Michelle Morse was a full-time college student when she was stricken with cancer. Because Michelle faced potentially debilitating treatments, her doctors recommended that she cut back on her college course load. However, doing so would have caused her to lose her health insurance coverage under her family's plan, since she would no longer qualify as a dependent full-time college student. Michelle decided to remain a full-time student while undergoing cancer treatments.

While the disease ultimately took her life, the circumstances requiring her to remain in college in spite of her illness prompted legislative action. Passed in 2008, Michelle's Law provides that full-time college students covered by health insurance as dependents will not lose their dependent status during a medically necessary leave of absence from school due to a serious medical condition. The determination of "medically necessary" is made by the student's treating physician.

Under the law, the coverage must be extended for the earlier of one year from the date of the student's medically necessary leave of absence or the date the coverage otherwise would have ended based on specific policy provisions. The law applies not only to public and private two- and four-year colleges, but also to many occupational education and postsecondary vocational schools.

The law becomes effective for insured and self-insured health plans on the first day of their plan year beginning on or after October 9, 2009. For calendar year plans, this means the effective date is January 1, 2010.

-see disclaimer below-

Roth IRA Conversions--Planning for New Opportunities

With the lure of tax-free distributions, Roth IRAs have become popular retirement savings vehicles since their introduction in 1998. But if you're a high-income taxpayer, chances are you haven't been able to participate in the Roth revolution. Well, that's about to change.

What are the current rules?

There are currently three ways to fund a Roth IRA--you can contribute directly, you can convert all or part of a traditional IRA to a Roth IRA, or you can roll funds over from an eligible employer retirement plan (more on this third method later.)

In general, you can contribute up to $5,000 to an IRA (traditional, Roth, or a combination of both) in 2008 and 2009. If you're age 50 or older, you can contribute up to $6,000 in 2008 and 2009. (Note, though, that your contributions can't exceed your earned income for the year.)

But your ability to contribute directly to a Roth IRA depends on your income level ("modified adjusted gross income," or MAGI), as shown in the chart below:

If your federal filing status is:	Your 2009 Roth IRA contribution is reduced if your MAGI is:	You can't contribute to a Roth IRA for 2009 if your MAGI is:
Single or head of household	More than $105,000 but less than $120,000	$120,000 or more
Married filing jointly or qualifying widow(er)	More than $166,000 but less than $176,000	$176,000 or more
Married filing separately	More than $0 but less than $10,000	$10,000 or more

Regardless of whether you contribute directly to a Roth IRA, if your MAGI is $100,000 or less, and you're single or married filing jointly, you can convert an existing traditional IRA to a Roth IRA. (You'll have to pay income tax on the taxable portion of your traditional IRA at the time of conversion.) But if you're married filing separately, or your MAGI exceeds $100,000, you aren't allowed to convert a traditional IRA to a Roth IRA.

What's changing?

In 2006, President Bush signed the Tax Increase Prevention and Reconciliation Act (TIPRA) into law. TIPRA repeals the $100,000 income limit for conversions, and also allows conversions by taxpayers who are married filing separately. What this means is that, regardless of your filing status or how much you earn, you'll be able to convert a traditional IRA to a Roth IRA. The bad news? This provision of the new law doesn't take effect until 2010.

So why concern yourself with this now?

Even though the new rules don't take effect until 2010, there are steps you can take now if you want to maximize the amount you can convert at that time. If you aren't doing so already, you can simply start making the maximum annual contribution to a traditional IRA, and then convert that traditional IRA to a Roth in 2010.

Your ability to make deductible contributions to a traditional IRA may be limited if you (or your spouse) is covered by an employer retirement plan and your income exceeds certain limits. But any taxpayer, regardless of income level or retirement plan participation, can make nondeductible contributions to a traditional IRA until age 70½. And because nondeductible contributions aren't subject to income tax when you convert your traditional IRA to a Roth IRA, they make sense for taxpayers contemplating a 2010 conversion even if they're eligible to make deductible contributions.

And don't forget that SEP IRAs and SIMPLE IRAs (after two years of participation) can also be converted to Roth IRAs. You may want to consider maximizing your contributions to these IRAs now, and then converting them to Roth IRAs in 2010. (You'll need to set up a new IRA to receive any additional SEP or SIMPLE contributions after you convert.)

But there's a taxing problem

If you've made only nondeductible contributions to your traditional IRA, then only the earnings, and not your own contributions, will be subject to tax at the time you convert the IRA to a Roth.

But if you've made both deductible and nondeductible IRA contributions to your traditional IRA, and you don't plan on converting the entire amount, things can get complicated.

That's because under IRS rules, you can't just convert the nondeductible contributions to a Roth and avoid paying tax at conversion. Instead, the amount you convert is deemed to consist of a pro-rata portion of the taxable and nontaxable dollars in the IRA.

For example, assume that in 2010 your traditional IRA that contains $350,000 of taxable (deductible) contributions, $100,000 of taxable earnings, and $50,000 of nontaxable (nondeductible) contributions. You can't convert only the $50,000 nondeductible (nontaxable) contributions to a Roth. Instead, you'll need to prorate the taxable and nontaxable portions of the account. So in the example above, 90% ($450,000/$500,000) of each distribution from the IRA in 2010 (including any conversion) will be taxable, and 10% will be nontaxable.

You can't escape this result by using separate IRAs. The IRS makes you aggregate all your traditional IRAs (including SEPs and SIMPLEs) when calculating the taxes due whenever you take a distribution from (or convert) any of the IRAs.

But for every glitch, there's a potential workaround. In this case, one way to avoid the prorating requirement, and to ensure you convert only nontaxable dollars, is to first roll over all of your taxable IRA money (that is, your deductible contributions and earnings) to an employer retirement plan like a 401(k) (assuming you have access to an employer plan that accepts rollovers). This will leave only the nontaxable money in your traditional IRA, which you can then convert to a Roth IRA tax free. (You can leave the taxable IRA money in the employer plan, or roll it back over to an IRA at a later date.)

But even if you have to pay tax at conversion, TIPRA contains more good news--if you make a conversion in 2010, you'll be able to report half the income from the conversion on your 2011 tax return and the other half on your 2012 return.

For example, if your only traditional IRA contains $250,000 of taxable dollars (your deductible contributions and earnings) and $175,000 of nontaxable dollars (your nondeductible contributions), and you convert the entire amount to a Roth IRA in 2010, you'll report half of the income ($125,000) in 2011, and the other half ($125,000) in 2012.

And speaking of employer retirement plans...

Before 2008, you couldn't roll funds over from a 401(k) or other eligible employer plan directly to a Roth IRA unless the dollars came from a Roth 401(k) account or a Roth 403(b) account. In order to get a distribution of non-Roth dollars from your employer plan into a Roth IRA you needed to first roll the funds over to a traditional IRA and then (if you met the income limits and other requirements) convert the traditional IRA to a Roth IRA. And, as described earlier, you needed to aggregate all your traditional IRAs to determine how much income tax you owed when you converted the traditional IRA.

