5 Common Retirement-Planning Mistakes to Avoid

(Continued from page 3)

until it reaches 45 percent in 2007.

The estate tax would not apply to those who die in 2010. It would then be resurrected in 2011, with the exempt amount returning to $1 million and the top rate returning to 55 percent.

If this tax law seems confusing, take heed and see what the NY Times says about it.

It would be "a mistake to assume the estate tax will not be owed if one lives long enough. But even if one lives until 2010 and the repeal remains in effect, new problems arise that will require professional advice."

"Without revisions to a will, for example, the changing tax rates and rules could result in a surviving spouse being left with little or nothing."

New York Times, June 14, 2001

ACTION STEPS for Putting the Tax Relief

law to work for you

1. Put your rebate check to work by investing it; or earmark it for your 2001 IRA contribution.

2. Accelerate tax-deductible expenditures--making them this year instead of in future years, when rates are lower. (See box on the right for details)

3. Learn what the reduced rates mean in terms of your spendable income or increased savings

4. Give your IRA a raise with the $3000 contribution limit for 2002.

5. If you are 50 or older, find out about catch-up contributions to your IRA.

6. Look into new rollover options that begin in 2002 for 401(k)s and other retirement plans.

7. Check on your eligibility for tax credits when you make a retirement plan or IRA contribution.

Make Your Tax-deductible Expenditures This Year

One way to take advantage of the legislation is to accelerate tax ? deductible expenditures--making them this year instead of in future years, when rates are lower.

For example, someone in the top bracket could create a fund at his local community foundation this year with enough money to cover charitable gifts for the next decade or so, taking a deduction at the 39.1 percent top rate this year instead of the 35 percent top rate for 2006 and later.

So a fully deductible $100,000 gift now, would save $4100 more in taxes than it would in 2006.

Upcoming AFP Workshops and Special Events

September 29, 2001 9:00 am Saturday Workshop: New Rules of the Estate Tax Game AFP Learning Center

October 2, 2001 9:00 am Invitational Golf Tournament Walnut Creek Country Club

October 20, 2001 9:00 am Saturday Workshop: A Plan for Protecting Your Assets AFP Learning Center

November 8, 2001 7:00 pm Client Appreciation Dinner Guest Speaker: The ABCs of Real Life Management

November 13, 2001 7:00 pm Special Presentation: Protect Your Wealth-- Legally Eliminate More Taxes Texas Star Conference Center

December 8, 2001 9:00 pm Saturday Workshop: Building Your Perfect Calendar AFP Learning Center

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Volume 1 Issue 1 September 2001

In this Issue

5 Common Retirement Planning Mistakes to Avoid

Money's Best Places to Retire

A Special Welcome from Vance Lowe and Bruce Kimball

Putting the Tax Relief Act of 2001 to Work for You

Published by

Advanced Financial Planning 1720 Oak Village Blvd. Suite 100. Arlington, Texas 76017 (817) 468-3388

Registered representatives offering securities though Securities America, Inc. Member NASD/SIPC. Advisory Services offered through Advanced Financial Planning LP, a registered investment advisory firm.

5 Common Retirement-Planning Mistakes to Avoid

Financially sound people often make planning mistakes that needlessly reduce their retirement income. These mistakes include: 1. Overloading in company stock

2. Rolling company stock into an IRA

3. Over funding retirement accounts, or putting investments in the wrong location

4. Withdrawing from the wrong accounts

5. Depending on your business for retirement

1. Overload in company stock

No matter how successful your company is, it is risky to put your retirement future entirely in the hands of your company stock. Instead, you might consider strategies for diversifying your portfolio, including selling stock and buying outside stock when the opportunity arises.

This involves rolling over any cash and other plan investments into the IRA, but having the company stock distributed directly to you.

The advantage is that your tax will be calculated at ordinary income tax rates at the time of distribution. And, it will be based on the cost of the stock when it went into your account, not on its market value when it is distributed.

If you sell the stock to diversify for retirement, or hold on to it longer, you will pay capital gains on the profit earned since the stock was originally issued. The result can be significant tax savings, particularly if the stock has appreciated substantially in value.

3. Over funding retirement accounts OR Putting investments in the wrong location.

Higher-income investors typically maximize annual contributions to their retirement accounts and then invest remaining retirement funds outside of taxdeferred vehicles.

2. Rolling company stock into an IRA

Rolling company stock into an IRA is sometimes the right thing to do, however, an often overlooked stock benefit called "net unrealized appreciation" can offer a better strategy.

In this situation, conventional wisdom says to put income-generating investments such as bonds inside the taxdeferred vehicles, and keep stock investments outside. You may eliminate the tax bite from stock sales by the investment funds and use tax-free

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(continued from Page 1) municipal bonds outside, for the fixed income portion.

4. Withdrawing from the wrong accounts

Standard advice is to withdraw from taxable accounts first to pay for retirement, and allowing tax-deferred accounts to continue to grow (until age 70 1/2, when minimum withdrawals must begin).

But this may not always be the best option for people with higher incomes. If your taxable investments have accumulated large capital gains, you might prefer to leave those assets to your heirs,

because they can receive them in a way that eliminates capital gains.

5. Depending on your business for retirement.

It's common for small business owners to depend on the eventual sale of family succession of their business to fund retirement. But this carries the same risk as overloading on company stock. Setting up a company retirement plan where you can invest in outside assets is often the smart things to do.

