/4/09]
3 smartmoney.com/personal-finance/retirement/nine-frequently-asked-questions-about-iras-7950/ [1/21/09]

It is surprising how many people will put their money in just any bank. All banks are not created equal, and let’s just say that some have proven more solvent than others. Besides FDIC insurance, what other characteristics should you seek – and what questions should you consider?
How close is this bank? Is there a branch near where you live and close to where you work? How is the online banking setup? (Yes, you should value convenience, but it shouldn’t be the only factor in mind as you choose a bank.)
How cheap is it to bank there? You’ve heard of overdraft fees and ATM fees. But how about wire fees, notary fees, and fees on cashier’s checks and money orders? Returned-deposit fees? Stop-payment fees? Fees to check your balance? Fees to talk to a teller? (No kidding, some banks do charge for that.) Is it bad taste to ask a bank to detail its potential fees? No, it’s smart. Some banks offer you a free checking or savings account and a whole lot of potential charges besides. Some have plans that cover a whole range of services, plans that could save you some money.
What else can this bank do for me? Can the bank provide your business with credit card processing? Will your checking account give you any interest? What kind of CDs does the bank offer? How about mortgage and loan types? Could you send money overseas via this bank? Do they do any trust planning?
How friendly is this bank? When you walk into the bank, what’s the reception? Do people greet you and ask how they may help you? Or are you ignored for a prolonged period? What happens may hint at the level of service coming your way.
Ask to see a bank officer, if possible. Set down a list of what you want, and see how close your potential new bank comes to providing it. Don’t be afraid to make the bank work for your business – they are working hard than ever for it.
What can you do to make a banking relationship better for you? If you bring major amounts of cash to a bank, of course you’re going to be treated as a VIP. If you don’t, it may help you to establish a relationship or two. So often, we go to a bank and we look at the tellers – and even the loan officers and mortgage consultants – as mere functionaries instead of human beings.
If you have a lousy experience at the bank or you get dinged with some weird fee all of a sudden, ask someone why – maybe the customer service staff can address the matter and work out a solution. Make yourself known – a good way to do that is to bank when it isn’t “rush hour”. A friendly, recognizable customer who wants the best from his banking relationship can turn into a valued banking client.
Would it be better to bank online? How often do you need to go inside your bank? If you really don’t require much in the way of in-person services, maybe an online bank is a better option – after all, why should you pay to support your bank’s branches if you never set foot in them?
Thinking small may help. People were leery of small banks in this last economic downturn, but the customer service can be considerably better at such institutions. When a community bank is bought by a bigger one, bigger does not necessarily mean better in terms of attention.
Dominic Sitowski is a Representative with Crown Capital Securities and may be reached at www.domsitowski.com or dsitowski@crownmail.net.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer 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. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

EXTENDED HOMEBUYER CREDITS & JOBLESS BENEFITS

New federal actions aid the real estate sector and the unemployed.

