Market Week: October 26, 2009

The Markets

Many companies last week managed to generate enthusiasm by beating earnings estimates--in some cases resoundingly--but new highs for the year also brought out profit-takers. After surpassing the 10,000 mark last week, the Dow zigzagged around that level before finally wilting below it by week's end. Small caps lost the most, while blow-out reports from some Nasdaq bellwethers helped keep it from sliding as much as the other major U.S. indexes.

Market/Index	2008 Close	Prior Week	As of 10/23/09	Week Change	YTD Change
DJIA	8776.39	9995.91	9972.18	-.24%	13.63%
NASDAQ	1577.03	2156.80	2154.47	-.11%	36.62%
S&P 500	903.25	1087.68	1079.60	-.74%	19.52%
Russell 2000	499.45	616.18	600.86	-2.49%	20.30%
Global Dow	1526.21	1940.20	1940.90	.04%	27.17%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	2.24%	3.42%	3.48%	6 bps	124 bps

Last Week's Headlines

• New housing starts rose slightly in September, but permits for new construction fell 1.2%. Both are still roughly 28% below last year's figures.
• Driven largely by a 2.4% drop in energy prices, inflation at the wholesale level was down 0.6% in September from the previous month. That means wholesale prices have fallen 4.8% in the last year, though core inflation, which excludes food and energy, is up 1.8% since last September.
• The Conference Board's index of leading economic indicators saw its sixth straight month of improvements, rising 1% in September. The six-month increase is the strongest since 1983. Average workweeks and building permits were the only two negative components of the index.
• The looming expiration of the first-time homebuyer tax credit helped push sales of existing homes to their highest levels in two years, according to the National Association of Realtors (NAR). Resales rose 9.4% during September after falling in August, and were up 9.2% from last September. And the preliminary results of a separate NAR survey showed that almost half of sales were first-time home buyers. The bad news? Of those transactions, 29% were distressed properties.
• Oil hit a new one-year high on reports that, despite weak demand, oil inventories were building less rapidly than expected. The euro traded above $1.50 for the first time in 14 months.
• The federal government took steps to restrict executive compensation at seven large companies that have received taxpayer assistance, and the Federal Reserve Board proposed tighter regulatory supervision of pay packages that might encourage risky banking practices.
• A tale of two economies: Chinese officials forecast that third-quarter growth figures due Thursday would accelerate to 9% from the previous quarter's 7.9%. However, the UK's economy shrank 0.4% in the third quarter (5.2% from a year ago).

Eye on the Week Ahead

Thursday's U.S. GDP figure will be closely watched to see if it manages to turn the corner and show growth. However, earnings reports will continue to be scrutinized for clues about whether current stock prices have already anticipated potential future good news.

Key data releases: Home prices, consumer confidence (10/27); durable goods, new home sales (10/28); Q3 gross domestic product (10/29); personal income and spending (10/30).

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--

Caring for an Aging Parent

THIS IS THE SECOND IN A SERIES OF ARTICLES THAT WE'LL BE POSTING DISCUSSING TOPICS RELATING TO INCAPACITY.

Caring for your aging parents is something you hope you can handle when the time comes, but it's the last thing you want to think about. Whether the time is now or somewhere down the road, there are steps that you can take to make your life (and theirs) a little easier. Some people live their entire lives with little or no assistance from family and friends, but today Americans are living longer than ever before. It's always better to be prepared.

Mom? Dad? We need to talk

The first step you need to take is talking to your parents. Find out what their needs and wishes are. In some cases, however, they may be unwilling or unable to talk about their future. This can happen for a number of reasons, including:

• Incapacity
• Fear of becoming dependent
• Resentment toward you for interfering
• Reluctance to burden you with their problems

If such is the case with your parents, you may need to do as much planning as you can without them. If their safety or health is in danger, however, you may need to step in as caregiver. The bottom line is that you need to have a plan. If you're nervous about talking to your parents, make a list of topics that you need to discuss. That way, you'll be less likely to forget anything. Here are some things that you may need to talk about:

• Long-term care insurance: Do they have it? If not, should they buy it?
• Living arrangements: Can they still live alone, or is it time to explore other options?
• Medical care decisions: What are their wishes, and who will carry them out?
• Financial planning: How can you protect their assets?
• Estate planning: Do they have all of the necessary documents (e.g., wills, trusts)?
• Expectations: What do you expect from your parents, and what do they expect from you?

