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Winter 2001 Newsletter

IN THIS ISSUE . . . Click on the Below Topics to Jump to That Area:



If you’ve reached your 40s or early 50s and find you haven’t saved much for retirement, don’t just abandon your retirement goals. You can still save significant sums by approaching the task seriously. Some strategies to consider to accelerate your retirement savings include:

bullet CALCULATE PRECISELY HOW MUCH YOU’LL NEED FOR RETIREMENT AND HOW MUCH YOU CURRENTLY HAVE SAVED. Although it’s tempting to avoid this task, finding out how much you’ll be short can be a very big motivator in changing your behavior.
bullet USE YOUR PEAK EARNING YEARS TO SUBSTANTIALLY INCREASE YOUR SAVINGS. Typically, your last few years of employment are your peak earning years. Instead of increasing your lifestyle as your pay increases, save all future pay raises. Consider downgrading your lifestyle, putting any cost reductions into savings.
bullet HAVE A NONWORKING SPOUSE REENTER THE WORK FORCE. Your children may now be out of the house or at least won’t require as much supervision. It may make sense for a nonworking spouse to reenter the work force, saving all earnings for retirement. Or you might want to take on a second job or start a business.
bullet CONTRIBUTE THE MAXIMUM TO TAX-ADVANTAGED RETIREMENT PLANS. If your employer matches contributions to a 401(k) plan, contribute enough to take advantage of all matching amounts. This automatically increases your savings by the amount your company matches. Also look into traditional and Roth individual retirement accounts.
bullet CONSIDER SELLING YOUR HOUSE AND BUYING A SMALLER ONE. At a minimum, the move should reduce your living expenses, allowing you to put the difference in savings. If you have significant equity in your original home, you may have proceeds left over that you can put into savings. If they have owned and lived in their home in at least two of the last five years, single taxpayers can exclude $250,000 of capital gain on the sale of a principal residence and married taxpayers filing jointly can exclude $500,000.
bullet SELECT YOUR RETIREMENT DATE CAREFULLY. If you can’t save the amounts needed by your desired retirement date, consider postponing retirement. Working a few extra years gives you more time to accumulate your savings and delays when you start withdrawing from those savings. Or consider working after retirement at least part time. Even a modest amount of income after retirement can substantially reduce the amount needed for retirement.
bullet STAY FOCUSED ON YOUR GOALS. At this age, it’s imperative that you maintain your commitment to save for retirement. If you’d like help accelerating your retirement savings, please call us at (800) 878-4036.



The Economic Growth and Tax Relief Reconciliation Act of 2001 (Tax Act) significantly expanded the tax advantages of education IRAs, now called Coverdell Education Savings Accounts (ESAs). Starting in 2002, the key features of ESAs include:

Age start Invest Invest $500 Invest $2000
Newborn $18,725 $74,900
5 Years Old $10,748 $42,991
10 Years Old $ 5,318 $21,273
15 Years Old $ 1,623 $ 6,493

This example is provided for illustrative purposes only and is not intended as a projection or reflective of any specific investment

bulletContributions aren’t tax deductible, but earnings can grow tax free as long as they are used for qualified education expenses as defined by the Tax Act.
bulletPreviously, tax-free distributions could only be used for qualified higher-education expenses, including tuition, certain room and board, books, and other supplies. Starting in 2002, tax-free distributions can also be used to pay elementary and secondary school tuition and expenses, including tutoring, room and board, uniforms, and extended day-care programs, and to purchase computer technology and equipment, including Internet access and services.
bulletEligibility to make contributions is phased out at adjusted gross income levels of $95,000 to $110,000 for single taxpayers and beginning in 2002, $190,000 to $220,000 (formerly $150,000 to $160,000) for married taxpayers filing jointly. If your income exceeds these limits, you can ask other relatives to contribute for your children. Your child can also make the contribution to his/her own ESA since there is no earned income requirement for contributions.
bulletCorporations and other entities can now make contributions to ESAs, regardless of their income.
bulletContributions can be made until April 15 of the following year (formerly contributions had to be made by December 31).
bulletDistributions must be made before the beneficiary turns 30. Any funds not used for qualified education expenses are subject to normal income taxes and a 10% federal income tax penalty. However, the ESA balance can be rolled over to another family member.
bulletContributions can now be made to both an ESA and a Section 529 plan for the same beneficiary in the same year.
bulletYou can now claim the HOPE Scholarship Credit or Lifetime Learning credit in the same year tax-free distributions are taken from an ESA, as long as the credit is not claimed for amounts paid with the tax-free distributions.
bulletFor special needs beneficiaries, contributions can now be made after age 18 and tax-free distributions can be taken after age 30.

Like other provisions of the Tax Act, provisions regarding ESAs are scheduled to expire in 2011 unless further congressional action is taken. Before contributing to an ESA, consider the impact on financial aid. Typically, an ESA is considered your child’s asset for financial aid purposes. Please call us at (800) 878-4036 if you’d like to discuss whether you should use an ESA.


The Economic Growth and Tax Relief Reconciliation Act of 2001 has provided significant new benefits for both Section 529 plans and Coverdell Education Savings Accounts (ESAs). With all the new provisions, you may have difficulty deciding which to use for your college savings. Some factors to consider include:


There are a number of factors that should be considered before deciding between an ESA and a Section 529 plan. Please call at (800) 878-4036 if you’d like to discuss your situation.




Rating agencies assign ratings to bonds to give investors an indication of the bond’s investment quality and the relative risk of default. The two largest bond rating services are Standard & Poor’s Corporation (S&P) and Moody’s Investors Service (Moody’s), both of which evaluate thousands of bond issues.

The ratings assigned by S&P and Moody’s are as follows:

S&P Moody’s  Description
AAA-Aaa Highest quality, extremely strong ability to repay debt.
AA-Aa Very strong ability to repay debt.
A-A Strong ability to repay debt, somewhat more susceptible to adverse changes.
BBB-Ba Adequate ability to repay debt, adverse conditions are more likely to lead to weakened ability to repay debt.
BB-Ba Faces major uncertainties which could lead to nonpayment.
B_B Has the ability to repay debt, but adverse conditions will likely impair the capability to repay debt.
CCC-Caa Vulnerable to nonpayment.
CC-Ca Highly vulnerable to nonpayment.
C-C Bankruptcy may have been declared, but payments are still continuing.
D-D Currently in default.

Within each category, each agency uses qualifiers: + or - for S&P and 1, 2, and 3 for Moody’s. The first four categories are considered investment grade bonds, while the lower categories are considered speculative.

After a bond is issued, the rating agencies continue to monitor it, making changes if warranted. A rating is merely a general guide of a bond’s investment quality and risk of default, not a recommendation to buy the bond. Other factors should be considered before investing in a particular bond.


In investing, our natural tendencies sometimes makes it difficult for us to follow fundamental principles. So, as we face this volatile period, make sure to understand these tendencies so your investment performance isn’t adversely affected:

The incredible bull market of the past few years has led many investors to become overconfident in their abilities and to take on added risk in their portfolios. Now that the market has shown it can do down as well as up, investors need to keep their natural tendencies in check so they don’t overreact. Please call us at (800) 878-4036 if you’d like to review your portfolio in light of current market conditions.



In many families, one spouse takes primary responsibility for the family’s finances, doing everything from paying bills to making investment decisions to reviewing insurance policies. If that spouse dies first, the other spouse may have difficulty taking over these tasks. Therefore, if you take care of money matters in your marriage, one of your more important financial duties is to prepare your spouse for handling the family finances. Some strategies to consider include:



Just as different types of clothing, music, and food move in and out of fashion, so do different types of investments. A short time ago, technology stocks were the darlings of the investment world, only to see many of their values come crashing down. With investing, it is important to avoid the latest fashions and concentrate on selecting investments that help you meet your financial needs.

Determining your personal investment profile is an important factor in deciding where to put your investment dollars. This, in turn, can directly affect your comfort level with your investments. The recent market volatility has most investors concerned. However, if you are excessively worried about your investments, review your needs and concerns with a trusted professional. Keep in mind your investment requirements can change as you age and as your circumstances change.

Please contact me at (800) 878-4036 if you would like to review your investment portfolio.

If you have any questions about a specific newsletter article, please call us (800) 878-4036 so we can discuss its implications. Additionally, if you have any questions about our services, please let us know.


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We do not offer legal advice. All information provided on this website is for informational purposes only and is not a substitute for proper legal advice. If you have legal questions, we recommend that you seek the advice of legal professionals.

Tax Disclaimer: To ensure compliance with IRS Rules, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.

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Last modified: January 30, 2017