Tuggle & Russell, LLC

Now that the superior beings in DC have finally made a permanent decision – at least for the next two years – on the rates at which they will confiscate our money, maybe we should reconsider the advantages converting taxable IRAs to nontaxable Roth IRAs.  You should be aware that my position is that it is an unforgivable sin to pay any more tax than you absolutely have to, or pay it any earlier than the due date.  However, if (1) your top tax rate is always the same, (2) you have cash outside of retirement plans you can use to pay the additional tax on the conversion, and (3) you are not dependent on IRA distributions for living costs, then you might consider making a conversion in an amount that will not cause any income to be taxed at a higher rate.

 Some advantages of converting a regular IRA to a Roth IRA are:

• Withdrawals up to the conversion value and contributions, are nontaxable if you are over 59.5
• All withdrawals are nontaxable after account is 5 years old
• Nontaxability applies to beneficiaries if named in IRA agreement
• Lack of income from investment of funds used to pay taxes reduces current taxes
• Reduces estate value by amount of taxes paid
• Income tax on future Roth IRA earnings is eliminated
• You can take until October 15 to file your tax return and make your final decision (do it by 10/1)
• You can open multiple Roth IRAs and decide whether to back out on each one separately before you file your tax return.  You pay taxes on the ones you don’t back out on.

 Some disadvantages are:

• Reduces deductions due to increased adjusted gross income, e.g. medical
• May increase Medicare premiums (currently based on adjusted gross income)
• May increase amount  of Social Security taxable
• Reduces income from investment of funds used to pay taxes

 So I can still change my mind even about paying taxes.  Talk to your retirement planning advisor—or us.

There are many radio stations lately advertising a website by Porter Stansberry called “EndofAmerica.”   We’ve had several clients asking about them.  So consider these thoughts if you decide to listen to one of his videos:

• Porter Stansberry makes his money selling subscriptions to his newsletters, not by trading.
• Even though Mr. Stansberry still contends he was falsely charged, the SEC filed suit against him for fraud in 2003.  See the SEC link for details:  http://www.sec.gov/litigation/complaints/comp18090.htm

Are some of the things he is saying true?  Yes.

• We are devaluing our dollar by printing money.  That brings about inflation, regardless of what Bernanke says.
• We are in a serious debt situation at every level.   
• If we don’t address our debt issues responsibly we will have to endure uncomfortable consequences, with global ramifications.

Have we ever had rampant inflation before in America?  Yes.  When my husband and I bought our house in 1983, our interest rate was 12-1/4%.  The max he projected in one of the video was 10%. 

Let’s say he is correct in his assessment of what could happen in America.  Is subscribing to Mr. Stansberry’s newsletter the way to escape these consequences?   Knowing his “secrets” about certain stocks is not a safe haven.  Buying gold does not guarantee that your wealth will be preserved [check out our videos on gold]. 

Bottom line:  This guy uses enough truth to make him believable, but he does NOT have secret answers to guarantee safety or wealth.  Follow the money:  how does he make HIS money?  By making YOU wealthy or by scaring you into subscribing to his newsletter?

–Lois Russell

A friend called me last week about his 401K he was maintaining with a former employer. He was laid off last year but kept his money in the employer-sponsored 401K. In March of this year he moved everything to a money market within the 401K. When his June statement arrived, he noticed he had “an investment loss” of $135. “How could this be?” he asked me. When I looked at his statement, it did indeed say “investment loss” which is NOT the same thing as a fee. But I told him, your money market did not lose value. That’s called “breaking the buck” and when it happened in 2008 it made huge news. Your money market did not break the buck. I instructed him to call the custodian of the 401K to find out what kind of fee was being applied to his account.

Well surprise, surprise! It is not uncommon for the participants of an employer-sponsored 401K to bear some of the administrative costs each quarter. So the whole time he was employed, and for the months following his lay off he was being charged $135 a quarter. He never realized it because it was falsely labeled investment gain/loss. So…Kemosabe, what about YOUR 401K? If you’re still employed, you don’t have much choice. But if you are no longer an employee of the company, why share the administrative costs of the plan? Just a thought.

