Small Companies Face Costly Cybersecurity Threats

Possibly because many large corporations have enhanced their security policies, 40% of all targeted Internet attacks are directed toward more vulnerable companies with fewer than 500 employees. Unfortunately, only 52% of small businesses have a basic cybersecurity plan.¹

Small businesses often use the Internet to market their products and services, accept electronic payments, and run their operations effectively. Owners who ignore potential cybersecurity issues may be taking a significant risk.

Whether a company relies on one laptop computer or depends heavily on e-commerce, small-business owners can shore up their defenses and help protect their financial interests.

To help owners understand basic precautions, the Federal Communications Commission (FCC) has introduced the Small Biz Cyber Planner (www.fcc.gov/cyberplanner), a free online tool that allows visitors to customize a planning guide based on their online presence.

Here are a few general cybersecurity tips for small businesses from the FCC.

• Install and update antivirus and antispyware software on every computer.
• Maintain firewalls between the internal network and the Internet to keep outsiders from accessing data on a private network, and make sure that home computers used to conduct business also have firewalls.
• If you have a Wi-Fi network, set it up so that the network name is hidden and a secure password is required for access.
• Create backup copies of important business data and information.
• Lock up computers to prevent them from falling into the wrong hands. Notebooks and tablets, in particular, can easily be stolen if left unattended.
• Train employees in security practices and set up a separate account for each user. Limit the authority to install software and provide access only to the data needed for users to perform their jobs.
• Require all passwords to be changed on a regular basis.

Recovering from a breach can be time-consuming and expensive for companies with smaller staffs and limited resources. Moreover, a company may be held responsible if its customers’ personally identifiable information is disclosed.Internet liability insurance may help shield firms conducting business on the Web from risks related to computer hacking, spam, viruses, and other online perils (up to policy limits).

1) Reuters, October 24, 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville small business planning advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

American Manufacturing: Rebound or Renaissance?

The Great Recession affected the full spectrum of the U.S. economy, but the impact on the manufacturing sector was especially strong. Production dropped by more than 20%, and nearly 2.3 million manufacturing jobs were lost.^1–2

The good news is that manufacturing production is climbing toward pre-recession levels, increasing at an annual rate of 10.4% in the first quarter of 2012.³ Although hiring tends to lag production (and some jobs may be permanently lost), 470,000 manufacturing jobs were added between January 2010 and March 2012.⁴

It seems clear that industrial production is rebounding from the effects of the recession. The larger question is whether the current trend may gain momentum and lead to a renaissance for American manufacturing.

Gone to China

U.S. manufacturing employment reached a peak of almost 20 million jobs in 1979, then began to decline as the country weathered two successive recessions between 1980 and 1982.⁵ The real turning point came two decades later when the United States and China normalized trade relations in 2000. This was heralded as a historic moment that might open the huge Chinese market to American goods, but the more immediate impact was the migration of U.S. factory operations to China, with the loss of more than 3 million jobs through 2008.⁶

The driving force in this exodus, of course, was the wage disparity between Chinese and American workers. In 2000, the average factory wage in China was the equivalent of $.52 an hour, about 3% of what the average U.S. factory worker earned. That has changed as Chinese economic development spawned annual double-digit increases in the cost of wages and benefits.⁷

Cost-Effective U.S. Production

By 2015, the average hourly wage in the Yangtze River Delta, the heart of Chinese high-tech manufacturing, is expected to reach $6.31. Adding to the equation is a weaker dollar and the fact that American labor unions have exhibited a greater willingness to accept lower wages than in the past, due in part to Chinese competition. If the U.S. succeeds in loosening China’s manipulation of trade policies, the cost difference could be even less.⁸

Wages account for only 20% to 30% of typical production costs, so as the wage gap narrows, American manufacturers are considering the benefits of local production.⁹ Rising oil prices have added significantly to transportation costs, and U.S. production reduces fulfillment time, improves quality control, and adds a “Made in USA” label that appeals to many consumers.¹⁰

A recent study suggests that the cost differential for producing goods in the United States versus China may soon be less than 15% and could be erased completely.¹¹

Although other low-cost countries — such as Vietnam, Thailand, and Indonesia — may pick up some production from China, they currently lack the labor skills, supply chain, and infrastructure to replace China’s global manufacturing role.¹²

