Our Daughter's Investment Earnings Won't Be Taxed

According to 2007 federal income tax laws, dependent children under 18 can earn up to $850 of interest or dividend income and owe zero income taxes. From $850 to $1700, the child's investment earnings are taxed at 10%. Above $1700, the child's investment earnings are taxed at the parents rate.

For 2007, our daughter received interest from our UTMA (Uniform Transfer to Minors Act) account and dividends from her grandparent's UTMA account. The total of the earnings was less than $850 and thus, she owed no income tax. In addition, since her earnings are below the amount for one exemption, she does not need to pay state taxes either.

Any investment earnings by our daughter's UTMA accounts will be tax free until $850 is reached. If the funds had been saved in our (the parent's) or her grandparent's accounts, the earnings would have been taxed at the parent's or the grandparent's tax rates. While the tax on $850 may not seem very large, using a UTMA account reduces our overall family taxes by $200 to $250 versus the case having the $850 in our (the parent's) income. For me, $200 saved in income taxes is $200 earned :-)

For more on Crossing Generations , check back every Thursday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Why We're Keeping Our Mortgage In Retirement - For Now

One of our retirement goals was to be debt free, including not having a mortgage. However, when I retired in my forties in October, 2007, we were still about 12 years away from paying off our mortgage. For now, we have decided to keep paying on our mortgage for at least the next few years. Here are our reasons for keeping the mortgage:

1. Payoff size. Although our loan principal is about 45% of our home value, it would still require about 138 times our monthly payment to pay off the mortgage. In other words, we can pay our mortgage for 11.5 years with the money needed to payoff the loan. From a different perspective, the money required was 7.7% of our total savings. Overall, I thought it was less risky to continuing paying the mortgage than to reduce our savings by 7.7%



2. Ability to use the deductions. Since our investments and converstions to Roth IRAs will create income, I can still use the mortgage deductions to reduce taxable income. If we didn't expect to have taxable income, the deductions would not be as useful.



3. Low interest rate. We currently have a 5-3/8% fixed interest rate. By investing in the stock market, we hope to achieve 8-10% gains with the funds. Hopefully, the next couple years of stock market returns will be better than January, 2008:-)

Originally, we wanted to pay off our mortgage by retirement. Doing so would reduce our monthly expenses by 21%, which made the pay off option attractive. However, after doing the above analysis, we determined it would be advantageous to delay paying off the mortgage for at least a couple years. Keeping the mortgage will help us have more liquid savings, which can be a buffer against stock market fluctuations.

For more on The Practice of Personal Finance , check back every Wednesday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Options For Our Tax Rebate - Reduce Debt Or Save

I know the proposed tax rebates are designed to encourage spending to help the economy. However, I consider the tax rebate a windfall that we can use to help build our wealth. Here are five options we will consider for our rebate:

1. Pay down debt. Our only debt is our home mortgage. The tax rebate could be used to pay down principal and accelerate the pay off of the loan. If we had credit card or other consumer debt, we would pay against those amounts first.



2. Put in tax deferred savings. The tax rebate can help fund our IRA accounts. We've already made our 2007 contribution. The rebate would give us a head start on our 2008 contribution.



3. Add to college savings accounts. We have been making regular yearly contributions to our three year old's college 529 plan. Since we have already made the 2008 contribution, we could put the tax rebate towards the 2009 contribution.



4. Increase savings for a future purchase. We prefer to pay cash for our major purchases, by saving the money and paying lump sum. We have a couple of home improvements for which we are saving. Also, we will likely replace a car in the next five to ten years. The tax rebate would accelerate reaching our savings goal in these areas.



5. Boost general funds. Since we retired in our forties last year, we no longer have a separate emergency fund and expense fund. It is all one general fund, and we keep short term needs (e.g. about three years) in cash, bonds or CDs. If we were still working, I would add the tax rebate to our "emergency" funds.

Our goal will be to avoid the "impulse purchase." I'm sure there will be a lot of "tax rebate" sales in May, 2008. Flat screen HDTVs, new cars or car leases, and vacation packages will all be competing for the tax rebates. Unless the item is already in our plans, we won't be spending money on it.

For more on Ideas You Can Use , check back every Tuesday for a new segment.

Photo Credit: morgueFile.com, Jane M. Sawyer

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

1/28/08 Stock Purchase Update - Recovered Slightly

In my 1/21/08 stock purchase update, I wrote about how the 10/15/07 updated buy list of Potash (POT), Southern Copper (PCU), CNH Global (CNH) and BHP Billiton (BHP) was performing. In that article, the portfolio had pulled back further to a gain of $1,072, yielding only a 7.5% return. As of 1/25/08, the portfolio had rebounded slightly to a gain of $1,479 for a 10.4% return, due mainly to a jump in POT. The portfolio is now down 16.7% from its high on 12/28/07. The new purchases of PCU, CNH and BHP are down $1,588 for a 14.9 % loss. Both PCU and BHP continue to have large losses of 19.3% and 11.4% respectively. CNH dropped $7.20 this past week due to disappointing forward guidance. CNH now has a loss of 12.5%. Here's the current status of the stocks I own in the portfolio:

	My Wealth Builder 10/15/07 Buy List
Stock [purchase date]	Shares	Purchase Price	Current Price 1/25/08
Potash (POT) [6/7/07]	50	$71.59	$132.74
Southern Copper* (PCU) [11/13/07]	40	$108.24	$87.28
CNH Global NV (CNH) [11/13/07]	50	$55.22	$48.34
BHP Billiton (BHP) [11/27/07]	50	$71.54	$63.42

*On 1/18/2008, the system gave a sell signal for PCU. I will sell PCU during an upcoming market rally, hopefully above the purchase price.

The market activity continues to be downward and ugly. As of the close on 1/25/08, the Dow, Nasdaq and S&P 500 indices were down 8%, 12.3%, and 9.4% year to date. Unfortunately, there are no indications that a turnaround will occur soon.

I continue to believe that the probability of a recession in 2008 is relatively high. The multitude of negative factors will eventually outweigh any actions by the government and financial institutions. Originally, the Fed interest rate cuts and other actions led me to expect that the bull market would last through summer, 2008. However, the economic data in January, 2008 may cause the bull market to end earlier. For either case, I expect the market to continue to be choppy in 2008. At this time, I will continue to hold this portfolio. However, I do not plan to add any more to the amounts that I have already invested in the above table.

For more on Strategies and Plans , check back every Monday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Making Small Purchases Of Stocks On My Updated Buy List

Over the last two weeks, I made 20 to 25 share purchases of six stocks. Five were new positions: Intuitive Surgical (ISRG), Priceline (PCLN), Apple (AAPL), Core Labs (CLB), and Research in Motion (RIMM). I also added to our existing position of Google (GOOG). As of Friday, January 25, 2008, these stocks were down between 13% to 36% from their peaks.