provided by Dominic Sitowski, CEP, LUTCF
After unanimous passage in the Senate and a 403-12 passage in the House of Representatives, President Obama signed H.R. 3548 into law on November 6. The bill extends and expands a key tax credit for homebuyers while also offering more help for those out of work.1,2
The $8,000 credit for “first-time” homebuyers continues. This tax break is now extended until May 1, 2010. If you have never owned a home or haven’t owned a home in the previous three years, you are considered a “first-time” buyer and therefore eligible for the credit (it is a credit of up to $8,000, by the way). You must sign your purchase agreement before May 1, 2010 and close the transaction before July 1, 2010 to qualify for this tax break.3
The $6,500 tax break for move-up buyers. Okay, maybe you aren’t a “first-time” buyer. You may still qualify for this new real estate credit. Have you lived in your current home for more than five consecutive years? You may be eligible for a credit of up to $6,500 if you move out of that home and buy another. Again, you have to sign your purchase agreement before May 1 and close before July 1 to get the tax break.3
Worth noting: BusinessWeek.com contacted Sen. Chris Dodd’s office (the Connecticut lawmaker chairs the Senate Banking Committee) and received word that move-up buyers can qualify for this $6,500 credit even if they have signed a purchase contract prior to November 6, provided the purchase closes before July 1.4
Does everyone qualify for these credits? Not quite. They phase out for individuals with adjusted gross incomes of more than $125,000 a year and couples with AGI of more than $225,000 a year. (The old phase-outs respectively kicked in at $75,000 and $150,000. These higher phase-outs mean that the credit can now help an additional segment of the housing market.)5
You can’t buy a vacation home and claim one of these credits – they only apply to principal residences. In fact, the home you buy has to have a sale price of $800,000 or lower.5
What will this do for the economy? “Every economist will tell you we have to steady the housing market before the economy will turn around,” Sen. Dodd expressed on November 5. “We can’t afford to let this tax credit expire now.” Respected Moodys.com economist Mark Zandi agrees, saying that “from a macroeconomic perspective, nothing is more important than stabilizing housing values.” Zandi thinks that the $8,000 credit has led to 400,000 additional home sales in 2009. On the other hand, Dean Baker, the co-director of the Center for Economic and Policy and Research, questions why the extension is necessary: “For the most part, you’re just giving people money for something they would have done otherwise.” The Joint Committee on Taxation estimates that extending these credits into 2010 will cost $10.8 billion across the next decade.5,6
An extension of unemployment benefits. H.R. 3548 – sponsored by Rep. James McDermott (D-WA) – additionally extends state jobless benefits by up to 20 weeks. This will happen as a result of another extension – an extension of the federal unemployment tax on employers until June 30, 2011.5
If you are one of nearly two million Americans whose jobless benefits are set to run out at the end of 2009, this extension will help you. Your benefits will last at least another 14 weeks into the new year – in fact, they will last for another 20 weeks if you live in a state where the unemployment rate exceeds 8.5%. Have your unemployment checks already stopped? You may reapply for benefits.5
A chance for companies to convert losses into cash. What? Really? Yes. There is one provision of the new legislation that many have overlooked: it widens the window of time on the net-operating loss carryback. It lets all businesses apply losses from either 2009 or 2008 to any five years prior to 2008. So business owners, by virtue of the new legislation, have the potential for an IRS refund on the taxes they paid for the five years prior to 2008. There are two asterisks here. One, refunds for taxes in the fifth year of the carry back shrink by 50%. Two, any business that received TARP funds can’t take advantage of this tax break.7

Dominic Sitowski is a Representative with Crown Capital Securities, LP and may be reached at www.domsitowski.com, 503-496-3641 or dsitowski@crownmail.net.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer 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. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

Citations.
1 google.com/hostednews/ap/article/ALeqM5hZg_pvAKDYQV-RYmrmcBrJTaJ5CAD9BQ71981 [11/6/09]
2 latimes.com/business/la-fi-tax-credit6-2009nov06,0,2604220.story [11/6/09]
3 boston.com/business/articles/2009/11/06/first_time_home_buyer_credit_jobless_benefits_both_extended/ [11/6/09]
4 businessweek.com/the_thread/hotproperty/archives/2009/11/who_qualifies_f.html [11/6/09]
5 money.cnn.com/2009/11/05/news/economy/Extending_unemployment_benefits/index.htm?postversion=2009110612 [11/6/09]
6 latimes.com/business/la-fi-tax-credit5-2009nov05,0,1817786.story [11/5/09]
7 money.cnn.com/2009/11/05/news/economy/tax_breaks_for_business/index.htm?postversion=2009110611 [11/5/09]

Term coverage is cheap these days. Make sure you don’t pay too much.

Presented by Dominic Sitowski, CEP, LUTCF

How much are you paying for term coverage? Term life insurance today is cheaper than it has been in about 20 years, as competition has driven premiums lower and lower.1 With hundreds of insurance firms offering term policies, it might be time to rewrite yours.