The Future of Reshoring

Relocation of factories to America — termed reshoring — is still a trickle, and it’s unlikely that the manufacturing workforce will ever return to its apex of the late 1970s. Despite lower payrolls, production has grown steadily due to labor-saving technology. The average American factory worker now produces about $180,000 worth of goods per year — more than three times the production in 1978 (in today’s dollars).¹³

Labor-intensive, high-volume goods such as clothing and television manufacturing will probably remain overseas. However, higher-skilled, lower-volume manufacturing, such as household appliances and construction equipment could return to the United States.¹⁴ Although the U.S. may face a challenge to supply qualified workers after moving away from vocational training, it is more likely to do so than is China.^15–16

To offer some historical perspective, the number of U.S. factory workers in March 2012 was about 12 million, the same as in May 1941 when the nation was building industrial capacity in anticipation of entering World War II.¹⁷ Since that time, the population has grown by 180 million and the economy has shifted toward the service sector.^18–19

Factory jobs may never play the same role in the United States as they once did. But a more widespread return of U.S. manufacturing, along with increased competitiveness in the export market, could generate up to 3 million new jobs, lower the unemployment rate by 2%, and decrease the trade deficit over the next three years.²⁰

To sweeten the pot, the proposed FY 2013 budget offers tax incentives to companies that relocate operations to the United States.²¹ The potential renaissance of American manufacturing is likely to be the subject of political discussion and bears watching over the next few years.

1, 3) Federal Reserve, 2012
2, 4–6, 17) U.S. Bureau of Labor Statistics, 2012
7–8, 20) MSN Money, April 11, 2012
9, 11–12, 14, 16) Boston Consulting Group, 2012
10, 15) inc.com, February 1, 2012
13, 21) The New York Times, April 3, 2012
18) U.S. Census Bureau, 2012
19) U.S. Bureau of Economic Analysis, 2012

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

Related articles

• Are The Americas Stealing China's Jobs? (blogs.the-american-interest.com)
• How The Midwest Became The Epicenter Of The American Manufacturing Renaissance (businessinsider.com)

Designating Retirement Plan Beneficiaries

IRAs and defined-contribution plans have become an important component of personal wealth — averaging roughly 60% of the assets of U.S. households with $100,000 or more to invest, according to recent research.¹

Designating account beneficiaries (in light of your overall estate conservation strategy) and keeping those designations up to date can be a complex process, especially if you have been married more than once. It may not be wise to assume that your survivors would honor your spoken intentions in the event of a mistake or oversight.

The beneficiaries you designate and varied retirement plan rules typically supersede instructions in your will; therefore, a beneficiary form could easily become one of your most crucial estate conservation documents.

Plans Play by Different Rules

Some individuals may not know that a will does not control who will inherit retirement plan assets, or they may simply forget to make desired changes in writing. For example, an account holder who is divorced may intend to leave retirement plan assets to his or her children. But a former spouse could receive the money if the account beneficiary form was never updated, even if a will and a divorce decree state otherwise.

If no beneficiary is named — or the designated person is deceased and there is no secondary beneficiary — retirement assets may be transferred according to the administrator’s plan documents rather than an account owners preferences.

There also may be a significant difference in the government rules that apply to employer-sponsored plans and some IRAs. Federal law requires that spouses automatically inherit assets held in workplace plans such as a 401(k), unless the spouse signs a waiver allowing the participant to designate someone else. IRAs, on the other hand, are subject to laws that vary from state to state; spousal waivers may or may not be necessary.

In one case, a man who died unexpectedly six weeks after a second marriage accidentally disinherited his children. Courts awarded his employer-plan assets to the new wife — even though his children were the designated beneficiaries — because the wife had not waived her rights to the plan assets.²

A Few Things to Remember

• Many laws favor spouses, so be careful when you intend to name someone other than your spouse as a beneficiary.
• Don’t name minor children without making arrangements for a guardian or trustee to control the assets until the beneficiary is old enough to manage them.
• Review your beneficiary designations annually, and inform your financial professional when there are changes in your life that could affect your choices, such as the birth of a child, the illness or death of a beneficiary, marriage, divorce, and especially remarriage.
• Keep in mind that beneficiary designations usually don’t carry over when you roll 401(k) assets to a new employer’s plan or to an IRA, or if you convert a traditional IRA to a Roth IRA.
• Request an acknowledged copy of each new or updated beneficiary form from the financial institution or your financial professional and store them with your other important documents.