The basis for choosing these stocks comes from three stock picking systems, of which the first two I have been using regularly:

A Modified Unemotional Investor Growth System. I have been using this system for a little over three years, with relatively good results. For a short summary of the system, see My Stock Picks for Q1 2007. The current picks in this system are: Apple (AAPL), Potash (POT), and Research in Motion (RIMM). I already own Potash since it has been a consistent pick of the system since June, 2007. I purchased 25 shares each of Apple and Research in Motion on 1/17/2008.

Core Holdings. Our Core Long Term Stock Holdings shares three stocks, Google (GOOG), Amazon (AMZN) and General Electric (GE), that I believe are positioned for excellent results over the next 20 years. Although, these stocks are down 24%, 23%, and 19%, respectively, from their highs, I believe their fundamental business models are still very good.

Last week, I added 20 shares to our position in Google. I may purchase additional shares of Amazon this week. I don't plan to add to the General Electric position, for now.

Unemotional Investor Growth Top 5. This is using one of the systems shared by Robert Sheard in his book The Unemotional Investor. The current picks using this system are: Intuitive Surgical (ISRG), Priceline (PCLN), Apple (AAPL), Core Labs (CLB), and Potash (POT). Since I already owned Apple and Potash from the Modified Unemotional Growth System, I only purchased Intuitive Surgical (20 shares) and Core Labs (25 shares).

Here are the results as of Friday, January 25, 2008 for these new purchases:

	My Wealth Builder January, 2008 Purchases
Stock [purchase date]	Shares	Purchase Price	Current Price 1/25/08
Apple (AAPL) [1/17/08]	25	$160.93	$130.01
Research in Motion (RIMM) [1/17/08]	25	$88.71	$91.05
Intuitive Surgical (ISRG) [1/18/08]	20	$261.81	$269.00
Priceline (PCLN) [1/18/08]	25	$92.33	$104.58
Core Labs (CLB) [1/25/08]	25	$116.25	$112.65
Google (GOOG) [1/25/08]	20	$582.66	$566.40

The results have been mixed so far. This portfolio is down $679 for a loss of 2.4% due primarily to the declines of Apple and Google. The market action of this week will prove whether I bought these stocks too early, or if I anticipated a short term bottom correctly. If the market declines further, I plan to hold on to these positions. If the market rallies significantly, I may take some profit as the rally appears to weaken.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial or stock investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Week In Review - Too Much, Too Late

Wow! What a week. It was a quite an exciting one for the financial markets. Here were the key events:

Bernanke blinks. On January 22, 2008, the Fed cut the fed funds rate by 0.75% from 4.25% to 3.5%, the largest cut since records were kept in 1990 and the first change between meetings since 2001. Currently, the Fed is expected to cut interest rates by another 0.50% at next weeks meeting. Quite a change from the Fed's position in August, 2007 which indicated that no action was needed.

Wild market volatility.On January 23, 2008, after being down almost 300 points, the Dow reversed itself in the last three hours and closed up 298 points. Some are claiming the bottom has happened. Others are claiming the bear market has only just begun. Either way, watching the market gyrations has been exciting. Trading in this market is better than ________. (Put in your own noun. My noun is "blogging." :-)

Politicians working together. The Stimulus Package of 2008 has been announced, after three days of discussion. If only the parties could work together regularly and get things done this fast, think of how much government waste could be avoided. Next week Congress will put their arms around their colleagues and sing "Kumbaya." :-)

Overall, I think the actions of the past week were too much but too late. Short term, I expect the stock market will rally, especially if there is an interest rate cut, good jobs report and good company earnings in the next week. However, I expect the stock market to decline further before reaching a bottom later in 2008.

For now, I continue to hold my current positions and have made 20-25 share purchases of five new stocks, Intuitive Surgical, Priceline, Apple, Research in Motion, Core Labs, and added to our position in Google. If the market rises next week, I may sell some shares, at a gain, into the rally. If the market declines, I will hold the positions but make no additional purchases until there is a clear bottom.

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

It's been over four years since I started My Wealth Builder. As I think about topics to write , I often remember, "I've written about that before," and decide to find a new topic. However, since many principles of personal finance are timeless, I want to include them in a recent post on My Wealth Builder. Therefore, I have started a series called "Timeless Articles from the Archives" and am highlighting posts from the same week in 2007-2010.


2007

Continual Growth and Reinvention - Here's one way to avoid becoming obsolete.

On-line Bill Paying Services -Save Money, Time and Reduce Stress - Electronic bill paying is a great banking service because it benefits me.

Assisted Living - Pros and Cons - These were some of my thoughts as my mom moved to assisted living.

Retirement Planning - A Staged Approach - Before the housing crash, here's how I was intergrate home ownership into our retirement planning. Even after the housing crash, it will till work for us.


2008 -update

Statistics and Probabilities Can Be One's Friend - Using a strategy that is validated by the statistics and probabilities will eventually pay out.

Retirement Expense Planning - Allocation To Fixed Income And Cash - Fortunately, in early 2008, we funded four years of retirement expenses with short term fixed income investments and money market funds.


2009

Choosing Between Taxable and Tax Deferred Saving Accounts - I've summarized my view of the tax treatment for tax deferred and taxable saving accounts.

Teaching Delayed Gratification Skills - I believe that delayed gratification is an important life skill.


2010

My Incentives to Work in Retirement - While I still work for pay, the incentives for choosing the job are often other than money.

Remembering my Time is Precious - I want to get the most out of the time that I have.

It's the People's Government, Stupid - I want elected officials who will serve all the people.

To me, the content of these posts are still relevant today and worth reading again.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial, career, investing, political, retirement or saving advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Retirement Expense Planning - Allocation To Fixed Income And Cash

On November 17, 2007, I wrote about Pondering Financial Risks In Our Retirement, with a stock market crash or recession being a potential issue. Only two months later, I get to evaluate whether the strategy we developed is working.

For our case, we have funded four years of retirement expenses with short term fixed income investments and money market funds. Fifty percent is invested in CDs and municipal bonds that mature within the next four years, and 50% is in money market funds. While our equity investments have declined 8% in 2008 (and 10% from the peak), the fixed income part has risen slightly while paying 3.6% (tax exempt) to 5.3% (taxable) in interest. Our money market accounts are earning 2.9% to 4.3% respectively on tax exempt and taxable funds.

For reference, we started putting funds in fixed income investments in the summer of 2006, before we needed the money. At the time, the stock market was still doing well and interest rates were still increasing. I recall agonizing on locking in 4.5% for 5 years and missing out on stock market gains or subsequent interest rate increases. In hindsight, with January, 2008 wiping out all of 2007 and part of 2006 stock market gains, 4.5% returns do not look too bad anymore:-) In addition, we do not need to sell stock while the market is down in order to cover our retirement expenses.