How cheap is term coverage right now? If you’re 40, it is possible to pay less than $1,000 a year – perhaps much less – for a term policy with typical death benefits of $250,000, $500,000 or $1 million. In fact, if you are a 50-year-old male living in California, $1 million of term coverage for 10 years can be had for as little as $780 annually, according to Insure.com’s November survey. 2

How can you get the lowest rates? It helps if you a) weigh 200 lbs. or less, b) have no family history of heart disease or personal history of tobacco use, c) have blood pressure in the vicinity of 140/80 and cholesterol below 240, d) drive safely with the record to prove it, and e) avoid dangerous travel and dangerous activities. 3

Why have premiums become so inexpensive? You can chalk it up to a few powerful factors: death rates have declined markedly in recent decades, and men are starting to close the life expectancy gap on women. Plus, insurers are going all-out to get your business – advertising online, on the radio, on TV and seemingly everywhere else. 4

Besides low premiums, what else should you look for? You want a guaranteed renewable policy, which will let you renew your term coverage at the end of the given term without having to undergo a medical exam. You also want fixed premiums for the life of the term, as opposed to a “teaser” premium that rises after a few years. You can buy a term policy lasting 10, 20, or 30 years; the shorter the term, the cheaper the premiums.

Cheap premiums shouldn’t be the only factor in selecting term coverage. There’s also the health of the company to consider. Insurance companies do go out of business – it is rare, but it happens. Did you know insurance companies are rated? You can check companies out at insure.com (the online ratings are totally free) and at ambest.com. 3

How can you save money? Make sure you talk with a qualified insurance advisor who can give you an overview as well as an update on the best rates out there. You may be pleasantly surprised what kind of term coverage you can get today – for less.

Dominic Sitowski a Representative with Crown Capital Securities] and may be reached at www.domsitowski.com, 503-496-3641 or dsitowski@crownmail.net.

These are the views of Peter Montoya, Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer give 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. Securities offered through Crown Capital Securities, L.P., Member FINRA/SIPC.

What can you do to help yourself get pre-approved?

provided by Dominic Sitowski, CEP, LUTCF
Remember when getting a mortgage was easy? Now, you need pre-approval. So how can you increase your chances of passing that all-important test?
You want a lender in your corner. Sellers and agents don’t want to waste their time working with a buyer who isn’t pre-approved. Why should they contend with uncertainty?
A buyer with a pre-approved loan gets respect when a seller gets multiple offers. A pre-approval shows the seller the size and terms of the loan the bank is ready to greenlight. Commonly, a pre-approval is good for 90-120 days.1
Pre-approval is a whole different level than pre-qualification. You can supply very basic financial information to a bank or lender and walk out with an estimate of how much mortgage you might be able to carry. However, that is no promise. Pre-approval is an actual commitment from the lender to you.
So what can you do to earn that commitment?
Test the waters well before you test the housing market. Visit more than one lender, and see what you can borrow, just how much home you can afford, and what kind of mortgage options you have. Keep in mind that a pre-approval is a pledge that a mortgage lender makes to you, not a contract. Should some other bank or mortgage company make you a more attractive pledge, you are free to switch horses.2
Make your case. Don’t skimp on the documentation you bring to the appointment. Usually, a mortgage lender will want to see the hard data of your financial life over the last couple of years: the bank statements, the federal tax returns, the W2s, the pay stubs. If you earn investment income, bring paperwork showing that you do. If you deposited any big sums into your bank account recently, you’ll probably be asked what that deposit represents.
The amount you are pre-approved for typically reflects three factors: how much you have saved up for a down payment, your FICO score and your current address. It should only take a few business days for a lender to get back to you and let you know how much mortgage it will pre-approve for you.1
Aim to get pre-approved within 30 days. This way, you don’t risk harming your FICO score so much. The majority of credit-scoring paradigms out there don’t penalize your credit rating for home loan, student loan and car loan inquiries made 1-30 days prior to the score calculation.2
Don’t expect all the details right away. When you apply for a loan, your lender is using that day’s mortgage rates to calculate costs and payments, and rates move. So the pre-approval may be light on particulars about the interest rate or the loan type.
Avoid fly-by-night lenders. The seller and the seller’s agent want to see that a reliable, “name” lender is issuing its stamp of approval here, not an obscure Johnny-come-lately. Credibility counts.
Can’t get a standard loan? Don’t forget about the Federal Housing Administration, through which you might be able to arrange a mortgage with as little as 3.5% down. Most lenders can process an FHA loan like a standard loan, and commonly the rates are about an eighth of a point higher than a standard mortgage. Also, remember that first-time buyers have until the end of 2009 to qualify for an $8,000 federal tax credit which can be put toward the down payment and closing costs.1
Dominic Sitowski is a Representative with Crown Capital Securities, LLP and may be reached at, www.domsitowski.com, 503-496-3641 or dsitowski@crownmail.net.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer 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. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. Securities offered through Crown Capital Securities, L.P., a Registered Investment Advisor. Member FINRA/SIPC.