Preparing a personal data record

Once you've opened the lines of communication, your next step is to prepare a personal data record. This document lists information that you might need in case your parents become incapacitated or die. Here's some information that should be included:

• Financial information: Bank accounts, investment accounts, real estate holdings
• Legal information: Wills, durable power of attorneys, health-care directives
• Funeral and burial plans: Prepayment information, final wishes
• Medical information: Health-care providers, medication, medical history
• Insurance information: Policy numbers, company names
• Advisor information: Names and phone numbers of any professional service providers
• Location of other important records: Keys to safe-deposit boxes, real estate deeds

Be sure to write down the location of documents and any relevant account numbers. It's a good idea to make copies of all of the documents you've gathered and keep them in a safe place. This is especially important if you live far away, because you'll want the information readily available in the event of an emergency.

Where will your parents live?

If your parents are like many older folks, where they live will depend on how healthy they are. As your parents grow older, their health may deteriorate so much that they can no longer live on their own. At this point, you may need to find them in-home health care or health care within a retirement community or nursing home. Or, you may insist that they come to live with you. If money is an issue, moving in with you may be the best (or only) option, but you'll want to give this decision serious thought. This decision will impact your entire family, so talk about it as a family first. A lot of help is out there, including friends and extended family. Don't be afraid to ask.

Evaluating your parents' abilities

If you're concerned about your parents' mental or physical capabilities, ask their doctor(s) to recommend a facility for a geriatric assessment. These assessments can be done at hospitals or clinics. The evaluation determines your parents' capabilities for day-to-day activities (e.g., cooking, housework, personal hygiene, taking medications, making phone calls). The facility can then refer you and your parents to organizations that provide support.

If you can't be there to care for your parents, or if you just need some guidance to oversee your parents' care, a geriatric care manager (GCM) can also help. Typically, GCMs are nurses or social workers with experience in geriatric care. They can assess your parents' ability to live on their own, coordinate round-the-clock care if necessary, or recommend home health care and other agencies that can help your parents remain independent.

Get support and advice

Don't try to care for your parents alone. Many local and national caregiver support groups and community services are available to help you cope with caring for your aging parents. If you don't know where to find help, contact your state's department of eldercare services. Or, call (800) 677-1116 to reach the Eldercare Locator, an information and referral service sponsored by the federal government that can direct you to resources available nationally or in your area. Some of the services available in your community may include:

• Caregiver support groups and training
• Adult day care
• Respite care
• Guidelines on how to choose a nursing home
• Free or low-cost legal advice

Once you've gathered all of the necessary information, you may find some gaps. Perhaps your mother doesn't have a health-care directive, or her will is outdated. You may wish to consult an attorney or other financial professional whose advice both you and your parents can trust.

PART THREE -- Next Wednesday's article is "Common Incapacity Documents" and "Medicare, Medigap, and Medicaid"

--See Disclaimer Below--

Market Week: October 12, 2009

The Markets

Up, up, and away: After a two-week breather, equity indexes once again found new life. Back-to-back triple-digit increases kicked off the week and helped launch the Dow toward Friday's new high for the year, though it still trails the other major indexes. The S&P 500 put together a string of five straight up days, ending the week only a fraction of a point from its September 2009 high, while the Nasdaq held onto its lead year-to-date. Contributing to the euphoria were promising initial earnings reports from several companies as well as sales figures from some large retailers that improved over last year's dismal figures.