At this time, the strategy of keeping short term expense needs in cash or short term fixed income investments is working. We have access to sufficient funds, and will not need to sell any stock, while the market is correcting. Hopefully, the market will recover before any stock sales need to be made for future funds:-)

For more on Reaping the Rewards, check back every Friday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

College 529 Savings - 2006 and 2007 Gains Gone

For our three-year old's college education, we are invested in four Vanguard funds through a college 529 plan. While we won't need the money for another 14 years, it has been particularly painful to watch the decline during the January, 2008 stock market correction. The accounts has lost virtually all of its 2006 and 2007 gains, as of 1/18/2008. Two years of gains have been wiped out in two and a half weeks:-(

I am not too concerned yet. At this point, I will continue to hold the funds and wait for a recovery. Hopefully, we won't have to wait 14 years:-) In addition, this correction validates a future strategy of transferring funds to "stable" investments, such as CDs, in the one or two years prior to attending college. I'd hate to have a drop in the stock market reduce the account value just before I needed the money.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Links to Carnivals from January 21 - 24, 2008

Here are links to select Carnivals from January 21 -24, 2008:

Festival of Stocks #72

Carnival of Personal Finance #136

Festival of Frugality #109

Carnival of Financial Planning

Please give the hosts some recognition for their hard work and check out their Carnivals.

This is not financial or investment advice. Please consult a professional advisor.

Anticipating A Stock Market Bottom

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. ~ Warren Buffett.

On January 17, 2008, I wrote that the U.S. stock market was likely in the first stage of a bear market, i.e. the continual volatility and painful decline. The events of the last couple days lead me to believe that the second stage of capitulation and bottoming may be getting close. However, as with many economic events, one doesn't know it has happened until a while later. Since I think capitulation and the bottom are near, here is what I am doing to prepare:

1. Continue to stay calm. We've been preparing for the possibility of a bear market for several months. Our strategy has been to protect our principal, especially the savings we need for the next three years. We (hopefully) won't need the money invested in stocks for the next 5 to 10 years.



2. Identify buying opportunities. I've updated my stock buy list using the Modified Unemotional Investor Growth system and will publish it on Monday, January 28, 2008.



3. Start making small purchases. I have begun making purchases between 25% and 50% of the total position that I want to hold of my updated buy list. I do this for emotional reasons. I realize that the market may go down further, but it may go up suddenly also. Investing only a fraction enables me to feel better if the market declines or to participate if the market goes up.
   
   However, if the market continues to decline after the first small purchase, I won't make any additional purchases.



4. Be patient. The bear market may last several months or several years. However, there will be a recovery. Of course, the quicker the bear market reaches a bottom, the better:-)

At this point, the 2008 stock market feels more like the 2002 stock market with each passing day. In 2002, I made the mistake of continually "buying on the dips" only to have the market fall further throughout the year. In addition, I sold out of most of my positions by the end of 2002, and missed the beginning of the bull market in 2003. By following the four above steps, I hope to avoid making the same mistakes in 2008.

While I hope this will be short bear market, there is a possibility that the decline may be extended. If the market continues to fall through February, I will revise my short term investing strategy and begin looking at individual stocks to sell short.

For more on The Practice of Personal Finance , check back every Wednesday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Own A Diamond? - Check Eligibility For Settlement Payment

According to Buy a diamond? Get a refund in MSN.com, purchases of diamonds or diamond jewelry between January 1, 1994 and March 31, 2006 may be eligible for a payment from a settlement with De Beers. The class action suit alleged that the South African company had cornered the market in diamonds and kept prices artificially high.

This is not a small cents on the dollar settlement for which I usually qualify. Payments can be as high as 59% of the retail price for loose diamonds, and range from 6% to 45% for diamond jewelry. Since I purchased my wife's engagement ring during this time period, I will definitely be filing a claim.

For details, see the Diamond Class Action Settlement site for information on eligibility and on filing a claim.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

Photo Credit: morgueFile.com, Michelle Kwajafa

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

1/21/08 Stock Purchase Update - Signficant Decline In Portfolio

In my 1/14/08 stock purchase update, I wrote about how the 10/15/07 updated buy list of Potash (POT), Southern Copper (PCU), CNH Global (CNH) and BHP Billiton (BHP) was performing. In that article, the portfolio had declined to a $2,862 gain for a 20.1% return. As of 1/18/08, the portfolio had pulled back further to a gain of $1,072 for a 7.5% return, due to the market decline in the first thirteen trading days of 2008. The portfolio is now down 20% from its high on 12/28/07. The new purchases of PCU, CNH and BHP are down $1,498 for a 14 % loss. Both PCU and BHP continue to have large losses of 22.5% and 15.1% respectively. Here's the current status of the stocks I own in the portfolio:

	My Wealth Builder 10/15/07 Buy List
Stock [purchase date]	Shares	Purchase Price	Current Price 1/18/08
Potash (POT) [6/7/07]	50	$71.59	$122.78
Southern Copper (PCU) [11/13/07]	40	$108.24	$83.92
CNH Global NV (CNH) [11/13/07]	50	$55.22	$55.54
BHP Billiton (BHP) [11/27/07]	50	$71.54	$60.7

The market activity continues to be downward and ugly. As of the close on 1/18/08, the Dow, Nasdaq and S&P 500 indices were down 8.67%, 11.77%, and 9.67% year to date. Unfortunately, there are no indications that a turnaround will occur soon.

I continue to believe that the probability of a recession in 2008 is relatively high. The multitude of negative factors will eventually outweigh any actions by the government and financial institutions. Originally, the Fed interest rate cuts and other actions led me to expect that the bull market would last through summer, 2008. However, the economic data in January, 2008 may cause the bull market to end earlier. For either case, I expect the market to continue to be choppy in 2008. At this time, I will continue to hold this portfolio. However, I do not plan to add any more to the amounts that I have already invested in the above table.

For more on Strategies and Plans , check back every Monday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

The Most Read Posts On My Wealth Builder

Here are My Wealth Builder's all time top five posts based on number of hits:

1. How Much is Needed to Be Wealthy - The NUMBER - September 4, 2006



2. Achieving Financial Freedom - I've Retired In My Forties - October 3, 2007



3. Retirement Calculator Evaluation - Vanguard - December 29, 2006



4. Ranking One's Net Worth - April 3, 2007



5. Retirement Calculator Evaluation - T. Rowe Price - December 22, 2006

Whether one is a regular reader of or new to My Wealth Builder, these are excellent posts to review or to familiarize oneself with this blog.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Statistics and Probabilities Can Be One's Friend

Today, I took a break from personal finance and visited a casino to play craps. The reason I like craps is that the probability of losing can be minimized with a strategy of playing only a few types of bets. Since I play for entertainment once every couple years, I like to play for a while with a small stake.

In craps, the bets with the best odds are the line bets (pass and don't pass or come and don't come) with odds and the place bets for 6 and 8. The pass and come line bets have a house edge of 1.41% which can be reduced to .6% with 2X odds bets. The don't pass and don't come bets have a house edge of 1.36% and can be reduced to .46% with 2X odds bets. The place bets for 6 and 8 have a 1.52% house edge. Of course, there are a multitude of exotic and exciting bets that can be placed in craps. However, the house edge will range from 1.67% to 11.11%, indicating that players are more likely to lose on these bets over the long term.