The Pension Protection Act of 2006 streamlined this process. Now, you can simply roll over a distribution of non-Roth dollars from a 401(k) or other eligible plan directly (or indirectly in a 60-day rollover) to a Roth IRA. You'll still need to meet the $100,000 income limit for 2008 and 2009. And you'll still need to pay income tax on any taxable dollars rolled over.

One benefit of this new procedure is that you can avoid the proration rule, since you're not converting a traditional IRA to a Roth IRA. This can be helpful if you have nontaxable money in the employer plan and your goal is to minimize the taxes you'll pay when you convert.

For example, assume you receive a $100,000 distribution from your 401(k) plan, and $40,000 is nontaxable because you've made after-tax contributions. You can roll the $60,000 over tax free to a traditional IRA, and then roll the after-tax balance ($40,000) over to a Roth IRA. Since only after-tax dollars are contributed to the Roth IRA, this rollover is also tax free. (Both your plan's terms, and the order in which you make the rollovers, may be important, so be sure to consult a qualified professional.)

Is a Roth conversion right for you?

The answer to this question depends on many factors, including your income tax rate, the length of time you can leave the funds in the Roth IRA without taking withdrawals, your state's tax laws, and how you'll pay the income taxes due at the time of the conversion. And don't forget--if you make a Roth conversion and it turns out not to be advantageous, IRS rules allow you to "undo" the conversion (within certain time limits).

We can help you decide whether a Roth conversion is right for you, and help you plan for this exciting new retirement savings opportunity.

-see disclaimer below-

Worth Noting

"Cash for clunkers" receives additional funding

The Car Allowance Rebate System (popularly known as "cash for clunkers") was almost a victim of its own success. The program, which provides $3,500 or $4,500 vouchers that can be used toward the purchase or lease of a fuel-efficient new vehicle when an old "gas guzzler" is traded in, burned through its initial $1 billion funding well short of its projected expiration of November 1, 2009. On Friday, President Obama signed legislation that provides an additional $2 billion in funding for the program, an amount estimated to be enough to sustain current activity levels through the end of August.

The IRS also issued an alert advising dealerships that funds received under the program are includible in their gross income.

For up-to-date information on the Car Allowance Rebate System, see http://www.cars.gov/.

SEC rule on short selling

The SEC has made permanent a rule requiring that short sellers complete a trade within four days. Aggregated information on short positions in individual stocks will become available on self-regulatory organizations' web sites (such as FINRA) within a month of the trade, but short positions taken by individual money managers, such as hedge funds, will not be disclosed. And twice a month, the SEC also will disclose failed short trades, in which stock involved in a short sale is supposedly borrowed but never replaced. Failed short trades have raised questions about a possible connection to abusive so-called "naked" short selling (selling short without actually borrowing the stock) which may have contributed to the demise of Lehman Brothers last year.

A full explanation can be found here.

New Income-Based Repayment (IBR) plan for federal student loans

On July 1, the federal government's new Income-Based Repayment (IBR) plan for federal student loans went into effect. Under this program, a borrower's monthly student loan payments will be based on his or her income and family size. More specifically, annual loan payments will be 15% of the difference between a borrower's gross income and 150% of the federal poverty level (the latter depends on family size and state of residence). Monthly payments are then calculated as one-twelfth of that amount. After 25 years of qualifying payments, the principal loan balance may be forgiven.

The program is open to graduates who have a Stafford, Graduate PLUS, or consolidation student loan made under either the William D. Ford Federal Direct Loan or Federal Family Education Loan programs. The loans could be for undergraduate, graduate, or professional studies, as well as for job training. To enroll in the plan, borrowers should contact their lender.

Details are available on the studentaid.ed.gov website.

--see disclaimer below--

Market Summary for week ending 7-31-09

Market Week: August 3, 2009
The Markets

The equity markets ended a remarkable July on a high note. Though the sharp increases of the previous two weeks leveled off a bit, the direction was still positive, helped along by some key economic and housing statistics. The Dow saw its best month since October 2002, and the S&P 500 racked up its fifth straight month of gains. The Nasdaq continued to add to its year-to-date lead over other markets.

Market/Index	2008 Close	Prior Week	As of 7/31/09	Week Change	YTD Change
DJIA	8776.39	9093.24	9171.61	0.86%	4.50%
NASDAQ	1577.03	1965.96	1978.50	0.64%	25.46%
S&P 500	903.25	979.26	987.48	0.84%	9.33%
Russell 2000	499.45	548.46	556.71	1.50%	11.46%
Global Dow	1526.21	1747.64	1773.69	1.49%	16.22%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	2.24%	3.67%	3.50%	-17 bps	+126 bps

Last Week's Headlines

• The nation's plunging gross domestic product (GDP), a measure of economic health, slowed its descent in the second quarter. The initial estimate fell at an annualized rate of 1%. Though that's still a decline, it's a dramatic improvement from prior months--especially considering that estimates for Q1 GDP were revised to -6.4% instead of the earlier -5.5%. Slower declines in exports and business spending accounted for much of the improvement. However, core PCE (personal consumption expenditures not counting food and energy, which the Federal Reserve monitors as an inflation gauge) rose 2%.
• The 11% jump in June sales of new homes was the biggest monthly increase in eight years, though it was still 21.3% below last year's figure. At the current sales rate, it would take 8.8 months to sell all the new homes currently on the market. (That's better than last June, when the new-home inventory would have taken 10.7 months to sell out and sales fell 0.6% from the month before.)
• In other relatively good housing-related news, May home prices in 20 major cities were up by 0.5% from April--the first monthly gain in the Case-Shiller index since July 2006. The index was still down 17.1% from May 2008, though that decline is the best year-over-year comparison in the last nine months.
• Hampered by auto factory shutdowns and lower defense spending, June orders for durable goods fell 2.5%--the first decline in three months for the notoriously volatile figure. However, not counting autos and airplanes, the number actually rose by 1.1% from May.
• Consumer confidence was down from the previous month; the Conference Board's measure dropped from 49.3 to 46.6.
• New York Attorney General Andrew Cuomo's report on the $33 billion in bonuses paid last year by financial companies that received TARP funds raised some eyebrows--not to mention questions about the extent to which taxpayer money helped support that compensation.

Eye on the Week Ahead

Unemployment figures for July will be watched to see whether they follow through on last month's disappointing numbers or improve on them. Also, investors will keep an eye on the S&P 500 to see whether it can capture and hang on to the nice round 1,000 level, which it last saw on Oct. 6.

Key data releases: ISM manufacturing, construction spending, auto sales (8/3); personal income/spending, pending home sales (8/4); factory orders, oil inventories, ISM services (8/5); unemployment, consumer credit (8/7).

Data source: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

-see disclaimer below-

The Consumer Assistance to Recycle and Save (CARS) Act of 2009

President signs the Consumer Assistance to Recycle and Save (CARS) Act of 2009

On June 19, 2009, as part of a military appropriations bill, Congress passed the Consumer Assistance to Recycle and Save (CARS) Act of 2009. President Obama signed the bill on June 24, 2009.

The CARS Act of 2009, also known as the Cash for Clunkers bill, provides consumers with an incentive (in the form of a $3,500 or $4,500 voucher) to trade in an old gas guzzler (foreign or domestic) against the purchase or lease price of a more fuel-efficient new vehicle. The purchase or lease must be made between July 1 and November 1, 2009. To qualify, a new vehicle lease must be for at least a 5 year period. The National Highway Traffic Safety Administration (NHTSA) is referring to this program as the "Car Allowance Rebate System" at their website www.cars.gov.

