Recent IRS Notice Lifts Ban on Rolling Over Your MRD

In response to the economic crisis that kicked into high gear last year, Congress passed the Worker, Retiree and Employer Act (WRERA) of 2008 with the goal of providing older Americans some much-needed relief and flexibility in managing their personal finances. Part of the Act allowed for the suspension of minimum required distributions (MRDs) from IRAs and defined contribution plans. However, WRERA was enacted so late in the year, many retirees and plan administrators were unable to adjust to the new rules and many continued to take their MRDs during 2009.

If you are one of the people who unnecessarily took MRDs all year, you’ll be happy to note that on September 24th, the IRS issued Notice 2009-82 which gives you a second chance to keep the money in your account.  The normal ban on rolling over MRDs is being temporarily lifted and you now have the option to roll the money back into the IRA or defined contribution plan by November 30th for mandatory payments taken before October 1st.  If you took an MRD after September 30th, the deadline for putting the money back into your plan is 60 days after the distribution was made.

Some IRA owners are bound to be disappointed with part of Notice 2009-82.  The IRS did not change the part of the tax code which mandates a one-rollover-per-year rule for IRAs.  If you are an IRA owner who took your MRD in one lump sum – no problem.  You can roll the entire amount back into your plan.  Unfortunately, if you’re an IRA owner who took monthly MRDs, you are limited to rolling back only one of the withdrawals.

If your MRD was not taken from an IRA, but from some other defined contribution plan like a 401(k), this one-rollover-per-year does not apply to you.  Even if you took monthly distributions, you can still roll the entire amount back into your plan.

IRS Notice 2009-82 provides an excellent opportunity to extend your income tax deferral from your retirement account.  Just don’t miss the deadline – November 30th for payments taken before October 1st and 60 days after the distribution for payments made after September 30th.

For a complete look at Notice 2009-82, click on

Deadline is Nearing for the First-Time Homebuyer Tax Credit

Even though the First-Time Homebuyer Tax Credit deadline is November 30th, the real deadline is upon us. That’s because the November 30th deadline refers to the closing date. Since most home purchases take between 45 to 60 days between contract signing and the closing date, you need to start house hunting in earnest in order to take advantage of this tax credit.

Qualifying taxpayers who buy a home by November 30th can get up to $8,000, or $4,000 if married filing separately.  Even better news — this credit does not have to be repaid as long as the home remains the main residence for 36 months after the purchase date.

Taxpayers can claim 10 percent of the purchase price up to $8,000, but the credit amount starts to phase out for taxpayers whose modified adjusted gross income (MAGI) is more than $75,000 ($150,000 filing jointly).  If you do qualify for this tax credit, think about how you want to use it.  You can use it towards a nice tax refund – or – use the benefit of the tax credit to make a Roth IRA conversion if eligible.

Technically, you don’t have to actually be a first-time homebuyer to qualify for this credit.  If you did not own any other main home during the three-year period ending on the date of purchase, you will be considered a first-time homebuyer.

One side note for those who purchased homes between April 8, 2008 and December 31, 2008 – you do not qualify for this tax credit, but you may qualify for a different tax credit which amounts to 10 percent of the purchase price up to $7,500 ($3,750 for married individuals filing separately).  The big difference is that this tax credit must be repaid in 15 equal installments over 15 years beginning with the 2010 tax year.

With the success of the First-Time Homebuyer Tax Credit program – over 1.4 million homebuyers have used this credit so far – there is talk of extending the November 30th deadline.  However, Congress has yet to make a decision on an extension.  In the meantime, good luck house hunting!  If you would like more details on this tax credit and to see if you qualify, visit

Don’t Become a Victim of a Financial Scam

Special thanks to our latest radio guest, President and CEO of fiduciary360 (fi360), Blaine Aikin, for taking the time to give us insight into several of the proposals currently before Congress dealing with regulatory reform. Blaine gave up his time during an especially busy week – he joined us on Wednesday night (9/9) and then traveled to Washington, D.C. for a scheduled meeting on Friday (9/11) with SEC Chairperson Mary Shapiro.