My personal preference is to play the line bets of don't pass or don't come with about a .5X odds on the 10 and 4 points, primarily, and on the 5 and 9 points, secondarily. I will typically pick up my don't pass/come bet on a 6 or 8 point. Occasionally, I will make a place bet on the 6 or 8. In the three years that I have used this strategy, I typically have been able to make a $100 stake last about 2 to 4 hours. Usually, I end up close to even, which I consider excellent since I consider gambling entertainment. Even when I break even, I can be up or down $50 to $60 during the session. However, at the lows I still continue my playing strategy, because I know it's the best probability for me to minimize my losses.

So what does craps have to do with personal finance? After playing today, I couldn't help thinking about an analogy with investing in the stock market. The investor's edge for the S&P index has been about 10% from 1926 to 2006. With this high an edge, it makes sense to be placing bets consistently with the S&P index, even with the 9.8% decline in early January, 2008. Using a strategy that is validated by the statistics and probabilities will eventually pay out. This is about as close to a "guaranteed" high return as one can get. The challenge, for me, is to avoid the multitude of exotic and exciting alternative stock purchases that are available to me, which are likely to reduce my investment edge.

Of course, past performance is no guarantee of future results. However, at this time, I am still willing to bet on the probability that future returns will be in line with history:-)

For more on Reflections and Musings , check back every Saturday for a new segment.

Photo Credit: morgueFile.com, Michael Connors

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

A Retirement Tax Strategy - Minimizing the Tax Impact of Roth IRA Conversions

In 2008, I plan to convert some of our regular IRA funds to a Roth IRA to use up tax credits and itemized deduction that may otherwise go unused. As background, I retired in my forties in October, 2007. As a result, our income will be significantly lower, but our itemized deductions will remain relatively high due to mortgage interest and property taxes. In addition, we will now qualify for a child tax credit, which is nonrefundable. In order to take advantage of these deductions and credits, we will need to increase our taxable income. Otherwise, the deductions and credits may be partly unused, because the tax liability is already low.

Here are the ways I've been considering to increase our taxable income:

1. Earn some income. I'll be doing some part time jobs in 2008. However, because the work is seasonal and part time, the earnings will be less than the amount necessary to completely offset the deductions and credits. Of course, this is to be expected since I am retired:-)



2. Increase taxable interest. Part of our fixed income investments pay tax exempt interest. By changing to investments that pay taxable interest, we will increase our taxable income. Again this will provide some but not enough additional income to offset our expected deductions and credits.



3. Take capital gains on stock investments. Selling stocks which have increased will create income. For 2008 to 2010, stock long term gains will create zero percent federal tax liability for those with in the 15% tax bracket ( $65,100 for Married Filing Jointly, $35,550 for Single in 2008). Unfortunately, if the market continues as it has for the beginning of 2008, I may not have may not have many stocks with gains later this year :-(



4. Convert regular IRAs to Roth IRAs. Taxpayers (not including Married Filing Separate)with an AGI (before the Roth conversion) of less than $100,000 are eligible to make conversions from a regular IRA to a Roth IRA. The funds of the regular IRA that would have been a taxable distribution are considered taxable income when doing a conversion.

I will be using all four of the options to increase our taxable income for 2008. Option #4 provides the most flexibility since I fully control of the amount of income created. In addition, I can wait until the end of 2008 to make the conversion. Based on preliminary estimates, I may be able to make a sizable Roth conversion and pay no federal income tax due to itemized deductions and child tax credits. However, we would still have a state income tax liability since there are fewer state deductions and credits than in the federal return.

For more on Reaping the Rewards, check back every Friday for a new segment.

This is not financial or tax advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Bear Market - Stage One

"You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets." Peter Lynch

Experience is one of the benefits of being older:-) It has been eight years since the start of the last market downturn and some investors haven't experienced the pain of a bear market. Here's the stages I've seen the several bear markets I've experienced:

1. "Things are going to get a lot worse, before they get worse." ~ Lily Tomlin. When one thinks it can't get any uglier, it does. One only has to look at the current housing situation and the credit market crunch. Each day seems to bring more bad news that's even worse than before. Eventually, investors and speculators start leaving the market, driving prices down even further.



2. "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. ~ Warren Buffett. At some point, almost no one wants to buy stocks and prices are down significantly. In hindsight, this is often the turning point of the bear market. However, it is difficult to predict when the turning point will happen or know that it is happening.



3. "It's deja vu all over again."~ Yogi Berra. As with the 23 bear markets in the past 100 years, the stock market rebounds and achieves new highs, rewarding people who stayed invested.

At this time, I think we are still in stage one. Until early January, 2008, I believed the current bull market would last until the summer of 2008. However, the market is looking weak enough that I don't think it will rebound this time. My investment accounts have retraced almost all the gains from 2007. Unfortunately, it looks like the news is going to get worst.

For now, I will continue to stay invested, and not increase the equity percentages. Fortuitously, we have set aside our next three years of retirement living expense in fixed income investments (e.g. CDs, municipal bonds and money markets.) As 2008 proceeds, I will look for buying opportunities for the selections from the Modified Unemotional Investor stock picking system.

For more on Crossing Generations , check back every Thursday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

I Won't Pay To Use My Own Money

I absolutely hate paying fees to use my own money. A few dollars here and there can add up to lots of money. My preferred approach is to find solutions that require no fee. Here are some of the fees that I like to avoid:

Check cashing fee. This is charged to payees who don't have their own bank account and need to cash pay checks or government checks with a third party payer, either a checking cashing business or a bank. Fees for paychecks usually range from 1 to 3% and for personal checks, up to 12%.

My Solution: Find a bank or credit union with no fee, no minimum balance checking account and use direct deposit. Potential savings: $300 to $500 per year.

Overdraft fees. These are the costs for withdrawing more than one has in a checking account. Sometimes the charge happens even when there is enough money but not all the deposits have cleared. People who take routinely have balances close to zero are most susceptible to overdraft charges when the flow of deposits and withdrawals is miscalculated:

My Solution: Keep a buffer (e.g. 20% of monthly expenses) in our checking account. That way we have to overspend by a lot to deplete our checking account. In the past, I have use overdraft protection from a credit card or savings account. While the credit card may charge interest, it is typically lower than an overdraft fee.

ATM fees. Since it is cheaper for a bank to dispense money through an ATM than a teller, I don't understand why fees are charged for using an ATM. A one dollar charge on a 20-30 dollar withdrawal is a hefty fee on a percentage basis.

My Solution: Find a bank that doesn't charge use fees at their own and other bank's ATMs. Another option is to use an ATM card for grocery or other purchases and withdraw additional cash over the purchase. Typically, there is no fee for an additional withdrawal with a purchase.

Foreign currency surcharge. Credit card have started charging 2% fees on transactions made outside the U.S. This is in addition to the spread a bank typically makes on a foreign currency exchange.

