Paul Ferraresi

The income limit for those who can convert their retirement holdings from a traditional IRA to a Roth IRA (now applicable to anyone with a modified adjusted gross income of $100,000) disappears permanently in 2010. So high-net-worth folks, even Bill Gates, will be able to get a portion of their assets into a tax-free Roth account.

The elimination of the income limit is a way, particularly for high-net-worth clients, to get some of their assets into a tax-free Roth account. You should also know about the coming change now so that you can start saving money to pay the tax bill. Any dollars you convert in 2010, it’s going to be assumed, unless you elect otherwise on your tax return, that you’re not going to pay the income taxes due on this amount until you file your 2011 return, which happens in 2012, and your 2012 return which happens in 2013. So the IRS is giving taxpayers as many as three more years to pay the taxes on this. You would pay 50% when you pay your 2011 return and 50% of the tax bill when you file the 2012 return; but because that doesn’t happen until 2012 and 2013, you still have time between now and then to accumulate the money you’re going to need to pay the tax.

From 401(K) to Roth IRA

Another important change affecting retirement planning with Roths is that as of 2008 individuals will be allowed to transfer their 401(k) balances directly to a Roth IRA. With a Roth IRA, unlike a traditional IRA, contributions go in on an after-tax basis but grow tax-free. Plus, you never have to take required minimum distributions from a Roth IRA even after you’ve reached age 70 ½.

Sounds great….But Stop! Do not do any conversion until you get advice and help.

Congress extended the lower capital gains tax and dividend tax rate under the provision that retirement accounts could be converted to Roths in 2010. The tax from the Roth conversions would cover the lower tax receipts from the cap gains/dividend tax rate extension. In order to make up the tax receipts they will have to raise rates.

Look at the trap that is being set up….

So, you transfer money in 2010. Congress is slated to increase rates in 2011 just when you will be socked with 50% of conversion income.

It is expected tax rates will rise 10%, or more, in 2011 and after. That is why we have been pushing everyone to move money out of IRA’s/401Ks from 2004 until now when tax rates are lower. Even if you pull money out now and pay a 10% penalty tax… it will probably be less tax than if you wait until the 2011 rate increase.

As said many times before in this blog we help people, using the “Missed Fortune” program withdraw up to $ 60,000 per year from their retirement plans without tax.

Get on track right away…let’s see…2004-2007 is equal to $60,000 x 3 years = $180,000 that could have been withdrawn tax free. Here we go again…follow the discipline…or regret it later.

Russ Prince and Lewis Schiff, authors of The Middle Class Millionaire, purport to have uncovered the rise of new class of wealth that is changing the face of America: These 8.4 million households [with $1 million to $10 million in net wealth] make up a new generation of millionaires who began to emerge from the middle class in the late twentieth century. As their wealth has grown, so have both the cost of maintaining their lifestyles and their need for products and services that make their lives run smoothly. This group is helping to bring about momentous changes throughout American society.

Tom Stanley, author of The Millionaire Next Door showed his millionaires were almost retro middle-class, even for the ‘80s. They owned and operated small business-dry cleaners, gas stations, or cement companies. They stayed married to their wives, drove non-descript station wagons into the ground, bought their clothes more often off the shelf than off the rack, and went to church. They worked hard, sent their kids to college, avoided debt, and saved their money. In a word, they were the total opposites of the 1980’s high-flying executives-overspending, conspicuously consuming individuals.

But a funny thing happened over the past 20 years. The Reagan /Bush /Clinton /Bush economic boom (undeterred by the bond and stock market corrections of ’87, the recession of ’92, or the dot.com crash of 2000), fueled by the low interest rates, low taxes, and almost non-existent inflation has, among other things, replaced Tom Stanley’s retro millionaires with a new generation of small business owners who are, if anything, more driven to attain success, far more socially liberal, and cutting-edge consumers of the first order. Prince and Schiff’s book is a study of what it takes to get into that class today.

The authors identify four characteristics that dramatically separate today’s middle-class millionaires from their less successful classmates:

Hard work. While nine out of 10 of respondents to Prince and Schiff’s survey believe that “anyone can become a millionaire if he or she works hard enough,” the average middle-class head of household works 41 hours a week while the average middle-class millionaire puts in 70 hours. The millionaire is also five times more likely to be “always available” via e-mail (76% vs. 16%), four times more likely to work nights (52% vs. 12%), and three times more likely to be in the office or store on weekends (67% vs. 21%).

Networking. Although most middle-class millionaires dislike the smarmy connotations of the term, 62% of them believe knowing many, many people is very important to achieving financial success (vs. 43%), and they are three times as likely to cite networking as a way to connect with people they can turn to for information (83% vs. 29%).

Never giving up. Nine out of 10 of all middle-class survey respondents admitted to having “made a major career or business decision that has a very bad outcome,” but middle-class millionaires averaged 3.1 such incidents vs. 1.6 for the rest of the middle-class. More importantly, the millionaires were five times more likely to follow up a bad business outcome by trying again in the same field, rather than changing fields or focusing on other projects (77% vs. 14%).

Going where the money is. Eighty percent of middle-class millionaires either own their own business or are in professional partnerships. In fact, two out of three of them (65%) consider an ownership stake to be “very important” to financial success, vs. just 28% of other folks in the middle class. That pretty much says it all.

You Are Made for Success!

It has been a busy summer for my speaking schedule. But I love it. People ask me if I ever get tired of traveling around and speaking. The answer? Never. It is something I am passionate about. I know that if my words can help people make a positive change in their lives, they will in turn make a difference in some else’s life. So, here is my request: We are looking to fill in our schedule for the remainder of the year and the beginning of 2009 and we still have a few spots open. I would love to come join your group for one of your events!