The trip to D.C. was taken with members of the Committee for the Fiduciary Standard – a group that was formed to draw the public’s attention to the movement to create a unified fiduciary standard.  Fiduciaries are people who manage money on behalf of others and stand in a special relationship of trust and legal and ethical responsibility – including CPAs, CFPs, stock brokers and insurance brokers.

Currently, some fiduciaries are held to a fiduciary standard while others are held to a suitability standard.  It is the goal of the Committee for the Fiduciary Standard that the fiduciary standard apply to all fiduciaries and that disclosures become crystal clear.  (For more on this effort, visit fi360’s website at

During the second half of the show, Blaine took a close look at some of the recent financial scams and scandals (including the Bernie Madoff scandal) and what the average investor should be doing to avoid becoming a victim of such a scandal.

Blaine’s advice was excellent and taking a minute to review his suggestions could save you financial heartbreak in the future.  For starters, Blaine recommends that investors rely on RFPs (requests for proposals) instead of third party testimonials.  Do a background check – read the fine print in disclosures.

Don’t work with people who don’t have time to answer your questions or tell you that you don’t really need to know.  This is one of the ways that Bernie Madoff was able to avoid detection for so long.

Make sure that your advisor uses a system of checks and balances.  For instance, Bernie wore four hats – broker, advisor, manager and custodian.  Included in this system of checks and balances is making sure that your advisor does not take custody of your assets directly.

Do your homework – look for 3rd party verification – audited financials, GIPS certified performance standards, CEFEX.

Finally, keep in mind the old adage – if something seems to good to be true, it probably is.

If you missed the show with Blaine Aikin and you’d like to hear either the entire show or portions of the show – check back to this website soon.  Audio will be posted by next week (the week of September 21st).

Jim Lange in Kiplinger’s

Roth IRAs and Roth IRA conversions have been Jim Lange’s passion for the past decade and Jim is always happy to spread the word to the media. Jim’s latest appearance in print can be found in this month’s (September 2009) Kiplinger’s Retirement Report (Leave Your Kids a Tax-free Legacy on page 18).

To show the wealth-building potential of a Roth IRA conversion, Jim gives an example involving two 65-year old fathers.  They are both in the 28% tax bracket and both have IRAs valued at $100,000.  To simplify the example, both dads also have $28,000 in a taxable account.

The first dad decides to make a Roth IRA conversion and pays $28,000 in taxes up front.  The second dad decides to stick to his traditional IRA and will pay taxes upon withdrawal.  In Jim’s example, both dads live another 20 years and leave their IRAs to their children.

Thirty years after their parents die, the Roth IRA child has $1.8 million in future dollars.  The traditional IRA child only has $980,000.  Why the big difference?  For starters, the Roth parent never had to take required minimum distributions and the entire amount was able to grow tax-free for all of those years.  The traditional dad had to take an RMD starting at age 70 1/2 resulting in the parent and child paying taxes on the RMD every year.

This analysis really becomes powerful when you realize that a tax-law change starting on January 1, 2010 will make all taxpayers eligible for a Roth IRA conversion, regardless of income.  Considering that many wealthy taxpayers will be able to convert much more than the $100,000 in the example, the potential benefits of a Roth IRA conversion could be even more dramatic.

In the same Kiplinger’s article, Jim also stresses the importance of the beneficiary designation of your IRA.  If you hope to have your heirs stretch this tax-free shalter for their lifetimes, it’s important to get the wording correct.  Non-spouse heirs cannot roll an inherited IRA into their own Roth IRA.  Instead, they must set up an inherited IRA and the name of the deceased must remain on the account.  Jim advises using language along the order of “inherited IRA of Joe Sr. for the benefit of Joe Jr.”.  The money must then be transferred directly into the new IRA.

Remember – we are less than four months away from the big tax-law change.  Make sure that you’re up-to-speed on the benefits of Roth IRAs and Roth IRA conversions.  For a more detailed comparison between traditional IRAs and Roth IRAs, we offer another of Jim’s articles on this website.  Go to the homepage, click on articles and then click on Roth: Four Little Letters Lead to Long-term Financial Security.

As always, our excellent professional staff is available to help you with a complete Roth IRA analysis.  Get more details by calling our office at 800-387-1129.