My Solution: Our ATM card can withdraw from foreign machines at the spot exchange rate with no additional fees. I have found that all international airports have ATMs that accept our bank card. And usually, there are ATM machines near the hotel. As a backup, we bring traveler's checks. While the check are usually exchanged with a bank spread, we don't get the additional 2% charge.

Fees and interest for loans against tax refund. These are short term loans, from a few days to a couple weeks, that are to be paid back when the refund is received.

My Solution: Manage our W-4 such that we owe or are refunded only a small amount. That way I have access our "refund" during the previous 12 months. If we have a refund, I choose to wait the 8-15 days to receive a direct deposit to our checking or saving account.

Banks can make a lot of money charging people to use their own funds. I try to avoid those fees and use my own money for free :-)

For more onThe Practice of Personal Finance , check back every Wednesday Thursday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Signalling Wealth

Because it's impolite to broadly share what one earns, people find other ways to signal wealth and elevate status within their community. Nicer cars, nicer houses, nicer clothing etc. are just some of the ways one can signal wealth to one's peers. However when overdone, wealth signalling can lead to unnecessary and excessive spending, even to the point causing significant debt and significant loss of wealth.

Since it is part of human nature to seek status in one's community, I am not immune to participating. However, I realized long ago that I wasn't going to be able to win in every front. For most things, we choose to buy only what we need. So signalling wealth happens for only a few things. Here are some areas where I think we spent more than "need" required:

Our house. We typically have paid more for our house in order to live in neighborhoods with better environments, schools and services. We recognize that the "same" house is often less expensive in a different neighborhood. However, in my experience, the higher value is often returned when the house is sold.

The frugal decision we did make was to buy a relatively lower cost house, that meets our needs, in our chosen neighborhood. Since we are already in a lower value house, we don't have as much pressure to keep up with our neighbors :-)

My higher education. I attended one of the Ivy League schools to which I was accepted. Although the costs were higher than alternatives, I believe it provided a great education and excellent employment options when I graduated.

One nice thing about college or graduate school is the cost is paid once and doesn't need to be renewed periodically. One's alma mater seems to be part of one's credentials throughout life.

My cocktails. Two drinks that I like are a gin martini and a single malt scotch. When dining out, I like to have a Bombay Sapphire martini before dinner. At home, I like to enjoy a Lagavulin or Macallan single malt scotch occasionally in the evening.

I guess this is similar to drinking a Starbucks' latte, but I don't have one every day:-)

To note, I am not trying to justify our spending choices. I just wanted to acknowledge that even though I try to buy only what I need, I have spent some of our money to "elevate status," which is part of human nature. Some wealth signalling is probably normal. However, signaling wealth with every purchase or at the expense of important needs can lead to financial disaster.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial advice. Please consult a professional advisor

Copyright © 2008 Achievement Catalyst, LLC

Carnival Links From January 10 - 15, 2008

Here are links to the select Carnivals from January 10 -15, 2008:

Health Wonk Review

Festival of Stocks

Festival of Frugality #108 Quotable Edition

For an interesting selection of posts from the blogosphere, check out the articles that have been chosen for each Carnival.

This is not financial, investment or health policy advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

1/14/08 Stock Purchase Update - Portfolio Continues Declining

In my 1/07/08 stock purchase update, I wrote about how the 10/15/07 updated buy list of Potash (POT), Southern Copper (PCU), CNH Global (CNH) and BHP Billiton (BHP) was performing. In that article, the portfolio had 3,823 gain for a 26.9% return. As of 1/11/08, the portfolio had pulled back to a gain of $2,862 for a 20.1% return, due to the market decline in the first eight trading days of 2008. The portfolio is now down 25% from its high on 12/28/07. The new purchases of PCU, CNH and BHP are down $506 for a 4.7% loss. Both PCU and BHP continue to have large losses of 11.4% and 5.3% respectively. Here's the current status of the stocks I own in the portfolio:

	My Wealth Builder 10/15/07 Buy List
Stock [purchase date]	Shares	Purchase Price	Current Price 1/11/08
Potash (POT) [6/7/07]	50	$71.59	$138.75
Southern Copper (PCU) [11/13/07]	40	$108.24	$95.93
CNH Global NV (CNH) [11/13/07]	50	$55.22	$58.80
BHP Billiton (BHP) [11/27/07]	50	$71.54	$67.69

The market activity continues to be concerning, with either narrow breadth or a high number of new lows. I believe that the probability of a recession in 2008 is relatively high. The multitude of negative factors will eventually outweigh any actions by the government. Originally, the Fed interest rate cuts and other actions led me to expect that the bull market would last through summer, 2008. However, the economic data in January, 2008 may cause the bull market to end earlier. For either case, I expect the market to continue to be choppy in 2008. For now, I will continue to hold this portfolio, but I do not plan to add any more to the amounts that I have already invested in the above table.

For more on Strategies and Plans , check back every Monday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Preparing for Change Has Its Rewards

January's conversion to New Blogger went very well. Much better than I had expected based on issues others had shared.

A month ago, I was extremely worried. Right after I received the notice to change, I tested the My Wealth Builder template on New Blogger and it crashed, due to an XML error. Panic. I believed that my hacks, while acceptable on Blogger, were not sufficiently error free for New Blogger. I spent the next two evenings searching for solutions, ideas, and help. And I found them. First, after more experimentation, I found out that New Blogger allowed reverting to the "classic template," which would accept My Wealth Builder's current format. Now I was feeling better. Second, I found a blog, Beta Blogger for Dummies, that has excellent tips, techniques and hacks for New Blogger. These guys are good! Using their template, I was able to recreate my current three column template in New Blogger.

Success is where preparation meets opportunity. For the past month, I had been preparing for today. Based on migration recommendations by Beta Blogger for Dummies, I backed up the blog template, the blog posts, and created a test template in New Blogger. I even had plans to create a replica of My Wealth Builder if the migration crashed. As it turned out, I didn't need to do use any of the backup plans. So readers got uninterrupted service and will so get a better My Wealth Builder in the future :-)

I'm hoping future changes in my life will go this well :-)

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial or blogging advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Mental Preparation for 2008 Politics

Now that 2008 is upon us, I am ready to engage in the Presidential campaign which has already been with us for a year since Senator Hillary Clinton's candidacy announcement. Since I retired in my forties in 2007, I will have a new perspective going into this year's election. I will be looking for for several attributes in the candidate I will eventually support. Here are the characteristics I believe will be important:

Leadership to do what's needed. I believe the next four years will determine whether the U.S. will continue to be a global leader. To me, our economic, educational, political standings are slipping. They will continue to fall unless the government begins to focus and makes some tough decisions on what to do and what not to do. This kind of leadership cannot be driven by voter sentiment and special needs interests.