To be eligible for trade in, a vehicle must

• Be in drivable condition,
• Have been continuously insured to the same owner for not less than a year at the time of trade,
• Have been manufactured after 1984,
• Generally, have a combined fuel economy value of 18 mpg or less.

The new vehicle must retail for less than $45,000 and must have a combined fuel economy value of at least 22 mpg for cars (18 mpg for category 1 trucks, which generally include SUVs, minivans, and pickup trucks, under 6,000 pounds).

Under the terms of the program, an electronic voucher will be issued directly to participating dealers that may be used to offset the purchase or lease price. The voucher will be worth:

• $3,500 if the combined fuel economy value of the new vehicle is at least 4 mpg higher than that of the eligible trade-in (if the new vehicle is a category 1 truck, the combined fuel economy value must be at least 2 mpg higher than that of the eligible trade-in vehicle)
• $4,500 if the combined fuel economy of the new vehicle is at least 10 mpg greater than that of the trade-in car (if the new vehicle is a category 1 truck, the combined fuel economy value must be at least 5 mpg higher than that of the eligible trade-in vehicle).

Since the dealer accepting the trade-in must destroy the vehicle, the only trade-in value of the vehicle will be the voucher value. As a result, the owner of a vehicle with a trade in value greater than the voucher amount will not benefit from the program.

Note: Special rules apply to heavier categories of trucks.

--See Disclaimer Below--

Bank Deposit Insurance Limits Extended

$250,000 Bank Deposit Account Insurance Limit Extended

On May 20, 2009, President Obama signed the Helping Families Save Their Homes Act of 2009. Included in the legislation was a provision that postpones until January 1, 2014 the expiration of the $250,000 limit on Federal Deposit Insurance Corp. (FDIC) insurance for bank deposit accounts. The limit was raised in 2008 from $100,000 per depositor at a given institution, and had been scheduled to revert to the previous $100,000 limit on December 31, 2009.

The legislation covers all account categories other than: (1) IRAs and certain other retirement accounts, which will continue to be covered up to $250,000 per owner after January 1, 2014, and (2) non-interest bearing transaction deposit accounts, which temporarily have unlimited coverage and are insured under the Transaction Account Guarantee Program, which is still scheduled to expire after December 31, 2009.

The Act also extended to January 1, 2014 the National Credit Union Share Insurance Fund's $250,000 share insurance coverage of accounts at credit unions.

--See Disclaimer Below--

Tax Season Follow-Up: Overwithheld? Underwithheld?

Tax Season Follow-Up: Overwithheld? Underwithheld?

Did you owe tax on your 2008 federal income tax return? If so, you might want to consider increasing the amount of federal income tax that's withheld from your paycheck by completing and filing a new Form W-4 with your employer. (If you're self-employed, you'll have to bump up your quarterly estimated tax payments.) Not having enough withheld can result in more than just a cash crunch at tax time--it can mean penalties and interest.

On the other hand, receiving a large federal income tax refund can be an indication that you should adjust your withholding as well. Why? A large refund essentially means that you're providing Uncle Sam with an interest-free loan during the year. Think of it this way: if you received a $4,000 refund, in 2008 you paid approximately $333 more each month to the federal government than you had to. Sure, you get that money back in the form of a refund when you file your federal income tax return, but the government doesn't pay you interest on those funds.

If you had taken that $333 every month and instead invested it in an account that earned exactly 3% annually, you would have an extra $80 by the time your return was due. And, depending upon how you invested the funds, you would be able to access those dollars during the year if you had the need.

If overpaying the government during the year is the only way that you can force yourself to save, go right ahead. Just recognize that there's an opportunity cost when you overwithhold. Consider investing those dollars instead; if your employer provides a 401(k) plan, think about increasing your contribution to the plan. Alternatively, you might be able to use payroll deductions to make IRA contributions. Like withholding, these contributions would come directly out of your pay; unlike withholding, though, the funds would be working for you instead of for Uncle Sam.

RECESSION OFFICIAL

NEW YORK (CNNMoney.com) -- The National Bureau of Economic Research said Monday that the U.S. has been in a recession since December 2007, making official what most Americans have already believed about the state of the economy .

The NBER is a private group of leading economists charged with dating the start and end of economic downturns. It typically takes a long time after the start of a recession to declare its start because of the need to look at final readings of various economic measures.

The NBER said that the deterioration in the labor market throughout 2008 was one key reason why it decided to state that the recession began last year.

Employers have trimmed payrolls by 1.2 million jobs in the first 10 months of this year. On Friday, economists are predicting the government will report a loss of another 325,000 jobs for November.

The NBER also looks at real personal income, industrial production as well as wholesale and retail sales. All those measures reached a peak between November 2007 and June 2008, the NBER said.

In addition, the NBER also considers the gross domestic product, which is the reading most typically associated with a recession in the general public.

Many people erroneously believe that a recession is defined by two consecutive quarters of economic activity declining. That has yet to take place during this recession.

This downturn longer than most

The NBER did not give any reasons or causes of the recession. But it is widely accepted that the housing downturn, which started in 2006, is a primary cause of the broader economic malaise.

The fall of housing prices from peak levels reached earlier this decade cut deeply into home building and home purchases. This also caused a sharp rise in mortgage foreclosures, which in turn resulted in losses of hundreds of billions of dollars among the nation's leading banks and a tightening of credit.

The current recession is one of the longest downturns since the Great Depression of the 1930's.

The last two recessions (1990-1991 and 2001) lasted eight months each, and only two of the 10 previous post-Depression downturns lasted as long as a full year, according to the NBER.

In a statement, White House Deputy Press Secretary Tony Fratto said that even though the recession is now official, it is more important to focus on the steps being taken to fix the economy.

"The most important things we can do for the economy right now are to return the financial and credit markets to normal, and to continue to make progress in housing, and that's where we'll continue to focus," he said. "Addressing these areas will do the most right now to return the economy to growth and job creation."

President-elect Obama's transition team did not have an immediate comment on the recession announcement. But other top Democrats said this is further proof of the need for another economic stimulus package, which Obama has advocated.
"With rising costs of living, rising unemployment, record foreclosures and depleted savings, we must do more to help families make ends meet," said Senate Majority Leader Harry Reid in a statement. "With the cooperation of our Republican colleagues, we intend to send a plan to the White House as soon as possible following President-elect Obama's inauguration next month."

How long will it go?

Nonetheless, several economists said the real concern is that there is no end in sight for the downturn.

Some suggested that the best case scenario for the economy is that it would reach bottom in the second quarter of 2009. And even if that happens, that would still make this recession the longest since the Great Depression.

Rich Yamarone, director of economic research at Argus Research, said the only good news for the economy is that some of the steps already taken by the government earlier this year could start to spur growth soon. For example, he said interest rate cuts by the Federal Reserve, which started in September 2007, "should be working their magic any day now."

In February, Congress passed a $170 billion tax rebate meant to stimulate the economy. But that only boosted GDP during the second quarter.

