Hymns for Haiti - A Benefit Concert

Alpha Advisors is proud be a sponsor of Hymns for Haiti - a benefit concert to raise funds for the relief effort in Haiti. Please come out for a great event and support an important cause!

Date: Saturday, March 20, 2010
Time: Doors open @ 6 PM, show starts @ 7 PM
Featuring: Alex Mejias & High Street Hymns with Special Guests
Location: West End Presbyterian Church 9008 Quioccasin Road, Richmond, VA 23229

Tickets: All ages are welcome. $10 in advance, $15 at the door. Kids 12 and under are FREE! Tickets will be sold online at www.ticketstobuy.com, at WEPC before and after Sunday church services until the show and at C28 in Short Pump Town Center and Lifeway Christian Store on Broad Street in the West End.

100% of proceeds will go to Compassion International and Partners in Health.

Is a Roth IRA Conversion Right for You?

The “Roth Conversion” opportunity has received lots of media coverage and advertising dollars from financial institutions. You might be afraid you’ll be left out of this once in a lifetime opportunity. But the decision to convert is far from a “no-brainer”. This is because the amount that you convert will be subject to income taxes. Though the taxes can be spread over two years, and there is no early withdrawal penalty, this cost must be weighed against the potential benefits. 

A “Roth conversion” is simply transferring money from a tax-deferred account, such as an IRA, to a Roth IRA account. The amount converted is treated as a withdrawal and is taxed as income in the current year. Before 2010, only investors with adjusted gross incomes below $100,000 were eligible for Roth conversion. This year, the income limit is suspended, and any investor with tax-deferred retirement accounts such as traditional IRAs, 401(k)s, 403(b)s, SEP-IRAs, and SIMPLE-IRAs can convert some or all of the balances to a Roth IRA. 

Most traditional retirement accounts allow investors to make tax-deductible contributions that may grow tax-free, but future withdrawals are taxed at ordinary income tax rates. Roth IRAs are unique because they are funded with after-tax dollars, and the growth and future withdrawals are not subject to income taxes. 

The Roth conversion might especially appeal to investors who don’t expect to need all of their retirement account assets and intend to leave some portion to their heirs. Beneficiaries of Roth IRAs will likely benefit from the continued tax-free compounding and tax-free withdrawals over their lifetimes so paying the taxes to convert some portion of a regular IRA may help to maximize the total future benefit to them. 

If your estate plan includes the likelihood that your retirement account will be left to charitable causes then it would not make sense to convert these balances. Since these organizations aren’t subject to income taxes, paying taxes on the conversion today wouldn’t save any taxes in the future. 

If you do expect to need most or all of your retirement account balances to fund your own retirement, then the question comes down to whether shifting the tax liability forward at today’s rates is favorable to continuing to defer taxes until withdrawals are made and paying taxes as you go, at future rates. 

There are many variables, including the timing of withdrawals, future tax rates, projected income, expected returns, etc. that don’t allow a one-size-fits-all decision. For example, if you expect to have significantly below-normal taxable income in 2010, or you expect that your income tax rate will be significantly higher in retirement than they are today, it might make sense to do a full or partial conversion. For many investors, the potential benefit is too small and too uncertain to offset the certain pain of voluntarily paying additional income taxes! 

We’d be happy to perform an analysis based on your specific circumstances and goals.

How to Increase the Impact of Your Giving

Most people want to help make the world a better place, in some way, and are willing to share what they have with others to accomplish that. Here are some thoughts about how to maximize your contribution:

Give within the context of a plan.  All too often in life we tend to take the path of least resistance or are driven by “the tyranny of the urgent”. Charitable giving often suffers the same fate: we don’t carefully consider in advance how much we want to give, or to whom, and our giving becomes more a reflection of the requests that happen to come our way than of what we truly value.

I would suggest that to truly optimize your giving, you actually need two plans: a holistic lifetime financial plan, and an annual giving plan. The overall plan allows you to make informed giving decisions in the context of the rest of your goals. There is a lot of wealth tied up in the hands of people who have no idea how much they need for themselves, and as a result don’t realize how much they can afford to share with others. The annual giving plan provides discipline and ensures that your giving lines up with your own agenda, not someone else’s.

The point is, charitable giving is really an investment and deserves the same thoughtfulness that you’d give when deciding how to handle your portfolio. Be more intentional about your giving and you will have a greater impact.

Maximize the tax benefits.  You have limited resources and there is an endless need out there. By giving in the most tax-efficient way possible, you maximize the amount of money that you are able to share with others. It is costly – and needlessly so - for example, to make charitable gifts with cash and then fund those gifts by selling appreciated assets such as marketable securities, real estate or a privately-held business and paying capital gains taxes. But people do this all the time. By giving appreciated assets instead, you get the same tax deduction now, but also avoid capital gains tax. 

If you find yourself in a higher tax bracket from one year to the next, you should consider matching your charitable deductions with your higher-income year(s) to maximize the tax benefits. Uncle Sam is your partner in charitable giving, as he effectively subsidizes your giving by up to 40%. A donor-advised fund is a great way to accomplish this. Take advantage of every opportunity to reduce taxes and thus increase the money available for you to share with others.

Invest yourself.  No organization could survive without consistent financial support. However, money is not the only resource of which your favorite causes are in short supply. You can increase your impact by sharing some of your time and talents as well. What issue or organization matters most to you? If you are not sure what you have to offer, go and ask, and I am sure they will find a place for you.

We all face increased “busy-ness” in our lives, so it is easier to give a check than give ourselves. As a result we can find ourselves not really connected with the organizations we support. Beyond the benefit to the organization, you will gain something as well - the satisfaction that comes from a more direct impact on the lives of others or helping an organization operate more effectively.

Interview with a Nigerian email scammer

If you have ever wondered about those email scams that always seem to originate in Nigeria, here is an interview with someone who claims to be a former scammer. The author was not able to corroborate the story due to the subject’s desire to remain anonymous, but the story sure is intriguing!

Toyota: Another Lesson in Concentration Risk

Toyota Motor Corporation has been one of the most respected automakers in the world. It is widely admired for making high-quality cars, and for being a profitable operation, while its American counterparts for the most part have run themselves into the ground. If you were going to own stock in an automaker, this likely would have been high on the list of candidates.

But the recent recall of millions of its cars due to serious safety concerns has rather suddenly hung a dark cloud over the company. As James Stewart points out in his Wall Street Journal article, it’s not just current profits that are at risk - the company’s reputation is on the line as well. Sales have already been adversely impacted and there is speculation that the company’s woes have not been completely revealed at this point. As of this writing, Toyota stock has lost nearly 25% of its value in not much more than a week. Toyota is not going out of business, but its shareholders certainly have cause to be nervous.

This episode is a great reminder of the importance of diversification and avoiding the needless risk of being concentrated in a single stock. No matter how “safe” an individual stock seems - because of the nature of its industry, its management, or how well the investor thinks he knows the company - there is always the risk of a negative event that can severely or mortally wound a company. And they often appear to be doing just fine right before it happens.