Russell Bailyn -

Sometimes obvious economics can lead us to profitable investment strategies. I think a few such opportunities exist right now and I’d like to share them with my readers. If you have other ideas or comments on mine, please share. Why pass up a potential way to make money?

First, one might consider becoming bullish on the US dollar. Two contributing factors to the dollar’s recent weakness have been the extended period of low interest rates and the enormous trade deficit we run here in the US. Because of how bad inflation is right now, it’s more than likely the Fed will raise rates at one of their next meetings. This action would curb inflation by making dollars more expensive to borrow. The lower supply of dollars will raise their value against other major currencies such as the Euro and the Yen. Further, if we eventually reduce our reliance on foreign oil, which seems just a matter of time, we can avoid currency-weakening behaviors such as buying hundreds of billions of dollars worth of oil from Middle Eastern countries. Some of my readers may not realize that the commodity boom which we’re currently in is fueled by a weak dollar. This bubble would more than likely pop with some strength in the greenback. It’s also likely that our trade deficit will start to turn during 2009. Foreigners have recognized the opportunity to buy goods such as real estate and clothing at a steep discount. This usually evens out the trade balance after a few years.

Second, consider putting together a portfolio of alternative energy stocks. Does anybody really believe that oil prices are going back down to where they were five years ago? Even if they were, I think the case for alternative energy would be just as strong. Economics show us that developing countries, specifically India and China, will consume more oil in the future. For societies to move forward, they must have constant sources of energy, preferably those which are cheap, clean, and safe. Oil doesn’t pass that test in my eyes and it remains the most popular energy choice by far. Where can you invest? Try solar, wind, and nuclear power. We could discuss each of these sources in terms of their price and efficiency, but they’re all pretty good. Think about electric. It’s not expensive nor does it pollute the environment the way burning fossil fuels does. If you like this idea, be careful about how you speculate on the sector. It seems prudent to purchase a fund or trust which invests in a diversified group of alternative energy companies with proven earnings histories. This may be a safe play from a risk/reward standpoint.

Third, consider how you can make money from demographic shifts. Specifically, we have millions of baby boomers, the first round of which started retiring during 2007. Certain industries will undoubtedly benefit from this. Which sector do you think or believe will grow faster; automobile producers in the US or healthcare firms which manufacture drugs, manage health care plans and own hospitals? What else might the baby boomers spend their trillions on from 2010 to 2020? Maybe golf? Real estate in Florida? Long-term care facilities? Probably all of the above. We’ve also been seeing a trend in the US of smaller families. This has been following fears about the dramatic costs of raising children, saving for education and not ending up broke during retirement. Might the producers of high-end baby clothing and accessories struggle a bit? It would make sense. The point is that we have official statistics about demographics. We should be able to make logical deductions by studying these things which give us an advantage over just throwing money into random parts of the market.

These are my ideas for the day. Implementing them properly requires doing a little homework. Always diversify your portfolio so you don’t take on too much risk in any one area. When picking your investment products, you may also want to consider those which are inexpensive and liquid in your search.

If you need help, feel free to e-mail me!

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors, Inc
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

The above information has no regard to the specific investment objectives, financial situation, or particular needs of any specific recipient, and is intended for informational purposes only and does not constitute a recommendation, or an offer, to buy or sell any securities or related financial instruments, nor is it intended to provide tax, legal or investment advice. I recommend that you procure financial and/or tax advice as to the implications (including tax) of investing in any particular product.

Posted by Russell Bailyn at 03:52 PM | Permalink | Comments ( 2 ) | TrackBacks ( 0 )

Over the last few months I’ve gotten a lot of questions regarding 401k rollovers and IRA accounts. I’d like to take a moment to answer six questions which I get somewhat frequently and may be good for investors to know:

• Can I withdraw 401k funds while still in service at my job?
• Once my funds are in an IRA, how easily can they be accessed?
• What are the various limitations on making deductible contributions to an IRA account? Who can and who can’t?
• What if I make a mistake on my tax return regarding my IRA contributions? For example, what if I make an excess contribution? Will I be penalized? How will the IRS know?
• What’s the story with RMD? Can I make a contribution in the year in which I turn 70 ½?
• Can contributions be made to an IRA for a non-working spouse?

1. Can I withdraw 401k funds while still in service at my job?

This is commonly referred to as an in-service rollover. Unfortunately, it’s not allowed in the large majority of corporate retirement plans. Unlike IRA accounts which are generally very mobile, 401k accounts usually can only be accessed when a triggering event occurs. The most common triggering events are as follows:

•Attaining retirement age which is 59 ½ and in rare circumstances 62 or 65.
•Terminating your current employment generally allows you to bring your 401k or other defined contribution plan with you. Certain plans may have vesting schedules if they involve stock options or deferred compensation, but vested account balances are commonly rolled over into IRA accounts and other qualified retirement plans.
•If you pass away the assets in your retirement plan can be distributed to your beneficiaries.
•If your employer terminates the plan without replacing it, you can usually move the money into an existing IRA or establish a new one.