The financial market and credit crisis worsened during this summer, prompting Congress, the Treasury Department and the Fed to pump trillions of dollars into the economy through a variety of programs, including a $700 billion bailout of banks and Wall Street firms and hundreds of billions of lending by the Fed to major companies and lenders.

But Lakshman Achuthan, managing director of Economic Cycle Research Institute, said that at this point, the only solution for the recession is time.

"All the hand waving and real cash that policymakers are throwing at the problem won't change the fact we're stuck in this nasty recession," he said. "The ultimate cure of a recession is letting it run its course."

Achuthan's research firm tracks weekly leading economic indicators that are supposed to signal a change in direction for the economy four or five months ahead of time. Those indicators are continuing to fall at a record pace.
Still, he said he's not worried about the current recession turning into a depression, as many Americans fear.3

"Even with indicators in a tailspin, this still is only a very severe recession," he said. "There's lots of gloom, but we don't see doom."

By Chris Isidore, CNNMoney.com senior writer
Last Updated: December 1, 2008: 3:27 PM ET

see disclaimer below

What the Bailout Means to You

What the Bailout Means to You

The Emergency Economic Stabilization Act, referred to by some as the "bailout bill," or, as others prefer to call it, the "rescue plan," was recently enacted in an attempt to stabilize the turmoil in the U.S. economy. The Act allows the Treasury to buy "bad paper"--mortgages and mortgage-backed securities--from banks and financial institutions. According to Treasury Secretary Henry M. Paulson, Jr., the federal government believes this "bad paper" is part of the root cause of the chaos both on Wall Street and on Main Street. Money has stopped flowing because banks and financial institutions holding defaulting mortgages (due to a housing correction) have stopped lending, and investors (due to a lack of confidence) have been reluctant to commit capital to financial institutions. The hope is that by relieving banks and financial institutions of the burden of carrying this "bad paper," money will begin to flow again. What the actual result of the bailout will be on Wall Street remains to be seen, and there is no telling what the future might hold, but here are some results the average American is likely to see.

Cash in the bank will be better protected

The Act temporarily increases the FDIC and National Credit Union Share Insurance Fund deposit insurance limits from $100,000 per account to $250,000 through December 31, 2009. This will protect more of your money that is held in an FDIC-insured bank or savings association if that bank or association should fail.

Since accounts at different banks are insured separately, the easiest way to increase your coverage is to simply keep less than $250,000 at any one bank. You could have $250,000 each at 500 different banks, and be insured for $125 million in total. You may also qualify for more than $250,000 in coverage at one insured bank if you own deposit accounts in different ownership categories. For more information on this, go to the FDIC website at www.fdic.gov, or contact your financial professional.

Note: Through December 31, 2009, there is no FDIC coverage limit on non-interest bearing transaction deposit accounts, and the insurance amount on certain retirement accounts remains fixed at $250,000 per depositor per bank, even after December 31, 2009.

Mortgages, loans, and credit should become more available

Since many banks and financial institutions began putting the brakes on lending, many small businesses and consumers with lower credit scores have found it difficult, if not impossible, to get mortgages, car loans, credit cards, or other financing. The federal government expects the infusion of capital into banks and financial institutions will ease the credit drought, making mortgages, loans, and credit more available to home buyers, employers, and other borrowers.

Understand, however, that the increased ability to borrow and purchase by itself won't reduce the excess housing inventory, put an end to foreclosures, increase the value of homes on the market, or put builders to work again. Nor will it help consumers with their credit card debt or delinquency. Many expect banks and credit card companies to implement stricter standards, such as lowering credit limits and increasing fees. Borrowers with good credit and adequate collateral, though, should be able to continue borrowing with little problem.

Unemployment may stabilize

Though the bailout itself will not create jobs, the government hopes that the fact that employers will have more credit available to them will help stem the tide of unemployment. However, the government warns that with consumer spending down, inflation, and other stresses on businesses, it's unlikely that the job market will improve in the short run, and may even get worse before it gets better.

-see disclaimer below-

Supreme Court Decision Regarding Muni Bond Tax Exemption

Supreme Court Okays Same-State Muni Bond Tax Exemption

States may continue to exempt their residents from paying taxes on that state's municipal bonds, according to a recent ruling by the U.S. Supreme Court. The decision overturns a lower court decision involving the state of Kentucky. If it had been allowed to stand, the lower court decision would have had a substantial impact on muni bond investors, particularly those who own single-state mutual funds designed to provide a double tax advantage to residents of a particular state. The Supreme Court ruled that such in-state tax exemptions play an important role in helping states fund public projects.

Clarifying the tax status of state municipal bonds for local residents removes an issue that, coupled with the general credit crunch, had been weighing on the market for municipal bonds. For a copy of the ruling in Department of Revenue of Kentucky et al. v. Davis, click here.

As indicated below, this is not intended to provide tax or legal advise. Please consult with your tax or legal professional if you have specific questions regard a tax or legal matter. This information has been provided for informational purposes only and should not be taken as an offer or solicitation of an offer about a specific investment. Before deciding on the merits of any investment, you should obtain the applicable prospectuses and/or the program documents and description. As with all investments, you should read all materials, have a through understanding of the investment (including its risks and investment objectives) before investing or sending money.

Carrie Aguilar Joins Schnack Financial

Carrie came in to Schnack Financial Group late in 2007 as Executive Assistant for Relationships. She is a Los Angeles native and has a BA in Studio Art from California State University - Fullerton. Carrie's husband Steve, is in medical school in Chicago and moved her to our beautiful "Windy City" kicking and screaming. She coordinates our office operations and provides the primary contact with clients of Schnack Financial. Carrie was hired for her outgoing personality and ability to organize the endless number of tasks that a cutting edge financial services organization requires. We are extremely proud that she is part of our organization.

Variable Student Loan Interest Rates Increase

Variable student loan interest rates increased on July 1st

On July 1, 2007, the interest rates on variable federal Stafford and PLUS loans increased slightly. These new rates apply only to loans issued on or after July 1, 1998 and before July 1, 2006.

The interest rate on Stafford loans in repayment will increase to 7.22% from 7.14%. The interest rate on in-school, grace, or deferment status Stafford loans will increase to 6.62% from 6.54%. And the interest rate on PLUS loans will increase to 8.02% from 7.94%. These rates will be in effect through June 30, 2008. The Department of Education sets the rates once each year based on the last three-month Treasury bill auction held in May.

For all Stafford and PLUS loans issued on or after July 1, 2006, the loans will have a fixed interest rate--6.8% for Stafford loans and 8.5% for PLUS loans.

Send us an email, if you would like more information on, click here:

o Comparison of Federal Higher Education Loans
o Federal Student Loans
o Repaying Student Loans
o Student Loan Basics
o How Student Loans Impact Your Credit

-see disclaimer below-

June Seminars

For the month of June 2007, we will be hosting two College Financial Aid workshops.

Entitled 123College.com, the workshops provide revealing inside secrets on how to receive the most money possible in funding for College!