Citations.
1 forbes.com/2009/07/01/pre-approval-mortgage-personal-finance-ask-money-builder.html [7/1/09]
2 smartmoney.com/personal-finance/real-estate/7-tips-for-getting-a-preapproved-mortgage/ [8/6/09]

The U.S. is the only developed nation without a comprehensive national health care system. President Barack Obama aims to change all that with a massive reform bill to bring health insurance to 46 million Americans without it over the next 10 years.
Huge reform, huge questions. How much will this cost? Who will pay for it? Could the reform put private health insurers out of business? Will it work? These are just some of the questions swirling around the proposed legislation.
Huge compromises. The most controversial aspects of the bill may soon be watered down. Part of that has to do with cost; part of it has to do with appeasing the private sector. The Senate and House must reconcile different versions of the bill. In the House version, 95% of Americans would be eligible for health coverage; in the Senate version, 97% of Americans would qualify.1,2
Possibly kaput: the government-sponsored option for health insurance. Could private health insurance companies hope to compete with the federal government? Private insurers railed against their proposed new competitor – and last week, Sen. Kent Conrad (D-ND), a Senate Finance Committee member, told Bloomberg News that talk was shifting away from that concept in the Senate and toward nonprofit cooperatives. The House version of the bill still includes the government-run plan.1
Also possibly kaput: mandatory health insurance for employees. In the original conception, businesses would pay federal fines in the future if they refused to provide health coverage to workers. According to Sen. Conrad, the Senate version of the bill would ask businesses to shoulder a portion of the cost of Medicaid coverage received by their workers, or 100% of the Medicaid tab for certain workers poor enough to qualify for a tax credit that could help them buy health insurance.1
If the bill passes, the amount of employer-provided health benefits exempt from income taxation might be limited. Sen. Max Baucus (D-MT), current chair of the Senate Finance Committee, has suggested a $15,000-$17,000 ceiling on that tax exclusion.1
Definitely disliked: the proposals to fiddle with private Medicare plans. The Obama administration has set goals of ending overpayments to Medicare Advantage, which it claims would save the government $177 billion by 2019. In that same time frame, it also wants to use Medicare reimbursements to reduce preventable hospital readmissions – for a conceived $25 billion in additional savings.3 The Obama reforms would also give Medicaid members a bigger prescription drug discount, while reducing that discount for high-income Medicare members.4
In testimony before the House energy and commerce panel, Blue Cross and Blue Shield Association senior VP Alissa Fox contended that any cuts in Medicare funding “would cause millions of Medicare Advantage enrollees to lose their coverage and lead to significant reductions in benefits or increases in premiums for millions more.” In addition, Blue Cross, Blue Shield and America’s Health Plan recently presented a letter to Sen. Ted Kennedy (D-MA), referencing a Milliman study that found the average family of four pays $1,700 a year more than they should in health insurance premiums due to Medicare and Medicaid underpaying hospitals and physicians.1,5
Obama claimed before the American Medical Association that his reforms “will actually extend the life of the Medicare Trust Fund by 7 years and reduce premiums for Medicare beneficiaries by roughly $43 billion over 10 years.”3
The proposed total costs: apparently almost $1 trillion. Sen. Baucus and Sen. Chuck Grassley (R-IA) worked in late June with the Senate Finance Committee to whittle down the House’s $1.6 trillion version of the bill to less than $1 trillion.2
Who pays for it? Tax increases and savings would fund the reforms. More specifically, the President has talked about cutting back the value of the itemized deductions available to the wealthiest American taxpayers. House Ways and Means subcommittee chair Rep. Richard Neal (D-MA) said other ideas a payroll tax and a value-added tax. The Senate seems to prefer the idea of taxing employee health benefits.6
More change likely to come. “We are still early in this process,” Obama noted Thursday. “We have not drawn lines in the sand.” Expect those sands to shift further as legislators and lobbyists exert pressures on another of the President’s ambitious reforms in July.
Dominic Sitowski is a Representative with Crown Capital, LP and may be reached at www.domsitowski.com, 503-496-3641 or dsitowski@crownmail.net.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer 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. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. Securites offered through Crown Capital Securities, L.P., a Registered Investment Advisor. Member FINRA/SIPC.

