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From the Desk of:

John D. Pivirotto
Calif. Insurance License #0699308

Financial Concepts

Burlingame, CA 
(650) 348-1880
(650)348-0255 Fax


Helping Build & Protect Your Future

Investment Advisor Representative
Securities and Advisory Services
offered through
Lincoln Financial Securities Corporation
Member SIPC

Current tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the particular set of facts and circumstances. The information contained in this newsletter is not intended as tax, legal, or financial advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek such advice from your professional advisors. 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. Written and published by Liberty Publishing, Inc. Copyright © 2009 Liberty Publishing, Inc.
Copyright 2009 Liberty Publish- ing, Inc., Beverly, MA. The opinions and recommendations expressed herein are solely those of Liberty Publishing, Inc., and in no way represent advice, opin ions, or recommendations of the Financial Planning Association, its affiliates or members. CFPTM and CERTIFIED FINANCIAL PLANNERTMare federally registered service marks of the Cer- tified Financial PlannerBoard of Standards (CFP Board). This summary does not constitute legal and/or tax advice and should only be relied upon when coordinated with a qualified legal and/or tax advisor. Febuary, 2009.
Traditional IRAs vs. Roth IRAs
In today’s busy, financial scene, two popular Individual Retirement Accounts (IRAs) vying for your attention are the traditional IRA and the Roth IRA. While both are long term savings vehicles with tax benefits, each treats contributions, age, and income differently.

Perhaps the biggest difference between traditional IRAs and Roth IRAs is the nature of the contributions and how they are ultimately taxed. Contributions to traditional IRAs may be pre-tax (deductible on the taxpayer’s income tax return). Therefore, although contributions and earnings accumulate on a tax-deferred basis, income taxes are due when distributions from the IRA are taken. On the other hand, contributions to Roth IRAs are after-tax, contributions and earnings accumulate tax-free, and no income tax is due when distributions are taken from Roth IRAs. For 2006, contributions to traditional IRAs, Roth IRAs, or both are limited to the lesser of $4,000 ($5,000 for individuals age 50 or older) or 100% of compensation included in gross income.

Age Restrictions
Contributions to traditional IRAs may be made in years an individual receives
compensation, prior to attaining age 70ó. Required minimum distributions (RMDs) must begin by April 1st of the year after reaching age 70ó (or a 50% tax penalty may apply). In contrast, Roth IRAs have neither an age limit for contributions nor minimum distribution requirements. However, both traditional and Roth IRAs have a minimum age for distributions—59ó.

Distributions taken prior to age 59ó may be subject to a 10% federal income tax
penalty. Certain situations qualify as exemptions, such as distributions to pay for first-time homebuyer expenses or qualified education expenses. Furthermore,
before tax-free distributions can be received from a Roth IRA, the account must be five years old.

Income Eligibility Limits
Depending on your tax-filing status, your income, and whether or not you participate in a qualified employer-sponsored retirement plan, you may be eligible to take an income tax deduction for contributions to a traditional IRA. 

If you are a single taxpayer, do not participate in a qualified employer-sponsored plan, and earn a minimum of $4,000, contributions are deductible regardless of your adjusted gross income (AGI). However, if you do participate in an employer sponsored retirement plan, income limits apply.

Deductions in 2006 phase out for single taxpayers with AGIs between $50,000 and $60,000 and for married couples filing jointly with AGIs between $75,000 and $85,000.
The income eligibility requirements are different for Roth IRAs. If you participate in a qualified employer-sponsored retirement plan, you may contribute to a Roth IRA; however, if you are also contributing to a traditional IRA, your contributions may not exceed the annual contribution limits. You are eligible to make a full contribution to a Roth IRA if your modified AGI does not exceed $95,000 for single taxpayers or $150,000 for married taxpayers filing jointly (contributions phase out for single filers with modified AGIs between $95,000 and $110,000 and for joint filers with modified AGIs between $150,000 and $160,000). A Roth IRA is often a favored choice for those who participate in a qualified employer sponsored retirement plan and exceed the income limits for a deductible IRA, but meet the income eligibility requirements for a Roth IRA.

Analyze Your Situation and Objectives
An analysis of your personal financial situation and retirement objectives can help you decide which IRA—or combination of IRAs—best meets your specific needs. Studying the details now may save you time and money in the future. 

Assigning Your Life Insurance Policy
Getting approval on a loan can sometimes depend on one or two very important
issues. For example, lenders often ask borrowers the question, “How will this loan be repaid in the event of your death?” Your answer may be to suggest assigning your life insurance policy.* This useful feature of a life insurance contract can help provide the necessary comfort level and security for a lender.

You can freely assign your life insurance policy unless some limitation is specified in your contract (your insurance company can furnish the required assignment forms). Through an assignment, you can transfer your rights to all, or a portion, of the policy proceeds to an assignee. The extent to which these rights are transferable depends on the assignment provisions in the policy, the intention of the parties as expressed in the assignment form, and the actual circumstances of the assignment.