Market/Index	2008 Close	Prior Week	As of 10/9/09	Week Change	YTD Change
DJIA	8776.39	9487.67	9864.94	3.98%	12.40%
NASDAQ	1577.03	2048.11	2139.28	4.45%	35.65%
S&P 500	903.25	1025.21	1071.49	4.51%	18.63%
Russell 2000	499.45	580.20	614.92	5.98%	23.12%
Global Dow	1526.21	1832.87	1913.14	4.38%	25.35%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	2.24%	3.22%	3.38%	16 bps	114 bps

Last Week's Headlines

• More companies in the services sector grew than contracted in September, according to the Institute for Supply Management. For the first time in a year, the ISM's index edged over the crucial 50% level.
• The Reserve Bank of Australia raised hopes about economic recovery when it raised its key interest rate by 25 basis points to 3.25%. The surprise move also prompted questions about whether and how soon other countries might follow suit. However, both the European and British central banks left rates unchanged, and the Federal Reserve Bank has said the target U.S. rate is unlikely to go up in the near future.
• The U.S. dollar took a beating as gold hit an all-time intraday high amid speculative chatter (later denied) about oil-producing countries potentially conspiring to work toward pricing oil in a basket of currencies instead of the dollar.
• The U.S. trade deficit unexpectedly fell in August. The gap between exports and imports shrank 3.6% after three straight months of increases. Exports were up 0.2%, while imports dropped for the first time since May.
• Overall consumer credit shrank at an annual rate of 5.8% in August. Revolving credit, such as credit card balances, dropped even more (down 13% from last year).

Eye on the Week Ahead

Earnings season will pick up steam, providing increased clarity about whether or not this week's early reports were a good indicator of overall corporate health. The Commerce Department's retail sales statistics will be closely watched as an indicator of consumer spending. The Treasury-subsidized Public Private Investment Partnership (PPIP) will begin buying mortgage-backed toxic assets from banks and insurance companies.

Key data releases: Retail sales (10/14); inflation (10/15); overseas purchases of Treasury debt, industrial production, consumer sentiment (10/16).

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--

Quarterly Market Review: July-September, 2009

Patience is a virtue: A year after the financial world was shaken to its core, the equity markets sprinted through the third quarter, although they crossed the finish line gasping for breath. The Dow and S&P 500 had their best quarters in more than 10 years, and have now regained a little over 40% of their losses since their October 2007 highs. The Nasdaq has done even better, coming more than halfway back to its 2007 high. Less-bad economic statistics began to level off, and toward the end of the quarter, some even turned positive (sadly, unemployment rates weren't among them). Equity analysts began weighing both the odds of the rally's running out of steam and the idea that cost-cutting and easy year-over-year profit comparisons might support equities through year-end.

Bond investors (assisted by Fed purchases) seemed to digest more Treasury debt without difficulty. Bond funds continued to receive the bulk of mutual fund new cash inflows during the quarter. The yield curve between 2-year and 10-year Treasuries, now at 2.36%, is steeper than the 1.85% of a year ago. The dollar continued its slide relative to the euro, and gold ran true to form by rising sharply in September.

Economic Data/Currencies

Data	Current	Year Over Year	Notes
Consumer Price Index (CPI)(as of September 16)	+0.4%	-1.5%	Gas prices key to both monthly increase and yearly decline; core inflation at lowest rate since 2004
Unemployment rate (as of October 2 for September)	9.8%	+3.6%	263,000 job loss worse than anticipated; unemployment rate at 26-year high
Gross Domestic Product (GDP) (as of September 30 for Q2)	-0.7%		Substantial improvement from Q1's -6.4% decline
As of September 30, 1 euro equaled:	$1.46		Dollar hit 12-month low of $1.48 in September
As of September 30, $1 equaled:	¥89.98		Dollar weaker than June's ¥95.55

The Markets

Market/Index	End of Quarter	Quarterly Change	Year Over Year
DJIA	9712.28	+14.98%	-10.49%
NASDAQ	2122.42	+15.66%	+1.46%
S&P 500	1057.08	+14.98%	-9.37%
Russell 2000	604.28	+18.88%	-11.08%
Global Dow	1894.59	+16.28%	-6.59%
Fed. Funds	.25%	0	-175 bps
2-year Treasuries	.95%	-16 bps	-105 bps
10-year Treasuries	3.31%	-22 bps	-54 bps
Crude Oil (per barrel)	$66.56	-4.7%	-33.9%
Spot Gold (per oz.)	$1007.70	+8.5%	+11.5%