Distributions from traditional IRAs and most employer-sponsored retirement plans are taxed as ordinary income. Withdrawals taken prior to age 59½ may be subject to a 10% federal income tax penalty, with certain exceptions such as death and disability. Employer-plan distributions may be penalty-free following separation from service at age 55 or older. IRA distributions may be penalty-free if used for qualified higher-education expenses or a first-time home purchase ($10,000 lifetime maximum).

1–2) The Wall Street Journal, September 7, 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from Naperville CPA. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

Related articles

• MyMove™ - Estate Planning Must-haves for Unmarried Couples (mymove.com)

Averaging Ups and Downs

Market volatility seemed to be the norm in 2011. In just two trading days (October 31 and November 1), for example, the Dow Jones Industrial Average lost almost 4.7% of its value. At the end of the month, the Dow gained 4.2% in a single day (November 30).¹

As an investor, you may find that volatility is hard on your nerves, and it could have a negative effect on the value of your investments if you react emotionally by changing your strategy as the market rises and falls.

Dollar-cost averaging might help to even out these ups and downs in your portfolio. This strategy involves investing a fixed amount on a regular basis in a particular security, such as a mutual fund, regardless of market conditions. Theoretically, when the share price falls, you would purchase more shares for the same fixed investment, which may provide a greater opportunity to benefit when share prices rise and could result in a lower average cost per share (see table). Dollar-cost averaging also may help you weather market volatility.

Of course, dollar-cost averaging does not ensure a profit or prevent a loss. Such a strategy involves continuous investments in securities regardless of fluctuating prices. You should consider your financial ability to continue making purchases during periods of low and high price levels. However, this can be an effective way for investors to accumulate shares to help meet long-term goals. All investments are subject to market fluctuation, risk, and loss of principal. Shares, when sold, may be worth more or less than their original cost.

Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

1) Yahoo! Finance, 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville Accountant. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

Related articles

• Investing 101- Conclusion (flyedu.wordpress.com)

I Would Love Your Vote

LewisCPA is in a contest to win a grant from Chase and LivingSocial.  If you enjoy my blog or my services, please vote for me! 

LivingSocial logo. (Photo credit: Wikipedia)

Use the link below to “vote” for our business. If you could also forward this to all your family and friends – anyone who has a facebook account – I would certainly appreciate it!  

Click here-----> www.missionsmallbusiness.com

-Scroll down the page to where it says “log in & support” or “log in with facebook”

-Enter your email and password for your facebook account

The 1960–1976 logo (Photo credit: Wikipedia)

-Scroll down to the bottom of the page and type in “Susan S Lewis Ltd,” select 

Illinois, Naperville and hit search

-The screen will probably pop back to the top – if you scroll down again, our business will show up and you can click on the “vote” button.

Thank you for helping!!!

Pick Up This Split for Long-Term Retirement Income

The number of Americans aged 90 or older almost tripled from 1980 through 2010 and is projected to quadruple by 2050.¹ Of course, reaching 90 is still an unusual accomplishment, but the average 65-year-old can expect to live another 19 years.²

A portfolio that provides steady income for both the short and the long term could help you enjoy a long, comfortable retirement. You might consider a split-annuity strategy to meet your needs.

A Contract for the Future

An annuity is a contract with an insurance company in which you agree to make one or more payments in exchange for a current or future income stream. Animmediate annuity typically begins to pay an income to the contract holder immediately, whereas a deferred annuity begins paying an income at a specified time in the future.

In the hypothetical illustration below, an individual purchases a $300,000 immediate fixed annuity, which offers a guaranteed annual interest rate of 3%, and a $200,000 deferred variable annuity, which carries more risk but pursues growth through investment options (subaccounts).

The immediate fixed annuity provides an annual income of $35,000 for 10 years. Meanwhile, the variable annuity accumulates tax deferred. Assuming the variable annuity subaccounts grow at a 6% average annual rate, the annuity value could reach $379,660 after 10 years, when the fixed annuity is exhausted. If the subaccounts keep growing at the same 6% rate, the investor could continue taking $35,000 annual withdrawals for another 16 years (see graph).

Withdrawals of annuity earnings are taxed as ordinary income and may be subject to a 10% federal income tax penalty if made prior to age 59 ½. Withdrawals reduce annuity contract benefits and values. Most annuities have surrender charges that are assessed during the early years of the contract if the annuity is surrendered.

