Quote of the Month

"Retirement at sixty-five is ridiculous. When I was sixty-five I still had pimples." George Burns

RSG welcomes you to the June 2003 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$: IRS Rules Concerning Required Minimum Distributions
3. Fiscal Therapy: Market Volatility
4. Retirement Strategies Group Service Highlight: How We Can Help You

QUESTIONS FROM MEMBERS

Q.	I'm leaving my current employer and I was told that I am going to lose 20% of my retirement money to taxes. How can I avoid the 20% tax withholding?
A.	Excellent question. Many individuals leaving their jobs lose 20% of their retirement plan balance to taxes because they were not informed of the rules as to how to avoid the withholding. The first point is that the IRS does not mandate that 20% of your balance be withheld. They only require that 20% be withheld for taxes if you directly receive the money. Whether your plan is a 401k, 403b, pension plan, ESOP, or other "qualified" plan, the IRS says that they want their taxes when you take your money. So, the solution is to NOT directly take your money. Here are some thoughts as to what exactly you can do to avoid the 20% withholding: Tell your employer that you are establishing a Rollover IRA and have them directly transfer the money to your Rollover IRA. This Rollover IRA should be separate from any other IRA plans you may have. Leave the money with your employer. You're not required to move your plan to your new employer. (Generally speaking, we always recommend the Rollover IRA). Depending on your employer's plan, you can take your plan assets in company stock. The IRS does not apply the 20% withholding to stock. The next step would be to sell the stock within 60 days and open up and IRA. Pay attention to the 60-day limit, though, because penalties will apply if you miss it.
Q.	I told my Dad that he can give $50,000 to my son (his grandson) for his 529 College Funding Plan without gift taxes and he told me that the limit is $10,000. Can you tell me who is right?
A.	You are correct. 529 Plans enjoy special tax benefits under the IRS rules. An individual can give $50,000 in any year to a beneficiary (your son, as an example) without triggering the federal gift tax. However, no additional gifts can be made to that individual for five years. Your Dad is correct in that $10,000 per year per individual is the limit for all other gifts. So, give your Dad the great news and the green light to start a 529 Plan for your son. There are also excellent estate planning benefits as well.

TIMELY INVESTMENT TIP$

IRS Rules Concerning Required Minimum Distributions

Recently the IRS delivered good news to investors who are taking distributions from IRAs or are in the process of planning for distributions. The old rules in one word - ugly. Not only were they complex, but bad IRA distribution decisions were irrevocable and costing investors and their heirs billions.

Here's a quick synopsis of the new rules governing IRA minimum distributions:

1. The IRS has replaced the existing joint and single life expectancy tables with a Uniform Distribution Table. This table, which is used to calculate your Required Minimum Distribution (RMD) while you're living, automatically calculates the RMD based on your life expectancy and a beneficiary who is assumed to be 10 years younger. The net effect is that for most IRA owners, the RMD will be lower, which means your tax bill will also be lower.



2. It is no longer necessary to elect a life expectancy method (single vs. joint) or a calculation method (elapsed year, recalculation, or hybrid methods). All this complexity, and all calculations, are now driven by the Uniform Distribution Table.



3. The new RMD rules do not require that your designated beneficiary be irrevocably in place when you start your distributions, known as the Required Beginning Date (RBD). Alas, some flexibility in naming beneficiaries after distributions has started. The net effect is that you have more control and more planning strategies ate your disposal, including estate planning tactics for your IRA.



4. Upon your death, under certain circumstances, your designated beneficiary(s) may use their own life expectancy in determining the RMD. To allow for individual RMD calculations, each beneficiary must have their portion of your IRA assets separated into their own account by the end of the calendar year following the year of your death. The net effect is that your beneficiary(s) will have the option of "stretching" their IRA for a much longer period of time, continuing to grow their account on a tax-deferred basis, while also enjoying some current income.

As we mentioned, the IRS made things a little easier, but unfortunately, it is still not a simple process. Income planning, tax planning, and estate planning are very important components of an effective IRA strategy.

Market Volatility

Given the recent turbulence in the stock market, perhaps it's time for a refresher course on market volatility and what do with existing investments - what to do if you're thinking that the market is near a bottom and you're ready to put your toes in the water.

If you're already in the market - whether it is your company's 401k plan or a brokerage account - our advice on how to deal with the bear market is not unlike what you would do if you actually came across a bear in the woods: lay completely still and protect yourself as best as you can, but don't try to take on the bear!

What exactly do we mean? Well, if you've done everything else right in putting together your long-term investment plan (more on this shortly), you're best off just sticking to the plan and focusing on the basics. Just make sure that you're not unduly exposed to specific asset classes or market segments that are raising the risk you should be assuming at this point. History shows that bear markets do most of their damage on individuals and their plans after the bear market is over. How is that? Because investors get emotionally charged up, panic, switch out of the market, and then miss the upturn in the market and the return of the bull. Time in the market, as they say, is more important than timing the market! So, hang tough and keep your plans going.

Now, a quick back-to-basics checklist to make sure your strategy and plan is well founded:

• Calculate when you want to retire.
• Calculate how much money you're going to need in retirement.
• Minimize taxes as much as possible.
• Develop a proper asset allocation plan so that all of your eggs don't end up in one basket.
• Select the investments for your retirement plan (with one of our Specialists if you're not comfortable doing this).
• Review your plan at least once a year.
• Stay focused and disciplined.

If you have not conquered all of these steps, be sure to contact us and we'll help you put your plan together.

Now, if you're just starting out and want to start investing, what's our advice? Actually it's real simple. Just start, with the following caveat: after you have followed the steps above, whatever portion of your money is going into stocks, we would recommend "dollar-cost averaging" the stock portion over about 12 months. Dollar-cost averaging will not guarantee that you will make money, but it does give you some benefits in both rising and falling markets by allowing you to buy more shares when the market is down and less shares when the market is up. It's a disciplined approach to putting your toe in market waters.

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.