May 2007
Thank you, Thank You, THANK YOU!!!
Thank you for putting up with the traffic woes getting here. Thank you for persevering in your search for us as the landmarks disappeared. Thank you for working around our parking issues. Thank you for putting up with us. Your patience and sense of adventure helped us cope better with the noise, dust and unexpected interruptions to give us a successful tax season. The timely completion of your returns sometimes suffered. We promise to do better next tax season. With the expected completion of this phase of the road widening by December and the in-house changes we plan to make, next year should go much smoother.
Parking: Forever changing. At this moment we have 4 spots behind the buildings (we own the neighboring property) plus one in front. We should have the neighboring building fully deconstructed before road construction moves to our side. We will extend the gravel parking for next season. Then, in ’08, build a permanent solution. Also, remember that our property borders Toni Street – another viable solution to parking especially if you are in an oversized vehicle.
Unwatched 401(k)s
We always hear that we should diversify our investments….and we should! But many employees choose an initial diversified portfolio when they start their 401(k), and never think of it again! Without looking at quarterly performance, or at a very minimum, checking performance annually, workers can lose out on the earnings in the market. It takes just a few minutes to check performance online or give the investment firm a call; and the results can be great. At ATP, our advice is almost always to put as much as possible in your 401(k), especially if your company offers some sort of match. The match is free money (an automatic earnings no matter what is happening with stocks and bonds) and should be taken advantage of if at all possible. In most cases, this should be done before looking at any other retirement savings plans.
Another reason to keep tabs on your 401(k) investment portfolio is that companies are always adding choices to the mix. Additional options may be offered that will strengthen your diversified portfolio.
Borrowing from your 401(k)
Most 401 (k) plans allow for limited borrowing from your account. Repayments with interest are deducted from your pay and added to your account balance. You pay interest to yourself. This may sound inviting, but also holds some financial danger. If you leave the company, the balance becomes a taxable distribution subject to the 10% penalty. Since the money was already spent when the funds were borrowed you may not have the resources to pay the bill.
Finding a Lost Pension
A traditional pension plan is not part of the employee benefit package at all companies; in fact, with the popularity of 401(k) Plans, many employers have discontinued or made cuts in company pensions. However, thousands of Americans have qualified for a company-paid pension at a previous job, and will become eligible for the payments when they turn 65. Does this include you? And if so, how will you go about making sure you receive the payments?
In many cases, companies have no regular system of keeping in touch with former employees and notifying them of how to begin collecting when they turn 65. Though they have a fiduciary obligation to pay benefits, they are not required to hunt down potential recipients until retirees reach age 70 ½. At that point, the law does require the plan to start making payments.
You may need to do a bit of research to know how to contact a former employer. With all the buy-outs, take-overs, and company mergers, you may not even be sure of the current company name under which payments will be made, let alone, how to contact them and make the arrangements for your pension.
If you are owed a pension, it's a good idea to notify your former employer any time you move. Keep a copy of the pension plan summary on file, including any amendments and contact information for the plan administrator. Most importantly, don't wait! Take the steps now to make sure you have the information you'll need when it's time to retire.
Here are some resources that might be helpful:
(non-subscribers can search a list of companies to find mergers and acquisitions)
Tapping into your 401(k) or IRA for Early Retirement
Have you worked for many long years with one company?Would you like to try some other pursuits while you are still “young” and under age 591/2? Perhaps you will need a little extra to feel financially comfortable until social security kicks in or your new activity pays off. You can take distributions from your IRA or 401(k) penalty free if they are a “part of a scheduled series of substantially equal periodic payments made over your life expectancy and that of your beneficiary.” There are several methods which may be used in calculating the amount. Some of the more involved computations can give a larger amount. Try each before deciding. These are commonly referred to as 72(t) distributions. There are several websites which will run the scenarios for you. Just type 72(t) into the search box.
Other Uses for Retirement Funds
Since the tax benefits of retirement plans were initiated to encourage savings for retirement, taking distributions for other purposes (before retirement age) is generally subject to a 10% tax penalty. If you are not at least 59 ½, we suggest that you check with us or with your financial advisor before taking a distribution. Rules and regulations for different types of plans vary significantly.There are some general rules to keep in mind and strategies that can be used to avoid the penalty under certain circumstances.
When you leave a place of employment, you may wonder about the benefits of leaving your retirement funds in your 401(k) (which is generally a "legal" option), or rolling over the funds to an IRA. If the investment performance of your 401(k) has been good, you may want to leave the money where it is, at least for awhile. However, the rules regarding exceptions to the 10% penalty for "early distributions" are a bit tougher for 401(k)s than for IRAs. Two examples of this are the exception for "first-time" home purchase and for education expenses. Distributions for these two purposes may qualify as an exception to the penalty if taken from your IRA, but would be subject to the penalty if taken out of your 401(k). So, if you have the choice, and foresee the possibility of taking a distribution for the purchase of a home (must be a "first" home, but this is defined as neither spouse having owned a home within the past two years) or for education expenses, you may save tax dollars by taking the distribution from your IRA rather than your 401(k). As mentioned before, there are other factors that should also be considered; make sure you understand the tax consequences before you take a distribution of any kind.
NEW Retirement Savings Tax Law
Congress passed a comprehensive pension reform bill late in the year. The nine hundred-page Pension Protection Act of 2006 contains many provisions that could directly affect your retirement savings. This Act represents the first comprehensive pension legislation in over 30 years, and the tax laws within it are varied and complex. The laws attempt to avert a meltdown of traditional private pension plans (and the taxpayer bailout that has often resulted), as well as improve participation in IRAs and employee plans such as 401(k)s. It includes over 100 tax provisions, including brand new laws and extensions of older ones. Contribution levels have been raised.