Apparently my friend is not alone in being upset about the hidden fees. The Department of Labor has finally (after about 2 years of wrestling with the subject—like it should be so difficult to say “be honest”?) issued a rule that in essence says “be transparent.” But custodians don’t have to be transparent until July 16, 2011. So the lesson here is, “reduce your reliance on government!” Ask questions yourself; don’t wait for a DOL ruling to force custodians to disclose fee information.

But now, back to the point: If you are laid off and still have your money with your former employer’s 401K plan, you might want to rethink that strategy. Rolling over your 401K into an IRA gives YOU the control. Registered Investment Advisors (which we are) are required to be—and we want to be—transparent about fees charged to your account. Mull it over. We can help.

I’ve always assumed our country would provide an opportunity for my grandkids to have “middle class” lives, since it seemed our economy was growing. Recently the following statistics came to my attention, and now I am not at all certain. Consider the changes in 2009:

• 61% of Americans “always or usually” live paycheck to paycheck. 2007-43% and 2008–49%.
• 24% have postponed retirement age in the last year.
• Over 1,400,000 filed for bankruptcy in 2009. 32% more than in 2008.
• For the first time, banks own more residential housing net worth than all individuals together.
• The bottom 50% of income earners own less than 1% of the nations’ wealth.
• The average federal worker earns 60% more than the average private sector worker.
• The average time to find a job has risen to 35.2 weeks.
• Service jobs, generally lower paying, provide more than 40% of all jobs.
• Over 40,000,000 are on food stamps. Next year it will be 43,000,000.
• In China, garment workers work for 86 cents an hour. In Cambodia, 22 cents.
• The top 10% of earners make about 50% of total American income.
• 21% of children live below the poverty line.
• The number of millionaires rose 16% to 7,800,000.

Our nation is becoming more and more like the other nations with no middle class. With the “global economy” (read labor pool) and the added medical costs of Obamacare, the rush will be greater than ever to use the cheaper labor. Only about 5% of workers are entrepreneurs. The other 95% only want to get a check each week for the hours worked. Pay is going to be lower due to the number of unemployed. Currently, there are about 6 people looking for every job opening. Remaining in the “middle class” is going to be very difficult. Encourage your grandchildren to work for themselves.

Q:  When was the Federal Reserve created?

A:  President Wilson signed the Federal Reserve Act into law in 1913 setting up the Federal Reserve as the “lender of last resort” to avoid devastating runs on banks.

Q:  Is the Federal Reserve a bank?

A:  The Federal Reserve is a system of banks.  The Federal Reserve Act divided the nation into regions and authorized the formation of a federal reserve bank in each region.  All national banks within a region were required by law to become stockholders in their respective federal reserve bank.

Q:  Let me get this straight.  The Federal Reserve is not a government owned bank?

A: No, it is not.  The 12 regional federal reserve banks are privately held corporations authorized by Congress to regulate the flow of money.  Certain officials of the Federal Reserve Board are appointed by the President and approved by the Senate.

Q:  Why do my dollar bills say “Federal Reserve Note” at the top?

A: “United States Notes” were authorized by the Legal Tender Act of 1862.  In 1913 The Federal Reserve Act authorized the production and circulation of “Federal Reserve Notes”.  For a time both Notes were circulated.  In1971, however, issuance of the United States Notes ceased and only the Federal Reserve Notes are used today.  Federal Reserve Notes are claims on the assets of the issuing Federal Reserve Bank and are liabilities of the U.S. Government.  (www.ustreas.gov)

Q:  What difference does it make if technically the Federal Reserve is privately owned?

A: Mayer Amschel Rothschild (founder of one of the largest international banking dynasties) put it this way:

“Give me control of a nation’s money and I care not who makes the laws.”

I have written my congressman.  OK, so maybe my one lone letter won’t change the world.  But I realized I was talking up a storm about what was wrong in Washington, but not telling anyone who could do anything about it.  I wrote my congressman telling him I wanted him to support the reinstatement of the Glass-Steagall Act—it separated banking functions from investment functions.

