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Posted: 14 Feb 2011

AAM Weekly Market Wrap - February 06 2012

Weekly Market Wrap: Stocks surged forward for the 5^th
straight week of 2012 added to this year’s gains. The S&P 500 Index added 2.28% to close at 1,344.90. Oil and Gold both moved lower
on the week. Oil was down 1.86% to
$97.71 and Gold finished 0.82% lower to $1,725.
The dollar was slightly higher against other major world currencies
adding 0.13% to $78.96.

Year-To-Date for the major indexes:

The S&P index +6.94%
The Dow Jones Index +5.28%
The NASDAQ Index +11.54%
The Russell 2000 Small cap Index +12.17%
EAFE International Index +8.28%
The 10 year treasury is currently yielding 1.95%
and the 30 year is yielding 3.15%. Yields
moved higher for the week and are higher for the year.

Monday the S&P 500 index dropped 3 points on moderate
volume as Greece has yet to reach an agreement with its creditors. Markets finished well off their lows for the
day as personal income and spending data was mixed but Dallas area
manufacturing data beat expectations.

Tuesday the market lost 1 point on moderate volume as consumer
confidence, home prices and Chicago manufacturing data all missed expectations
and employment costs rose. Portugal was
added to the Euro watch list as another possible problem area.

Wednesday stocks added 12 points on moderate volume as Auto
sales were positive, construction spending and manufacturing data beat
expectations and ADP private payrolls were up but not as much as expected. Also, strong manufacturing data out of Europe and China helped push world stocks higher.

Thursday the index added 2 points on moderate volume as jobless
claims dropped more than expected, 4Q productivity and labor costs were up and same
store sales beat expectations for January.
Bernanke’s cautious speech in front of congress kept gains muted.

Friday stocks surged 19 points on moderate volume as 243,000
jobs were added in January beating expectations. The ISM non-manufacturing report also beat
expectations and factory orders rose but fell short of expectations. Also adding to the day’s optimism, the Euro
purchase index moved into positive territory for the first time since August.

Stocks posted another good week of gains on positive news both
here in the US and overseas. The US jobs
machine may have finally kicked into gear as the gains are starting to be more
consistent and growing from month-to-month.
Manufacturing and auto sales also are growing and adding to the positive
momentum.

When the markets move like they have this year it is easy to
forget that debt problems around the world still exist and nothing has been
fixed. We need a solid plan to turn around the fiscal mess we have gotten ourselves into before we can be confident that we will hold onto these gains.

Mortgage rates were flat this week. The Schwab Bank 15-year rate is at 3.47% and
the 30-year rate is at 4.25%. These rates are as of 02/03/2012 and assume no
points, no origination fee and a $250,000 conforming rate mortgage.

What to watch for on the economic calendar next week:

Monday – No major economic data

Tuesday – Consumer Credit

Wednesday – No major economic data

Thursday – Weekly Jobless Claims

Friday – Consumer Sentiment / International Trade

Ronald J. VanSurksum, CFP®

Advanced Asset Management, LLC

February 06, 2012

Posted: 6 Feb 2012

The Growing Public Sector Pension Gap

Stories abound about the fireman who retires at age 45 with a
six-figure pension, or the city manager who leaves after just five years'
service with full salary and health coverage for life.

What doesn't make headlines, however, is the growing number of
public sector employees who have seen their retirement benefits erode in the
face of budget cutbacks and mounting public deficits. States and cities across
the country are taking steps to reduce pension costs by whittling away
employees' retirement entitlements. Even San Francisco, bastion of liberal
handouts, recently saw voters approve a plan to scale back retirement benefits
for city employees.

Although traditional pensions still dominate at all levels of
state and local government, hybrid plans are emerging that combine a
401(k)-type component with a guaranteed benefit. In fact, 11 states --
including Alaska, Michigan, Colorado, Florida, and Ohio, plus Washington, D.C.
-- now have primary retirement plans that include some defined contribution
component.¹

The upshot for public
sector employees is that, increasingly, they are likely to need to augment
their pensions with salary contributions to employer-sponsored plans or save on
their own if they want to maintain their preretirement lifestyle. And since
many states have "double dipping" laws in place that prevent public
employees from collecting both Social Security and a state pension, the need to
set aside their own funds for retirement is even more important.

How to Compensate

Several tax-advantaged retirement savings options exist that
may be accessible to public sector employees. The most popular include:

403(b)
plans are generally available to employees of qualified public organizations
such as schools, hospitals, and certain nonprofit employers. Similar to 401(k)
plans, 403(b) plans allow employees to contribute a portion of their salary on
a pre-tax basis; and no tax is paid on contributions or earnings until it is
withdrawn in retirement.²
457
plans are available to state and local government employees and are somewhat
similar to 403(b) plans. There is no penalty for early distributions from a 457
plan (however, taxes are due), although you generally cannot take in-service
distributions unless you have an unforeseen emergency.
IRAs
are available to both public and private sector employees. Like 403(b) and 457
plans, IRAs also offer tax-deductible contributions and tax deferral. However,
IRAs have lower annual contribution limits and eligibility for favorable tax
treatment may be subject to certain income limits.2

To find more information on these or other tax-advantaged
retirement savings plans, see Publication 590 at http://www.irs.gov/.

Source/Disclaimer:

¹Source: Journal of Pension Economics and Finance,
"Behavioral Economics Perspectives on Public Sector Pension Plans,"
April 2011.

²Withdrawals from 403(b) plans and IRAs prior to
age 59½ may also be subject to a 10% early withdrawal penalty, in addition to
ordinary tax on withdrawn amounts.

###

January 2012 — This column is provided through the Financial
Planning Association, the membership organization for the financial planning
community, and is brought to you by Ronald J VanSurksum, CFP®, a local member
of FPA.