You will—

• Learn how to increase your eligibility for financial aid

• Learn how to pick colleges that will best suit your child and will give you the best possible financial aid package

• Learn how you may send your child to an expensive private university for less that a state college

LOCATIONS:

Tuesday, June 26^th

Millrose Restaurant & Brewing Co.
45 South Barrington Rd
South Barrington IL 60010

Time: 7:00 pm

Wednesday, June 27^th

Concordia University
Koehneke Community Center
7400 Augusta Blvd
River Forest IL 60305

Time: 7:00 pm

Refreshments will be served at both workshops

It is recommended that both parents attend

To make your reservation and for directions,

CALL 1-800-582-4195

(Please RSVP, as seating is limited!)

If you are unable to attend either of our Seminar Workshops, please call

708-386-2790 x 211

To schedule a one-on-one, no cost – no obligation appointment or for future 123College.com event locations.

Please note that programs held at a University, College or School facility are NOT being sponsored by the institution.

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Final IRC Section 409A Regulations

IRS Issues Final 409A Regulations

On April 17, 2007, the IRS issued its long-awaited final regulations under Section 409A of the Internal Revenue Code. The comprehensive regulations (over 400 pages in length) make numerous changes to the proposed regulations in an effort to make compliance less burdensome.

While the final regulations aren't effective until taxable years beginning on or after January 1, 2008 (later for collectively bargained plans), employers may rely on them immediately. Alternatively, employers may rely on the Service's prior guidance until the effective date.

Employers must amend their plans to comply with Section 409A no later than December 31, 2007. The plan document needs only to bring the plan into compliance as of January 1, 2008. Retroactive amendment to reflect pre-2008 plan administration (including reliance on any transition rules) isn't required (although taxpayers must be able to demonstrate that amounts were deferred or paid in compliance with any applicable transition rules).

The following summarizes some of the key provisions of the final regulations (focusing on areas where the final regulations differ from the proposed rules). For a general discussion of Section 409A, see our full topic discussion Internal Revenue Code Section 409A (Governing Nonqualified Deferred Compensation Plans).

Nonqualified deferred compensation in general

IRC Section 409A applies only to plans that provide for a deferral of compensation. Deferred compensation is compensation that a service provider has a legally binding right to receive from a service recipient, and that is payable to, or on behalf of, the service provider in a later year. (Since in most cases the relationship between the service provider and the service recipient will be that of employer/employee, for convenience these terms are used throughout the rest of this update. Keep in mind, however, that Section 409A applies to other relationships as well.)

• The final regulations clarify that a deferral of compensation exists if a payment will be made upon an event that could occur after the year in which the legally binding right to the payment arises. For example, where an employee has a right under a plan to payment upon separation from service, a deferral of compensation exists even if the employee separates from service and receives the payment in the same year as the grant (because payment is conditioned on an event that could occur in a subsequent year).
• The final regulations contain an anti-abuse rule that allows the IRS to treat any plan as a nonqualified deferred compensation subject to Section 409A if the IRS determines that a principal purpose of the plan is to achieve a result that's inconsistent with the purposes of Section 409A.

Independent contractors

Section 409A generally doesn't apply to an amount deferred under an arrangement between a independent contractor and an unrelated employer in any tax year if the independent contractor provides significant services to two or more employers (who are unrelated to the independent contractor and to each another). Under a safe harbor in the proposed regulations, an independent contractor is deemed to provide significant services to two or more employers if no more than 70% of the contractor's total revenues during the year come from any one employer.

The IRS recognized that the safe harbor was of limited value, as independent contractors might not know if they actually satisfied the safe harbor requirements any particular year until the end of that year. As a result, the final regulations provide a new lookback rule: an independent contractor that has satisfied the 70% threshold in the three immediately previous years is deemed to meet the 70% threshold for the current year. However, this lookback rule is available only if, at the time compensation is deferred, the independent contractor doesn't know, or have reason to anticipate, that he or she will fail to meet the 70% threshold in the current year.

Short-term deferrals

Under the proposed and final regulations Section 409A doesn't apply to short-term deferrals. A short-term deferral generally exists if payment is made no later than 2½ months following the end of the tax year in which the compensation vests (in technical terms, when the compensation is no longer subject to a substantial risk of forfeiture). However, the short-term deferral exception is only available if the plan doesn't provide for a deferral of the payment beyond the 2½ month deadline.

The final regulations clarify that the short-term deferral exclusion is not available if the plan specifies a payment event or date that will or may occur after the end of the short-term deferral period. For example, if an arrangement provides that compensation will be paid upon an employee's separation from service, which may occur in a future year, the arrangement will be deemed to provide for a deferred payment, and the short-term deferral rule will not be available, even if payment is in fact made within the applicable 2½ month period.

Stock options and stock appreciation rights

Nonqualified stock options are generally exempt from Section 409A if: (a) the exercise price is never less than the fair market value of the underlying stock on the grant date; (b) taxation of the options is governed by IRC Section 83; and (c) there are no deferral features (other than the deferral of recognition of income until the exercise or disposition of the option). Stock appreciate rights (SARs) are generally treated the same as nonqualified stock options for Section 409A purposes. The regulations refer to nonqualified stock options and SARs collectively as "stock rights." For the exclusion from Section 409A to apply, a stock right must relate to "service recipient stock."

• The final regulations expand the classes of stock that qualify as "service recipient stock," generally providing that any class of stock that qualifies as common stock under IRC Section 305 may be used, regardless of whether another class of common stock is publicly traded or has a higher aggregate value outstanding, and regardless of whether the class of stock is subject to transferability restrictions or buyback rights.
• The final regulations also provide that "service recipient stock" includes not only stock of the corporation for which the employee was providing services at the date of grant, but also the stock of any upstream corporation in the employer's controlled group. For this purpose, control is generally determined using a 50% ownership interest (rather than the 80% general rule), although 20% can be used if the employer establishes that use of the stock is based upon legitimate business criteria (as defined in the regulations). The stock of a downstream member of the controlled group, or of a brother/sister corporation, can't be used.
• The final regulations provide that a stock right won't become subject to Section 409A solely because the stock right's exercise period is extended, but not beyond the earlier of (a) the original maximum term of the stock right or (b) 10 years from the original date of grant. However, if a stock right is "underwater" (i.e., the fair market value of the underlying stock at the time of the extension is less than or equal to the exercise price) the exercise period can be extended without limit.

Separation pay plans

Separation pay plans are generally exempt from Section 409A if the separation pay (a) is payable no later than two years after the year separation from service occurs, and (b) is limited to the lesser of two times the employee's annual compensation or two times the section 401(a)(17) compensation limit. This exception applies only where the payment is made due to the employee's involuntary separation from service or participation in a window program. The exception doesn't apply to a plan providing for a payment upon voluntary separation from service or other event. The proposed regulations also provide that Section 409A doesn't apply to separation payments that don't exceed $5,000 in the aggregate.