The current lament from Wall Street is that doing so would hurt the economy.  That would not be true.  America functioned quite well, thank you, from 1933 to 1999 having banking and investing separated.  Greed is the reason the bill was repealed, greed is the reason Wall Street is fighting it, and greed is the reason we are in the mess we are in globally.  OK….[deep breath] I realize I am preaching to the choir here.  So let me go back to writing my congressman.

I was feeling quite righteous about deciding to write my letter.  But then, uh oh.  Just who is my congressman?!?!?  Now, in my defense let me say that I live in Richardson, but in Collin County and pay Plano school taxes, so I’m allowed some confusion here.  But then I realized that people like me make it really easy for people in Washington to just keep on doing what they’ve been doing — we just don’t pay any attention!!

So now came the task of figuring out who my congressman was (and I certainly wasn’t going to ask anyone, admitting that I didn’t know!).  When I was in the mood to write the letter, I did not have my voter registration card with me.  That’s the easiest way to figure it out—see what district you are in then google it and—voilà!   There you are.  BUT, if you have no idea where your voter registration card is, then you can go to http://www.govtrack.us/congress.  Type in your ZIP Code and press Go.  Then you’ll have a link to your very own congressperson—mine happens to be a congressman.

It is important that you compose your letter in your own words.  You don’t have to fully understand all matters financial to know that combining banking (taxpayer money) with investing (risking taxpayer money) is not good.

So if you are truly outraged at what is going on in Washington and Wall Street, I encourage you to do more than gripe to your friends.  Tell your congressperson and vote when the time comes.  None of this will be an easy fix, but it will never get fixed if rational people do nothing.

For YEARS my mom has kept what we refer to as The Book.  The Book, spoken about in ominous tones, had information that would be necessary for someone else to know in case something happened to our mom and dad.  Growing up, my sister and I hated any reference to The Book as if acknowledging its existence would cause something bad to actually happen.

By the time I got married I had decided that mom was pretty smart to keep such a Book.  But I certainly didn’t want to LOOK at it!  And I had no desire for one of my own.

About 7 years after we were married, my husband’s father, who was a widower, passed away.  Whoa.  Now everything was up to his two young-adult sons and daughters-in-law who were trying to figure out what all he had, and what final arrangements he would have wanted.  It would have been handy if there had been a Book.  My mom may have been on to something.

Years later, when many of our peers had growing children, my husband and I had an epiphany:  If something happens to YOU, who will take care of ME!!  We did not have children and we realized we’d better get ourselves a Book or no telling what would happen!  Sigh…maturity had finally settled in.  So, because of our situation, we decided to have a living trust, which included, but was not limited to, instructions for what certain people should do in case we were incapacitated as opposed to just dead.  We now have our own Book. 

A couple of years ago my mom was insistent that we discuss HER Book.  This time I wasn’t nearly as afraid of The Book as I had been in years past.  In fact, it wasn’t a sad conversation at all.  We actually laughed and had a good time. The Book, once so scary, is now a friend.  Go figure.

So what is the point of this little narrative?  Hello!  Make your own Book!  I know, I know.  It sounds like an icky thing to do.  And it will require a few legal documents.  But it really does put you in charge.  Ooo, now that should appeal to you!   Encourage your folks to have their own Book.  If you have kids, for heaven’s sake have mercy on them and show them your Book.  You don’t have to be dreary and dismal to have a Book conversation.  Be creative.  Have fun with it!  You’re a boomer, after all.  And we boomers do EVERYTHING our own way!