Required Attribution

Because of the possibility of human or mechanical error by
McGraw-Hill Financial Communications or its sources, neither McGraw-Hill
Financial Communications nor its sources guarantees the accuracy, adequacy,
completeness or availability of any information and is not responsible for any
errors or omissions or for the results obtained from the use of such
information. In no event shall McGraw-Hill Financial Communications be liable
for any indirect, special or consequential damages in connection with
subscriber's or others' use of the content.

Posted: 2 Feb 2012

Washington Hotline - January - Week 5 - 2012

White House Tax Proposals

In the State of the Union Address, President Obama included several tax proposals. He stated his hope that high-income earners pay larger taxes in the future. The President also proposed a substantial number of major tax changes for businesses with international operations.

He restated the "Buffet rule" that asks high income individuals to pay at least as high a rate as that paid by middle-income earners. The President noted, "Right now, because of loopholes and shelters in the Tax Code, a quarter of all millionaires pay lower tax rates than millions of middle-class households."

The White House proposes that those with incomes over $1 million pay a minimum tax rate of 30%. Taxpayers with incomes over $1 million also will have new limits on deductions for mortgage interest, healthcare expenses, qualified retirement plan contributions and childcare.

Many of the proposals for businesses were outlined in a White House press release on January 25. These major changes are designed to encourage U.S. companies to maintain their U.S. operations and increase employment here rather than overseas.

1. Overseas Plants – There would not be deductions for moving plants overseas. In addition, there would be a 20% tax credit against the cost of moving jobs from overseas back to the United States.
2. Manufacturing – Those manufacturers who purchase equipment would be able to expense 100% of those purchases. This option also existed in prior years and is expected to encourage building factories in the U.S. rather than abroad.
3. Major Job Losses – Areas that have experienced a closing of a military base or a major factory could qualify for a new investment credit of up to $2 billion. This credit creates incentives for building new plants or factories in depressed areas.
4. Minimum Tax – Corporations could be subject to a new minimum tax on their overseas jobs and profits.

Congress Responds to the White House

Following the State of the Union Address, members of both parties responded to the proposals by President Obama. Understandably, the Democratic Members tended to support his proposals while the Republican Members chose a different route.

Ways and Means Ranking Member Sander Levin (D-MI) supported the President's incentives for manufacturing. With an understandable desire to encourage greater manufacturing in his home state of Michigan, Levin stated, "The President articulated an action plan that sets our priorities in the right place – middle-class opportunity, tax fairness and a 'Make it in America' manufacturing policy."

Sen. Jim Webb (D-VA) focused on the proposal to raise taxes on capital gains and dividends. He noted, "But as we begin to move forward and restore economic fairness, we need to fix the tax formula for capital gains and dividends which are passive income. The rate on capital gains is as low as it's been in a very, very long time." He continued that it is essential "to raise revenues in order to fix our economic situation" and restated his desire to increase the capital gain and dividend rate above the current 15%. In prior years, the capital gains rate has been 20% or even higher.

Sen. Orrin Hatch (R-UT) is the Ranking Member of the Senate Finance Committee. He expressed concern that the proposals by the President would "hit small business" and reduce the number of new jobs. Hatch stated, "Real effective tax reform is long-past due and is something both political parties agree must happen. We must reform our tax code in a way that generates economic growth and prosperity by generating more taxpayers - not higher taxes."

House Ways and Means Committee Chair Dave Camp (R-MI) also echoed the importance of reducing unemployment through job creation. He noted, "Instead of focusing on tax reform that can create jobs, the President spent his time talking about how he intends to take more money away from employers, investors and savers in order to create new carve-outs for the few industries and projects favored by his administration. That is nothing more than the usual Washington game that has led to a tax code already littered with lobbyist loopholes."

Payroll Tax Cut Debate Continues

The Payroll Tax Cut Conference Committee held its first meeting on January 24. Sen. Max Baucus supported both the extension of the payroll cut and an inclusion of tax extenders such as the IRA Charitable Rollover in the bill. He indicated, "In December, along with the payroll tax cut, Congress passed a two-month extension of unemployment insurance, health extenders and a provision to make sure seniors have access to their doctors. And we have an opportunity to extend other provisions that expired at the end of 2011, commonly known as tax extenders."

However, Ways and Means Committee Chair Dave Camp (R-MI) suggested that he did not feel the tax extenders could be included. He noted that the extenders were not included in the original bill, H.R. 3630. As a result, he stated that including the tax extenders in a payroll tax bill would be "outside the scope of the conference."

The contentious debate will be over the method of paying for the 10-month extension of the 2% payroll tax cut for employees. The Democratic proposal continues to be a surtax on incomes over $1 million.

The Republican Conference Committee members offer a multiple strategy solution. This includes a reform of the unemployment program, freezing the pay of members of Congress and federal workers, reductions in Social Security overpayments and reduced tax fraud on various tax credits.

Editor's Note: Friends of many charities continue to hope that the IRA Charitable Rollover will be extended for the year 2012. While members of Congress anticipate the tax extenders will be passed, Majority Leader Harry Reid (D-NV) has stated that if the tax extenders (and IRA Charitable Rollover) are not attached to the payroll tax cut bill, it is not likely they will be passed until after the November election.

Applicable Federal Rate of 1.4% for February – Rev. Rul. 2012-7; 2012-6 IRB 1 (19 Jan. 2012)

The IRS has announced the Applicable Federal Rate (AFR) for February of 2012. The AFR under Sec. 7520 for the month of February will be 1.4%. The rates for January of 1.4% or December of 1.6% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2012, pooled income funds in existence less than three tax years must use a 1.8% deemed rate of return. Federal rates are available by clicking here.

Posted: 31 Jan 2012

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