These are some of the highlights of the new legislation:
* Employers may automatically enroll their employees in the company's 401(k) plan; employees would need to "opt-out" in order not to participate.
* Personalized investment advice can now be offered by providers of IRAs and 401(k)s.
* Taxpayers can direct the IRS to deposit their refund directly into their IRA.
* Penalty-free distributions will be allowed for taxpayers who are called to active military duty.
* Makes permanent a number of retirement plan and IRA liberalizations that were set to sunset after 2010, including increased contributions to IRAs, larger catch-up contribution limits for those age 50 and older, and increased maximum annual contributions to 401(k) plans.
* After 2007, allows direct rollovers from qualified plans to Roth IRAs.
* Eased 401(k) hardship distribution rules.
* Allows non-spouse beneficiaries to make rollovers of inherited amounts in qualified plans or IRAs to their own IRAs.
Inherited IRAs
When a spouse receives an IRA as part of an estate or inheritance, the funds should generally be kept separate from any IRAs owned by that spouse. Once the funds from the deceased spouse are rolled into an IRA in the spouse's name, any subsequent distributions are subject to the 10% penalty (if the surviving spouse is under 59 ½). To avoid the penalty, the distribution needs to be taken by the surviving spouse directly from the deceased spouse's IRA….this is one of the exceptions to the general penalty on distributions from retirement accounts before age 59 ½. (The 2006 tax law extends these provisions to non-spouse beneficiaries as well; the death of the taxpayer waives the penalty for early distributions, but not if rolled into the beneficiary's own IRA first.)
REAL ESTATE LOANS
Warning:not all mortgage interest is deductible
We are seeing an influx of 2nd mortgages on homes, vacation homes and rentals. The interest on these loans is not necessarily tax deductible.
1. If the purpose for the loan is to purchase the property or improve it, it is deductible.
2. If the purpose is to pay off other debt i.e. cars, credit cards, taxes or get cash for personal use, it might not be deductible or it may be subject to Alternative Minimum Tax.
Therefore; do not use the rental or 2nd home as collateral if borrowing for purposes not related to the property.
On the other hand - using your principle residence generally works.
Other home buying and refinancing tips:
PMI – a new tax deduction on 2007 tax returns for new loans taken out in 2007. PMI is “private mortgage insurance.” If you are required to pay this insurance it is deductible. Like with many deductions, there is an income limit.
Loan origination fees versus Discount Points - Loan origination fees are not deductible. Points are. Talk to the lender and insist that you be charged points instead of loan origination fees.
Documents: Always provide us with the closing statements for all new mortgages. Also, the payment history that comes with the year end mortgage statement.
Recycling Tip…..
Are you looking at all your plastic containers? Don’t forget the frozen food trays, prescription drug containers, flower pots for the plants you are buying for the garden this time of year, etc. You will be surprised how many are recyclable. We are allowed to recycle containers with the Plastic Recycle codes 1-7 in most of the Treasure Valley. Where is the code? Look for the number inside the triangle.
SPOTLIGHT…..on YVONNE
When you call our office, there's a friendly new voice answering the phone.....our receptionist, Yvonne Cegnar. Yvonne will be at her desk year-round giving her additional opportunities to know and serve you.
Yvonne is one of those rare "Boise natives," being born and raised here, attending Boise schools and graduating from Borah High School in 1968.
She's been married to Barry for 38 years, raising two daughters and a son who also live in Boise. She is very proud of the loving and responsible parents they are to her six grandchildren. Ask Yvonne about her grandkids and she won't hesitate to tell you all about them and the joy they bring to her life!
Yvonne loves to read historical novels and has a passion for music. She has that fascinating gift of being able to play music "by ear"……playing the piano since she was a toddler, though not ever trained to read music! She enjoys playing her upright (a high school graduation present!) and electric keyboard at home, and also plays for her church.
Loving flowers seems to be a prerequisite for ATP employees, and Yvonne is no exception. She will join us this spring and summer in our "flower exchange" --- as we trade bulbs and "starts" for some of our favorites.
Yvonne says that her time at Ada Tax Professionals has been "quite an experience!" Taking on the new position at the beginning of the tax season "has been a challenge," she says, "but with the help of my encouraging co-workers, I have learned so much." She stresses that one of the perks of her job has been the interaction with our great clients….meeting new people and getting to know those of you who have been coming to the office for many years. She looks forward to seeing you again next year!
When writing our "SPOTLIGHT" stories, we always ask about a motto or "words of wisdom" the employee would like to share with our clients. From Yvonne:
“The Good We Do Today Will Never Be Forgotten, Even When We Forget.”
9140 Ustick Rd.
Boise, ID 83704
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INTEGRITY COUNTS
Ada Tax Professionals is pleased to be nominated for the "Integrity Counts" award sponsored by the Better Business Bureau. The purpose of the award is to recognize businesses in the Treasure Valley that demonstrate a commitment to integrity and ethical business practices.
There is a process involved for nominees which includes submitting comments from clients, employees and other members of the community regarding the integrity and business practices of companies nominated.
The BBB is looking for companies that:
*Demonstrate high ethical standards of behavior toward customers, suppliers, employees and the community in which they do business.
*Have marketing, communications and sales practices which reflect a commitment to integrity.
*Demonstrate integrity in their buyer/seller relationships.
*Have ethical policies which are designed to give long-term value to customers.
If you would like to participate by writing a few words about us, just send us a note by mail, fax, or email, no later than June 1, 2007. Your comments may be included in the packet we are preparing.