Tax-Friendly States for Retirees

[Pages:4]Capital Point Financial Group

John M. Selzer Jr., CFP? Principal

4350 DiPaolo Ctr, Ste B Glenview, IL 60025

Phone: 847-635-8435 Fax: 847-635-8432

john.selzer@

Thank you for allowing us the opportunity to be your advisory team during the three phases of your financial life: Wealth Accumulation, Wealth Distribution and Legacy.

Please Don't Keep Us A Secret: Consider introducing us to your family, friends and acquaintances who may be seeking professional support for their financial objectives.

In this issue:

Tax-Friendly States for Retirees

Retirement Plan and IRA Limits for 2009

College Costs: Increases and Trends

Is my brokerage account protected?

Planning & Living for Life & Legacy FEB 2009

Tax-Friendly States for Retirees

Ifyou're retired,oraboutto retire,you m aybe thinking aboutrelocating to a state thathas low taxrates,orthatprovidesspecialtax benefitsto retirees.Here'sa surveythatm ay jum p-startyoursearch fora tax-friendlystate in which to spend yourgolden years.

Incom e taxes generally

State incom e taxes typicallyaccountfora large percentage of the totaltaxesyou pay.So,you m ay consider yourself luckyifyou live in one ofthe seven no-incom e-taxstates--Alaska, Florida,Nevada,SouthDakota,Texas,W ashington,andW yoming(New Hampshireand Tennessee im pose incom e taxonlyon interestand dividends).Ifyou're considering a state thatdoesim pose an incom e tax,you'll wanttoknow how ittreatsSocialSecurityand pensionsin particular.

State incom e tax and Social Security

SocialSecurityincom e iscom pletelyexem pt from taxin27ofthestateswithanincometax (aswellasthe DistrictofColum bia):Alabam a, Arizona,Arkansas,California,Delaware, Georgia,Hawaii,Idaho,Illinois,Indiana,Kentucky,Louisiana,M aine,M aryland,M assachusetts,Michigan,Mississippi,New Jersey,New York,North Carolina,Ohio,Oklahom a,Oregon,Pennsylvania,South Carolina,Virginia, andW isconsin.MissouriandIowapartiallytax benefits,butwillfullyexem ptbenefitsbeginning in 2012 and 2014,respectively.

Two states(Connecticutand Kansas)don't taxSocialSecuritybenefitsifyourotherincom e islessthan a specified dollaram ount ($50,000 or$60,000 in CT,$50,000 in KS). Threestates(Colorado,Utah,andW estVirginia)provide a generalretirem entincom e exclusion thattakesSocialSecuritybenefits into account.M ostofthe rem aining statestax

SocialSecuritybenefitsto the sam e extent they're taxed forfederalincom e taxpurposes.

State incom e tax and pensions

Ofthe stateswith an incom e tax,36 fullyor partiallyexem ptpension incom e--only California,Indiana,Nebraska,Rhode Island, and Verm ontdo not.Butthe exem ptionsvary considerablybystate.Som e statesexem pt publicpensionsfrom taxationbuttaxprivate pensions,orexem ptpublicpensionsearned in thatstate,butnotpublicpensionsearned in another state.

Som e statesexem ptem ployerretirem ent benefits,butnotIRA income.Somestates exem pta specificdollaram ountofretirem ent incom e,butonlyifyou've reached a certain age orhave incom e within certain lim its.In som e states,m ilitarypensionsare partiallyor fullyexem pt,while in othersthey're fully taxable.Som e statesexem ptdefined benefit pension paym ents,buttax401(k)benefits. Makesureyouunderstandhow yourparticular type ofretirem entincom e istreated.

Keepinmindthatfederallaw prohibitsstates from taxingcertainretirementincome(chiefly pension incom e)unlessyou're a residentof, ordom iciled in,thatstate.Forexam ple,ifyou receiveapensionfrom yourformerCalifornia employer,butyounow resideinFlorida, California can'ttaxyourretirem entincom e.

Other considerations

Rem em berthatstatesim pose m anyother kindsoftaxes(forexam ple,sales,realestate, and giftand estate taxes).Som e statesoffer taxbreaksto seniors,like propertytaxreductions,oradditionalexem ptions,standard deductions,orcreditsbased on age.