Positive Market News

In the latest issue of The Lange Report, we finally had a chance to share some positive market news. In fact, the second quarter of the year turned out to be the first positive quarter in a year.

Continuing the upturn, the market also had a great July. The S&P 500 reached its low on March 9, 2009 closing at 676.53.  On August 3, 2009, it closed at 1002.63.  This is a return of 48.2% off the March 9th bottom.  The second quarter performance of the S&P 500 – an increase of 15.9% for the quarter – was its best quarterly performance in over 10 years.

Even though the market is still well off the highs that we experienced in 2008, the latest market news is certainly promising.  Many of our clients continue to ask what’s going to happen to the market in the next 3 to 6 months or even in the next year.  The truth is – we don’t know.  Nobody knows.

However, it is interesting to take a look at historical trends.  From 1926 (before the depression) to the second quarter of 2009, the S&P 500 Index has generated an average annual return of 9.6% (compared to government bonds which have averaged 5.5%).  Let’s say that you invested $1 in 1926.  If you had invested in government bonds, you would have roughly $100 today.  If you had invested in the S&P 500 Index, you would have roughly $2,000 today.

Of course, individual circumstances play a critical role in determining what asset allocation is appropriate for you.  At Lange Financial Group we continue to be believers in well diversified portfolios with some representation in most asset categories.

If you’d like to take a look at a more detailed analysis of the latest market figures as well as other economic indicators including international markets, emerging markets, interest rate changes and unemployment figures – it’s all available in the latest edition of The Lange Report.  For a copy, please contact the office at 1-800-387-1129 or sign up for our e-mails on the home page of this website.

New Website Feature

Six months into our new radio show, The Lange Money Hour: Where Smart Money Talks, we’re happy to report that we have loyal listeners from all over the country. Calls, emails and questions have been coming in on a regular basis from California, Michigan, Texas, Ohio, Florida and New Jersey (as well as across Pennsylvania).

We’ve also discovered that many listeners enjoy listening to the shows again once they’ve been posted here at  Thanks to the listeners who made the suggestion that we offer shorter audio clips in addition to our full-length shows.

Since we also thought that was a great idea, we’ve created a new page featuring clips from every show.  The link is posted on the left-hand side of the homepage — click on Audio: Key Advice From The Lange Money Hour.

To make this feature even more user friendly, we provide a description of the topic and the date of the show.  Now you can get quick advice from Ed Slott, Bob Keebler, Natalie Choate and all of our other guests, just by clicking on the appropriate link.

All of our favorite topics are covered including Roth IRAs and Roth IRA conversions, safe withdrawal rates, the use of insurance in estate planning, tax-loss harvesting and the best estate plan for most traditional families — Lange’s Cascading Beneficiary Plan.

Please use and enjoy these clips at your leisure and keep the ideas coming!

Turning Children Into Financially Responsible Adults

A huge thanks to Neale S. Godfrey, best-selling author and founder of The Children’s Financial Network, for sharing her incredible ideas for raising financially responsible children on the July 29th edition of The Lange Money Hour. Neale was a great guest — full of tips for parents and grandparents on how to make sure that children are financially fluent.

A couple of her strategies are particularly timely given the economy and the time of the year.  For instance, many parents and grandparents are busy doing back-to-school shopping right now and we all know that shopping with tweens and teens can get ugly.  Neale offered a practical solution to avoid arguments and overspending.  For kids age eleven and up, Neale suggests giving them a budget and letting them make their own decisions.  You can set up a bank account or give them pre-paid debit cards, but in the end, putting them in control of their finances forces them to make budgetary choices.

The recession has also forced a lot of adult children to fly back to the nest and Neale recommends hammering out the details of the arrangement before they move back in.  How long do you expect them to stay?  What financial obligations do you want them to take care of?  Having these discussions in advance avoids problems later.  Neale even suggests taking the extra step of drawing up a lease with all of the terms defined.

In addition to setting up a trust, one of Jim Lange’s chief concerns when it comes to minors is the naming of a guardian.  Neale agreed that naming a guardian for your children is absolutely critical and she also recommends sharing the details of the arrangement with your children.

Notice, though, that the key element in all of these situations is communication — full disclosure of the family’s finances.  The problem for many families is that money is a taboo topic.  If this is the case in your family, one of Neale’s books might help.