Quarterly Economic Perspective

• Unemployment problems increasingly spilled over into housing. The estimated percentage of mortgages that were either delinquent or behind at least one payment ranged from 3% to more than 5% during the second quarter (the most recent statistics available). By the end of May, prime fixed-rate mortgages reportedly represented one of every three new foreclosure filings, according to the Mortgage Bankers Association; a year earlier, they were one out of every five.
• Seasonal improvement in home sales--July resales were up 7.2% from the previous month--waned by quarter's end. August inventories of unsold homes improved, but were still substantially above last year's levels. The pipeline of foreclosures yet to be processed and the scheduled November end of the tax credit for first-time buyers represented potential storm clouds.
• As Federal Reserve Chairman Ben Bernanke pronounced the recession "very likely over," the Fed began winding down purchases of Treasury debt. It expects the entire $300 billion to be spent by the end of October but will continue to buy mortgage-backed debt through the end of March. Despite the support those purchases have given the bond markets, yields on the 10-year bond have risen from 2.54% on March 18, when the program was announced, to 3.31% on September 30.
• Treasury Secretary Tim Geithner announced that $70 billion of the $250 billion loaned to banks over the last year has been repaid. Loans that have been repaid in full have earned a 17% return.
• Initial public offerings (IPOs) and corporate mergers and acquisitions, which had slowed to a crawl in the wake of the credit crisis, began to show signs of renewed life in the third quarter. The Disney/Marvel Entertainment, Dell/Perot Systems, Xerox/ACS, and Abbott Labs/Solvay deals, plus Kraft's bid for Cadbury, joined previously announced mergers of Pfizer/Wyeth and Oracle/Sun as indicators that the credit markets are more open to financing corporate acquisitions.
• Retail spending statistics got a boost from the federal "cash for clunkers" program, which was extended and then abruptly ended in late August because of its unanticipated popularity.

Investor's Almanac

History Lessons: September's stellar performance by the equity indexes confounded investors who relied on the month's reputation as the worst month for equities. Past Septembers dating back to 1929 have seen an average decline of 1.2%; by contrast, the S&P rose 3.63% last month. It's not a record; 1939's 16.5% gain holds the record for Septembers. On the other hand, it's also nothing to sneeze at, especially compared to last September's 9% drop or the worst September on record (1931's -29.9%).

Did You Know? It ain't over 'til it's over, but it's over long before the fat lady sings: It takes anywhere from 6 to 18 months after a recession ends for the National Bureau of Economic Research (NBER) to make it official. The NBER formally labeled the current cycle a recession a year after it began in December 2007.

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--

New Alzheimer's Report Spotlights Need to Plan Ahead for Incapacity

THIS IS THE FIRST IN A SERIES OF ARTICLES THAT WE'LL BE POSTING DISCUSSING TOPICS RELATING TO INCAPACITY.

A New 2009 Alzheimer's Report Spotlights the Need to Plan Ahead for Incapacity

On September 21, 2009, World Alzheimer's Day, Alzheimer's Disease International released a new report indicating that the number of people with Alzheimer's or another dementia, currently 35 million worldwide, is expected to nearly double every 20 years, to 65.7 million in 2030 and 115.4 million in 2050.

According to the 2009 Alzheimer's Disease Facts and Figures report, issued by the Alzheimer's Association, someone in the United States develops the disease every 70 seconds, and an estimated 5.1 million Americans over age 65 have the disease. This report also states that about 2.7 million people over age 85 have Alzheimer's, and that by the time the first of the baby boomer generation reaches 85 in 2031, an estimated 3.5 million seniors in that age group will have disease.

These statistics highlight the need for estate planning in general and incapacity planning in particular, as well as disability, long-term care, and special needs planning.

If you would like to discuss disability, long-term care, medigap insurance or special needs planning, please feel free to contact us for an individual appointment.

--see disclaimer below--

Market Week: October 5, 2009

Starting out on the wrong foot: Thursday's 203-point slide in the Dow wasn't exactly how investors had hoped to launch 2009's final quarter, and Friday's unemployment statistics didn't help. Equity indexes slumped for the second week in a row; however, the decline so far hasn't reached the level of the two previous pauses in the rally that began in March. Profit-taking after Wednesday's end of the third quarter, plus manufacturing data that turned south after several months of improvement, were likely contributors to the pullback.

