Dear Clients and Friends,

Having worked with so many people over the years, we clearly appreciate that everyone is an individual with their own goals and personal styles. This includes receiving financial updates and communications.

With this in mind we are now introducing an electronic version of Planning Matters. This is our periodic update on noteworthy financial planning issues. Electronic distribution has several additional benefits in that it gets news to you faster, is easier to share with others like a family member or financial advisor and it certainly has less impact on the environment.

Most importantly, I hope you find this newsletter to be helpful to you.

Sincerely,

THOMAS N. ALVARÉ, CPA/PFS

Managing member of Comprehensive Investment Solutions, LLC (CIS)

Converting to a ROTH IRA – Is it right for you?

Tax-free growth is a compelling prospect, but it comes at price.

A Roth conversion allows mores assets to grow tax-free for a longer period of time, but converting means accelerating taxable income. For this reason, Roth IRA conversions don't make sense for everyone.

The Opportunity

Roth IRA contributions grow tax-free and you don't have to pay any tax upon withdrawal in retirement. In addition, Roth IRAs aren't subject to the same minimum distribution requirements as traditional IRAs. In fact, you are not required to take any distributions at all from a Roth IRA during your lifetime.

Income limits and other restrictions have kept many taxpayers from taking advantage of this potentially powerful opportunity. Previously, if your modified gross income was more than $100,000, you haven't been able to convert. But in 2010, you´ll get your first opportunity.

Because many retirement accounts took a beating in the stock market in 2007 and 2008, and still haven´t fully recovered, the taxes due on a conversion are less than they would be had the market risen, making a more compelling case for conversion.

Another benefit – the IRS is allowing taxpayers a one-time opportunity to spread out the payment of taxes due on a 2010 Roth conversion over 2011 and 2012.

Important Considerations

Like most things in financial planning, and life in general, the question of whether it makes sense to convert from a Traditional IRA to a Roth IRA does not have a one-size-fits-all solution.

So, does it make sense for you to convert to a Roth IRA? The answer depends on your unique set of circumstances, including your investment time horizon, present and anticipated future spending needs and tax rates. Some important factors to consider also include:

• Your Age
• Sufficient liquidity outside of the IRA to pay taxes on the conversion. The math doesn´t work otherwise
• Sufficient liquidity outside of the converted IRA to provide for spending needs for at least five years after conversion
• Partial and/or recurring IRA conversions
• Probability that distributions from the account will not be needed after age 70 ½.
• Assumed investment rates of return
• Types of Investments held in ROTH IRA vs. other accounts
• Overall estate planning objectives – ability to transfer the IRA to beneficiaries who will then “stretch” it.

With these factors in mind, CIS believes conversion can be most advantageous for those who have sufficient resources outside of their IRAs to pay the tax due at conversion and comfortably provide for their current and future spending needs or don´t plan to ever spend the IRA money. It may also make sense for those who are young, have relatively small traditional IRA accounts and who have a long time horizon before needing the IRA money.

CIS can help you consider all the relevant factors to determine if a ROTH conversion is right for you. For those who do convert, we work with your tax advisor to assure the conversion is done properly.

No Federal Estate Tax in 2010 – Revisit Your Estate Plan

Is Uncle Sam Being Generous to the Heirs of Those who die in 2010?

In the absence of new legislation this year,

• There will be no Federal estate tax in 2010. This applies for the calendar year 2010 only.
• On January 1, 2011, without new legislation, the Federal estate tax will be reinstated, but it will revert to an older version of the estate tax, with a $1 million exemption amount and a 55% top estate tax rate.

Viewed in isolation, estate tax repeal is a substantial benefit to the heirs of those who die in 2010. But it also comes with the risk of unintended consequences. Many estate plans employ a formula that directs assets of the estate based on the Federal estate exemption in effect at the time of death and the marital deduction. Depending on how this is constructed, it is possible for the beneficiaries who would receive the “exempt” portion to now receive everything if a death occurs this year, leaving nothing for the other beneficiaries.

For example, in a plan that leaves the decedent´s exemption equivalent to children from a first marriage, and the remainder to a second spouse, there is a risk the spouse could receive nothing, depending on the interpretation. Family disputes or legal challenges could arise in some cases.

It is also important to remember that only Federal legislation changes for 2010. State estate taxes are not affected by this legislation and can be considerable.

What Uncle Sam Giveth With One Hand...He Taketh Away With the Other

Another change for 2010 relates to the basis of inherited assets. Income tax basis is the value from which a capital gain or loss on assets sold is measured. Until 2010, the income tax basis for most assets was ‘stepped up’ to the current value when the owner dies, eliminating or minimizing capital gains consequences to heirs when they sell inherited assets.

However, in 2010 this unlimited ‘step up’ will not occur. Instead, only $1.3 million of appreciation (or unrealized gain) will qualify for ‘step-up’; and the inherited basis will be the lower of the decedent´s basis or the fair market value of the asset on the decedent´s date of death. Assets left to a surviving spouse either outright or in a qualifying trust will be allowed an additional $3 million in appreciation that qualifies for the basis ‘step-up’. For amounts over ‘step up’ limits, the deceased owner´s tax basis in assets will ‘carry over’ to the beneficiary.

For assets that may have been purchased many years ago, and lack documentation, this could create difficulty in determining the cost of the assets when purchased. Moreover, every decedent´s executor or trustee (‘fiduciary’) will be responsible for choosing which assets will receive this valuable basis ‘step-up’. Think of the difficult decision a fiduciary would face if she needs to choose which beneficiaries will receive the basis ‘step-up’ and lower future capital gains taxes and which one´s won´t.

We recommend that you consult with your estate planning attorney to determine whether your documents should be revised in light of the current law.

Congress may amend these laws by reinstating the Federal estate tax. It is possible that any new legislation may be applied retroactively to January 1, 2010. We continue to monitor the situation for our clients.