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3rd Quarter 2008 Market Letter Capital Advantage, Inc.
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Throughout the several decades we have been working within the financial services sector, we have been able to successfully navigate through many market corrections, many bear markets, hyperinflation that led to bond market crashes, the 9/11 terrorist attacks, the dot-com bubble and resulting market fall, and numerous foreign currency collapses. In prior economic upheavals, we always had a series of investment alternatives to which we could reallocate clients’ assets…but not this time.
This current crisis is truly global in nature. The value of every stock and bond market (excluding government securities) throughout the world has dramatically sold-off and not one sector stands in positive territory.
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Be Careful About Picking Beneficiaries for Your IRAs and 401(k)s
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Inheriting IRA or 401(k) proceeds from a friend or relative can be a potentially huge windfall, but it can also be a sizable tax headache. For both the giver and the recipient, it’s worth seeking some advice.
Bank accounts, stocks/bonds, real estate, and life insurance proceeds generally pass to heirs free of income tax. However, inherited retirement benefits, such as, IRAs, annuities, 401ks, and pensions can be a different story. Beneficiaries have to pay ordinary income tax on distributions from retirement benefit plans and IRAs after they are inherited. For Roth IRAs – the benefits can be free of income tax to your heirs if all tax requirements are met.
Here are some general guidelines:
Spouses are the first stop: Federal law dictates that your surviving spouse must be the primary beneficiary of your 401(k) plan benefit unless your spouse signs a waiver to redirect those funds. Even with a traditional IRA, naming the spouse as the primary beneficiary may be an appropriate option. Should the surviving spouse have his or her own IRA, this approach would allow them to simply roll over the assets from the decedent’s IRA into their own. Furthermore, if the surviving spouse is significantly younger than the deceased, the surviving spouse would receive the added benefit of stretching out distributions from the IRA until he or she turns 70 1/2. The stretch-out allows the assets to continue to grow on a tax- deferred basis, thereby maximizing asset value and delaying any income tax due.
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Make Estate and Financial Planning a First Step After Divorce
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After a marriage breaks up, about the last thing most people want to do is sit down with one more attorney...
Regardless of your age or whether you have kids, it’s important to consult both financial and legal experts to make sure you have an updated estate and financial plan for your new life once the divorce decree is final.
It’s also best to blend estate planning with financial planning post-divorce. If you weren’t working with a financial or estate planner during the divorce process, it’s time to do so now. The immediate months after a divorce can be disorienting – even if you don’t move, you are literally starting a new household that you will have to direct yourself, and that means new money issues to face.
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