April 2009
Koele Godfrey
Investment Group
Jack B. Godfrey
Carey L. Koele
Investment Consultants
123 East Main Ave
Zeeland, MI 49464
866-512-7164
[email protected]
www.koelegodfrey.com
You've learned the lesson
by now: no matter how
much you make, the
taxman is always going to
get his share. The trick is
to plan so that you give him
as little as necessary.
For years, we have been
showing our clients ways to
help reduce their tax
burden: charitable giving,
tax-deferred investments
and more. We can show
you financial strategies that
can help you keep what
you earn. Call us today together, we can plan
ahead and look for ways to
help you retain more of
your income.
In this issue:
Writing Off Worthless
Securities on Your Taxes
You've Just Lost Your Job.
Now What?
What You Don't Know Can
Hurt You
Can I convert my traditional
IRA to a Roth in 2009?
Writing Off Worthless Securities on Your Taxes
It's a classic good news/bad news situation. If
you're holding a stock that has become worthless, the bad news is obvious: you've lost your
investment. The good (or at least better)
news? You may qualify to deduct the investment as a loss on your tax return.
Worthless stock or bonds are those that are
completely--the key word here being completely--without value. A company's filing for
bankruptcy does not necessarily mean that
the stock is worthless; the stock may still trade
and retain at least some of its value.
The mechanics
If you own stock in a company that liquidates,
you may receive at the end of the year a Form
1099-DIV, which lists the liquidating distribution made during that year. For tax purposes,
you should treat this distribution as if you had
sold the stock, using the distribution date on
the form as the date of sale. You would subtract your cost basis from the amount of the
distribution.
If you don't receive a 1099--and it's highly
likely you won't--you may still be able to take a
deduction for worthless stock, but the process
becomes more challenging. You'll need to be
able to present proof that the stock became
worthless during the year in which you're deducting the loss. Examples of documents that
might be considered proof include a letter
from the company stating that it has shut
down and there are no assets to pay shareholders, or a letter from a broker stating that
the stock no longer has value. For tax purposes, worthless stock is treated as though
you sold the shares on the last day of the year
in which they become worthless.
Abandoning a stock
You may also be able to claim a stock as
worthless if you abandoned it after March 12,
2008. To do so, you must relinquish all rights
to it and receive nothing in return; however,
you should consult a tax professional to
ensure that the transaction is not considered a
sale, exchange, contribution to capital, dividend, or gift, which
could change the tax
implications.
Don't ignore timing
In general, you must claim a loss on a worthless stock in the year in which it becomes
worthless. (However, if you do neglect to
claim the loss in the appropriate year, you can
do so later by filing an amended tax return
within 7 years.) IRS Publication 550 includes
more information about recognizing capital
gains and losses.
What if a stock is worth almost nothing?
If a stock is no longer traded but is not formally defunct, there's another (though more
complicated) possibility for milking tax value
from an investing mistake. You could sell the
shares in an arm's length transaction (to a
willing, unrelated buyer for fair value). Be sure
that ownership of the shares transfers to the
new owner.
You also could check with your brokerage firm
to see whether it purchases virtually worthless
shares from customers for a nominal amount
to supply them with a trade confirmation for
tax purposes.
Writing off worthless securities is far more
complex than this brief discussion might suggest. Consult a tax professional to ensure you
don't make any missteps.
Page 2
You've Just Lost Your Job. Now What?
Maybe you saw it coming, maybe you didn't,
but there it is--the pink slip in your In box, the
personnel officer shaking your hand as you're
shown the door. So, what are you going to do
now--I mean, right now?
Evaluate your exit package
Hard times
According to the
U.S. Labor Bureau,
533,000 non-farm
jobs were lost in
November 2008.
Employment has
fallen by 2.7 million
jobs since the
recession first began
in December 2007;
almost half the
decrease occurred in
September, October,
and November 2008.
Source: U.S. Bureau
of Labor Statistics,
December 5, 2008.
If you haven't already done so, find out the
exact terms of your termination. Are you being
fired for cause? Laid off? Downsized? Will you
lose your health insurance immediately
(unless you pay to extend it through COBRA),
or will it carry you through the end of the
month? Are you being offered a severance
package? (Do you have any leverage to negotiate it?) Will receiving it depend on signing a
waiver? (If so, you might want to consult an
attorney first.) Are you required to sign a noncompetition or a nondisclosure agreement?