In the past year, two different acquaintances have had experiences with international crooks who are very convincing and smooth in their relationships.  They begin with an official looking letter with great news.  It appears the person to whom the letter is written has had the good fortune of being a winner in a lottery.  Never mind that they haven’t bought a ticket or done anything to get involved with a lottery.   Generally, there is no cost to the winner, and the winnings are $250,000 (or some other not too unreasonable amount).  Only one small item.  The lottery needs to verify that the recipient of the letter is who he/she claims to be.  So the lottery needs $500 to do the investigation.  It is urgent that the “winner” send the money to the foreign bank (or other) official via Western Union within 10 days for the investigation to go forward.  A couple of days later, the “winner” is contacted by telephone by a very smooth talking “official” of the lottery to see if the money has been sent, and explaining what a great lottery this international lottery is.  If it hasn’t been sent, more pressure is applied to get it done today!  So, why not?  It’s only $500, the “winner” thinks, and it might be true.  After the initial payment, more and more things have to be paid for, and the calls keep increasing, coming from a variety of people.  Meanwhile, the “winner” gets to be on a first name basis with every- body at the Western Union office.  Also, the international calls bump up the monthly telephone bill to over $500.  In one instance the “winner” paid over $100,000.  So if you, or anyone you know gets a similar letter, destroy it immediately.  Remember these things-

• You can’t win a lottery without putting up money.  It’s illegal.
• Your local police aren’t interested.  It’s out of their jurisdiction.
• The FBI isn’t interested.  It’s not in their line of business.
• No foreign government is interested in you.
• Usually the names of people and companies provided are fake.
• Google “scam” pages to find a lot of information about various “scam” artists. .
• They are looking for people who are relatively well off so they will be able to send money.

                        Interestingly, after several months, one participant was contacted by other “officials” wanting him to send more money to a certain address.  The caller was a police “official”, and they had recovered a lot of the money that had been scammed, and if he would cooperate, he could recover his money.  A letter he received from a bank president confirming this information was determined to be a fake and the company letterhead was not that of a bank.

Sure!  Car, house & contents, boat, airplane, Medicare (whatever that may turn out to be), long-term care (maybe), umbrella, life, disability, and whatever else a smooth talking salesman can convince you that you need.  Well, that’s good!!

How about insurance that your worldly possessions will be properly handled if you are disabled?  Have you explained to your wife all your business dealings?  Even if she has a CPA or attorney to guide her, does she know all the bank accounts, IRAs, royalties, and such like you have accumulated over a life time of deals?  Have you made arrangements for the disposition of closely held stock or other business interests?  Does she know what they are?  Do you owe any money she isn’t aware of and the pay back arrangements?  Insure her peace of mind by giving her the benefit of your advice about what she should do if you don’t make it through eighteen holes one day.  You probably won’t care after that.

But what if you don’t have a wife?   Who will see to the many things you have to deal with?  Maybe you don’t even have any kids to dump it on.  Let’s say you make it through the eighteen holes, but that night you have a stroke and can’t walk or talk.  Who will make decisions about your care and keeping?  Who will pay the bills?  Who will look after the rental property or investments?  I have several clients who are in that very spot. No kids, in their 80‘s or 90’s and wondering what they should do. No one has authority to make medical decisions, or business decisions, and those are two very separate areas. Is that worth insuring?

Maybe you have kids, but which one will take the responsibility?  Will they be fighting over that “privilege”?  Do they have the same capabilities?  Do they handle their money well?  Would they handle yours well?  Is there one who has disabilities?  Do any of them know what you want if you have health problems?  Do they have any idea of what you own or even how big your estate is?   Do you want to insure that they know what you want if you are incapacitated, and what to do with your assets?

These are tough questions, and most people don’t want to even talk about them.  But sometime, somewhere they must be answered, whether you are ready or not.  Better decisions will be made if they are discussed without the emergency circumstances that will force them to be answered.  Some suggestions–

• Make a list of your assets and liabilities with notes on any unusual arrangements affecting them
• Call a  meeting of your entire family (even grandkids old enough to sit still) and talk about what you have, what you expect to happen to it, and who you expect to take care of the person as well as the property.  Face those tough questions about who you think would do better job of making decisions, both for health and property.
• Make some provision for compensating those whom you choose to be responsible because it takes a lot of work and time to handle either job.
• You may be pleasantly surprised at what good kids you raised.