A track record that supports their platform. I am getting tired of candidates who morph their platform and positioning as needed based on voter sentiment. After all, leadership will require them to take positions that may be unpopular, in order to do what's right for the country. In addition, I want to have confidence the candidate won't "morph" again once he or she is in office.

A vision I (and many others) can support. I'd like to know the candidates' visions of the future America and how their platform will get us there. The only element I seem to hear about is which special interest they will support. I want to know what kind of country they want to create and, specifically, how their programs and policies will enable creating that vision.

At this point, I think the U.S. needs great leadership as provided by Presidents like Washington, Lincoln, and, most recently, Roosevelt. We need a President who can rally the country to do what's needed and what's right to do, even if the elements may be very difficult.

For more on New Beginnings, check back every Sunday for a new segment.

Photo Credit: morgueFile.com, Tess

This is not financial or political advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Getting Tired Of The Stock Market Volatility

Six months of stock market choppiness is starting to wear on me. As of 1/11/08, the Dow had its worst yearly start since 1991. At negative 4.96%, the Dow has lost most of its 2007 gain of 6.5%. The S&P 500 is down 4.6% and has returned all of the 2007 gain of 3.5%. It's only taken 8 trading days to reverse 2007. Unfortunately, I think the market situation will still get worse sometime in the near future and therefore, end the current bull market. Psychologically, I am getting tired of waiting for the inevitable market capitulation by investors. I wish capitulation would happen sooner than later and return to a bull market:-)

While I wish this stage would end, I think the market will continue to be volatile and choppy for an extended period, before it finally has a major decline. Here are my reasons:

There is still confidence that "smart" people will prevent a downturn. The market still believe that actions by the Fed, financial institutions or other government agencies will avert the decline. The trouble is that decisions by smart people in these organizations are what caused the financial issues we have today, e.g. mortgage crisis, credit crisis and looming recession. I believe the "smart" people will be able to delay but not prevent a downturn. After all, they didn't foresee the issues of today just six months ago.

Articles are recommending buying beat up stocks. There are a number of articles like5 hot stocks at Big Mac prices that recommend considering stocks that have had a significant decline. There aren't very articles that advocate avoiding stocks or not buying at any price. I admit, I am still tempted to bottom fish. One of my stocks, Chico's (CHS), closed at $7.05 on 1/11/08 after being in the high forties in early 2006. I'm very tempted, but am not going to buy.

More fear is needed. I remember at the end of 2002 very few people I knew wanted to have anything to do with stocks. Many of my colleagues had significant losses from the tech bust. At the end of 2002, I sold the remaining stocks that I had for a loss and was leery of getting back into the market. 2003 turned out to be a great year for stocks, because most people didn't want equities any more.

Right now, the current situation feels a lot like early 2002, with some still confident of a rebound to come. I was still actively buy stocks on the dips, which had worked well up to 2001. However, 2002 turned into a bad year for me and many other investors. While I hope I am wrong, 2008 feels a lot like 2002 to me right now. At this point, my plan to is to continue to hold what I own and not initiate any new positions.

For more on Reflections and Musings , check back every Saturday for a new segment.

Photo Credit: morgueFile.com, elinluna

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

A FairTax Would Be "UnFair" To Me

As the 2008 Presidential election gets closer, I am taking a greater interest in the candidates' positions. A proposal that is getting support by some candidates is the FairTax (correctly spelled with no space between the two words.) The FairTax would replace all federal income taxes (including corporate and estate taxes) and payroll taxes (Social Security and Medicare) with a national sales tax of 23% (or 30% depending on how the percentage is calculated). The FairTax would also eliminate the IRS as it now exists.

Initially, the FairTax concepts appealed to me. It would eliminate the burdensome task of filing tax forms, reduce income tax evasion, and tax purchases. It would reward saving by not taxing money until it was spent. However, with some additional research, I am no longer a supporter of the FairTax. I believe that enacting a FairTax proposal would actually penalize people like me, who are have been lifetime savers and are now retired. Here are the reasons that I believe make the FairTax would be unfair to me:

After-tax savings would be taxed again. All my savings in taxable accounts would be taxed again when spent under a FairTax. Not only did I pay income taxes on the savings, when earned, but I will pay another 23% tax when I spend the money.

To note, FairTax proponents acknowledge this, but claim there is already a 22% embedded tax in today's purchases. Therefore, proponents advocate, savers won't feel the pain of the national sales tax, since the prices will remain the same.

As a someone who is pretty good at math, I don't agree with their argument. To me, while the purchase may cost the same, the value of each dollar spent is greater for the saver, since the saver would have needed to earn 25 to 35% additional money, which was paid as taxes at an earlier date.

Roth IRAs will be taxed. To me, it seems Roth IRAs would no longer have any tax benefit since distributions would FairTaxed when spent. Readers have commented before that future tax law changes may eliminate some to the Roth IRA benefits, which lead them to contribute to deductible IRAs.

The possibility of an income tax is not eliminated. The 16th Amendment to the Constitution gives Congress the power to impose an income tax. The FairTax would not repeal the 16th Amendment. Thus, a FairTax could co-exist with a federal income tax. This situation already happens in many European countries, i.e. income tax co-existing with a VAT (Value Added Tax) on purchases.

To note, I may get some benefits from a FairTax as a saver, if the current federal income taxes are eliminated. As I understand it, distributions from tax deferred accounts, e.g. IRAs, pensions and 401Ks, will no longer pay income taxes under a FairTax. The benefit could be a significant. However, with respect to taxes, I am generally a pessimist. As long as the 16th Amendment is in force, I don't have confidence that the U.S. government would ever permanently eliminate the income tax system. Therefore, I currently won't support any Presidential candidate that is advocating FairTax as a part of their platform.

For more on Reaping the Rewards , check back every Friday for a new segment.

Photo Credit: morgueFile.com, Steven L. Berg

This is not financial or tax advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Maximizing The Tax Benefit Of Our College 529 Plans

Since we plan to pay for our three year old's college education, we continue to make contributions to a 529 plan, even though we retired in our forties. Since our state allows deduction of 529 contributions for tax purposes, we typically add an amount equal the maximum deduction allowed. However, when we first opened the account, we learned that we could maximize tax deductible contributions by also opening a 529 account for my spouse and me. This works because the 529 account funds can be transferred to a different beneficiary, who is also a family member, at any time. Thus, in the future, we can combine all three accounts for my daughter's use.

Of course, 529 plans already offer tax exempt earnings when used for higher education expenses. The flexibility to transfer beneficiaries provides us several additional benefits:

Triples our yearly deduction for state tax return. Our state has a yearly maximum deduction for each beneficiary of a qualified 529 plan. By opening three 529 accounts for my spouse, our daughter and me, we can deduct the maximum of each account. This also triples the amount we contribute each year for the eventual benefit of our daughter.

Enables parents to use the funds for themselves. Since we are the beneficiaries of two accounts, we can use the funds for ourselves should we decide to take additional higher education courses. Of course, our first priority is our daughter's education, but it may make sense based on tax benefits for us to use the funds first.