Citations.
1 bloomberg.com/apps/news?pid=20601103&sid=aki1sLcOe4GM [6/26/09]
2 cnn.com/2009/POLITICS/06/25/health.care.proposal/ [6/25/09]
3 usatoday.com/news/washington/2009-06-15-obama-speech-text_N.htm [6/25/09]
4 forbes.com/2009/03/03/obama-health-plan-lifestyle-health_obama_health_budget.html [3/3/09]
5 usatoday.com/news/washington/2009-06-23-health-congress_N.htm [6/23/09]
5 washingtonpost.com/wp-dyn/content/article/2009/06/18/AR2009061804053.html [6/18/09]

Quote of the week. “The softest things in the world overcome the hardest things in the world.” – Lao-Tzu

Is real estate recovering? Existing home sales are up for the third straight month. The National Association of Realtors had residential resales up by 3.6% in June – 0.2% under last year’s pace, but still an encouraging sign. Prices are a motivation – nationally, the median existing home sale price was $181,800 last month.1

Gas guzzler round-up gets underway. The federal government’s CARS program (informally known as “cash for clunkers”) officially began over the weekend, with $3,500/$4,500 credits available to new car buyers who drive in 1984-or-newer autos that average 18 MPG or less. The program will run until November 1 or until the $1 billion in federal rebates run out. You can visit cars.gov to determine whether you have a qualifying vehicle.2

Oil & gold have a good week. Crude oil futures gained 5.37% last week to finish at $68.05 per barrel on the NYMEX Friday. In the latest AAA gas prices survey, a gallon of regular unleaded averaged $2.470 nationally as opposed to $4.026 a year before. (However, gasoline futures gained 8.25% last week.) Gold settled at $953.10 per ounce Friday, wrapping up a 1.66% weekly gain.3

Indication of hope. Could the recession have ended already? The Conference Board’s index of leading economic indicators increased 0.7% for June (the third consecutive monthly gain, marking the best performance since January 2002, which was two months after the conclusion of the last recession). The coincident-to-lagging indicators in the index also increased for the third month in a row.4

9,000 … 2,000? … 1,000? The Dow topped 9,000 last week, and the NASDAQ and S&P 500 may surpass the 2,000 and 1,000 benchmarks if the rally continues. The NASDAQ lost ground Friday to end a 12-session win streak and close the week at 1,965.96. The S&P 500 stood at 979.26 at Friday’s close; the Dow ended Friday’s market day at 9,093.24.5

% Change Y-T-D 1-Yr Avg 5-Yr Avg 10-Yr Avg
DJIA +3.61 -19.88 -1.74 -1.67
NASDAQ +24.66 -13.78 +1.26 -2.70
S&P 500 +8.42 -21.82 -1.97 -2.78
10YrTIPS Yd -20.96 +7.10 -1.90 -0.01

(Source: CNNMoney.com, ustreas.gov, treasurydirect.gov, bls.gov, 7/24/09)6,7,8,9
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends.

Riddle of the week. What can fill a room, yet takes up no physical space?
Contact my office or see next week’s Update for the answer.

Last week’s riddle answer: 12 times; 12 X $2 = $24. The coin came up tails the remaining 8 times; 8 x $3 = $24. So they were all even after 20 coin flips.

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«Dominic Sitowski, CEP, LUTCF»

These views are those of Peter Montoya Inc., and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. The market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards.