Foran accurate com parison am ong the states,you'llneed to consideryourtotaltax burden.A numberofwebsitesdedicatedto providing inform ation to retireescan help you in thisdaunting task.

Page 2

Retirem ent Plan and IRA Lim its for 2009

An increasing num berofretirem entplan and IRA limitsareindexedforinflationeachyear. Som e ofthe keynum bersfor2009 are discussed below.

Elective deferrals

Ifyou're luckyenough to be eligible to participate in a 401(k),403(b),457(b),orSAR-SEP plan,you can m ake elective deferralsofup to $16,500in2009,upfrom $15,500in2008.If you're age 50 orolder,you also can m ake a catch-up contribution ofup to $5,500 to these plansin2009,upfrom $5,000in2008.

Ifyour401(k)or403(b)plan allowsRoth contributions,yourtotalelective contributions, pretaxand Roth,can'texceed $16,500 ($22,000 with catch-up contributions).You can splityourcontribution anywayyou wish. Forexam ple,you can m ake $9,500 ofRoth contributionsand $7,000 ofpretax401(k)contributions.It'sup to you.

IfyouparticipateinaSIMPLE IRA orSIMPLE 401(k)plan,you can contribute up to $11,500 in2009(upfrom $10,500in2008).Ifyou're age50orolder,themaximum catch-upcontributiontoaSIMPLE IRA orSIMPLE 401(k) planin2009is$2,500,unchangedfrom 2008.

IRA lim its rem ain the sam e for 2009

Contribution lim its:2009tax year* (2008 lim itsin parentheses)

Plan type

401(k),403(b), and 457(b)** plans

SIMPLE plans

Annual dollar lim it

$16,500 ($15,500)

$11,500 ($10,500)

Catch-up lim it

$5,500 ($5,000)

$2,500 ($2,500)

Traditional and Roth IRAs

$5,000 ($5,000)

$1,000 ($1,000)

*Contributionscan'texceed100% ofyourpay.Ifyouparticipate in a 403(b)or457(b)plan,specialrulesm ayallow an even greatercatch-up contribution. **$5,500 catch-up appliesonlyto governm ental457(b) plans.

Som e other key num bers for 2009

For2009,themaximum amountofcompensation yourem ployercan take into account when calculating SEP and qualified plan contributionsand benefitsis$245,000 (up from $230,000 in 2008).

Themaximum annualbenefityoucanreceive from adefinedbenefitpensionplanislimited to $195,000 in 2009 (up from $185,000 in 2008).

The am ountyou can contribute to a traditional orRothIRA remainsat$5,000for2009,and themaximum catch-upcontributionforthose age 50 orolderrem ainsat$1,000.You can contributetoanIRA inadditiontoanemployer-sponsored retirem entplan.Butifyou (oryourspouse)participate in an em ployersponsored plan,yourabilityto deducttraditionalIRA contributionsmaybelimited,depending on yourincom e.Roth contributions are also subjectto incom e lim its.

Andthemaximum amountthatcanbeallocated to youraccountin a defined contribution plan (forexam ple,a 401(k)plan orprofitsharingplan)in2009is$49,000(upfrom $46,000 in 2008),plusage-50 catch-up contributions. (Thisincludesboth yourcontributionsand yourem ployer'scontributions.Specialrules applyifyourem ployersponsorsm ore than one retirem entplan.)

Incom e phaseout range for determ ining deductibility of traditional IRA contributions in 2009

1.Covered by an em ployer plan

Single/Head of household

$55,000-$65,000 ($53,000-$63,000in2008)

Married filing jointly

$89,000-$109,000 ($85,000-$105,000in2008)

Married filing separately

$0-$10,000 (samefor2008)

2.Not covered by an em ployer plan,but filing joint return with a spouse who is covered

$166,000-$176,000 ($159,000-$169,000in2008)

Incom e phaseout range for determ ining ability to fund Roth IRA in 2009

Single/Head of household

$105,000-$120,000 ($101,000-$116,000 in2008)

Married filing jointly

$166,000-$176,000 ($159,000-$169,000in2008)

Married filing separately

$0-$10,000 (samein2008)

Page 3

College Costs:Increases and Trends

Manyofthedevelopmentswesaw lastyearin the world ofhighereducation willcontinue to playoutin 2009,asthe largesthigh school classin Am erican historyheadsoffto college.