Generally, annuities have contract limitations, fees, and charges, which can include mortality and expense charges, account fees, investment management fees, administrative fees, and charges for optional benefits. Any guarantees are contingent on the claims-paying ability of the issuing company. Annuities are not guaranteed by the FDIC or any other government agency; they are not deposits of, nor are they guaranteed or endorsed by, any bank or savings association.

The investment return and principal value of the variable annuity investment options are not guaranteed. Variable annuity subaccounts fluctuate with changes in market conditions. The principal may be worth more or less than the original amount invested when the annuity is surrendered.

Variable annuities are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity contract and the underlying investment options, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

1) U.S. Census Bureau, 2011
2) National Vital Statistics Reports, Volume 59, Number 4, 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville Retirement Planning advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

Related articles

• Immediate Annuity Calculator (answers.com)
• Why Annuities Can Be a Strong Retirement Tool (money.usnews.com)

Investing in the Future

Parents generally don’t have to be convinced of the value of a college education for their children. Studies show that college graduates not only earn more but are healthier, more satisfied with their jobs, and more likely to remain employed during tough economic times.¹

But paying for college becomes more challenging every year. Over the last decade, undergraduate in-state tuition and fees at four-year public colleges and universities rose at a 5.6% average annual rate above the rate of general inflation. For the 2011–12 academic year, the average cost of tuition, fees, room, and board reached $17,131.²

Private institutions are even more expensive, although their costs are rising at a somewhat slower pace. For the 2011–12 academic year, the average cost for tuition, fees, room, and board was $38,589 at nonprofit four-year colleges and universities.³

A Tax-Advantaged Savings Plan

As with saving for retirement, the key to saving for a college education is to develop a strategy and make regular contributions. One helpful savings vehicle is a Section 529 plan — a state-sponsored or college-sponsored program designed to help families save for future higher-education costs. Each plan has its own rules and restrictions, which can change at any time.

The money in a 529 savings plan accumulates on a tax-deferred basis and can be withdrawn free of federal income tax as long as it is used for qualified education expenses at accredited post-secondary schools, such as colleges, universities, community colleges, and certain technical schools. Qualified expenses include tuition, fees, room and board, books, and other supplies. Section 529 plans feature high contribution limits (set by each state), and there are no income restrictions for donors.

As with other investments, there are generally fees and expenses associated with participation in a 529 savings plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated. The tax implications of a 529 plan should be discussed with your legal and/or tax advisors because they can vary significantly from state to state. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents and taxpayers.

A college education could be an important investment in the future. If you anticipate paying for college, you might develop your savings strategy sooner rather than later.

Before investing in a 529 plan, please consider the investment objectives, risks, charges, and expenses carefully. The official disclosure statements and applicable prospectuses — which contain this and other information about the investment options, underlying investments, and the investment company — can be obtained from your financial professional. You should read this material carefully before investing.

1–3) The College Board, 2010–2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville professional financial and education advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

Related articles

• TurboTax - Information on 529 Plans (turbotax.intuit.com)

Preparing to Turn the Corner

What happens to a multiple-owner business when one of them chooses to retire or must leave suddenly for some other reason? Death, disability, divorce, and bankruptcy are just a few of the distressing kinds of events that can affect one owner and threaten the future of the entire business. In the midst of an unsettling transition, it may be difficult or even impossible for all interested parties to come to terms.

It’s often easier to decide exactly how a business should proceed long before something life-changing happens, when the potential effects are still hypothetical and reciprocal. A properly drafted buy-sell agreement is a binding contract that establishes how ownership shares should be transferred when specified triggering events occur, and it may provide a mechanism for determining the value of transferred shares.

Several Ways to Go

A buy-sell agreement can be structured to fit a business’s unique circumstances and typically may be used by any business entity, including corporations, partnerships, LLCs, and even proprietorships. Basic buy-sell agreements include:

• Cross-purchase agreement: Stipulates that the remaining owners will purchase the interest of the departing owner.
• Redemption agreement: Provides for the business entity to purchase the interest of the departing owner.
• Hybrid agreement: The business itself has the first option to buy, but if it declines because it is more advantageous for the shareholders to buy, then the shareholders are the purchasers.

Execution Is Everything

Pre-arranging for the business or the partners to buy out a departing owner may be a good idea, but it could prove fruitless if the sale is unexpected and the buyers don’t have the money to close a transaction. For that reason, it may be helpful to fund a buy-sell agreement with life insurance and/or disability income insurance. The guaranteed liquidity from the policies may help prevent survivors from being forced to sell assets or borrow money.