Will you receive any help searching for a new
job (outplacement), or be allowed to use company equipment (copy machine, telephones,
etc.) while you're doing so? Will your former
employers write references for you? And what
will they say about you when future potential
employers call to verify your employment?
Call your state unemployment office
Since your unemployment benefits may not
start until two or three weeks after you file
your claim, the faster you can initiate processing of your claim, the sooner you'll receive
your first check. In general, your benefits will
be a percentage of your earnings, up to your
state's maximum claim amount. Depending on
your state, your benefits may last up to 26
weeks, and may be extended during periods
of high unemployment.
it turns out only to be for the short term.
Determine your expected income from
unemployment benefits and other sources
(severance pay, part-time temporary employment, investment income, and perhaps
spousal income). Then develop a bare-bones
budget (one that pays the essentials and postpones the nonessentials) and compare it to
your expected income.
If your expenses will exceed your income,
schedule withdrawals from your cash reserve
to cover the difference. (Your cash reserve?
It's that "financial safety net" of 3 to 6 months
income you've accumulated for a situation
such as this.)
Also list any other possible sources of potential income, including investment accounts or
other assets you could sell if you need to.
Update and reflect
If you haven't done so, update your resume to
reflect your recent work history, experience,
and references.
There's no better time than this to determine if
you're going where you want to with your career. Are you happy with the type of work you
do, or is now a good time to make a change?
Whether you're making a change or not,
would now be a good time to update your
skills (or learn new ones) to make yourself
more marketable?
If you will be changing careers, slant your
resume to highlight the skills and experience
relevant to your new direction. Write generic
cover letters that will be appropriate introductions for what you seek.
Tell your family, friends, and associates
Hit the floor running
Losing a job is one of life's hardest experiences, and you shouldn't try to "go it alone."
Tell your family, friends, and business associates what has happened. Not only can they
be emotionally supportive, but they also may
be able to help you find your next job. During
any transition between jobs, particularly one
that takes a while, your lifestyle may be affected, and your family, particularly those you
support, will need to understand the financial
implications of this.
Looking for work is, in itself, a full-time job,
and you should treat it as such. Look for employment online, in newspapers, and in trade
journals. Contact employment agencies and
headhunters. Attend industry conferences or
seminars, relevant community events, and
networking meetings to make new contacts
and disseminate your resume. Follow up any
new employment leads in writing and/or with
telephone calls.
Review your financial situation
Obviously, your financial situation will be impacted by your loss of income, especially if
your lack of employment lasts a while, so
now's the time to rethink your budget, even if
Be positive, and be aggressive. Believe in
yourself and your abilities, and don't wait for
the world to come to you.
Page 3
What You Don't Know Can Hurt You
You've probably heard the saying, "what you
don't know can't hurt you," but when it comes
to your finances, ignorance is not necessarily
bliss. It's easy to make bad financial decisions
when you lack sufficient information or you are
misinformed. By the time you realize your
mistake, it's usually too late to correct it. Here
are several common mistakes that can be
avoided with just a little bit of forethought.
you have plenty of other income or life insurance to replace the pension for your surviving
spouse.
Owning assets jointly
Owning assets jointly often can be a good
strategy to avoid probate or minimize estate
taxes. However, this form of asset ownership
also has disadvantages. The joint owner has
equal rights to the jointly owned asset, meanNaming the wrong insurance beneficiary
ing he or she can withdraw from a joint bank
or brokerage account or sell his or her interest
Life insurance has many
in the asset without your consent. In addition,
benefits. Among them is the fact that death
adding someone's name to
benefits are generally paid
an asset may be considered
directly to the beneficiary you
You could make financial
a gift, subject to possible gift
name in the policy without
decisions that turn out to
taxes. And, owning assets
passing through probate. But
be wrong because you
jointly exposes those assets
what happens if the beneficilack sufficient
to the creditors of your joint
ary you name is unable to
information or you were
owner. Finally, with respect to
accept the death benefit, bemisinformed altogether.
long-term care planning and
cause he or she is a minor,
Medicaid qualification, adding
deceased, or incompetent? In
a joint owner can negatively
these circumstances, unless
you've named an alternate beneficiary, the life affect your Medicaid eligibility.
insurance proceeds will be subject to all of the What can you do before it's too late? Consider
expenses and delays associated with settling
the ramifications of joint ownership carefully
an estate through probate.