• The final regulations provide that where a plan qualifies for this exemption, except that the separation pay exceeds the "two times pay" limit, only the excess over the limit will be subject to Section 409A. The right to payment up to the applicable limit will not be subject to Section 409A. As a result, the six month delay for payments to specified employees on account of separation from service will not be required for payments up to the "two times pay" limit.
• The final regulations clarify that separation pay refers only to compensation that an employee is entitled to upon a separation from service (including a separation from service due to death or disability) and not to compensation he or she could have received without separating from service (such as an amount that's also payable to the employee upon a change in control, as a result of an unforeseeable emergency, or on a date certain).
• The final regulations expand the separation pay exemption by permitting a voluntary termination for good reason to be treated as an involuntary separation if certain requirements are met (and avoidance of Section 409A is not the goal).
• The final regulations increase the small benefit exemption amount from $5,000 to the IRC section 402(g) deferral limit ($15,000 in 2007).

Reimbursement plans

The proposed and final regulations generally provide that Section 409A will not apply to an employer's reimbursement of certain expenses (such as reasonable outplacement expenses, reasonable moving expenses, and medical expenses). The regulations generally require that eligible expenses be incurred by the employee no later than the end of the second year following the year in which the employee terminates employment.

• The final regulations clarify that the right to a nontaxable benefit (for example, reimbursement of nontaxable medical expenses) is not subject to Section 409A.
• The final regulations extend the period of time that taxable medical expenses may be reimbursed. These reimbursements will not be subject to Section 409A during the period the employee would be entitled to COBRA coverage if he or she elected such coverage and paid the applicable premiums.
• Even though reimbursed expenses must generally be incurred by the end of the second year following separation from service, the final regulations generally extend the period during which reimbursements can be paid to the end of the third year following separation from service.
• The regulations clarify that reasonable moving expenses include the reimbursement of a loss incurred by an employee due to the sale of his or her primary residence.

Plan aggregation rules

The proposed regulations generally provide that all amounts deferred with respect to an employee under all plans of an employer of the same type are treated as deferred under a single plan. The proposed regulations defined four types of plans for purposes of these aggregation rules: account balance plans, non-account balance plans (for example, defined benefit plans), separation pay plans, and all other plans (for example, non-exempt stock right plans).

The final regulations provide additional categories for split-dollar life insurance arrangements, certain reimbursement plans, certain foreign plans, and stock right plans subject to Section 409A. The final regulations also generally require that account balance plans be subdivided into elective and non-elective arrangements.

Written plan requirement

Section 409A requires that a nonqualified deferred compensation plan be in writing.

• The final regulations generally provide that a plan will satisfy this requirement if the document or documents constituting the plan specify the amount of compensation the employee has a right to be paid, the payment schedule or payment triggering events, the conditions under which a deferral election may be made, and provisions describing the six-month delay applicable to payments to "specified employees" upon separation from service.
• A plan generally doesn't need to specify the conditions under which accelerated payments may be made, but the employer must demonstrate that an accelerated payment complies with the requirements of Section 409A and the final regulations.

• The final regulations clarify that a "savings clause" contained in a plan document will not protect a plan that contains provisions that don't meet Section 409A's requirements.

Deferral election rules

In order to be a valid deferral, an employee's initial election to defer compensation must be made prior to the year the compensation is earned. The proposed regulations contain a special rule for newly eligible employees. The individuals can make an initial deferral election within 30 days after first becoming a participant. Elections to defer performance-based compensation may be made up until six months before the end of the performance period.

• The final regulations expand the new-participant rule in two ways. First, if an employee was formerly a participant in the plan, was paid all amounts deferred under the plan, and was not eligible to continue to participate in the plan after the last payment, the plan can treat that employee as a new participant if he or she again becomes eligible to participate in the plan. Second, a plan participant who becomes ineligible to participate in the plan for a period of at least 24 months may be treated as a new participant if he or she again becomes eligible to participate (regardless of whether or not the employee has separated from service and regardless of whether or not the employee has received payment of his or her account balance).
• The final regulations clarify that a portion of an award can be performance-based compensation even if the award contains a non performance-based component, but only if the portion that qualifies as performance-based compensation is separately identifiable under the terms of the plan.

• The final regulations require that an election to defer performance-based compensation must be made before the amount of the compensation is readily ascertainable (as defined in the regulations). The proposed regulations had required that the election be made before the compensation had become substantially certain to be paid.

Time and form of payment

An employee's initial deferral election must specify the time and form of distribution. Alternatively, the plan itself can specify when and how payment will be made. Section 409A provides that distribution from a NQDC plan can occur upon separation from service, death, disability, change in control, unforeseeable emergency, or at a fixed date or pursuant to a fixed schedule. In general, a plan can't make a distribution on account of an unforeseeable emergency if the hardship need can be satisfied from the individual's other assets (unless liquidation of those assets would itself cause a severe financial hardship).

• The proposed regulations provide that a payment is treated as made on a fixed date if the payment is made by the end of the calendar year containing that date or, if later, the 15th day of the third month following that date. The final regulations clarify that the same flexibility applies when making a payment on account of a payment event. So, for example, where a payment is scheduled to be made upon an employee's death, the payment is timely if made on or before the later of December 31 of the calendar year in which death occurs, or the 15th day of the third month following the date of death.
• The final regulations provide that a right to a tax gross-up payment will satisfy Section 409A if the plan provides that payment will be made, and the payment is actually made, by the end of the year following the year the related taxes are paid to the taxing authority.
• The final regulations simplify the rules for determining when an employee separates from service. In general, whether the employee has terminated employment is based on whether the employee and employer reasonably anticipate either that (a) no further services will be performed after a certain date, or (b) that the level of bona fide services the employee will perform after that date (whether as an employee or as an independent contractor) will permanently decrease to no more than 20% of the average level of services performed over the immediately preceding 36-month period (or the full period the employee provided services to the employer if the employee has been providing services for less than 36 months). A plan can substitute a percentage ranging from 20% to 50% under certain conditions.
• The final regulations clarify the definition of "employer" for purposes of determining whether a separation from service has occurred. The employer is defined as including all entities that would be treated as part of the employer's controlled group under section IRC section 414(b) and (c), but using a 50%, instead of 80%, ownership level. A plan may instead use an ownership level ranging from 20% to 80%, but an ownership level of less than 50% may be used only where such use is based on legitimate business criteria, as defined in the regulations.
• Plans can adopt a "same desk" rule for Section 409A purposes under the final regulations, allowing unrelated parties to an asset purchase agreement to decide whether employees of the selling corporation that continue in their same positions with the purchaser of the assets will be treated as separating from service. The plan must treat all employees consistently (regardless of position at the seller), and that treatment must be specified no later than the closing date of the asset purchase transaction. For this purpose, a sale of assets refers to a transfer of substantial assets, such as a plant or division or substantially all of the assets of a trade or business.
• The final regulations clarify that elections with respect to the time and form of payment to a beneficiary after an employee's death are subject to the general rules governing subsequent deferrals and accelerated payments, whether those elections may be made by the employee or the beneficiary (special rules apply to qualified domestic relations orders).
• A domestic relations order may provide for a new time and form of payment to an employee's spouse or former spouse, or may give the spouse or former spouse the discretion to elect the time and form of payment. Section 409A rules will not apply.
• The final regulations provide that a payment due to an unforeseeable emergency may be made even though the financial need could instead be satisfied through an available distribution from a grandfathered nonqualified deferred compensation plan, or from another nonqualified deferred compensation plan that's subject to Section 409A.
• The Pension Protection Act of 2006 provides that where an event would constitute an unforeseeable emergency under the plan if it occurred with respect to the employee's spouse or dependent, such event will (if the plan so provides) also constitute an unforeseeable emergency if it occurs with respect to the employee's plan beneficiary. The final regulations reflect these new rules.