Her #1 New York Times best-seller, Money Doesn’t Grow on Trees: A Parent’s Guide to Raising Financially Responsible Children is an excellent choice for adults and Ultimate Kids Money Book is perfect for elementary school age children.  Both are available on Neale’s website

New York Times Analyzes Roth IRAs

The Tuesday, July 21st edition of The New York Times had an article titled “Converting an IRA Into a Roth? How’s Your Crystal Ball?”. Naturally, this got our attention. Jim Lange was at the forefront of the Roth movement when he wrote the first peer-reviewed article on Roth IRAs for The Tax Adviser in 1998.  Since then, Roth IRAs and Roth IRA conversions have been Jim’s passion.

For many taxpayers, Roth IRAs have not been on their radar because of the income limitations.  Currently, if your household’s adjusted gross income is over $100,000, you don’t qualify for a Roth conversion.  However, a big change is about to take place.  Starting January 1, 2010, all taxpayers will be eligible for a Roth IRA conversion regardless of income.  If you are unfamiliar with Roth IRAs, here’s how they work.  With a traditional IRA, you take a tax deduction now and pay income taxes when you withdraw the money.  With a Roth IRA, you pay the taxes up front and then your money continues to grow income tax-free for the rest of your life and, perhaps, even the lives of your children and grandchildren.

As we get closer to the tax-law change in 2010, not only is interest in Roth IRAs heating up, but so is speculation that the rules may change down the road.  The New York Times article suggests that in the worst case senario, the federal government might try to tax the earnings on a Roth IRA after all.  Or, perhaps, the feds might impose a penalty tax on excessive balances.  This argument is especially hot right now considering the massive and growing federal budget deficit.

Others believe that Roth IRAs will remain the same, but all other accounts would change to be like them.  That means contributions to traditional IRAs would no longer be tax-deductible and pretax savings in 401(k)s and similiar plans would also stop.

Does that mean that you shouldn’t consider a Roth IRA conversion?  Not at all.  As The New York Times also mentions, many advisors believe that Roth IRAs will not only remain the same, but will become even more valuable if income tax rates increase.

If you’ve ever been to one of Jim Lange’s Roth IRA workshops, he answers the question about a possible tax-law change governing Roth IRAs by pointing out that Roth IRAs are part of The Internal Revenue Code (as opposed to Social Security taxes – which were never part of The Internal Revenue Code).  If this law were suddenly changed and taxes imposed at withdrawal, Jim has said in his workshop that this would be “a violation of due process, a violation of the constitution, and you would have a very well-financed revolution”.

Listen to the July 15th edition of The Lange Money Hour which featured one of America’s top IRA experts, Natalie Choate, and you’ll find that Jim and Natalie both agree with two other points made in The New York Times’ article.  First of all, if you don’t have the money to pay for the taxes on a Roth IRA conversion outside of your retirement plan, you should probably not convert.

Secondly, it’s not a good idea to do a 100% conversion.  As Natalie put it, “don’t put all your money on one horse”.  It’s not a good idea to ignore the Roth IRA, and it’s also not a good idea to have all of your money in a Roth IRA.  Diversification is key.

Jim Lange and the rest of our team are still very excitied about the possibilities ahead with Roth IRAs and Roth IRA conversions.  If you’re wondering what to do, we recommend a professional analysis of your situation.  It’s possible that a series of small conversions would work best for you.  The professional staff here has been doing thorough Roth IRA projections for years.  You don’t have to wait until 2010 to get started – for help, call the office at 800-387-1129.

Michael Jackson’s Estate

The circus surrounding Michael Jackson’s death and estate will, no doubt, continue for months, possibly years. No matter what you may think of Michael Jackson personally, we can all learn some lessons from the way that Michael set up his affairs.

For starters, Michael took the time to consider the matter of guardianship for his children.  Some believe that his choice is unwise – naming his 79 year-old mother, Katherine, as guardian and 65 year-old singer Diana Ross as contingent guardian.  The important thing to remember is that Michael obviously gave this considerable thought and wanted to make sure that his wishes were known.  It’s very important that all parents of minors do the same thing and take the responsible step of putting their wishes in their will.