Pre-fund an account for a future child. A 529 account can be created for an expected child in the future by opening it for a "family member" and later transferring it to the new child. In our case, we have already opened 529 accounts for ourselves. Therefore, we would need to open a 529 account for one of our parents (i.e. the child's grandparents) or first cousin in order to have a direct beneficiary transfer to the child.

Since we are in the process of adopting a second child, we will consider the option of pre-funding a 529 account when the adoption date is set.

For more on Crossing Generations , check back every Thursday for a new segment.

This is not financial or tax advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Be Where The Puck Is Going

I skate to where the puck is going, not to where it has been." ~ Wayne Gretzky

Why You Can't Plan for Retirement by Doug Short on The Motley Fool presents some interesting research by the Stanford Institute for Longevity which discovered that when "people are asked to imagine themselves in retirement, the parts of their brains that usually 'light up' when they think about themselves don't light up at all. It's as if they were thinking about a stranger." However, in an experiment where people interacted with a digitally aged picture of themselves, twice as much money was allocated to retirement after being given $1,000 to spend or invest.

For me, this appears to be a good scientific explanation for how "envisioning a future state" benefits an individual. While envisioning doesn't guarantee success, it appears to create a psychological incentive to take action to help oneself. The secret apparently is to be able to see oneself in the future.

Looking back at my experience, I have had several episodes where seeing myself in the future did help. Here are a couple examples:

Career advancement. After a decade of an average career, I realized that while I liked my position, I wouldn't be happy being at the same level a decade later. That epiphany caused me to start thinking about what and where I wanted to be in the next decade. As I began to envision what that might be, it changed how I approached work and helped me achieve my career goals.

Financial freedom. I always saw myself eventually having the financial means to not depend on a company, government or anyone. One outcome was that we were extreme savers, putting away as much money as we could afford, e.g. 20% or more in our paycheck. Another result was avoiding credit card debt and making the personal sacrifice to advance at work. While we never knew if we would achieve our goal, we had psychological incentives to take steps that would help us get there.

In both these cases, I saw myself in a different future than the present, which provided motivation to do what was needed. Based on the study results from the Stanford Institute for Longevity, I understand better why envisioning myself in the future can help. While I will continue to use it in financially related areas, I think I will also apply it in other areas to envision the future I want to create :-)

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

Photo Credit: morgueFile.com, Bianca Meyer geb. Bollmeier

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Avoid (Unnecessary) Spending - A Quick Checklist

It's all the result of people spending money they don't have on things they don't need to impress people they don't like. - Denise in Business Week Reader Feedback on December 10, 2007 on "The Consumer Crunch" edition

When I read this comment in Business Week, I thought it was very insightful and would be a good test of whether I should buy something or not. For future reference, I created a three question checklist to use. If the answer to either of the first two questions is "no," then I won't buy it. If I get to the third question and answer "yes," I will buy, but be more cost conscious.

1. Do I have the money?
   YES ---> Go to question 2.
   NO ---> Stop and don't buy it. This one is simple. If I don't have the cash, then I shouldn't be thinking about buying it. My exceptions are a home or a first car.



2. Do I need it?
   YES --->Go to question 3.
   NO ---> Stop and don't buy it. If I don't need it or plan to use it frequently, I won't buy it.



3. Is a reason to "impress"?
   YES ----> Stop and consider something more "cost effective."
   NO ---> OK to buy.

While each people may make different choices, here are some example "decisions" for me:

	Checklist
Item Under Consideration	Question#1	Question#2	Question#3	Decision
Nintendo Wii	Yes	No	-	Not Buy
Cell Phone	Yes	No	-	Not Buy
Luxury Car	Yes	Yes in 2013	Maybe:-)	Look for economy model that meets need
HDTV	Yes	Yes in 2009	No	Buy in 2009

For reference, in 2013 our cars will 10 years old. After February 17, 2009, all TV broadcasts will be in digital HD format and we only own TVs with an analog tuner.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Links to Carnivals from January 2 - 8, 2008

Here are links to select Carnivals from January 2 - 8, 2008:

Carnival of Everything Finance

Carnival of Financial Goals #2

Carnival of Personal Finance 134: Building on the Basics

Festival of Stocks

Festival of Frugality #107: The Little Things Edition

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

1/7/08 Stock Purchase Update - Pulled Down By The Market

In my 12/31/07 stock purchase update, I wrote about how the 10/15/07 updated buy list of Potash (POT), Southern Copper (PCU), CNH Global (CNH) and BHP Billiton (BHP) was performing. In that article, the portfolio had achieved a new high with a gain of $4,098 for a 28.8% return. As of 1/4/04, the portfolio had pulled back to a gain of $3,823 for a 26.9% return, due to the market decline in the first three trading days of 2008. The new purchases of PCU, CNH and BHP are only up slightly at $260 for a 2.4% return. Both PCU and BHP continue to have small losses. Here's the current status of the stocks I own in the portfolio:

	My Wealth Builder 10/15/07 Buy List
Stock [purchase date]	Shares	Purchase Price	Current Price 1/4/08
Potash (POT) [6/7/07]	50	$71.59	$142.65
Southern Copper (PCU) [11/13/07]	40	$108.24	$104.00
CNH Global NV (CNH) [11/13/07]	50	$55.22	$66.07
BHP Billiton (BHP) [11/27/07]	50	$71.54	$69.29

The market activity continues to be concerning, with either narrow breadth or a high number of new lows. I believe that the probability of a recession in 2008 is relatively high. The multitude of negative factors will eventually outweigh any actions by the government. Originally, the Fed interest rate cuts and other actions lead me to expect that the bull market will last through summer, 2008. However, the economic data this week or month may cause the bull market to end earlier. For either case, I expect the market to continue to be choppy in 2008. At this time, I do not plan to add any more to the amounts that I have already invested in the above table.

For more on Strategies and Plans , check back every Monday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

My Tax Optimization Strategy For 2008

For 2008, our goal is to manage our taxable income to qualify for several of tax benefits, to minimize our tax liability. Since I retired in my forties in 2007, we will be able to "control" our taxable income since we have minimal regular wage (W-2) income and will be living off our savings. The tax benefits for which we will likely qualify are shown below.

Tax Benefit #1. Convert regular IRAs to Roth IRAs. Roth IRAs have two benefits over regular IRAs: 1) Roth IRA distributions are tax free and 2) Roth IRAs have no required minimum distribution after age 70 1/2. Both of these benefits can result in significant tax savings in the future.

The income limit to do a Roth conversion. for 2008 and 2009 is $100,000, including the taxable part of the IRA conversion. In 2010, there will be no income limit.

Tax Benefit #2. 0% on long term capital gains for stock sales. From 2008 to 2010, the long term capital gains rate is 0% for taxpayers in the 10% and 15% tax brackets. For 2008, the top of the 15% tax bracket is $32,550 for single and $65,100 for married filing joint (MFJ). Remember, taxable income is the income after adjustments, exemptions and deductions.

