The shaky economy has caused many Americans to rethink their retirement plans. Some say they’ll put off retiring and try to save more money. Others say they don’t expect to retire, either because they don’t want to or they can’t afford to.

Over the years, I’ve represented a lot of clients before the IRS. I’ve listened to hours and hours of IRS hold music. And I’ve had a lot of conversations with IRS reps and agents. But last week something happened that truly shocked me: the IRS hung up on me. On purpose.

The details aren’t all that important. Basically, I called the IRS to discuss a client’s tax matter. While it’s my job to zealously protect the rights of my clients, I am very aware that the person on the end of the line is also doing their job, and as such, I am professional when I speak to the IRS. On this day, I did exactly that. I didn’t raise my voice. I wasn’t nasty. I merely tried to explain that there appeared to have been a cross in communications when the agent cut in abruptly with a brusque “This is how we do it” and then, Click.

I was actually rendered speechless. If you’ve met me, you’ll understand that’s quite the feat.

I called back, only to find that there is no way to speak to a supervisor without putting in a special request. I did exactly that – and I’m still waiting.

It was the first of a number of incidents that I would have previously considered to be out of character for IRS. Shocked by what appeared to be a change of direction from the “kinder, gentler IRS” in the 90s, I asked my colleagues on twitter whether they had noticed a difference in the IRS treatment of taxpayers:

The answer was…to continue reading click on IRS Gone Bad

So let’s accept and applaud that 80 can be the new 60, that millions of baby boomers will reinvent themselves during their 60s and 70s, and that stereotypes about being old in America will be tossed out in favor of more positive images of vibrant old age.

Even so, we will still get old. After all, isn’t that the goal of today’s enhanced emphasis on taking better care of ourselves? To age successfully, however, we also will need to contemplate important aspects of our later years, up to and including plans for our death.

The Longevity Project, a current book on traits of people who have lived long and successful lives, notes that conscientious people are favored to live long and well. One reason is that they do not leave things to chance. They tackle future needs today. Having plans in place, they are more prepared and less stressed about what their futures may hold. Such an approach does not, of course, guarantee successful aging. But it sure raises the odds.

Here are some of the key planning needs that nearly everyone will face as they age and retire. Some are practical and financial; others are very subjective but no less important. In every case, the sooner you begin to build these plans, the better off you’ll be in the future. How many of these life “boxes” have you checked off?

To continue reading go to 6 Ways to Plan for Your Later Years

By ROBERT W. WOOD – Forbes.com

Do You Feel Lucky?  No one wants to be audited.  And yet as a tax lawyer advising clients about tax issues, I’m required by Treasury Department rules to assume every return will be audited.  In truth, there might be only a 2% chance of audit. When I say there’s a 50/50 chance a tax deduction will be upheld, I must assume it will be examined.

Because of these strict standards, it can be awkward to talk about audit risk.  But understandably, no matter how sure you are of your return, you don’t want to be audited.  You want your return to look plain vanilla, and nothing prevents you from trying to make it sail through as long as you fully and fairly complete it.  See 10 Ways To Audit Proof Your Tax Return.

Audit Witchcraft? There are many old wives’ tales about what does and doesn’t trigger an audit, but the latest IRS stats are worth a look.  The IRS has pulled back the shroud on audit rates in its 2010 Data Book, providing important clues about your chances.  The numbers reveal some surprising percentages.

To continue reading go to What’s Your IRS Audit Risk? at Forbes.com.

What the new credit card law means for you

by Connie Prater – FoxBusiness.com

Credit card users can expect the most dramatic changes in credit terms, interest rates and fees in decades now that most major provisions of a new federal credit card law have gone into effect.

The new normal for credit cards is more transparency and easier-to-understand terms, but at a higher upfront cost. Credit card issuers and credit industry analysts say the credit card reform law makes credit cards more costly for all users and unaccessible for low-income families and people with bad credit. The law likely means the return of routine annual fees, fewer rewards cards and the possibility that credit card bills will be payable immediately rather than after a month-long grace period.

The new normal for Credit Cards

President Obama signed the Credit CARD Act of 2009 into law May 22, 2009, following passage days earlier in the Senate and the House.

