Financial Planning Newsletter• June 24th 2009 

Did we hit the bottom?

This month: A review of the major economic benchmarks that signal recovery and understanding the 2010 Roth conversion rule.

If you have ever watched CNBC or picked up the Wall Street Journal you have no doubt heard about economic indicators. Those trusty little statistics that help economists forecast recessions 12 months after they have begun, or forcasting economic growth after the market has rebounded for 6 months! Yes that is a bit of sarcasm, as the indicators can be both leading and lagging. Be that as it may, it is important to understand just what those indicators are and what they mean:

Jobless Claims: put out by the US Dept of Labor. This is released weekly (every Thursday) and is a report on the number of first time filings for unemployment.

Existing Home Sales: put out by the National Association of Realtors. This is released monthly and is simply the number of single family homes / condos sold each month.

Consumer Confidence: put out by the Conference Board on the last Tuesday of each month. This is simply a gauge of how consumers feel about the economy and their personal finances.

Retail Sales: put out by the US Census Bureau once a month. This is a compilation of the value of goods purchased from more than 3 million US retailers.

Durable Goods orders: released by the US Census Bureau once a month. This is a report on new orders for long-lasting manufactured goods.

The widely held belief is that the stock market being a leading indicator, will recover several months in advance of the economic indicators above. However, the benefit of the indicators is in knowing if the market advance is sustainable and truly representing an economic recovery.

Understanding the 2010 Roth Conversion:

Throughout the course of this year you will begin to hear more about the 2010 Roth IRA Conversion. This one year event will allow all taxpayers to convert from a traditional IRA to a Roth IRA.

So what is a Roth IRA Conversion? A roth conversion is simply when a taxpayer takes their traditional IRA and "converts" it to a Roth IRA. Under current tax laws the conversion is only allowed for folks with an Adjusted Gross Income below $100k.

Why would you want to convert? In a traditional IRA all of the growth or pretax monies are taxable at your normal income tax rate when pulled out for retirement income. A Roth IRA has no tax on any of the growth (after age 59 1/2). The catch is that you have to pay ordinary income tax on the amount you convert, so it generally only benefits those that have many years until retirement so that they can grow their account to compensate for the taxes paid.

2010 is a unique year in that the IRS is allowing anyone (with any income) to convert their Traditional IRA's to Roth IRA's. So the high income earners that have been excluded from contributing to a Roth over the years can now establish one. Another benefit is that for anyone wanting to convert now that account values are lower you have the opportunity to let any market rebound over the next 5 or 10 years happen inside a Roth.



James A. Daniel,

This newsletter if for informational purposes only. The information contained within should not be considered as financial advice nor soliciation for financial services. Consult with your financial professional if you have any questions.

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