Citations.
1 news.bostonherald.com/business/real_estate/view/20090723existing-home_sales_show_promise/srvc=home&position=recent [7/23/09]
2 latimes.com/business/la-fi-clunkers25-2009jul25,0,4520824.story [7/2409]
3 cnbc.com/id/32130526/page/2/ [7/24/09]
4 bloomberg.com/apps/news?pid=20601087&sid=aHisOoFaeD.U [7/22/09]
5 cnbc.com/id/32129064 [7/24/09]
6 money.cnn.com/data/markets/dow/ [7/24/09]
6 money.cnn.com/data/markets/nasdaq/ [7/24/09]
6 money.cnn.com/data/markets/sandp/? [7/24/09]
6 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=7%2F24%2F08&mode=add&symb=DJIA [7/24/09]
6 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=7%2F23%2F04&mode=add&symb=DJIA [7/24/09]
6 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=7%2F23%2F99&mode=add&symb=DJIA [7/24/09]
6 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=7%2F24%2F08&mode=add&symb=COMP [7/24/09]
6 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=7%2F23%2F04&mode=add&symb=COMP [7/24/09]
6 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=7%2F23%2F99&mode=add&symb=COMP [7/24/09]
6 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=7%2F24%2F08&mode=add&symb=SPX [7/24/09]
6 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=7%2F23%2F04&mode=add&symb=SPX [7/24/09]
6 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=7%2F23%2F99&mode=add&symb=SPX [7/24/09]
7 ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml [7/24/09]
8 treasurydirect.gov/RI/OFAuctions [7/24/09]
9 bls.gov/news.release/history/cpi_08171999.txt [8/17/99]

CHINA, JAPAN AND OUR DEBT

Will other countries keep buying our Treasuries?

provided by Dominic Sitowski, CEP, LUTCF

If China and Japan change their minds, could the United States have a problem? Since 1980, the U.S. has imported more than it has exported.¹ It makes up for this trade deficit by issuing Treasury bonds and other debt instruments. Foreign governments have long lined up to buy them.

China holds almost $800 billion of U.S. Treasuries. That’s the April 2009 figure from the U.S. Treasury (at this moment, the most recent data). In addition, Japan has $686 billion in Treasuries. Hong Kong has $81 billion, Taiwan $78 billion, Singapore $40 billion, India $39 billion, and South Korea $35 billion. Away from Asia, Great Britain holds $153 billion, Russia holds $137 billion, and Brazil holds $126 billion. ² U.S. Treasury bonds offer these institutional investors some stability in uncertain times.

Are China and Japan wary of buying more? Earlier in the decade, China, Japan and other nations readily bought Treasuries. From 2004-2008, China spent as much as 14% of its GDP on the purchase of foreign debt – mostly American debt.³

What happened as a result? China, Japan and other creditor countries got a nice return on their investment and a strong export market. We got to buy inexpensive imports. This kept the dollar strong and interest rates low.

Now we have two problems that could potentially sour this relationship. The economies of China, Japan and other countries have suffered along with ours in the global recession. Moreover, the U.S. has run up a huge budget deficit to accompany its trade deficit. Our President is on record as saying that we may have trillion-dollar deficits for “years to come.”

Under these conditions, China and Japan are naturally getting leery of holding so much American debt (especially when the Federal Reserve is printing money to buy it). China needs to pay for its own $600 billion stimulus package, and Japan announced a $154 billion stimulus in April. Tax revenues in both economies have declined with the recession. Government regulators in China have ordered banks to direct money this year to local governments and small- and medium-sized businesses. All this means China and Japan aren’t as eager for dollars and Treasuries as they were a few years ago.^3,4

What if other nations stop buying our debt? There are three potential side effects. One, interest rates would likely increase as there would be fewer buyers for Treasuries. Two, the dollar could weaken. Three, long-term bond prices could fall.

Voices on the fringe worry about a scenario in which the central banks of China, Japan and other nations jettison dollars en masse or abruptly quit buying U.S. debt. Realistically, the odds of something like this happening are slim. These countries would have nothing to gain by stifling America’s chances for economic recovery, and these decisions would greatly harm the world economy.  

Now for some good news. In May, our trade deficit fell to its lowest level since November 1999. It shrank 9.8% in May from April levels, defying analysts’ expectations – and offering a hint of economic recovery. Our deficit with China increased by $4.4 billion for May, but the 2009 increase is 12.6% under last year’s pace. The U.S. deficit with Japan reduced to its lowest level in more than 20 years last month.⁵

More good news. Domestic and foreign demand for Treasuries is still strong – in its auction in the first full week of July, the Treasury quickly sold $19 billion of 10-year notes, with Treasury yields hitting 6½-week lows.⁶ At least in the short term, it appears the government doesn’t have to struggle for buyers to fund its reforms and rescue efforts.