What does the credit card law mean for cardholders? Millions of credit card users will avoid retroactive interest rate increases on existing card balances and have more time to pay their monthly bills, greater advance notice of changes in credit card terms and the right to opt out of significant changes in terms on their accounts. That will take the surprise out of “gotcha” fine print and give consumers time to shop around for better deals if they don’t like the new terms. The requirements are being phased in. The first batch took effect Aug. 20, 2009, and the majority of provisions started on Feb. 22, 2010, while some begin on August 22, 2010.

The Fed just announced final rules for the third phase of the Credit CARD Act — which takes effect on August 22, 2010. Those rules say, among other things, that late payment fees will be capped at $25 in most cases. Also, if consumers exceed their spending limits, they can’t be charged more than the excess amount.

The law has fundamentally changed the way credit card issuers market, bill and advertise credit cards.

Here are the highlights of the credit card law:

To view the rest of this article go to What the new credit card law means for you

Cash is often not the most effective thing to give. Appreciated securities are a more efficient choice.

I know the thought is that the market is down, how could there be appreciated securities out there? Well, you might be surprised to find that there are many broadly diversified US Stock mutual funds that have a year-to-date return in the high 20% to the high 30% range. There are also funds specializing in the Emerging Markets that are pushing 80% for their year-to-date returns.

For those individuals lucky enough to have bailed out of the market before the bottom and then bought back in near the bottom on March 9, 2009, (a strategy I don’t recommend because it usually fails) they should have returns that far exceed those identified above.

So, what’s this got to do with giving? Give away some highly appreciated shares instead of cash. You will avoid the capital gains tax, which, if you have owned the security less than 12 months, will be taxed as ordinary income at your personal income tax rate.

As an illustration, let’s assume you are in the 35% Federal tax bracket and you want to give your favorite charity $10,000.  The charity will get $10,000 and you will get to write off a $10,000 donation that will save you $3,500 in taxes.

But, what if you give your favorite charity $10,000 worth of shares you purchased during the past year instead? The charity gets $10,000 worth of stock, you get to write off the $10,000 donation plus you avoid the income tax you would otherwise pay when you sell those shares.

Let’s assume you have a 50% gain in value. In the case of short-term gains, you would save $1,750 in income taxes and if you wait for long term gains with the 15% capital gains bracket you would save $750 in capital gains taxes.

So, in either case the charity gets $10,000 but on your side of the transaction cash will only get you the charitable deduction; but giving securities will get you both the charitable deduction and the avoidance of some capital gains taxes as well.

If you want to pursue this strategy, hurry. The transaction must be completed prior to January 1, 2010 for it to work for this year’s income tax reporting.

This won’t work if you try to donate from an IRA or other retirement plan. It has to be done from a taxable investment account.

I wish you joyful giving, Merry Christmas and a most happy new year ahead.

“It is more blessed to give than to receive.” – Jesus (Acts 20:35)

This is intended to discourage people from invading retirement plans early. And, it generally works.

However, there are occasional cases in which a person simply must begin taking funds from their IRA. There is a way to avoid these penalties. It is known as the SEPP or “Substantially Equal Periodic Payments” plan also identified by the tax code as 72(t). These payments must continue until the person is age 59 1/2 or 5 years, whichever is later. If these payments are modified, all of the prior payments become subject to the penalties. You must be very careful about violating the rules if you embark on this plan.

Here is the story about someone who innocently got stung by “modifying” her payments.

In a recent IRS Private Letter Ruling the rigidity of the rules under IRC § 72(t) by which substantially equal periodic payments are exempt from the 10% early withdrawal tax is illustrated. An individual’s non-taxable transfer of a portion of her individual retirement account to another IRA constituted a prohibited “modification” of the payments, which the IRS ruled could not be corrected by reversing the transfer. The error resulted in the distributions she had taken over the prior seven years all being subject to the 10% early withdrawal tax and interest.¹