Costs,costs,costs

Forthe 2008/09 schoolyear,the totalaverage cost(tuition and fees,room and board, books and supplies, transportation, and otherm iscellaneousexpenses)foran instate publiccollege studentis$18,326;foran out-of-state publiccollege student,$29,193; and fora private college student,a whopping $37,390 (Source:The College Board'sTrends in StudentPricing 2008 Report).According to the College Board,overthe pastdecade,college costshave increased an average of5% to 6% a year.

Thisyear,the ever-increasing costofcollege com esata tim e when m anyparentsm aybe grappling with reduced college savingsdue to theailingeconomy.W ithlesssavings,lower hom e equityagainstwhich to borrow,and possiblystagnating incom esora recentjob loss,parentsm aybe lessable to contribute to theirchildren'sever-growing college financial need.

Borrowing

Enterstudentloans.The am ountofborrowing forcollege hasincreased trem endouslyover the pastdecade,especiallyin the area ofprivate studentloans.Lastyear,private loans comprised23% oftotaleducationloandollars, comparedto5% tenyearsago(Source:The College Board and The Projecton Student Debt).The reason forthe increase? The borrowing lim itson federalstudentloanshaven't keptpace with the rise in college costs.

theypaid no attention to costwhen searching fora college.Butthere'sevidence thispattern m aybe changing.Around the country,college adm inistratorsreportan increased focuson price atcollege fairs,and a m ajorityoffam ilies sayin online surveysthattheyare seeking lessprestigiousschoolsform oneyreasons.

Public college trends

Butjustaspubliccollegesfind them selves m ore in dem and than everbycash-strapped studentsand em ployeeslooking to gain a leg up in the workforce,state budgetdeficitsare forcing m anystatesto reduce theirpublic highereducation expenditures,resulting in m arkedlyhighertuition and fees.So far,at least20 stateshave m ade cutsto theirpublic universitybudgetsorare planning large tuition increases.And m ore statesare expected to be in financialperilin 2009,jeopardizing future publichighereducation expenditures (Source:TheW allStreetJournal,October17, 2008,"State BudgetCutsPush Tuition Higher").

Private college trends

The highesttierprivate colleges--the Iviesand afew selectinstitutions--haveenjoyedrecord endowmentgrowthoverthepastfew years (notcounting the econom icdownturn)and have translated those gainsinto increased m eritaid awards(which aren'tbased on financialneed)forthe beststudents.M anyofthese institutionshave even gone so farasto offera free education to studentswhose fam ilies earn up to $150,000 or$200,000 peryear.

Butgo one ortwo levelsbelow,and m any collegesin the second and third tiersaren'tin a position to m eetalloftheirstudents'financialneed.These collegescontinue to hand outm eritaid,butare m ore selective (and less generous)in theirawards.So studentsat these schoolscould end up paying m ore outof-pocket.

However,the ongoing creditcrunch hasaltered the m arketplace thisyear.M anyprivate lendershave dropped outofthe studentlending businesscom pletely,and those stillin it are charging higherinterestratesand requiring m ore stringentcreditchecks.

A studyconductedlastAugustbyeducational lenderSallieMaeconcludedthat70% offamiliesdidn'teven considertheirchild'slikely post-graduation incom e when deciding how muchtoborrow forcollege,and40% said

Federal legislation

Againstthisbackdrop,the federalgovernm ent passed the HigherEducation OpportunityAct lastyear.Am ong otherthings,the Actwill m ake iteasierforstudentsto applyforfederal studentloansand to research college costs onanew website,.

And in 2009,itwillbe interesting to see what ideasand policiesPresidentObam a,who just finished paying offhisown studentloansin 2004,bringsto the college table.

A look at

student debt

According to the College Board, alm osttwo-thirds ofcollege students graduated with studentloanslast year,with an average debtload of$22,700.

One unfortunate trend ofwidespread studentborrowing hasbeen an increase in the num berofheavily leveraged young college graduates. In fact,m anyfam ilies are considering private bailoutsfor theirchildren who tookon too m uch college debt.

(Source:The W allStreetJournal, October8,2008, "The NextBailout: YourAdult Children?")

