STOCK MARKET COMMENTARY
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.
IRA 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 these rollovers.
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 of income.
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