6-month delay for specified employees on separation from service

Under Section 409A a payment of deferred compensation to a "specified employee" on account of separation from service generally must be delayed for six months following the date of separation from service. A specified employee is a key employee of a corporation whose stock is publicly traded.

• The final regulations clarify that the six-month delay applies to an employee of a company whose stock is publicly traded solely on a foreign exchange, or is traded on a U.S. exchange only as ADRs.
• In order to avoid undercounting specified employees, a plan may provide that payments to all plan participants upon separation from service will be delayed for six months, regardless of whether the employee is a specified employee.
• The final regulations let a plan use an alternative method for identifying specified employees, provided that the alternative method (a) is reasonably designed to include all specified employees, the alternative method, (b) is an objectively determinable standard, (c) doesn't provide a direct or indirect election to any employee regarding the application of the rule, and (d) results in no more than 200 employees being identified as specified employees as of any date.
• The final regulations significantly alter the proposed rules governing the identification of specified employees following a corporate transaction, such as a merger or spin-off.
• The final regulations clarify that where a payment is made to a specified employee on account of disability, a change in control event, or an unforeseeable emergency, the payment need not be delayed merely because that individual separates from service after incurring the disability or unforeseeable emergency, or after the change in control event.
• The final regulations also provide that Section 409A is not violated where payment to a specified employee is made before the end of the six-month period due to a domestic relations order, to satisfy a Federal, state, local, or foreign ethics law, or to pay certain employment taxes.

Anti-acceleration rule

Section 409A prohibits a plan from accelerating the payment of an employee's plan benefit except as permitted by the IRS. The proposed regulations allow the acceleration of benefits from a plan in the following limited circumstances:

1. To satisfy a qualified domestic relations order (QDRO)
2. To comply with a conflict of interest divestiture
3. To pay certain FICA taxes relating to the deferred compensation
4. To pay income taxes due to the vesting of benefits in a Section 457(f) plan
5. To cash out small benefits ($10,000 or less) upon an employee's separation from service.

• The final regulations provide that a plan may give the employer, but not the employee, the discretion to accelerate a deferred payment upon the occurrence of one of the permitted acceleration events.
• The final regulations provide that benefit payments can also be accelerated to pay state and local taxes, RRTA taxes, and foreign taxes.
• The final regulations increase the small benefit limit from $10,000 to the limit on elective deferrals under IRC Section 402(g) ($15,000 in 2007). The final regulations, unlike the proposed regulations, provide that an employer can cash out the employee's benefit even if the employee hasn't separated from service--the employer may exercise its discretion any time an employee's benefit is less than the 402(g) limit. The plan aggregation rules apply, so an employer can't use this rule to cash out an amount under one arrangement but not another arrangement where the two arrangements are treated as a single plan.
• The final regulations generally provide that where an employer makes a payment to an employee that's a substitute for a payment of deferred compensation, then that payment will be treated as a payment of deferred compensation subject to section 409A and its anti-acceleration provisions. Similarly, if an employee's rights to deferred compensation are subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the service provider or the service provider's beneficiary, the employee's benefits are treated as having been paid to the employee, again invoking Section 409A's anti-acceleration rules.
• The final regulations provide that the addition of death, disability, or an unforeseeable emergency as a potentially earlier payment event is a permissible acceleration. This rule does not apply to the addition of death, disability, or an unforeseeable emergency as a potentially later payment event. Nor would it allow a plan to substitute, for example, an employee's death as a new payment event instead of a fixed payment date. The regulations provide that in those cases, the rules governing subsequent deferral elections (i.e., "second elections") apply.

Plan termination and liquidation

Under the proposed regulations an employer may generally terminate a plan if the employer (a) terminates all plans of the same type, (b) distributes benefits to all participants within 12 months of the termination date, and (c) doesn't adopt a new plan of the same type within 5 years. A termination covered by this rule would not be treated as violating Section 409A's anti-acceleration provisions.

• The final regulations clarify that the termination and liquidation of a nonqualified deferred compensation plan involves both the amendment of the plan to cease deferrals under the plan, and to provide for payment of all benefits accrued under the plan.
• The final regulations shorten the period of time during which an employer may not establish a new plan after terminating and liquidating a nonqualified deferred compensation plan has been shortened from five years to three years. The regulations also provide that a discretionary plan termination and liquidation will not qualify for this exception if it is proximate in time to a downturn in the financial health of the employer.
• The final regulations clarify the rules under which a deferred compensation plan may be terminated and liquidated upon a change in control event.

Information is derived from sources we believe to be reliable however its accuracy cannot be guaranteed.

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Death of a Family Member Checklist

Losing a loved one can be a difficult experience. Yet, during this time, you must complete a variety of tasks and make important financial decisions. You may need to make final arrangements, notify various businesses and government agencies, settle the individual's estate, and provide for your own financial security. The following checklist may help guide you through the matters that must be attended to upon the death of a family member.

Note: Some of the following tasks may be completed by the estate's executor.

Initial tasks

• Upon the death of your loved one, call close family members, friends, and clergy first--you'll need their emotional support.

• Arrange the funeral, burial or cremation, and memorial service. Hopefully, the deceased will have made arrangements ahead of time. Look among his or her papers for a letter of instruction containing final wishes. Arrange any cultural rituals, and make any anatomical gifts.

• Notify family and friends of the final arrangements.

• Alert your loved one's place of work, union, and professional organizations, and any organizations where he or she may have volunteered.

• Contact your own employer and arrange for bereavement leave.

• Place an obituary in the local paper.

• Obtain certified copies of the death certificate. The family doctor or medical examiner should provide you with the death certificate within 24 hours of the death. The funeral home should complete the form and file it with the state. Get several certified copies (photocopies may not be accepted)--you will need them when applying for benefits and settling the estate.



• Review your family member's financial affairs, and look for estate planning documents, such as a will and trusts, and other relevant documents, such as deeds and titles. Also locate any marriage certificate, birth or adoption certificates of children, and military discharge papers, which you may need to apply for benefits. These documents may be found in a safe-deposit box, or the deceased's attorney may have copies.

• Report the death to Social Security by calling 1-800-772-1213. If your loved one was receiving benefits via direct deposit, request that the bank return funds received for the month of death and thereafter to Social Security. Do not cash any Social Security checks received by mail. Return all checks to Social Security as soon as possible. Surviving spouses and other family members may be eligible for a $255 lump-sum death benefit and/or survivor's benefits. Go to www.ssa.gov for more information.

• Make a list of the deceased's assets. Put safeguards in place to protect any property. Make sure mortgage and insurance payments continue to be made while the estate is being settled.

• Arrange to retrieve your loved one's belongings from his or her workplace. Collect any salary, vacation, or sick pay owed to your loved one, and be sure to ask about continuing health insurance coverage and potential survivor's benefits for a spouse or children. Unions and professional organizations may also offer death benefits. If the death was work-related, you may be entitled to worker's compensation benefits.