Capital Point Financial Group

John M. Selzer Jr., CFP? Principal

4350 DiPaolo Ctr, Ste B Glenview, IL 60025

Phone: 847-635-8435 Fax: 847-635-8432

john.selzer@

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s)may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Securities offered through LPL Financial, Member FINRA/SIPC

Prepared byForefield Inc, Copyright2009

Ask the Experts

Is m y brokerage account protected?

M ostbrokerage accounts are protected bythe SecuritiesInvestorProtection Corporation (SIPC).Unlike the FederalDepositInsurance Corporation (FDIC),which protectsbankdepositaccounts,theSIPC isnotagovernment agency.Though created byCongress,itisa nonprofitcorporation funded byitsm em bership ofbroker-dealersregistered with the Securitiesand Exchange Com m ission (SEC).

requiresbrokerage and clearing firm sto segregate m oneyand securitiesin custom eraccountsfrom theirownproprietaryassetsand funds.Thishelpsprotectcustomersfrom being harm ed bya firm 'sown trading activity. Also,firm sare required to m aintain a certain levelofcapitalreservestoenablethefirm to return custom ers'securitiesand cash in case ofafinancialfailure.Finally,theSEC specifies thatcustom erclaim stake precedence over otherclaim son a firm 'sassets.

TheSIPC helpsreturncustomerproperty, including securitiesand cash in brokerage accounts,should a broker-dealerorclearing firm experiencebankruptcy,insolvency,or unauthorized trading in a custom er'saccount. ShouldaSIPC memberbecomeinsolvent, SIPC wouldaskacourttoappointatrusteeto oversee transferofcustom ersecuritiesto anotherfirm ,oractasthe trustee itself.

SEC regulations also apply

TheSEC alsohasprovisionsthatcanhelp protectinvestorassets.Forexam ple,the SEC

W hat if a firm is liquidated instead of sold?

Securitiesregistered in a custom er'snam e (as opposed to being held in "streetnam e,"the m ostcom m on m ethod today)are returned to custom ersfirst.Assetsheld in streetnam e m ake up what'sknown asthe "fund ofcustom erproperty."Thatfund isdivided on a pro rata basis;assetsare shared in proportion to the size ofclaim s.Onlyifsecuritiesare still m issing afterthe pro rata distribution would SIPC coveragebeappliedtomakeupthe difference,up to the statutorycoverage lim it.

How m uch coverage does SIPC provide?

SIPC coversamaximum of$500,000per "separate custom er,"including up to $100,000 in cash,ata given institution.Aswith banks, totalcoverage can be higherform ultiple accountsatone firm .Aslong asaccountsare heldbywhattheSIPC considers"separate custom ers,"each accountqualifiesforseparate coverage.Forexam ple,a m arried couple could have two individualaccountswith $500,000 ofcoverage each,plusa jointaccountthatwould bring theiraggregated potentialcoverageforthatfirm to$1.5million.

Categoriesofseparate custom ersinclude:

x Individualaccountsheldbysomeonein hisorherown nam e,orbyan agentfor another individual

x Accountsheldjointlybytwoindividuals with equalauthorityoverthe account

x Accountsheldonbehalfofavalidtrust created bya written instrum ent(trust accountsare considered separatelyfrom those ofan individualtrustee)

Each ofyourretirem entaccountsata given firm alsogenerallyiseligibleforuptoanadditional$500,000SIPC coverage(includingas m uch as$100,000 in cash)ifsecuritiesare lost or stolen.

Ingeneral,SIPC coversnotes,stocks,bonds, m utualfunds,and othersharesin investm ent com panies.Itdoesnotcoverinvestm entsthat are notregistered with the SEC,such ascertain investm entcontracts,unregistered lim ited partnerships,fixed annuitycontracts,currency,gold,silver,com m odityfuturescontracts,orcom m oditiesoptions.Rem em ber alsothatSIPC doesnotprotectagainstmarketriskorprice fluctuationsin securities.

x Accountsheldbyexecutors,administra- Additionalinformationandabrochuretitled tors,andguardiansinthenameofade- "How SIPC ProtectsYou"isavailableat cedent,anestate,orsomeoneelse(for . exam ple,a guardian foran UGM A account)

x Accountsheldbyacorporation,partnership,orunincorporated association

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