Tax Benefit #3. Child and education related tax credits. The child tax credit is $1000 per child and begins to phase out at $100,000 AGI for MFJ and $75,000 for single. Lifetime learning tax credits are up to $2000 and begin to phase out at $90,000 AGI for MFJ and $45,000 AGI for single.

Tax Benefit #4. I have not found 2008 adoption tax credit numbers. However, the adoption tax credit in 2007 was $11,390 and began to phase out at $170,820.

At this point, I expect we will be able to qualify for the first three tax benefits. The fourth tax benefit will depend on whether we get an adoption referral in 2008. Since we are doing an international adoption, we cannot claim the tax credits until the adoption is completed.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial or tax advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

I Don't Complain, Instead I Don't Return

Although your customers won’t love you if you give bad service, your competitors will. ~ Kate Zabriskie

It used to be if I received bad service, I would take the time to fill out a complaint card and let the establishment know. However, I no longer do that. Now if the business gives me bad service, I just stop going. To note, I can forgive a mistake or two. It's bad service that I no longer tolerate.

Here's a recent example of what I consider bad service at one of the casual restaurants we frequent. The meal service was acceptable, although we did the pizza seem to be saucier than usual. When we received our bill, there were several mistakes. We were overcharged by one item (extra sauce) on the pizza, one beer wasn't charged and the coupon was not deducted from the price. I explained all the mistakes to our server who thanked us and worked with the manager to make the corrections. A few minutes later she handed us a corrected bill and explained that the pizza charge was not adjusted since the extra sauce had no charge. After looking at the bill again, I told the server I still thought I was charged for three toppings and asked how much each additional item cost.

She gave me a why-are-you-asking-me look and said, "I don't know."

I replied, "Could I see a menu?" and she handed me one.

I said, "Based on the menu, it looks like I was charged for three items instead of two."

Her reply, "Ok, I'll check with the manager again."

While the manager was sorting out the bill, I had to ask twice for a box to take home the remaining pizza. After several more minutes, she returned with the revised bill, explaining that the manager had been confused. Although the bill was now correct, I felt we had spent half of our time in the restaurant working on the check. Not my idea of an enjoyable evening.

Although I still like the restaurant chain, I won't be going to this specific restaurant, which is close to our house, in the near future. Even though it only happened to us once, I don't want to risk paying for another bad service experience.

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial or business advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Maybe Endowment Professionals Should Manage Company Retirement Accounts

Over the past year, I have been reading articles about University endowment funds returns. Typically, the top universities have outstanding returns as reported in What Can We Learn from Yale Endowment's 28% Return? and Harvard Endowment Posts Strong Return. It seems that endowment fund managers have figured out how to regularly beat the overall stock market returns by using alternative investments - e.g. real estate, private equity and hedging.

I think the returns by endowment funds are great. I'd love to have the same returns in my accounts. In my limited experience, company retirement accounts have only a few options, with either no management or self managed by the individual. In my case, my only choice for most of my career was our company's stock. Fortunately for me, the company's stock outperformed the S&P index while I was working there. However, when a 401K part was added, I was given the choice of four mutual funds, which had OK but not stellar returns.

The endowment return articles have caused me to wonder why businesses haven't used the same approach to manage pension and retirement accounts - i.e. hire proven investment managers who are paid to beat the market. In addition, these managers could be made available to employees to manage personal funds. Having interviewed several money managers, I recognize how difficult it is to find an excellent and knowledgeable manager who delivers results. Having access to successful investment managers would be a great fringe benefit.

Note to self. If I should ever be successful in starting a major company:-), I think I will make professional management of retirement accounts and personal accounts one of the company's benefits.

For more on Reaping the Rewards, check back every Friday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Holiday Party Observations

"You can observe a lot by watching." - Yogi Berra

The holiday gatherings I attended had a wide range of professions, backgrounds and ages in the group. Attendees range from 3 to 70 years of age. Professions covered include farming, military, teaching, real estate, corporate employees, non-profit employees, self-employed, government employees, retirees, graduate students and homemakers. Besides catching up socially, conversation topics include politics, economics, business, and investing. Here are some of my observations from this year's conversations:

Financially, people were guardedly optimistic. Most of those in their twenties and thirties had good jobs, which they found challenging and were enjoying. Some were continuing their education with graduate degrees, and had positive outlooks for their future. Real estate was difficult, but offered some opportunities for good buys, e.g. below the previous purchase price. People in retirement didn't seem to have any major financial concerns.

However, most recognized that the future was a potentially rocky road and still fuzzy on the eventual outcome.

Politics was not a big topic. There was barely a mention of the Presidential campaigning. This was surprising given the range of political discussions in the past. I guess either everyone is tired of the campaigning already or no candidate has impressed enough people yet. Probably a little of both :-)

Children had a major presence. Every holiday party we attended included children, which seems to be the norm for us nowadays. A lot of attention was given to the children. The children were either a focus or they had their own separate activities. At one party, gift exchanges were done primarily for the children. At another, playing video games was a major activity.

While holiday parties attendees are not necessarily representative, I thought peoples economic and financial perspectives were relatively positive. I hope this attitude indicates that 2008 will be a better year :-)

For more on Crossing Generations, check back every Thursday for a new segment.

Photo Credit: morgueFile.com, Adriadna

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Doing What One Loves - The Difference Between Theory And Practice

In theory, there is no difference between theory and practice. In practice, there is. ~Yogi Berra

To me, there is a big difference between theory and practice. In theory, doing what one loves should lead to great compensation. However, in practice, doing what one loves may be disappointing financially. Why is there such a big difference between theory and practice? Here are my thoughts:

Theory often requires "ideal" conditions. Ideally, "doing what one loves" will work if people are willing to pay for what one loves to do. In practice, I have found people are not willing to pay enough for what I truly "love to do." Of course, there are always the success stories which support this theory. However, Do What You Love and Starve by Marty Nemko points out that for every success story, "there are thousands of wannabes still waiting tables" whose stories are rarely reported.

Doing well requires a exceptional level of skills. As much as I wanted to be a NFL football player, I wasn't going to make it. I wasn't fast enough, strong enough or big enough. My football career peaked in high school and ended at the collegiate level.

Results also require diligent hard work. For example, in theory I could be a good, even competitive golfer. I understand the mechanics and strategy of golf. I know how I am supposed to hold the club, swing and follow through. However, in practice, I am, at best, a mediocre golfer. Mainly, because I don't invest the time and effort to learn and practice to improve my game. Therefore, whenever I play a round of golf, I do the best I can and hope for a good score.

However, all was not lost. In practice, I still do what I love, but for personal enjoyment. For example, I transferred my quickness and speed in football to rugby and tennis, both of which I was able to play many years after college. In practice, I also used what I was good at and applied it to a challenging, good paying job, in which I had interest. This led to a very satisfying career from which I recently retired in my forties this year.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

Photo Credit: morgueFile.com, Mary R. Vogt

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC