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Economics 101
Taxes - Who Pays? You Do!
Count calendar year 2009 as one of the best,
at least in terms of taxes paid. Beginning in 2011 there will be a
marked increase in the top income tax rates, courtesy of the expiration
of the Bush tax cuts.
For the "average" middle income
married federal employee (consider a dual income family), your tax
bracket will go from 25% to 31% next year simply due to the rollback of
the Bush-era tax cuts. If you think of it in terms of the 6%
additional tax you'll owe, that seems bad, but consider that it is
really a 30% increase in your tax bill! In addition, taxes will
increase in several areas such as the Medicare tax being applied to
investments in certain areas. And that's just on the federal side of
taxes.
Some of the biggest tax increases may not be called
taxes at all. Instead they are considered "fees." Every state
has some version of this tax which they charge if you drive, drink,
(hopefully not at the same time) smoke, hunt, or fish in their state.
Every state is dramatically increasing the fees on these activities -
and others! Municipalities are even experimenting with charging
taxpayers for using emergency services such as police and firefighters.
There's not time like the present to take advantage of
the current tax rates if you have traditional IRA's or other
tax-qualified accounts that could be converted to a Roth IRA under this
year's lower rates.
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Steps to Retirement Planning
Know thine enemy as thyself. A man's home is his castle. These are
just a couple of the musings you'll find in this month's rendering of
"Steps to Retirement Planning."
As humans, we love to blame
others for our investing (and other) misfortunes. The reality is
probably something closer to the fact that your own worst investment
enemy is often staring back at you in the mirror. Even if you manage to
avoid Wall Street shenanigans and your brother-in-law's foolish advice,
you could still end up with disasterous returns if you chase hot
investments or panic when the market declines.
Speaking of
market declines, your sound investment strategy should not change with
the news. Try to keep in mind that with the glut of information in
today's world, we're all pretty much working with the same set of data.
Read the personal finance magazines' market predictions if you must,
but for goodness sake, don't act on them without thoughfully
considering how they fit your plan.
And now about that castle. There is a common view in most
neighborhoods that a new kitchen in your personal castle is an
investment. Remember this - land appreciates, houses deteriorate. Just
like your car, your home/castle sits out in the rain. You know
your car is depreciating. Is your home any different? Keep that in mind
when your neighbors tout the investment value of their granite
countertops. |
You can
earn a prize if you are the first to correctly answer with the name of
the person who uttered the quote, "Know thine enemy as thyself."
For quickest response, reply to:
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Last
month's quiz asked readers to answer the seasonal
question: What year was the "March Madness" moniker first used to
describe the NCAA men's collegiate basketball tourney?
The correct answer:
1982 when ABC commentator Brent Musburger used it during the network's coverage.
The winner with the first correct answer last month was Mike McGuire, DHHS/OIG, Omaha, NE. Congratulations, Mike!! |
Brown Bag - Lunch 'n Learns
Are
you looking for a speaker or topic for a lunchtime program
or employee meeting? Our brown bag programs may just fit the bill.
This year's most popular topics have been:
Allocating Your TSP in Volatile Markets
Roth IRA's - To Convert or Not to
Convert - That Is the Question
Taxes - 2010 and Beyond
FERS - The 5 Things You Must Know
About FERS
We expect high participation in the insurance benefits programs during open season, so book your agency's dates today for:
FEHB - What the New Health Care
Legislation Could Mean for You
FLTCIP 2.0 - Determining Whether Long-
term Care Insurance Is Right For You
Contact my office to schedule your programs or to learn about our complete menu of available topics.
Call (866)792-6668 for more information. | |
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Alphabet Soup
Making a Redeposit to Your Retirement System
Last month's Alphabet Soup covered how an employee under CSRS can
make a re-deposit of retirement funds that were withdrawn in a lump sum
after the employee separated from service. Until recent
legislation passed in October of 2009, FERS employees were not allowed
to make such a re-deposit. OPM has now finalized the process FERS
participants can follow to repay any retirement funds they've withdrawn
in the past.
FERS - If you have service where you took a
refund of your contributions after a separation from federal service,
you may want to consider paying back these funds (with interest) to
have those years count toward the computation of your annuity.
You will need to complete your application to make the re-deposit on
form SF 3108
You must indicate on the application that the
period of service was refunded but do not submit a payment with the
application, since OPM cannot track such payments until it calculates
the required amount and establishes an account. OPM said it will begin
processing FERS re-deposits once testing of their new system is complete.
If
you owe a re-deposit but choose not to make it prior to retirement, the
refunded service will not count in the computation of your annuity. One
way to analyze whether it makes sense for you to repay the funds is to
have your annuity computed with and without the years of service.
Divide the difference in the two amounts into the cost of repaying the
re-deposit. The result shows how many months it would take to
recover the cost of paying the re-deposit.
If you have questions about a re-deposit, feel free to contact my office. We'll be happy to help. |
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Unthinkable
When Medicare was signed into law by President Johnson in 1965
(former President Harry Truman was the first enrollee into
Medicare), the projected annual cost of Medicare in 1990 (i.e., 25
years in the future) was $12 billion. The actual cost of Medicare
was $13 billion just 10 years later (1975) and was $98 billion in 1990,
more than 8 times as large as the original 1965 forecast (source:
Office of Management and Budget) |
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TSP Returns
March 2010
G Fund
March: .27%
YTD: .81%
F Fund
March: (.11%)
YTD: 1.81%
C Fund
March: 6.04%
YTD: 5.40%
S Fund
March: 7.39%
YTD: 9.91%
I Fund March: 6.28%
YTD: .85%
LIFECYCLE FUND RETURNS
L Income March: 1.43%
YTD: 1.72%
L 2010
March: 1.61%
YTD: 1.84%
L 2020
March: 3.75%
YTD: 3.28%
L 2030
March: 4.52%
YTD: 3.89%
L 2040
March: 5.15%
YTD: 4.34%
Returns courtesy of :
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The average interest rate nationwide on a 30-year fixed rate mortgage was at least 10% for the 12 consecutive years of
1979-1990.
(source: Housing and Urban Development) |
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Contact Us:
202 West 7th St.
Carroll, IA 51401
Phone: 866-792-6668 (toll free)
712-792-6400 (Local)
Fax: 712-792-6670
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Letter from the Editor Taxes
are on the forefront of everyone's mind as the April 15 filing
deadline looms near. With the current tax rates established
by President Bush due to expire at the end of 2010, $12 trillion in
national debt, double-digit unemployment, and the fear of rising
interest rates, future tax rates could be significantly higher.
While no one wants to consider tax planning once April 15 has passed,
that's exactly the time to start planning not only for 2010 - but
beyond that.
Participants in my classes often tell me afterwards, "All right
- I've got it! Thinking about tax diversification is
important." That's when I know I've done my job, which is to
create an awareness of issues that could de-rail your retirement plan
in the future. April is a great time to think about not only 2009's
taxes, but 2010's, as well.
For those of you old enough to remember the variety show host,
Arthur Godfrey, he once said, "I'm proud to pay taxes in the United
States; but I could be just as proud for half the money.
Happy Spring! Cordially,
John Sklenar
CPA/PFS, CFP
Chartered Federal Employee Benefit Consultant
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