(Source for this information: Financial Planning Association's Easy-to-Avoid Retirement Planning Mistakes, published June 06, 2001 )

Money's Best Places to Retire

Money magazine suggests the best places to retire. The hot spots of the Arizona sunbelt and Florida's Atlantic coast aren't for everyone - and a cross-country move away from family and friends can be unacceptable. For hundreds of thousands of us every year, retirement means, in effect, a new destination, and where we go says a lot about who we are and who we want to be.

Here are Money magazine's winners:

The Winners: Ft. Collins, CO Bradenton, FL Brunswick, ME Ashville, NC Bend, OR

Runners Up: Santa Fe, NM Hot Springs, AR San Luis Obispo, CA Madison, WI Amherst, MA

Special Reports & Credible Sources

We want to welcome you to the inaugural issue of our newsletter. This publication is extremely important to us because it is yet another way for us to share our knowledge with you.

In recent history it has rarely been as important as now to communicate relevant information. Americans are besieged with confusing messages on every communication channel. This is known as "information overload." You don't know who to trust, right? We have a solution for you. We'd like for you to consider this:

Instead of trusting only our advice, would you trust advice from Fortune, Forbes, Money, Wall Street Journal, Time, and other high-profile publications? Would you trust research reports from Kiplinger, Barrons, and other highly respected firms?

That list includes cities that best reflect the interests of Money's readers. It includes large and small cities, where a vigorous retirement is the norm, and where continuing education opportunities, outdoor activities, cultural amenities and good medical care are close by. Since today's retirees are often on the go, Money also looked for towns with good transportation options. And, of course, we cast a keen eye on home prices, taxes and cost-of-living indexes.

In the end, the list contains five outstanding places and five runners-up. Not only do the picks present a range of distinct geographic regions, they embody a range of sensibilities as well. And isn't that what retirement is all about? The question is: are you financially able to make the move to wherever you want to retire?

(Source: Money, 07-01-2000)

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That's what this newsletter is all about ? bringing you the best of the best advice from the best news services in the world. When we offer advice, it's never just our opinion; what we say is backed-up by other experts, too. We promise you will always get more from AFP.

You might consider this newsletter as a collection of short, highly relevant Special Reports. If you'll look at the articles, you'll see that the sources are cited and dated. When you get information from AFP, you get some of the best information in America. And, when you see something that you want to know more about ? just give us a call. That's why we're here.

"The woods are littered with folks who think they can manage your finances. The trick is finding a good one." USA Today, September 19, 2000

Putting the Tax Relief Act of 2001 to Work for You

Whether you're retired or still actively involved in your career, taxes are a fact of life - and so is the practice of minimizing them. The money you save from not paying excess tax can make a real difference to your wealth. In this section of Financial Blueprints for Success, we'd like to share information with you on the new tax bill: some facts, some tips, and information on how you can put the new law to work for you.

Rebate Checks & Lower Taxes

The Tax Relief Reconciliation Act of 2001 results in rebate checks for all Americans and lowers tax rates for everyone.

Tax-Free Saving for Education

The legislation also allows more tax-free saving for education, including private colleges. Current law allows a $500 after-tax contribution each year on behalf of a child to an Education IRA, for college expenses. Starting next year, $2000 can be contributed annually.

Interest, dividends and capital gain in these accounts can be withdrawn tax-free to pay school expenses, including tuition for private and parochial schools and colleges.

Tax Breaks for Children

The tax rates will fall in stages over the next five years. By 2006, the 39.6 percent rate paid by the top 1 percent of taxpayers will have fallen to 35 percent, the 36 percent rate to 33 percent, the 31 percent rate to 28 percent and the 28 percent rate to 25 percent.

Increased Limits on Tax-Favored Savings & New Roth 401(k)

The child credit increases this year to $600, from $500, for children under 18 and then rises in steps, to $1000 in 2010.

The maximum credit for child-care expenses will rise next year. Parents can receive a credit of as much as 35 percent of their child care costs, with a maximum of $3000. That credit doubles for families with two or more children.

People who save, especially those 50 or older, will benefit from significantly increased limits on tax-favored savings.

They will also get a new kind of 401(k) called the Roth 401(k) that will let them withdraw their gains free of taxes, thus extending the benefits of tax-free investing to those who new make too much money to qualify for a Roth IRA.

"Most people who expect to leave at least some money to their children or grandchildren should choose the Roth 401(k). Yes, you will be putting in after-tax dollars, but at the back end, you could be much better off, because not only will withdrawals be tax-free, but there is no minimum annual distribution required."

New York Times, June 14, 2001

The maximum credit for expenses in adopting a child will double next year, to $10,000 a child and the maximum income for those parents before the credit begins to phase out will also double, to $150,000.

Estate Tax Relief & Confusion

The amount that you can pass on to your heirs tax free begins to increase this year, then rises in steps over the next 8 years. This year, the first $675,000 is exempt from estate taxes and the top tax rate is 55 percent on amounts greater than 3 million. If you die next year, the amount exempt from tax will rise by 48 percent to $1 million, saving $125,500 in taxes.

The exemption will keep rising in steps, until it hits $3.5 million in 2009, and the top estate tax rate will fall (continued)

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