Quote of the Month

"Progress lies not in enhancing what is, but in advancing toward what will be." Kahlil Gibran

RSG welcomes you to the June 2002 edition of The Retirement Strategist. We hope you enjoy our actionable ideas for implementing a better retirement stategy. Remember that time can be your greatest friend; the sooner you implement excellent retirement savings ideas, the better.

1. Questions From Members
2. Timely Investment Tip$: Capital Gains Distributions
3. Fiscal Therapy: Tax Credits, A Smart Idea To Make Your Financial Future Brighter
4. Retirement Strategies Group Service Highlight: How We Can Help You

QUESTIONS FROM MEMBERS

Q.	How do I go about starting up a Roth IRA?
A.	This is a question we tend to hear quite often. The first step is to make sure you qualify for a Roth. Contributions to a Roth IRA are subject to an adjusted gross income (AGI) limitation. The amount that you can contribute phases out for single/head-of-household filers with an AGI of $95,000 to $110,000, and married-filing-jointly filers with AGI of $150,000 to $160,000. With a Roth IRA it doesn't matter if you participate in an employer's qualified retirement plan, such as a 401(k). Contributions to a Roth IRA are allowed even when you are over 70½ years old, provided you have taxable income. Contributions to a Roth IRA are limited to $2,000 or taxable income, whichever is less. The $2,000 limit applies to all IRA contributions. So, if you contribute $1,500 to a traditional IRA, you would be limited to $500 ($2,000 minus $1,500) for the Roth IRA. Contributions to a Roth IRA are not deductible, but distributions are tax-free if you meet the requirements.
Q.	How many IRAs can I have? I currently have quite a few and I'm thinking about consolidating them into one.
A.	You are allowed to have an unlimited number of IRAs; however, you are limited to a specific monetary amount in total to your IRAs in any one year. This includes contributions to both traditional and Roth IRAs. To consolidate all of your IRAs into one, all it takes is a few forms to facilitate this.

TIMELY INVESTMENT TIP$

Investing in mutual funds is an excellent way to diversify and earn valuable returns for your portfolio. But if you want to get the most out of your money, investing in mutual funds at the end of the year, sometimes, is not the way to go.

What we're talking about is the implication of taxes on your earnings. You may be asking yourself, "What are capital gains?" When you enter into any kind of investment, you do so because you want to make a profit. The profit that you make on your investment is taxed by the government, when distributed, using what they call a capital gains tax. This capital gains tax will calculate to be between 15-20% (depending on your tax bracket) of the gains you make on your investment. Mutual funds (when in a taxable account) are no exception to the rule. Fund companies are obligated by law to issue capital gains to their investors by the federal government. Taking into account how and when they do this should seriously effect the way you look at mutual funds for investments.

The how part of the equation is explained by the active trading of stocks within the mutual fund by the money manager. This active trading throughout the year produces the profits and possible losses you receive on your investment. The profits are distributed along with the taxes incurred and are distributed to the shareholders as capital gains. The tricky aspect of this is the when part. The profits are distributed throughout the year, while the taxes on those profits are distributed only once a year, at the end of the year, usually in November, or, most often, December. It doesn't matter when you first contributed money toward the mutual fund investment, the capital gains taxes are issued to shareholders regardless of the length of time they've actually been involved. In other words, an individual who enters into a mutual fund in October will pay the same amount in taxes as someone who had entered in January (assuming they're in the same tax bracket). And the most shocking part is that the January person will have incurred returns (or possible losses) on their investment for the entire year, while the October person will have not. They'll incur the same amount in taxes (assuming they're both in the same tax bracket), even if they haven't received the same amount in profits. What happens if you do lose money on your investment during that year? Can the mutual fund company still issue capital gains? The answer to that, unfortunately, is yes. It is possible to incur a loss on your investment and still have to pay capital gains distributions for the year.

Some useful information to know before you invest in any mutual fund:

• When are capital gains usually distributed for the fund? To determine this find out what the record date is for that mutual fund. This is usually not available from the mutual fund company until the 4th quarter of the year. If the fund is bought on or before the record date, the purchaser will incur any capital gains distributions issued by that fund.
• Approximately how much (in dollars or a percentage) will the capital gains be for that year? The actual numbers for this are also not available until the end of the year.
• What type of capital gains distributions has this fund issued in previous years? It may be helpful to research the historical capital gains that the fund has distributed in the past. You should not, however, embrace this as a final guarantee. Past capital gains are not always fitting predictors of distributions to come.

Tax Credits - A Smart Idea to Make Your Financial Future Brighter

The end of the year is fast approaching and soon investors like you will be seeking ways to reduce their tax liability. An investment that generates tax credits is today's only means of reducing tax liability. Find out what smart investors know about tax credits as a proven, predictable, pre-funded tax reduction strategy.

Tax Credit Advantages	Other Tax Reduction Strategies
Tax Credits Reduce Taxes	Tax Deductions and Tax Deferrals Reduce Taxable Income
$1 in Tax Credits = $1 Tax Savings	$1 in Tax Deductions = $.28 in Tax Savings*
Predictable stream of benefits: annual tax savings for 10-12 years	Tax Deductions are applied to the current year only
Generate Passive Losses that may be used to offset passive income	Tax Deferrals are eventually subject to recapture of tax savings
95% - 100% After Tax Return	*using a 28% tax bracket

"Smart Uses of Tax Credit Savings"

• Offset the Tax Liability Arising From Retirement Plan Withdrawals
• Diversify a Tax-Advantaged or Conventional Investment Portfolio
• Fund Life Insurance Premiums
• Save for Retirement or Future College Expenses
• Reduce Quarterly Estimated Tax Payments

You have already taken the first step in requesting to receive our monthly e-bulletin. If you would like additional information including a free review of your current portfolio, information on brokerage services, mutual funds, tax-deferred annuities, or have a question on a specific financial program, please contact Retirement Strategies Group.