Market/Index	2008 Close	Prior Week	As of 10/2/09	Week Change	YTD Change
DJIA	8776.39	9665.19	9487.67	-1.84%	8.10%
NASDAQ	1577.03	2090.92	2048.11	-2.05%	29.87%
S&P 500	903.25	1044.38	1025.21	-1.84%	13.50%
Russell 2000	499.45	598.94	580.20	-3.13%	16.17%
Global Dow	1526.21	1884.05	1832.87	-2.72%	20.09%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	2.24%	3.33%	3.22%	-11 bps	98 bps

Last Week's Headlines

• Unemployment rose to 9.8% after 263,000 additional jobs were lost in September. That's the highest level in 26 years and the 21st straight month of losses.
• Home prices rose 1.6% in July from the month before. It was the third straight month of increases in the S&P/Case-Shiller index. Of the 20 cities measured, only Seattle and Las Vegas saw prices decline. And though pending sales have often had difficulty closing in recent months, the National Association of Realtors' measure of pending home sales (contracts signed but not closed) also had its seventh straight month of increases, rising to its highest level since March 2007.
• Consumer spending rose 1.3% in August (0.9% if price changes aren't counted). However, the last of "cash for clunkers" was responsible for a good part of that. Incomes rose 0.2%, but after adjusting for taxes and higher prices, real disposable income fell 0.2% (the third straight decline).
• U.S. manufacturing activity disappointed in September, declining to 52.6% compared to August's 52.9%, However, it was still above the 50% level that represents economic expansion rather than contraction. New factory orders turned down by 0.8% after four months of increases; however, not including transportation (i.e. cars), orders were up 0.4%.
• Not surprisingly, car sales dropped substantially in September, returning to pre-"cash for clunkers" levels.
• The Conference Board's index of consumer confidence took a mild hit in September, falling to 53.1 from 54. 5 in August.
• The American Bankers Association said delinquencies on consumer debt such as home equity loans and credit card balances continued to rise during the second quarter (the most recent statistics available). With 3.35% of all outstanding accounts delinquent, this was the sixth straight quarterly increase.

Eye on the Week Ahead

It's put up or shut up time as third-quarter earnings season kicks off with Alcoa's midweek report. Without much new economic data to guide them, investors will be trying to assess whether ongoing cost-cutting and benign comparisons to a lousy Q3 2008 can breathe life back into the rally.

Key data releases: ISM services (10/5); consumer credit (10/7); international trade (10/9).

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--

IRS Allows Additional Time to Roll Over 2009 RMDs from IRAs and Employer-Sponsored Plans

On December 23, 2008, President Bush signed The Worker, Retiree, and Employer Recovery Act of 2008 into law. The law waived required minimum distributions (RMDs) for 2009 from IRAs and employer sponsored defined contribution plans (including 401(k), profit-sharing, stock bonus, 403(b), and 457(b) plans).

In many cases, because the law was passed so late in 2008, and because many individuals and plan sponsors were confused about how to comply with the new rules, IRA owners and plan participants received RMDs they weren't required to take, and which they didn't want. Individuals who received such RMDs were allowed to roll them into an IRA or eligible retirement plan (even though RMDs aren't usually eligible to be rolled over). Some individuals failed to complete their rollovers within 60 days, or weren't aware of their ability to roll over the funds. In some cases, employees who received RMDs as part of substantially equal periodic payments, which are also generally ineligible for rollover, were uncertain whether a rollover was allowed.

In Notice 2009-82, the IRS provides relief to plan participants and IRA owners who have already received an unwanted 2009 RMD, and for whom the 60-day rollover period has expired. Under the Notice, these individuals will generally have until November 30, 2009, to complete a rollover. This relief applies to IRA owners, plan participants, and spouse beneficiaries. (Note: this special rule does not apply to RMDs received in 2009 for 2008.) For employer-sponsored plans, the relief applies to any payment that is equal to the 2009 RMD, and to any substantially equal periodic payments the employee received during 2009 that included RMDs.

The Notice cautions that the one-rollover-per-year rule still applies to IRAs. Under this rule, which applies separately to each IRA, only one rollover from a particular IRA can be made to any other IRA in a 12-month period. Roth conversions do not count as a rollover for purposes of this rule.