Dominic Sitowski is a Representative with Crown Capital, L.P. and may be reached at www.domsitowski.com, 503-496-3641 or dsitowski@crownmail.net.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer 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. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

Citations.

¹ moneycentral.msn.com/content/invest/extra/P140049.asp [1/5/06]

² treas.gov/tic/mfh.txt [6/15/09]

³ nytimes.com/2009/01/08/business/worldbusiness/08yuan.html [1/8/09]

⁴ nytimes.com/2009/04/09/business/global/09yen.html                [4/9/09]

⁵ finance.yahoo.com/news/May-trade-deficit-apf-2840686452.html?x=0&sec=topStories&pos=6&asset=&ccode= [7/10/09]

⁶ forbes.com/feeds/reuters/2009/07/08/2009-07-08T205823Z_01_N08405527_RTRIDST_0_MARKETS-GLOBAL-WRAPUP-6.html              [7/8/09]

THE BIG ROLLOVER

What should you do with that old 401(k)?

Presented by Dominic Sitowski, CEP, LUTCF

Options, options, options … There are many misconceptions about what must be done with a 401(k) when someone leaves a company. Some people think they have to cash out their 401(k) upon leaving a job. Others think they must “roll it over” into a new 401(k). Still others believe that they must leave the 401(k) where it is. None of these are true … and none are false. These aren’t “musts”, they are options. The big question is, which option is the right option for YOU?

Leaving it where it is … If you have enough money in your current 401(k) to meet the minimum requirement, you could leave your money where it is. Should you? Well, it depends. If you feel the plan has good investment choices and the annual fees are reasonable, leaving your money there to mature could be a good option for you.

Direct rollover into a new 401(k) … If your new employer offers a 401(k), you could choose to “roll” your money into that plan, but then you will be limited to the new plan’s investment options. So should you? Once again, it depends. You’ll want to look into the structure of the new plan, the fees and the investment options.

Moving the money into an IRA rollover account… If managing where your account is held and how it is invested is important to you, this option gives you a great deal of flexibility. It also offers you more distribution options, once you are eligible. Additionally, you could open a brokerage account or purchase a CD, provided the account is titled as your IRA Rollover Account.

Cashing out your 401(k) … The temptation to get a lump sum of money can be too great for some, especially if they have just lost their job or feel that they are in some sort of financial bind. They may choose to cash out their 401(k) upon leaving a job. But what are they giving up? Well, 10% for starters. If they are younger than 59 ½ years old and cash out their 401(k), most of them will incur a 10% penalty. Additionally, they will owe taxes on the amount they cash out. But here’s what really hurts: they are giving up part of their retirement fund or (in many cases) starting over from zero.

Fighting temptation now could lead to big rewards later … For example, let’s say a 35-year-old leaves a job and rolls over $15,000 from a 401(k) into an IRA earning an average of 7% annually, letting the money mature over 30 years … by the time of retirement, that money could potentially grow to over $100,000.

Making a decision … If you’re unsure which choice is best for you, or if you’d like to learn more about your options, I would recommend speaking with a qualified financial advisor. Additionally, you may want to consider working with a tax professional if you own company stock in your previous 401(k). You’re likely to want some assistance in sorting through the IRS rules that may apply.

Dominic Sitowski is a Representative with Crown Capital Securities, L.P. and may be reached at www.domsitowski.com, 503-494-3641 or dsitowski@crownmail.net

These views are those of the author and should not be construed as investment 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. Securities offered through Crown Capital Securities, L.P., Member FINRA/SIPC.

You go to work and get the word … you’re being laid off. Maybe it’s no surprise. Maybe it comes as a shock. The question becomes: what now?

Basically, you have three quick to-dos: leaving work with as much money as possible, securing health insurance for the interim, and arranging unemployment benefits. Beyond these items, stay calm and stay in the hunt – or alternatively, work for yourself.

