For the week of March 31, 2008
Wall Street seemed to pause for a breath last week, with trading volumes below normal. Consumer
spending met analysts’ expectations with a 0.1 percent increase, according to the Commerce
Department. For the week, the Dow dropped 1.17 percent to finish at 12,216.40. The S&P fell 1.04
percent to end the week at 1,315.22. The NASDAQ gained 0.14 percent to close the week at 2,261.18.
Source: Morningstar.com. * Past performance is no guarantee of future results. Indexes are unmanaged and
cannot be invested into directly. Three and five-year returns are annualized. The S&P, excluding “1 Week”
returns, is a reflection of return to an investor, by reinvesting dividends after the deduction of withholding tax.
Required Minimum Distributions – If you turned age 70½ during calendar year 2007, then you must
begin taking annual withdrawals from your IRA accounts no later than April 1, 2008. If you delayed your
first withdrawal until now, you must also take a second distribution by Dec. 31, 2008 (Source: IRS
Publication 590, BTN Research).
Not A Linear Path – One dollar invested in the S&P 500 on March 1, 1993, in a tax-deferred account
would have quadrupled in value to $4 on a total return basis by Feb. 29, 2008, or after 15 years. However
that original $1 doubled in value to $2 by April 30, 1997, (i.e., after four years and two months) and then
took another 10 years and 10 months to double again to $4. This mathematical calculation ignores the
ultimate impact of taxes on the account, which are due upon withdrawal, is for illustrative purposes only
and is not intended to reflect any specific investment or performance. Actual results will fluctuate with
market conditions and will vary (Source: BTN Research).
Out vs. In – In spite of the fact that the U.S. had a $709 billion trade deficit in 2007 (imports in excess of
exports), we were able to offset that outflow of dollars by attracting $782 billion of foreign capital into our
stocks and bonds. Thus, for every $10 that left the U.S. because of excessive buying of foreign imports,
$11 came into the U.S. as foreigners bought American financial assets (Source: Commerce
Department, Treasury Department, BTN Research).
Work For Yourself – April 23 will mark the day on which most Americas have earned enough money to
cover their federal, state and local taxes for the year. Called Tax Freedom Day, it arrives three days
earlier than in 2007. In 2008, Americans will need 74 days of work to pay their federal taxes and another
39 days to cover state and local taxes. Food for the year takes 35 days of work, housing takes 60 days
and healthcare takes 50 days. Clothing, by comparison, takes only 13 days (Source: Tax Foundation).
WEEKLY FOCUS - New Rules for Roth Rollovers
A section of the 2006 Pension Protection Act that
governs rollovers of eligible non-Roth distributions from
a 401(k) or other qualified plan to a Roth IRA took effect
Jan. 1 of this year. The IRS recently issued guidance on
Between now and Jan. 1, 2010, you must have modified
adjusted gross income (individual or joint) under
$100,000 to be eligible to make a rollover from a
qualified plan directly to a Roth IRA. That income cap is
scheduled to disappear in 2010. Your employer’s
401(k) plan must allow you to make a direct rollover to a
Roth IRA, but the plan administrator is not responsible
for verifying you are eligible to do so.
The plan administrator does not need to withhold the mandatory 20 percent if you make a direct rollover,
even though all or part of the distribution may be included in your gross income.
The 10 percent early withdrawal penalty will not apply to these rollovers. However, as with conversions of
traditional IRAs to Roth IRAs, if you take a premature distribution from the Roth IRA within five years of
the rollover, the 10 percent penalty will apply to the amount of the distribution.
If the plan allows, beneficiaries who have inherited 401(k) plans can make direct rollovers to a Roth IRA.
The beneficiary’s modified adjusted gross income and filing status will be the basis for determining if the
beneficiary is eligible to make the rollover.
All rollovers from qualified plans should be done carefully to avoid any unintended tax consequences. We
can work with your employer and your tax professional to ensure your money rolls smoothly from one to
the other. Call our office for help with all your rollover and income distribution needs.
* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be
representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted
index of 30 actively traded blue-chip stocks. 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 Morgan Stanley Capital International Europe, Australia and
Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an
unmanaged index composed of a sample of companies representative of the market structure of 20
European and Pacific Basin countries and includes reinvestment of all dividends. WMCSAI# 273086
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