The Notice also provides additional guidance to taxpayers and plan sponsors in the form of Q&As, including the following:

• The deadline for an employee or a beneficiary that had until the end of 2009 to choose between receiving RMDs under the 5-year or the life expectancy rule is extended until the end of 2010.
• In plans that permit a nonspouse beneficiary to directly roll over a deceased participant's account balance, the nonspouse designated beneficiary has until the end of 2010 to make the direct rollover and use the life expectancy rule with respect to an employee who died in 2008.
• In general, the rollover can be back to the same plan that made the distribution (if the plan permits such rollovers).
• The 2009 RMD waiver does not apply to substantially equal periodic payments taken in order to avoid the 10 percent early distribution tax on distributions prior to age 59½, even if the individual is using the "RMD method" to calculate those payments.

You can find a copy of Notice 2009-82 here.

--see disclaimer below--

Deadline Rapidly Approaching to Recharacterize 2008 Roth Conversions

Did you convert a traditional IRA to a Roth IRA in 2008 only to see your new Roth IRA balance decline due to market conditions? If so, you may want to consider recharacterizing your conversion. A recharacterization essentially allows you to undo the conversion and treat it as if it never occurred. But you must act quickly--the deadline for recharacterizing 2008 conversions is October 15, 2009.

Why would you want to recharacterize your conversion? When you convert a traditional IRA to a Roth IRA, you're taxed as if you received a distribution on the conversion date. But if your Roth IRA has suffered a significant loss since the conversion, you wind up paying tax on assets that no longer exist. A recharacterization lets you undo the conversion, and may result in significant tax savings.

You would also want to recharacterize if you converted a traditional IRA to a Roth in 2008 and then found you weren't eligible to convert because your 2008 income exceeded the $100,000 limit that applies to conversions before 2010.

If you recharacterize your Roth 2008 conversion in 2009, you'll be able to reconvert your traditional IRA to a Roth after waiting at least 30 days following the date of the recharacterization. In addition, if you reconvert in 2010, you'll be eligible for a special rule that allows you to report half of the resulting income on your 2011 tax return, and the other half on your 2012 tax return.

Example(s): Mary converted a $100,000 traditional IRA to a Roth IRA in June 2008. She filed for a federal income tax extension, giving her until October 15, 2009, to file her 2008 federal return. But Mary's IRA is currently worth only $60,000--it has lost 40 percent of its value since the conversion. Nevertheless, Mary must pay income taxes based on the conversion date value of $100,000. She has until October 15, 2009, to recharacterize her conversion, and avoid paying federal income taxes on the $100,000. (If Mary has already filed her 2008 income tax return and paid the taxes on a timely basis, she can file an amended return for a refund, as long as she recharacterizes the conversion by October 15.) Mary can again convert her traditional IRA to a Roth IRA after waiting 30 days from the date of the recharacterization.

To recharacterize a 2008 conversion, you need to carefully follow specific IRS rules. Your financial professional can help you determine if a recharacterization, or reconversion, is right for you, and help guide you through the procedural requirements.

--see disclaimer below--

Market Week Summary for Week Ending September 25

Market Week: September 28, 2009
The Markets

The rally took a breather (or possibly a last gasp?) this week. The Dow backed away from the tantalizingly close 10,000 level with a 177-point intraday swing on Wednesday after the Federal Reserve's discussion of its future bond-buying plans. It was largely downhill from there as the major indexes took back much of last week's gains.

Market/Index	2008 Close	Prior Week	As of 9/25/09	Week Change	YTD Change
DJIA	8776.39	9820.20	9665.19	-1.58%	10.13%
NASDAQ	1577.03	2132.86	2090.92	-1.97%	32.59%
S&P 500	903.25	1068.30	1044.38	-2.24%	15.62%
Russell 2000	499.45	617.88	598.94	-3.07%	19.92%
Global Dow	1526.21	1926.12	1884.05	-2.18%	23.45%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	2.24%	3.47%	3.33%	-14 bps	109 bps