Transfer of Only a Portion of the IRA Caused a Modification

In 2008, an individual taxpayer submitted a request to the IRS for a private letter ruling (PLR) after learning that her non-taxable transfer earlier that year of a part of her IRA resulted in a prohibited “modification” of the “substantially equal periodic payments” plan she had been taking from that IRA since 2002. The taxpayer had completed the transfer on the advice of a financial advisor who suggested she invest a portion of the IRA in certificates of deposit, which were not available at the current financial institution, but which were available for IRAs at another institution. After opening another IRA at the other institution, the taxpayer transferred a part of her original IRA. Later the same year, the taxpayer consulted with representatives of a third financial institution about the possible transfer of the remaining IRA assets and was informed that the prior transfer constituted a “modification” of her series of substantially equal periodic payments. In later speaking with her financial advisor she was told that the transfer would cause the imposition of the 10% early withdrawal tax, plus interest, on all amounts that had been withdrawn from the IRA since 2002.

Early Distribution Penalty Applies Retroactively

The taxpayer was age 56, and had begun taking substantially equal periodic payments from the IRA six years earlier at age 50, in 2002. IRC 72(t)(1) imposes a 10% tax on early distributions from qualified plans and IRAs. However, the tax is not imposed if the distributions are part of a series of “substantially equal periodic payments” that are made at least annually over the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of the employee and beneficiary. But, if the payments are modified (other than by reason of death or disability) before the individual reaches age 59-1/2, or after the individual reaches age 59-1/2 but before the close of the 5-year period beginning with the first payment, then the taxpayer is obligated to pay the 10% early withdrawal tax that would have been imposed on the earlier payments, plus interest.

“Substantially equal periodic payments” are calculated by using the account balance as of the first valuation date selected. Therefore, as the IRS explained in the letter ruling, a modification occurs if there is any (1) addition to the account balance other than gains or losses, (2) nontaxable transfer of a portion of the account balance to another retirement plan or IRA, or (3) rollover of the amount received so that it results in the distribution not being taxable.

Error Cannot Be Corrected by Reversing the Transfer

As a result, despite the fact that the transfer was made on the basis of erroneous advice from her financial advisor, and the taxpayer had proposed to correct the error by transferring the amount back to the original IRA, the IRS ruled that a “modification” had occurred and could not be corrected by undoing the transfer. Since the modification occurred in 2008, before the taxpayer reached age 59-1/2, she was obligated for that year to pay an additional 10 percent early distribution tax on the distributions she had taken from the IRA since 2002, plus interest.

It seems sort of unfair to the taxpayer since it was the result of incorrect professional advice and since she offered to restore the funds to their original position. This does underscore the importance of good advice before taking action in the more esoteric areas of practice. The rules really are quite clear, but not too many people take action under the SEPP provisions of 72(t) and as a consequence even many advisors are not clear on the rules.
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¹.PLR 200925044 (March 23, 2009)

Historically securities brokers have been viewed as salespeople with special legal responsibilities:  Treat customers fairly, follow special rules regarding the customers’ money and securities, and recommend to customers only suitable investments.  Brokers offered liquidity by creating markets in certain securities, actions also subject to special rules designed to ensure customers were treated fairly.

Through the years, broker dealers also began to offer investment advice and financial planning.  They not only collected commissions, as do pure-play brokers, but sometimes charged a percentage of the clients’ assets, as do advisers.  Thus, small and large brokerage firms and banks, which have entered the fray, offer four types of services: Brokerage, dealership, advice, and financial planning.

While these four functions are differently regulated, the customers — and many of the broker-dealers-advisers-financial planners themselves -– don’t know the difference. Legally, broker dealers are not subject to fiduciary duties; advisers and planners are.  The difference between broker dealer regulation and fiduciary law is fundamental.  Broker dealers can act for their own benefit, but must do so fairly.  Advisers and financial planners must provide service solely for the benefit of their clients.

For the full story go to Reuters The Great Debate

– Tamar Frankel, an authority on securities law, is a professor at Boston University School of Law and author of “Trust and Honesty: America’s Business Culture at a Crossroad.” The opinions expressed are her own. –

In the video linked below, David Booth, co-founder and CEO of Dimensional Fund Advisors, discusses the importance of balancing volatility risk and purchasing power risk when investing for retirement. He explains that T-bills have not produced the real returns necessary to preserve living standards over the long haul, and illustrates how investors can manage both types of risk through an appropriate commitment to stocks.

Retirement, Risk and Return

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“Investor Education for Main Street America”