Types of Assignments
There are two types of conventional insurance policy assignments:
1. An absolute assignment is normally intended to give the assignee every right in the policy that you possessed prior to the assignment. When the transaction is completed, you have no further financial interest in the policy. The terminology of absolute assignments differs from contract to contract. In essence, it states that you transfer all rights, title, and interest in the policy to the assignee. Some insurance companies use an “ownership clause” to accomplish this transfer.
2. A collateral assignment is a more limited type of transfer. It is a security arrangement to protect the assignee (lender) by using the policy as security for repayment. After the indebtedness is repaid, the assignee releases his or her interest in the policy. In other words, the assignee will release to you the rights transferred by the assignment. Under the usual procedure, if the collateral assignment is still in force at your death, the assignee informs the insurance company of the remaining indebtedness, including interest, and receives that amount in a lump sum. Any excess proceeds are then payable to your named
beneficiary in accordance with the beneficiary designation in your policy.

To fully protect the assignee, notice must be given to the life insurance company that the assignment has been made. If a company with no notice of assignment makes payment of the proceeds to another assignee, or to a named beneficiary, the insurance company cannot be made to pay a second time.

Policy Provisions
Some typical policy provisions concerning assignments may include the following:
1. The assignment will not be binding until the original, or a duplicate thereof, is filed at the insurance company’s home office.
2. The insurance company assumes no obligation as to the effect, sufficiency, or validity of the assignment.
3. The assignment is subject to any indebtedness to the insurance company on the policy. Thus, it is important to ensure that an assignment is made properly, regardless of whether it is absolute or collateral.

*Although loans generally are not taxable, there may be tax consequences if the policy lapses or is surrendered (even as part of a 1035 exchange) with a loan or assignment outstanding. The taxable income from the surrender, 1035 exchange, or lapse of the policy may exceed the cash proceeds received from it. If the policy is a modified endowment contract (MEC), pre-death distributions from the policy, including loans and assignments, are taxed on an income-first basis, and there may also be a 10% federal income tax penalty for distributions prior to age 59ó. 

Taxes and Your Estate—Reconcile Your Domicile
Increased mobility in today’s society has changed the ways in which we live, work, and play. Compared to previous generations, it is now quite common for work and recreation arrangements to cross state lines, resulting in ownership of property and formal social relationships in more than one state. However, the expanded opportunities created by mobility may come at a price—that is, the increased likelihood that several states may be able to tax your estate when you die. If you were to die today, do you know if more than one state would try to levy death taxes on your estate?

The term domicile generally refers to the place intended to be your permanent home, as distinguished from the term “residence.” Although you could have simultaneous residences in several states, in theory, you can have only one state of domicile at a time. A problem may arise when theory and reality part company—that is, when separate states reach different conclusions by applying different definitions of “domicile” to the same set of facts. This may result in the apparent inconsistency of more than one state claiming the deceased was a “domiciliary,” and each taxing that person’s estate accordingly.

Under the Uniform Interstate Compromise of Death Taxes Act, the states involved may be able to reach a compromise in a specific situation. However, if the states involved have not adopted the Act, or cannot agree on a solution, the estate in question could be fully taxed in multiple jurisdictions.

Establishing Your Domicile
Fortunately, there are steps that can be taken to establish your state of domicile.
If you have moved, your “true” domicile may hinge on the number and significance of the contacts you have with your former and present state. Among the significant factors used to make the case are:
  • Retention of “historical” home. If you moved, but did not sell a longtime residence in a former state, your intention to change your domicile may be questioned. 
  • Business relationships. In which state are your significant business contacts located?
  • Location of property. Where is most of your significant real and tangible personal property located?
  • Social connections. Where do you maintain political, civic, religious, and family connections? 
  • Time spent. Where do you spend the majority of your time? While you may feelyour intent is clear, it is most likely that your actions will be viewed as the evidence of your intentions.

 Consequently, simple acts such as changing your voter registration to the new locale, changing your automobile registrations and driver’s license, formally resigning from organizations in your former state, and formally joining organizations in a new state may be viewed as evidence of your intent to change your domicile. However, it is easy to imagine that under some circumstances, the lines may not be clear-cut. For example, if you moved to another state but maintained significant business and social relationships in
your former state, where is your domicile?

In such situations where conflicting evidence exists, a good strategy might be to first determine which state appears most advantageous in terms of death taxes and to determine how domicile is defined in that state. You can then focus on the factors most likely to make the various states involved look favorably upon your domicile. Since these matters involve interpretation of the law of each state, the advice of your attorney is highly recommended. 

Planning Strategies
*Disclosure – Securities and Advisory services offered through representatives of Lincoln Financial Securities Corporation, member FINRA & SIPC. FINRA Branch Office: 233 Bloomfield Road, Burlingame, CA 94010. 
This is not an offer to sell securities, which may be done only after proper delivery of a prospectus and client suitability is reviewed and determined. Information relating to securities is intended for use by individuals residing in California, Oregon and Colorado only. Advisory Services are offered to residents of the state of California only. Lincoln Financial Securities Corporation is not affiliated with Financial Concepts. Financial Concepts offer insurance & financial services to residents in California and Oregon. Variable & Group insurance products offered through LFS Marketing and Insurance Sales Corporation; fixed insurance products offered through Financial Concepts Insurance & Financial Services.
John Pivirotto’s California Insurance License #: 0699308
Financial Concepts’ California Insurance License #: 0786047