The cost and availability of insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing an insurance strategy, it would be prudent to make sure that you are insurable. Any guarantees are contingent on the claims-paying ability of the issuing insurance company.

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville  small business planning advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

Related articles

• Top Strategies on Buy-Sell Agreements for Entrepreneurs Featured on Kauffman eVenturing (kauffman.org)

Understanding the Appeal of Share Buybacks

The amount of money devoted to corporate stock buybacks surged throughout 2010 and 2011 as large companies sought ways to spend their cash stockpiles and reward shareholders. In fact, S&P 500 stock repurchases marked eight quarterly increases in a row by the second quarter of 2011, returning to levels not seen since early 2008.¹

When a company buys back its own shares, it removes them from the marketplace, reducing the number of available shares. When earnings are divided by fewer shares, it raises the earnings-per-share results and tends to push up the market value of the remaining stock. However, the fact that so many companies are unable to find more productive ways to invest their resources suggests the practice is not always as positive for investors as it might first appear.

Here’s a closer look at what recent buyback trends could mean to investors and the national economy.

Seizing Opportunity or Business as Usual?

By mid-2011, the Federal Reserve reported that U.S. nonfinancial companies were holding cash and other liquid assets worth more than $2 trillion.² Corporations generally have four options for deploying their excess cash flow: acquire other businesses, reinvest in the company through capital expenditures (including expanding operations and hiring employees), pay out dividends, or buy back shares.

A buyback may signal that management believes the company’s stock has been underpriced by the market and that the intrinsic value of the company can be enhanced by repurchasing shares. If the stock is truly undervalued, increasing the return on equity could be a profitable course of action for the company.

Of course, there is no guarantee that a company will repurchase stock at a favorable price. A high-priced buyback, or one undertaken solely to increase earnings per share, is not likely to offer the same benefits for investors. Repurchases have also become relatively common — about 350 of the 500 corporations on the S&P 500 tend to execute buybacks on a quarterly basis.³

Looking at a single corporation’s cash position and buyback history may be helpful in some respects, but it may actually reveal little about the company’s future prospects. When evaluating potential stock investments, there are many other important factors to consider. The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost.

Full Coffers, Little Confidence

Solid profits and a record amount of excess cash may begin to explain why corporations have been employing this business strategy more regularly. In addition, tepid consumer demand and worries about another possible recession may have added to the level of uncertainty and made it difficult for many businesses to commit their resources to major projects.⁴

Because a buyback is essentially a one-time event, it may represent a more flexible way to return value to shareholders when compared to other options that tend to require a longer-term financial investment.

A primary goal of publicly held firms is to protect the interests of stakeholders. Unfortunately, when businesses are not spending money to initiate new projects or hire employees, it may also restrain economic growth.

1) Standard & Poor’s, 2011
2) The Wall Street Journal, September 16, 2011
3) Reuters, September 27, 2011
4) Businessweek.com, March 31, 2010

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville Financial Planning Services advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

Related articles

• IBM hikes dividend, increases stock buyback plan by US$7-billion (business.financialpost.com)
• Why No One Is Impressed With Adobe's $2 Billion Share Buyback (ADBE, AAPL, MSFT) (247wallst.com)

There’s Still Time to Catch Up

It’s not surprising that worker confidence in affording a comfortable retirement fell to a record low in 2011, considering stock market volatility and the sluggish economy. Workers aged 45 to 54 expressed even less confidence than the general population.¹ Could it be that they might feel there is less time to save more, or that they may need to recover from losses?

If you’re age 50 or older, you can make up for lost time not only by maximizing contributions to retirement plans but also by taking advantage of catch-up contribution limits.

In 2011 and 2012, the IRA contribution limit remains at $5,000 for regular contributions and $1,000 for catch-up contributions. Although an extra $1,000 might not seem like much, it could make a significant difference by the time you’re ready to retire (see chart). You have until the April tax filing deadline to make IRA contributions for the previous year. So there still may be time to make a 2011 contribution, and you have until the April 2013 filing deadline to make contributions for 2012.

The maximum contribution limit for many employer-sponsored retirement plans — including 401(k)s, 403(b)s, and 457s — increased to $17,000 in 2012, up from $16,500. However, the $5,500 catch-up limit remains the same. Be mindful that some employer-sponsored plans may have maximum limits that are lower than the federal contribution limit. If you are eligible and financially able to take advantage of the $22,500 annual limit, you could do so by deferring $1,875 from your paycheck each month.