Michael’s will was relatively straightforward — have a look for yourself  – The will is a pour-over will which basically says that all money or property that has not already been transferred into a trust should be transferred into a trust at the time of death.  For medium or large estates, a pour-over will with a family trust is an excellent way to avoid probate and to maintain some privacy since details of a trust are, in most states, not a matter of public record.

Sorting out the details of Michael’s financial situation will take quite some time.  One of the reasons is that much of Michael’s estate was not liquid.  The value placed on his main asset, a 50 percent interest in the Sony/ATV music catalog, has been reported to be worth anywhere from $500 million to $1.5 billion.  In addition, the estate is burdened by personal debt in the neighborhood of $500 million.

One lesson to be learned from this example is that if you have assets that are hard to value and not terribly liquid, you should consider life insurance.  If set up correctly, the life insurance proceeds would be tax-free and could be used to pay debts of the estate and taxes on the estate.

Finally, a piece of advice in the event that you leave behind a 401(k) plan.  While little is known about Michael Jackson’s estate planning, let’s assume that he got good advice and had set up a 401(k) plan.  If the 401(k) plan was left to Michael’s children, they could make a Roth IRA conversion of that plan in 2010.  They would pay income tax on the plan now, but all future growth of the plan would be income tax-free.  Considering the ages of Michael’s children, the difference would be measured in millions of dollars over their lifetime.

One interesting side note – if Michael had put his money into an IRA instead of a 401(k), his children would not have the option of making a Roth IRA conversion of the inherited IRA.  The ability of heirs to make a Roth IRA conversion is just one of the potential benefits of keeping your money in an existing 401(k) plan instead of doing a rollover to an IRA.

These lessons taken from Michael Jackson’s estate just scratch the surface.  There is much to be learned in the way Michael dealt with his estate while alive and we have put together a more in-depth article which you can access through our homepage by clicking on articles.  We will also be including this piece in our next newsletter.  If you aren’t receiving our newsletter, it’s easy to sign-up.  Go to the homepage of this website and click on e-newsletter sign-up on the left-hand side.

New Alternative to LTC Insurance

If you’re one of the millions of baby boomers approaching your golden years, you’ve probably given consideration to the purchase of LTC (long-term care) insurance. You may also be concerned that you’d be throwing your money away. It’s possible that you could pay a lot in premiums and never need the coverage.

Jim Lange has always felt that if a husband and wife had enough money to provide for both of their potential long-term care expenses, they were really just insuring their estate.  In that case, Jim would typically advise that life insurance was a more certain bet.

Now there’s an alternative to LTC insurance and that was the topic on the July 1st edition of The Lange Money Hour: Where Smart Money Talks. Guest Tom Hall of Capitas Financial/Pittsburgh Brokerage explained the ins-and-outs of a relatively new hybrid product that is essentially a life insurance policy with a long-term care rider.

It works like this — if you need long-term care, the insurance company will pay for your care.  The amount the insurance company pays you will be subtracted from your death benefit.  If you never need long-term care, your life insurance death benefit will remain the same.

All of this is acheived with a single premium that is significantly lower in cost than separate LTC and life insurance policies.  Plus, if you do need to tap into the long-term care coverage, you will be withdrawing the money income tax-free.  In this way, this hybrid policy becomes an effective estate planning tool.  You avoid the possibility of dipping into your retirement plans and paying taxes upon withdrawal.

Tom Hall pointed out that, just like any other policy, you can be turned down for this hybrid product.  However, it also works the other way.  Some people who don’t qualify for LTC coverage may qualify for life insurance with an LTC rider.

By the way, if you currently have a life insurance policy, you can’t just call your agent and add an LTC rider.  An entirely new policy needs to be put in place.

We’d also like to thank the listener who emailed the question asking what happens to your premiums if your insurance company goes bankrupt.  We’re glad she asked because it gave Tom the chance to explain that in Pennsylvania, if your insurance company fails, you are protected for up to $300,000.

Of course, this hybrid product isn’t for everyone — in some cases, straight LTC coverage might still be the better idea.  Each case needs to be evaluated on its own.  As always, the Lange team is happy to provide you with a thorough analysis — just contact the office toll-free at 800-387-1129.