Negotiate your exit. While no law requires your employer to give you a severance package, some employers do provide them.1 Severance package or not, you may very well receive two weeks pay and perhaps compensation for unused vacation or sick days.

Don’t be meek here. If you’ve been a key employee or simply a good employee, make the case for your company to extend your health coverage a little longer or give you a true severance package. They may see the merit if you have proven yours.

In tax terms, it may be better to receive your severance pay in the form of recurring checks rather than a lump sum. If you get a lump sum, it’s quite possible you could have too much withheld.

If you know you are getting laid off in the next few months, you can request to reduce the amount of withholding taxes on your last few paychecks to give yourself more take-home pay. And if it looks like you are going to receive a lump sum severance before December 31, think about deferring that payment until 2010 so you don’t have to include it on your 2009 tax return.

Keep yourself insured. If you can sign up as a spouse for the plan offered by your spouse’s employer, it makes sense to do it as soon as you can. If that doesn’t describe your situation, then the options are extending coverage through COBRA or keeping up the payments on private life or disability insurance that your company provided.

If you sign up for COBRA at the moment, the federal government will subsidize 65% of the cost for nine months as a result of the federal stimulus. In COBRA, you will have to pay the entire premium on your health insurance plus a 2% administrative fee.1

Sign up for unemployment benefits. As few of us have bank accounts equal to six months or a year of salary, it is wise (not demeaning) to sign up for these benefits. You will want to do so ASAP, because it may take a few weeks for that first check to arrive. In some states, you can receive unemployment checks even if you have been given a severance package – although you may have to wait until the entirety of the severance is issued to you before jobless benefits can follow.1

Remember that the federal government is pulling out all the stops right now. Take advantage of the federal economic stimulus effort, which is directing $500 million toward helping the jobless find jobs. New search assistance, education, and retraining programs are available. The government is also boosting unemployment payments a bit and elongating parameters of eligibility. Currently, the average weekly unemployment check in America is about $300. Jobseekers can receive unemployment benefits for up to 46 weeks – up to 59 weeks in states where the unemployment rate tops 6% for more than three months in a row, which would be just about everywhere right now. Under the stimulus, weekly unemployment checks will increase by $20 – and the first $2,400 of unemployment payments will be tax-exempt.1

Press flesh, not just keys. Despite the buzz surrounding job boards like Monster.com, Dice.com and CareerBuilder.com, an article this winter in the San Francisco Chronicle noted that only about 2-3% of new hires find their jobs through such resources. About 15% of new hires find work directly by applying at a company’s web site, and about 65% find new jobs through that old standby – networking.2

Older employees may actually cope with layoffs better. That’s what a collaborative study coming from the Federal Reserve Bank of Chicago and Columbia University has just concluded. It found that laid-off workers younger than 55 experience a much greater increase in “mortality hazards” than their older counterparts – stress and health risks, addictions, and negative personal behaviors. Perhaps this is because workers over 55 are somewhat less likely to deal with making ends meet and the pressures of raising a family; they may have already thought about (and planned for) a retirement transition and they have the options of Medicare and Social Security now or in the near future.3

Have you been given a gift? That’s one way to look at it: one door closes, another opens. If you have an entrepreneurial ambition, or just suspect that like many Americans you will one day have to be your own boss, then maybe now is the time to talk over your options with a potential mentor – a friend who owns a business or makes a living as an independent professional in your industry. If you are mature and want or need to keep working, you might even think about a life or career coach – someone who can help you see the full range of possibilities, including those that you may not have considered five or ten years ago.

Dominic Sitowski is a Representative with Crown Capital, LP and may be reached at domsitowski.com, 503-496-3641 or dsitowski@crownmail.net.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer 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. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. Securities offered through Crown Capital Securities, L.P., a Registered Investment Advisor. Member FINRA/SIPC.

Citations.

1 smartmoney.com/personal-finance/employment/4-ways-to-survive-a-layoff/ [7/2/09]
2 sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/12/20/BU2914Q1JE.DTL [12/20/08]
3 usnews.com/blogs/the-inside-job/2009/07/01/the-correlation-between-health-employment-and-layoff-fears.html [7/1/09]