NOVEMBER 2009 NEWSLETTER

Action Today to Protect Tomorrow.

Thanksgiving is definitely in order this year. The investment markets have rebounded dramatically from their March 2009 lows. We appear to have weathered the brunt of the storm, although not without some damage. Everyone has felt some degree of pain or discomfort due to the economic dislocation caused by the crash across various sectors of the economy.  You may ask yourself, “where do we go from here?” And “what can I do to be best prepared?” Yogi Berra and Neils Bohr are both credited with a quote about how difficult it is to make predictions…especially about the future. However, it seems inevitable that there are huge changes on the horizon that are necessary to bring things back in to balance.

On November 20th, Virginia Congressman Frank Wolf spoke at the Vienna Presbyterian Church. During his talk, he expressed his concern about the size of three numbers staring Americans in the face: The $1.2 trillion US annual budget deficit, the looming $12 trillion national debt and the $56 trillion unfunded liabilities in entitlement programs (read Social Security and Medicare). These large numbers are something to which we are fast becoming desensitized. To try and put this in perspective, consider the fact that 1 million seconds is twelve days and 1 trillion seconds is more than 30,000 years.

David Walker, former head of the Government Accountability Office, calculates that US government spending must decrease by 60% or taxes must double in order to create a balanced US government budget. When have you ever known Congress to opt to spend less? It is clearly evident that we must look forward to a tougher road ahead in order to maintain what we currently have. 

So, as we reflect on our blessings and look forward, I remind you that we are here to support your progress toward a solid financial future. That next 25 years will probably not look like the last. New thinking about what is reasonable and new strategies must be considered. The specific area of planning that we want to review in 2010 is converting your regular IRA or retirement plan to a Roth IRA or Roth 401(k). The typical advice is to delay paying tax into the future when hopefully tax rates will be lower. We recommend evaluating paying tax now at what may prove to be the lowest rates in your lifetime. An added benefit is that you can then avoid the taxable required minimum distributions that begin at age 70.5. Remember 30% of your IRA/401(k) balances are basically not yours. They belong to the government in the form of the income tax calculated on regular distribution. Now consider if that proportion grew to 60%, or greater, in the future! 

We will continue to integrate all planning initiatives with an eye towards your particular tax situation and together we will arrive at the best course of action for you. We look forward to speaking with you soon.

Your Advisors at Dominion Wealth