before implementing this strategy. If your
intent is to leave the asset to the joint owner,
What can you do before it's too late? Review
alternatives such as payable on death
your life insurance beneficiary designations at
accounts, trust designations, or life estates
least annually to be sure the proceeds will
may accomplish your goal and protect your
pass to the proper beneficiary without the ininterest in the asset at the same time.
volvement of probate. Also, consider adding
at least one contingent or alternate beneficiary Underinsured homes
in case the primary beneficiary is unable to
Imagine this scenario: you just suffered
receive the proceeds.
through a terrible fire that destroyed your
Selecting the wrong pension option
home and most of its contents. You get an
estimate on the cost to rebuild your home and
If you're lucky enough to have an employerfile a claim with your homeowners insurance
sponsored pension for your retirement, the
carrier. To your shock, you find that they are
distribution choices you make usually can't be
not going to cover the entire cost to rebuild.
changed, regardless of whether your circumYou thought your policy covered the full restances change. Before making your choice,
placement cost of your home. However, the
get all of your plan's options from the plan
policy actually provides extended replacement
administrator and review them with a financial
cost, which offers up to 120% of the policy's
professional who can help you crunch the
face amount--not enough to cover all of the
numbers. Estimate your retirement income
costs to rebuild your home.
needs, then determine what the best strategy
is for you and your family.
What can you do before it's too late? Review
your policy at least annually and make sure
What can you do before it's too late? If you're
the face amount is enough to cover the cost to
married you're required to take a joint and
survivor option, unless your spouse waives his rebuild your home should the unthinkable
occur. That means you need to know the apor her rights to your pension. If you elect the
single life option, your payments will be larger, proximate cost to rebuild, including any additions and improvements you made to the
but at the expense of a future spousal benefit.
home. Also, take into consideration increasing
If you choose the single life option, make sure
costs of materials and labor.
Other common
mistakes
•
Failing to provide
for financial loss
due to a non-work
related disability
•
Miscalculating how
much life insurance
you need
•
Owning too much
company stock in
your employersponsored
retirement plan
•
Underestimating
how long your
retirement may last
•
Overestimating the
annual rate of
return you'll earn
on your
investments
•
Trying to save for
your children's
college education
at the expense of
saving for your
retirement
Koele Godfrey Investment Group
Carey L. Koele
123 East Main Ave
Zeeland, MI 49464
The opinions voiced in this
material are for general
information only and are not
intended to provide specific
advice or recommendations for
any individual. To determine
which investment(s) may be
appropriate for you, consult your
financial advisor prior to
investing. All performance
referenced is historical and is no
guarantee of future results. All
indices are unmanaged and
cannot be invested into directly.
The tax information provided is
not intended to be a substitute for
specific individualized tax
planning advice. We suggest that
you consult with a qualified tax
advisor.
Securities offered through LPL
Financial, Member FINRA/SIPC
Ask the Experts
Can I convert my traditional IRA to a Roth in 2009?
With recent market declines,
many investors are taking a
new look at converting their
traditional IRA to a Roth
IRA. For many, the tax cost
of converting has dropped significantly, making this a more attractive option.
You can convert your traditional IRA to a Roth
IRA in 2009 if your modified adjusted gross
income (MAGI) is $100,000 or less. If you file
a joint federal tax return with your spouse, the
$100,000 limit applies to your combined income. If you're married filing separately,
you're not allowed to convert at all in 2009.
You generally have to include the amount you
convert in your gross income for the year of
conversion, but any nondeductible contributions you've made to your traditional IRA won't
be taxed.
If you're not eligible to convert in 2009, there's
always next year--literally, in this case. Starting in 2010 anyone can convert, regardless of
income level or marital status. Plus, if you
convert in 2010, you're allowed to spread the
income tax hit over two years: you report half
the taxable income from the conversion in
2011, and half in 2012. So, even if you're eligible to convert in 2009, you should discuss
with your financial professional whether it
makes sense in your particular case to wait
until 2010 to convert in order to take advantage of this special tax rule.
If you're eligible, converting is easy. Simply
notify your IRA provider that you want to convert your existing IRA to a Roth IRA, and
they'll provide you with the necessary paperwork to complete. You can also transfer or roll
your assets over to a new IRA provider.
Remember that you can also convert SEP
IRAs (and SIMPLE IRAs that are at least two
years old) to Roth IRAs. And, if you're eligible
for a distribution from your employer retirement plan (for example, a 401(k) or 403(b)
plan), you may also be eligible to transfer or
roll over those distributions to a Roth IRA,
subject to these same conversion rules.
Prepared by Forefield Inc, Copyright 2009