Contributions to a traditional IRA are generally tax deductible (income limits apply to active participants in employer-sponsored retirement plans), and any earnings accumulate tax deferred. Distributions from traditional IRAs and most tax-deferred retirement plans are taxed as ordinary income and may be subject to a 10% federal income tax penalty if taken prior to reaching age 59½. Withdrawals from tax-deferred plans must begin no later than April 1 of the year after the year in which the account holder reaches age 70½ (with certain exceptions).

If you are concerned about your ability to fund a comfortable retirement, making maximum regular and catch-up contributions may help you get back on track to pursue your long-term goals.

1) Employee Benefit Research Institute, 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville retirement planning advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

Related articles

• IRA Basics (ally.com)
• The Basics of a Traditional IRA (turbotax.intuit.com)

Doing Your Heirs a Favor

The passing of a loved one is never easy for friends and family, but it can be even more difficult if the survivors do not have the information they need to make decisions and take care of final arrangements.

Legal documents such as a will and powers of attorney are important, but a letter of instructions — which is not a legal document — could be just as advantageous for your heirs. It enables you to express your final wishes and provide guidance regarding the many personal and financial matters that your heirs may face after your passing.

A letter of instructions can convey any information that might help your loved ones. Here are some topics to consider addressing in the letter.

• People to contact, such as attorneys, financial professionals, insurance agents, and accountants.
• The location of important documents, including your will, insurance policies, birth certificate, marriage and/or divorce papers, Social Security and Medicare cards, tax returns, vehicle titles, and deeds to real property.
• Your wishes for final arrangements such as a memorial or funeral service and organ donation.
• Information on your bank and retirement accounts, including account numbers, PINs, and passwords.
• A list of creditors and the location of bills.
• A description of any important information to be found on your computer, including login IDs and passwords.

Store your letter in a safe, yet accessible place; tell your loved ones where they can find it; and give copies to the executor of your estate and other trusted individuals. Because some information in the letter may change over time, consider updating it regularly.

It may not be pleasant to think about what might happen after you’re gone, but leaving a clear letter of instructions could be a final act of gratitude for your heirs.

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville estate planning advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

Related articles

• Getting Your Affairs in Order (rogerokeefe.wordpress.com)
• Each Time a Person Dies, Who Does The Inheritance Check Out? (socyberty.com)

Tax Changes for 2012

Mandatory annual inflation adjustments generally affect federal income tax brackets, retirement plan contribution limits, and exemption levels from year to year.

The 3.8% inflation rate (measured by the Consumer Price Index) used to index 2012 tax rates is higher than it was in the previous two years; the adjustments could lower your tax bill on your 2012 return (due in April 2013). Here are some changes that may affect you and your family.

• Personal and dependent deduction: $3,800 (up $100).
• Standard deduction: $5,950 for single filers and married couples filing separately (up $150); $11,900 for married couples filing jointly (up $300). According to the IRS, almost two out of three taxpayers take the standard deduction rather than itemizing.
• Higher-education credit income thresholds [modified adjusted gross income (AGI)]: Phaseouts start at $52,000 (single filers) and $104,000 (joint filers) for the Lifetime Learning Credit; $80,000 (single filers) and $160,000 (joint filers) for the American Opportunity Tax Credit (formerly the Hope Scholarship Credit).
• Federal estate tax exemption: $5,120,000 (up $120,000). The annual gift tax exclusion ($13,000) did not change.*

Retirement Contribution Limits

The annual employee contribution limit for employer-sponsored retirement plans (401k, 403b, 457 plans) increased from $16,500 to $17,000 — the first increase since 2009. However, the catch-up contribution for those aged 50 and older remains unchanged at $5,500.

The income phaseout limit for deducting contributions to traditional IRAs (for active participants in employer-sponsored retirement plans) rose to $58,000 AGI ($92,000 for joint filers), an increase of $2,000 over 2011. Roth IRA eligibility phaseout limits rose to $110,000 AGI ($173,000 for joint filers), up slightly from 2011.

For additional information on 2012 changes, visit www.irs.gov. Of course, before you take any specific action, be sure to consult with your tax professional.

*The federal estate tax exemption is scheduled to fall to $1 million in 2013, unless Congress changes the current tax law.