If none of these events occur, you may be stuck with your current 401k plan. The underlying reason in-service withdrawals are not permitted is that 401k plans are supposed to have a certain degree of unanimity between the employees. Employers have a fiduciary responsibility when overseeing the plan and allowing funds to be invested outside the realm of one plan would make it impossibly difficult (and expensive) to monitor operations. What if an employee invested their life savings in a single stock? These kinds of scenarios can be avoided by maintaining one plan with specific investment options.

As a side note, people often confuse in-service withdrawals with hardship provisions. Most plans allow participants to access funds penalty-free if they fall within the guidelines of a hardship withdrawal. This can involve paying medical expenses or mortgage and rent payments in cases where you otherwise couldn’t come up with enough money. Again, the reality here is that you should get comfortable with your investment options at work because you likely will be using them until you reach retirement age.

2. Once my funds are in an IRA, how easily can they be accessed?

IRA accounts are certainly more flexible than 401k accounts—this is the primary reason people choose to process 401k rollover. Again, the reason for this is 401k plans are corporate retirement plans designed primarily for groups and IRA accounts are designed to come in different varieties to please individuals. Once your funds are in an IRA you can request a distribution without it getting blocked like it would in a 401k. However, in both IRA & 401k accounts, withdrawals are subject to ordinary income taxes and a 10% penalty if you're under age 59 ½. Any time you take a distribution from a traditional IRA (not a Roth IRA) the amount of your distribution is treated as taxable income. So, if you earn $30,000 working and take a $10,000 IRA distribution and have no other income sources, you’ll pay tax based on $40,000 of income. This is the reason why people often take distributions slowly and over time rather than in one lump sum. The tax burden is just too great, especially if you’re paying a penalty as well.

Even though you can take distributions from your IRA (with the possibility of tax consequences and/or IRS penalties) people often tap other income sources before liquidating IRA accounts.

Similar to a 401k, the IRS may allow penalty-free hardship withdrawals from traditional IRA accounts in certain circumstances; this could be up to $10,000 for a first-time home purchase or perhaps money to pay tuition for a family member. You won’t have to pay this money back but you will pay tax on it come April. Hardship withdrawals are not exempt from taxes.

3. What are the various limitations on making deductible contributions to an IRA account? Who can and who can’t?

IRA contributions are traditionally designed for employees who are not covered by a company retirement plan. For example, any of the millions of people who work for small businesses around the country which don’t offer a 401k or other qualified retirement plan would be encouraged to contribute to an IRA. Deductible IRA contributions are also not designed to help wealthy and high-earning individuals defer tax. This is why income limitations exist which prevent the deductibility of an IRA contribution for higher income earners. The phase-outs start at $85,000 for couples filing jointly and $53,000 for single individuals. You can still contribute money to an IRA if you earn more than that, but you can’t deduct it from your taxable income.

If you are covered by a retirement plan but haven’t contributed any money to it, you can still take advantage of an IRA. Most people probably wouldn’t choose to do this because the contribution limits for 401k plans are considerably higher than IRA limits. Also, many 401k plans offer a company matching component which is very valuable to long-term savings goals. That being said, if you don’t contribute at all to your 401k, you can make the deductible IRA contribution instead. We’ll cover non-working spousal contributions below.

4. What if I make a mistake on my tax return regarding my IRA contributions? For example, what if I make an excess contribution? Will I be penalized? How will the IRS know?

First, when you make a contribution to an IRA, the bank or other custodian will report the amount of your contributions to the IRS. If a discrepancy exists between what you put on your return and what the IRS receives regarding your contribution, you could get a note about it in the mail. It may not be an audit—it may just be a bill or notice of the problem. It’s not the biggest deal but often a pain to deal with tax forms after April 15th. We see it all the time at my firm and often it’s an IRS error, a reporting error from the custodian, or an honest mistake from the client.

The deadline to remove an excess contribution and avoid the 6% penalty is the due date for your individual return (generally April 15th) or your extension deadline. If the time for filing the return has passed, the individual can still withdraw excess contributions without incurring a penalty tax and without being required to include the excess contribution in their gross income if, the following two conditions are met:

•The participants total contributions for the year did not exceed $5,000 (2008) or $6,000 if over age 50.
•The individual did not take a deduction for the excess contribution.

Individuals can simply leave the excess contribution in the IRA and just pay the 6% penalty, and by contributing less in the following year can avoid the cumulative effect of the 6% penalty.

5. What’s the story with RMD? Can I make a contribution in the year in which I turn 70 ½?

You are required to start withdrawing money from your IRA starting in the year in which you reach age 70 ½. Most people choose not to continue making contributions at this point because the older you get, the more counter-intuitive it becomes. The amount you must take is based on a formula which estimates how long it will take to liquidate your total account around the time of your expected death. Your RMD increases each year as you get older. Yes, it’s a bit morbid but it ensures that the IRS gets paid. The IRS doesn’t want you deferring taxes forever and they certainly don’t want that tax-deferral getting transferred to your kids who are much younger!

Remember, RMD applies only to traditional IRA accounts—not to Roth accounts. Also, in certain circumstances with some qualified retirement plans, individuals can avoid beginning RMD if they continue to work past age 70 ½.