Last Week's Headlines

• After four straight months of increases, existing home sales fell 2.7% in August--a sharp drop from July's 7.2% increase. However, the total backlog of unsold homes was down to an 8.5-month inventory. Sales of new homes were essentially flat after four months of increases, and inventories of unsold new homes fell by 3%.
• As expected, the Fed kept interest rates steady but will extend its purchases of mortgage-backed securities, gradually winding down the program by the end of Q1 2010. However, Fed buying of Treasury bonds, which has helped support that market, will stop at the end of October as previously announced.
• Leading economic indicators tracked by the Conference Board were up for the fifth month in a row. The major factors in the 0.6% August increase were supplier deliveries, the interest rate spread between 10-year Treasuries and the fed funds rate, and higher stock prices. Only three indicators--real money supply, weekly jobless claims, and new orders for nondefense capital goods--were negative.
• Five IPOs that began trading on a single day this week and increased filings for more at the SEC gave another indication of renewed appetite for increased risk.
• Orders for durable goods fell 2.4% in August after a 4.8% increase the month before. A dramatic drop in commercial aircraft orders was responsible for much of the decline. However, even non-transportation-related goods were down slightly after having increased 0.9% in July, and defense-related spending provided much of the support for that figure.
• Gold had its first weekly loss in six weeks, and well-stocked inventories pushed oil down roughly 8%, the biggest weekly loss since July.
• The G20 leaders agreed to promote more domestic consumption by export-dominated China and Japan, a lower U.S. budget deficit, increased International Monetary Fund ownership by developing nations, and reforms in bank compensation policies and capital requirements. However, skeptics noted that the so-called global framework for growth lacks any enforcement mechanism.

Eye on the Week Ahead

Potential window-dressing on the part of large institutional investors could mean volatility in advance of the end of the quarter on Wednesday. Friday's unemployment claims stats are expected to continue to show job losses.

Key data releases: Home prices, consumer confidence (9/29); revised Q2 gross domestic product (9/30); auto sales, personal income and spending, manufacturing (10/1); unemployment, nonfarm payrolls (10/2).

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--

Health-Care Reform

Confused by the ongoing health-care reform debate? If so, you're not alone. With multiple bills and proposals in play, it's often hard to get a grasp on even the most basic elements of the discussion. While the outcome of the debate is uncertain, here are some of the major issues that are being discussed.

Universal vs. mandatory coverage

One of the main goals of health-care reform is to make affordable health coverage available to all Americans. To help provide coverage to individuals and families who can't afford it, most of the proposals provide assistance in various forms, including new tax credits, an expansion of eligibility for Medicaid, and insurance premium subsidies.

In fact, most of the major proposals currently being discussed actually require individuals to obtain health-care coverage (i.e., "mandatory" coverage). Under these proposals, individuals who refuse to get coverage would pay a financial penalty. Similarly, employers would be required to offer health-care coverage or pay a fine.

The "public option"

One of the most significant areas of debate centers on the so-called "public option." The term "public option" generally refers to the establishment of a government-run health-care plan that would compete with private insurers and provide coverage to millions of uninsured Americans. There has also been some discussion of establishing health-care cooperatives (nonprofit organizations that would be completely independent of the federal government) as an alternative to a government-run health-care plan.

Paying for reform

The costs associated with most of the health-care reform proposals being discussed are significant. The nonpartisan Congressional Budget Office (CBO) estimates that the legislation currently being considered in the House would cost more than $1 trillion over ten years, with a corresponding increase to the federal deficit over that period of time exceeding $200 billion. To help pay for health-care reform, reductions in Medicare spending are built into the House bill. Other proposals to raise revenue include raising taxes on high-income families, and taxing high-end health plans.

In his address to Congress on September 9, 2009, President Obama proposed a health-care reform plan he estimated would cost $900 billion over ten years, and pledged that he would not sign legislation that increased the deficit. The President described a plan in which savings within the current health-care system paid for most of the cost, with at least a portion of any shortfall paid by charging insurance companies a fee for their most expensive policies.

An evolving landscape

There are, of course, many specific provisions being discussed that we haven't mentioned here, and not all of them are controversial. For example, any health-care reform legislation is likely to tackle some of the current issues relating to pre-existing conditions. The entire discussion is evolving very quickly, however, with new proposals and ideas coming into play daily. The legislation that emerges will affect all of us in one way or another, so it's important to stay informed.

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.

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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.

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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.

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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.

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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.

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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.

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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

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