Do I speak for corporations? Yep! Do I speak for non-profits? You bet! Do I speak for colleges and universities? Absolutely! DO I speak for network marketing companies? I sure do! Do I speak for churches? Yes I do! Do I speak for lots of other groups I haven’t mentioned? Yes, yes and yes! So, if you would like to have your meeting supercharged, let us know and we will do our best to get there! I would love to include your city on my end of the year list! Email my assistant at Angelique@fgmci.com and she’ll get you taken care of!

A woman retiree in the U.S. is far more likely than a man to face economic hardship, or even poverty, says a new study written by Cindy Hounsell, president of the Women’s Institute for Secure Retirement (WISER) in Washington, D.C.

The study, The Female Factor 2008: Why Women are at Greater Financial Risk in Retirement, posits that women face unique challenges that could jeopardize the economic security of their retirement years. Among them is that women on average spend fewer years in the work force than men, and earn 77 cents for every $1 earned by men – the median salary for women working full time in 2006 was $32,515 versus $42,261 for men. African-American women earned a median salary of $27,535 and Hispanic women earned just $22,285.

Only 22% of women over 65 received income from an employer sponsored retirement plan in 2004 (the year used in the study), compared with 29% of men who received such payments. The median annual benefit for these women is $800 a month, compared with $1,177 for men.

Woman typically live five years longer than men, so they have to make their retirement money last longer. The long-term trend isn’t particularly encouraging. The study says that a 25-year-old college-educated woman today can expect to make $523,000 less than a 25-year-old college-educated man over a lifetime.

(From Financial Advisor Magazine, June 2008)

Where have you come from this past year? What have you accomplished? Don’t like the answers? Wish you had better ones, more fulfilling ones? You can – just one year from now!

You have within yourself the power to decide that when someone asks you just one year from now, “What did you accomplish in the last year?” you will respond, “Let me tell you – I was on fire!”

You aren’t getting any younger, and neither am I. If nothing changes, next year you will be one year older and still stuck in the rut wondering when you will achieve your dreams. But you can change!

Here are some thoughts to apply so that you can take control of your world and ignite your life!

Decide what you want this year. What is it – exactly? You will never pursue it, nor get it, if you do not know what “it” is. Crystallize it in your mind. See it. Know it.

Put some sort of physical reminder where you will see it every day. Maybe you want to lose weight. Put a picture of someone who looks the way you want to, or perhaps a picture of yourself from when you weighed what you want to weigh again. This will keep it in your mind each and every day.

Increase your positive self-talk. Stop telling yourself negative things, and I include thoughts, not just verbal talk. Instead, start telling yourself positive things. “But Paul, those thoughts just run around in my head. I don’t put them there!” Well, catch them. Take them captive and throw them out! When you catch yourself thinking negative thoughts, stop and ask yourself what the exact opposite would be. Then begin to think it. Let the positive thought expand and take over the terrain of your mind the same way the negative thought would have before you ran it out of town!

Act. Yes, act. I don’t mean join a theater group. I mean, get some action going in your life. Want to get out of debt? Ask the boss for 5 hours of overtime a week. Over a year that would be 250 hours (I give you two weeks for vacation. Aren’t I nice?). If you normally make $15 an hour, you will make $30 (or something like that – go with me here). $30 multiplied by 250 is $7500. Your action will move you toward your goal. Worrying about money won’t. If you want to lose weight, go to the gym on a set schedule. Whatever you do – act! Just make the action something that will propel you toward your goal.

If you do the above – if you decide what you want, put a physical reminder of it where you will see it, increase your positive self-talk and take actions that will propel you toward your goals, you will ignite your life! And next year when someone asks how you have been your eyes will light up and you will boldly say, “Man, I have been on fire! Let me tell you about it…”

This is an election year and it would appear that one party appears to possess more energy, the Democrats. Many of them are talking about raising taxes at a time when the global economy is becoming increasingly competitive and many of our leading trading partners are slashing tax rates. Consequently, some observers are saying if a tax-hiking president were to win the White House, it would discolor their long-term outlook for U.S. equities.

This is a much more important election – or perhaps it’s important in very different ways – than many people think. It’s also much simpler that it appears, although maybe these issues will sharpen as the election gets closer. There are really only two issues that I see.

Much or most of the sustainable growth in employment and output in the decade had been attributable to the 2001 and 2003 tax cuts; one candidate will be in favor of maintaining them, and one will favor letting them expire, which will equate to a massive (and disastrous) tax increase. The latter candidate will probably also favor dealing with the looming insolvency of Social Security through increases in payroll taxes, and be more inclined to retreat into protectionism, both of which would be very deleterious to the American economy.

The other issue will be the war on Islamofascism in general, and U.S. policy in Iraq in particular. One candidate will favor continuing the fight to stabilize Iraq, and thus to thwart Iran. The other will propose an announced schedule of rapid withdrawal, effectively ceding the region to Iran, and to chaos. So the choices are going to be very clear, because the candidates – even as they move toward the center in the general election campaign – are going to be philosophically very far apart.

The economy and the markets may be the wild card in this race, because the third and fourth quarter of 2008 are likely to show very powerful resurgence in output and especially in corporate earnings. Of course, perception will be the key: Bush 41 ran for re-election on the message that the recession was over and strong growth was back. This was true, but nobody believed him. In any event, I’ll stay invested.