6. Can contributions be made to an IRA for a non-working spouse?

Yes, they can, assuming you are filing a joint return for the year. The IRA must be in the name of the non-working spouse and is deductible from income the same way any other qualifying traditional IRA would be. Here’s the story with how much you can contribute from a 2008 standpoint:

•The dollar limit is determined by the IRS. It is 5,000 this year or 6,000 if over age 50.
•The amount could be less if working spouse made any sort of deductible or non-deductible IRA contributions or if the working spouse made contributions to a Roth IRA.

If you have any other questions regarding IRA or 401k rollover accounts, feel free to e-mail me or call. There are countless financial planning topics which overlap with this discussion.*

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors
14 E. 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

*It’s always a good idea to consult with your tax and other financial professionals prior to making IRA contributions and other decisions regarding qualified retirement plans.

Posted by Russell Bailyn at 04:38 PM | Permalink | Comments ( 1 ) | TrackBacks ( 0 )

Personal finance can be a tricky subject to master. You may feel comfortable with the stock market or perhaps you’ve taken on a mortgage or two, but there probably are a few areas you haven’t mastered yet. For this reason, I’d like to discuss five common blunders people make when it comes to their money. Read carefully, and you could avoid some major pitfalls.

1. Not taking advantage of a company retirement plan

Do you have a 401k or 403b plan in your workplace? How about a profit-sharing plan, or maybe a SEP IRA? All of these plans have the same basic goal: to reduce the amount you pay in taxes and help stash away funds for retirement. Unfortunately, lots of people aren’t contributing enough, if anything, to these plans.

There are a few reasons this happens: first, the paperwork is confusing and time-consuming. Most people don’t want to flip through 10 pages of financial jargon if they don’t have to. Also, many companies don’t dedicate enough resources towards investor education. As a result, people often make bad decisions when it comes to their retirement plans. This could include not diversifying their investments, or simply not contributing as much as they could into the plan. I recommend you get some information about your retirement plan at work, sit down with it, or bring it to somebody who can help you understand it better.

2. Not checking your credit score often enough

Have you ever applied for a loan, only to find that your credit score was worse than you thought? This happens way too often and can be easily avoided. Being responsible with your money includes always checking up on your credit score, not just prior to applying for a loan. Most credit score range from 400 to 850 and a great credit score is above 700. Credit scores come in handy when you are trying to buy a house, lease a car, open a new credit card or even help your child pay for college.

A good credit score will often secure you a lower interest rate, resulting in lower payments on the money you may borrow. If the very first time you pull your score is a month or two before applying for a mortgage perhaps, you may be surprised to find that it takes time and energy to read through the reports and verify the information. Plus, you may need time to dispute parts of your score that may not be correct.

Well, you may be asking, how do I find this lucky (or unlucky) number? You can get a free copy of your report at a few different websites, including: www.annualcreditreport.com or www.freecreditreport.com. You may also consider signing up for a credit monitoring service. With this convenience you’ll get a notification e-mail when your score changes, so you can quickly check it out and see that everything is correct.

3. Sticking to a Budget

Knowing where you spend your money can expose some very interesting things. In fact, I bet a simple analysis of your monthly budget would shock you. I’ve met people who spend almost 50% of their after-tax income on eating out and others who spend 75% on rent. These are big blunders that we should all avoid.

A well-known financial advisor by the name of David Bach often talks about knowing your “latte-factor.” This is a reference to walking into Starbucks each morning and buying a $5 latte. It’s a great analogy for paying attention to where you may waste $5 or $10 during the day, which could be going towards your future. Cutting a daily habit—perhaps coffee or cigarettes—can make a huge different in your overall financial success.

I recommend you track your expenses for a few days. See where your money is going and try to factor “paying yourself” into that equation.

4. Procrastinating – Putting off Saving

Are you nodding your head right now? All kinds of studies come out each year which show that saving a little bit of money in your 20’s and 30’s is dramatically more valuable than saving larger sums of money in your 40’s and 50’s. Why? Time—not the amount of money—maters most when it comes to saving for long-term goals.

If you’re 25 and just started on a new job, don’t ignore that 401k plan because you’d rather spend money with friends. Even small sums of money can really add up when you consider the compounding affect of interest, dividends, and capital gains in your portfolio. What does that mean? Start saving early in life and get yourself excited about your saving!

5. Trying to Beat the Market

This is a lesson people often need to learn from experience. Do you think that you could earn more than your neighbor by picking your own stocks? The concept of “beating the market” is very exciting, but also somewhat unrealistic. Most people fall into the emotional patterns of buying stocks at the peak of the market and selling them after they dip down. Studies show that the large majority of people who try their hand at investing ultimately come up short. Not only that, it actually uses up valuable time that you could be spending building a business, being with family, or anything else.

Good luck!

Russell Bailyn
Wealth Manager
Premier Financial Advisors
14 E. 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

Posted by Russell Bailyn at 03:15 PM | Permalink | Comments ( 1 ) | TrackBacks ( 0 )