Sources: Internal Revenue Service, 2011; CCH, 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax advice from an independent professional Naperville Accountant. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

Related articles

• Tax Breaks for Parents and Their College Students (turbotax.intuit.com)
• Summary of Federal Tax Law Changes for 2010-2017 (turbotax.intuit.com)

Energy Threat: Could Record-High Gas Prices Derail the Economic Recovery?

Gas prices have risen sharply in recent months. By mid-March, the average price of a gallon of gas was up about 19% from a recent low in December.¹ Meanwhile, the forecast is for prices to rise to record highs by summer, possibly surpassing an average of about $4 per gallon nationwide and reaching $5 in some places.²

But it’s not just drivers who feel the pain at the pump. It’s possible that stubbornly high energy prices could rattle consumer confidence, thwart business growth, and pose a risk to the economic recovery.

Retail gas prices are tied directly to the cost of crude oil — and oil prices (which are traded on world markets) are especially sensitive to geopolitical crises and supply shocks. In fact, skyrocketing gas prices were largely blamed for stifling U.S. economic growth during the first quarter of 2011.³

So far, the recent run-up in gas prices has been only about half as steep as spikes that occurred in 2008 and 2011.⁴

Forces Affecting Prices

Several factors have helped to drive up the price of gas in early 2012.

Globalization. Changes in the balance between global supply and demand generally cause oil prices to move up or down. By January, gas prices were already at the highest level ever for that time of year, primarily because of tight global oil supplies and growing oil consumption in developing nations.

Geopolitics. World oil prices surged in response to tension with Iran and fears that a conflict could potentially restrict future world oil supplies. Iran has threatened to close off the Strait of Hormuz, the Persian Gulf waterway through which about 20% of the world’s oil trade passes.⁵

Shortages. Domestic supply and demand issues can also affect the price of refined gasoline. Additional driving during the spring and summer months typically causes seasonal price increases. More recently, refinery and pipeline closings caused regional distribution problems that may have pushed up prices in some states.⁶

Will Consumers Retreat?

The average American house-hold spends about 3.7% of its income on gasoline.⁷Transportation to and from work or school doesn’t end when gas prices rise, but car owners may drive less often or find cheaper alternatives to offset the cost. Some consumers may curb spending on other goods and services.

Higher fuel costs can also be a major problem for businesses. Some companies might forego investing in equipment or employees, which could slow business growth prospects.

Company leaders must often decide whether to absorb the additional costs or pass them along to customers by raising prices. Either choice could eventually take a toll on a firm’s competitiveness and cut into profits. Furthermore, if a prolonged period of high energy costs results in widespread retail price hikes for many products and services, it could spark a nationwide rise in inflation.

Seeking Relief

U.S. oil production has surged while consumption has fallen to an 11-year low, but these domestic shifts were not able to counter the global forces at work.⁸

If high prices persist, government leaders might consider releasing oil from the Strategic Petroleum Reserve. Even so, an announcement to release inventories might have only a small and temporary effect on gas prices. Last June’s release of 60 million barrels was not enough to meet the world’s energy needs for even one day. Global daily oil consumption is around 85 million barrels.⁹

When global oil prices fall, it might still be weeks before the pressure on drivers’ budgets begins to ease. Oil price spikes appear at the pump almost instantly, but it takes about a month to refine a barrel of crude oil into gasoline — and about the same amount of time for gas prices to follow oil prices downward.

Strong retail sales and employment gains seem to suggest that consumers, businesses, and the broader U.S. economy are bearing higher gas prices fairly well.¹⁰ But that could change if conflict erupts with Iran and world oil supplies are disrupted, or if energy prices continue to rise (or stay elevated for too long) for any reason. The U.S. economic recovery — which finally seems to be gaining momentum — could eventually lose steam.

1, 3–4, 10) The Wall Street Journal, March 19, 2012
2) CNNMoney, January 16, 2012
5–6) CNNMoney, February 29, 2012
7) CNNMoney, March 21, 2012
8) The Wall Street Journal, February 23, 2012
9) MSNMoney, March 15, 2012

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax advice from an independent professional Naperville Tax advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

Related articles

• Why Gas Prices Are Too Damn High (Infographic) (bambooki.com)
• U.S. oil production is up, so why are gas prices so high? (usatoday.com)
• The Truth About Gas Prices (foxbusiness.com)