• Contact past employers regarding pension plans, and contact any IRA custodians or trustees. Review designated beneficiaries and post-death distribution options.

• Locate insurance policies. The policies could include individual and group life insurance, mortgage insurance, auto credit life insurance, accidental death and dismemberment, credit card insurance, and annuities. Contact all insurance companies to file claims.

• Contact all credit card companies and let them know of the death. Cancel all cards unless you're named on the account and wish to retain the card.

• Retitle jointly held assets, such as bank accounts, automobiles, stocks and bonds, and real estate.

• If the deceased owned, controlled, or was a principal in a business, check to see if there are any buy-sell agreements under which his or her interest must be sold.

Within 3 to 9 months after death

• File the will with the appropriate probate court. If real estate was owned out of state, file ancillary probate in that state also. If there is no will, contact the probate court for instructions, or contact a probate attorney for assistance.



• Notify the deceased's creditors by mail and by placing a notice in the newspaper. Claims must be made within the statute of limitations, which varies from state to state (30 days from actual notice is common). Insist upon proof of all claims.

• Distribute the estate to the beneficiaries.

• A federal estate tax return may need to be filed within 9 months of death. State laws vary, but state estate tax and/or inheritance tax returns may also need to be filed. Federal and state income taxes are due for the year of death on the normal filing date, unless an extension is requested. If there are trusts, separate income tax returns may need to be filed. You may want to seek the advice of a tax professional.

Within 9 to 12 months after death

• Update your own will if your loved one was a beneficiary.

• Reevaluate your budget, and short-term and long-term finances.

• Reevaluate your insurance needs, and update beneficiary designations on insurance policies on which the deceased was the named beneficiary.

• Reevaluate investment options.

To find out more click here.

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Bonds, Interest Rates, and the Impact of Inflation

There are two fundamental ways that you can profit from owning bonds: from the interest that bonds pay, or from any increase in the bond's price. Many people who invest in bonds because they want a steady stream of income are surprised to learn that bond prices can fluctuate, just as they do with any security traded in the secondary market. If you sell a bond before its maturity date, you may get more than its face value; you could also receive less if you must sell when bond prices are down. The closer the bond is to its maturity date, the closer to its face value the price is likely to be.

Though the ups and downs of the bond market are not usually as dramatic as the movements of the stock market, they can still have a significant impact on your overall return. If you're considering investing in bonds, either directly or through a mutual fund or exchange-traded fund, it's important to understand how bonds behave and what can affect your investment in them.

The price-yield seesaw and interest rates

Just as a bond's price can fluctuate, so can its yield--its overall percentage rate of return on your investment at any given time. A typical bond's coupon rate--the annual interest rate it pays--is fixed. However, the yield isn't, because the yield percentage depends not only on a bond's coupon rate but also on changes in its price.

Both bond prices and yields go up and down, but there's an important rule to remember about the relationship between the two: They move in opposite directions, much like a seesaw. When a bond's price goes up, its yield goes down, even though the coupon rate hasn't changed. The opposite is true as well: When a bond's price drops, its yield goes up.

That's true not only for individual bonds but also the bond market as a whole. When bond prices rise, yields in general fall, and vice versa.

What moves the seesaw?

In some cases, a bond's price is affected by something that is unique to its issuer--for example, a change in the bond's rating. However, other factors have an impact on all bonds. The twin factors that affect a bond's price are inflation and changing interest rates. A rise in either interest rates or the inflation rate will tend to cause bond prices to drop. Inflation and interest rates behave similarly to bond yields, moving in the opposite direction from bond prices.

If inflation means higher prices, why do bond prices drop?

The answer has to do with the relative value of the interest that a specific bond pays. Rising prices over time reduce the purchasing power of each interest payment a bond makes. Let's say a five-year bond pays $400 every six months. Inflation means that $400 will buy less five years from now. When investors worry that a bond's yield won't keep up with the rising costs of inflation, the price of the bond drops because there is less investor demand for it.

Why watch the Fed?

Inflation also affects interest rates. If you've heard a news commentator talk about the Federal Reserve Board raising or lowering interest rates, you may not have paid much attention unless you were about to buy a house or take out a loan. However, the Fed's decisions on interest rates can also have an impact on the market value of your bonds.

The Fed takes an active role in trying to prevent inflation from spiraling out of control. When the Fed gets concerned that the rate of inflation is rising, it may decide to raise interest rates. Why? To try to slow the economy by making it more expensive to borrow money. For example, when interest rates on mortgages go up, fewer people can afford to buy homes. That tends to dampen the housing market, which in turn can affect the economy.

When the Fed raises its target interest rate, other interest rates and bond yields typically rise as well. That's because bond issuers must pay a competitive interest rate to get people to buy their bonds. New bonds paying higher interest rates mean existing bonds with lower rates are less valuable. Prices of existing bonds fall.

That's why bond prices can drop even though the economy may be growing. An overheated economy can lead to inflation, and investors begin to worry that the Fed may have to raise interest rates, which would hurt bond prices even though yields are higher.

Falling interest rates: good news, bad news

Just the opposite happens when interest rates are falling. When rates are dropping, bonds issued today will typically pay a lower interest rate than similar bonds issued when rates were higher. Those older bonds with higher yields become more valuable to investors, who are willing to pay a higher price to get that greater income stream. As a result, prices for existing bonds with higher interest rates tend to rise.

Example: Jane buys a newly issued 10-year corporate bond that has a 4% coupon rate--that is, its annual payments equal 4% of the bond's principal. Three years later, she wants to sell the bond. However, interest rates have risen; corporate bonds being issued now are paying interest rates of 6%. As a result, investors won't pay Jane as much for her bond, since they could buy a newer bond that would pay them more interest. If interest rates later begin to fall, the value of Jane's bond would rise again--especially if interest rates fall below 4%.

When interest rates begin to drop, it's often because the Fed believes the economy has begun to slow. That may or may not be good for bonds. The good news: Bond prices may go up. However, a slowing economy also increases the chance that some borrowers may default on their bonds. Also, when interest rates fall, some bond issuers may redeem existing debt and issue new bonds at a lower interest rate, just as you might refinance a mortgage. If you plan to reinvest any of your bond income, it may be a challenge to generate the same amount of income without adjusting your investment strategy.

All bond investments are not alike

Inflation and interest rate changes don't affect all bonds equally. Under normal conditions, short-term interest rates may feel the effects of any Fed action almost immediately, but longer-term bonds likely will see the greatest price changes.

Also, a bond mutual fund may be affected somewhat differently than an individual bond. For example, a bond fund's manager may be able to alter the fund's holdings to minimize the impact of rate changes. Your financial professional may do something similar if you hold individual bonds.

Focus on your goals, not on interest rates alone

Though it's useful to understand generally how bond prices are influenced by interest rates and inflation, it probably doesn't make sense to obsess over what the Fed's next decision will be. Interest rate cycles tend to occur over months and even years. Also, the relationship between interest rates, inflation, and bond prices is complex, and can be affected by factors other than the ones outlined here.

Your bond investments need to be tailored to your individual financial goals, and take into account your other investments. A financial professional can help you design your portfolio to accommodate changing economic circumstances.

To find out more click here.

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