Without knowing how Congress will resolve the issue of taxes for 2011 and beyond, end-of-year investment and tax planning will be a challenge to say the least. Still up in the air are not only the all-important income tax rates and brackets, but also the capital gains tax rate, dividend tax rates, itemized deduction phaseouts, the alternative minimum tax, the estate tax and more.

But regardless of the uncertainty, there are some important end-of-year items investors can attend to, while keeping an eye on whatever compromises Congress will adopt.

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As of 2010, the $100,000 modified adjusted gross income limit for conversion of IRAs to Roth IRAs has been waived. This presents an opportunity for thousands of investors whose income made them ineligible for Roth conversions in the past. In addition, the taxable income resulting from a Roth conversion (in 2010 only) can be spread out over two tax years. Half of the income can be recognized in tax year 2011, due by April 15, 2012 (or Oct. 15 with extensions), and the other half can be recognized in 2012, due April 15, 2013 (or Oct. 15 with extensions). Alternatively, the income can be recognized in 2010, the year of conversion.

Why consider converting? Well, the advantages of a Roth IRA can be compelling. The Roth is funded with after-tax dollars, and all future growth and income, subject to a five-year holding period, can be withdrawn completely tax-free. Roth IRAs are not subject to required minimum distributions at age 70 1/2, and a spousal beneficiary can take over a Roth IRA, make it their own and allow it to continue to compound. Distributions are required only after a non-spousal beneficiary inherits the account. A Roth IRA can provide a multigenerational shelter from taxes, no matter how high tax rates might rise in the future.

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Investors are anxiously awaiting the results of November’s midterm for varying reasons and with a wide range of expectations. Some are hoping that a decisive change in the congressional status quo will reignite enthusiasm for the stock market in the coming year. Others are counting on a relatively strong showing by the Democrats, which would revalidate the current economic strategy and boost investor confidence. Elections influence markets — and the other way around — and now is a good time to look at the intersection of markets and politics.

Looking first at the overall average returns of the market during the election cycle since 1940, the Dow has gained 5.6% in the second year of presidential terms, 16.5% in the third year, and 3.7% in the fourth year. Statistically meaningful conclusions, especially in the case of tightly contested midterm votes, can be hard to come by; over the last 80 years, control over Congress has only shifted five times. In the quarters following these five elections, the only year stocks lost ground was 1994, when the Republicans took control of both the house and the Senate, (and then the loss was less than 1%.) However, the market went on to gain 18% in the first half of 1995.

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The surge of borrowing in both the United States and abroad has raised serious interest rate and inflation concerns for many investors. The government will have to offer higher and higher interest payments in order to keep our bonds competitive and attractive, they reason, and this will inevitably push interest rates up. Although the current high unemployment rate makes core inflation — driven by wage increases and rising commodity prices — seem a somewhat distant worry, longterm investors have legitimate concerns about inflation in the future and the damage it can do to investments and purchasing power.

So, what investment policy or strategy is most effective in an inflationary environment? Gold is often considered an inflation hedge, although in the short term it can be pretty imprecise. One very effective means of hedging against inflation became available to investors when the government began issuing Treasury Inflation Protected Securities, or TIPS.

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Estate planning for the pets we love

Estate planning for the pets we loveWe love our pets, and we aren’t afraid to lavish money and care on them. According to the American Pet Product Association, Americans are projected to spend an estimated $45.4 billion in 2009-2010 on their pets, up from $34.4 billion dollars in 2004. The trouble is, our pets sometimes outlive us.

Publicity surrounds the embattled estates and the unusually large trusts created for the furry companions of Leona Helmsley and Miami heiress Gail Posner. For some, it is difficult to imagine and somewhat frivolous to leave a $12 million trust for a dog named Trouble or even a $3 million trust and an $8.3 million mansion for Conchita the Chihuahua. That said, many faithful companions, often elderly animals difficult to adopt, end up being taken to the pound or abandoned by heirs. It is possible and important to make arrangements for care of your pet should something happen to you.

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Get your savings plan back in action

This past year will go down in history as the year in which the Wall Street financial crisis became a Main Street nightmare. Real estate values plunged; more than a fifth of all American homeowners now owe more than their home is worth.

Retirement plans for many investors in their 50s and 60s have been thrown into disarray, and a generation of younger investors has lost confidence in the financial markets. Out of necessity, many have lowered or stopped contributions to their retirement and 401(k) plans, and many employers have stopped matching contributions as well.

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Take control of your finances

It can all seem overwhelming, but there are ways to take control of your finances. According to John Wills of the nonprofit Consumer Credit Counseling Service, which has offices in Savannah and Beaufort, people need to take several steps to make sure their financial house is in order.

Here’s a step-by-step process:

Set goals

“First, you need to know where you’re going and what you want to achieve,” said Wills. “Do you want to pay off debt? Do you want to save for a home? A vacation? Retirement? It really comes down to a question of needs versus wants.”

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Financial rejuvenationFor investors, January can be a month of resolution, reflection and rejuvenation. Certainly there is sober reflection on the past 16 months, one of the most difficult and challenging periods in our financial history.

But there can also be resolutions and rejuvenation. We can put the lessons we’ve learned into useable investment strategies and constructive behavior.

Here are a few of our resolutions that can help you get started on your own list.

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Are trains big and small making a comeback?

Riding the railsA model train chugging merrily around the Christmas tree with a pint-sized conductor in pajamas and railroad cap is as recognizable an icon of the holiday season as stockings on the mantle. Retro or not, model trains are still alive and well, still the province of small boys and middle-aged men, and still a perennial best seller at Christmas time.

Unfortunately, the companies that make model railroads aren’t publicly traded or available for investment. The best known of these — Lionel Trains, Marklin and LGB — have been around for decades, and their offerings are broad enough in variety and cost to not disappoint any parent who feels this year’s Christmas tree wouldn’t be complete without locomotives, track and transformer.

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My home’s value looks fishy, what do I do?For many Beaufort County property owners, there’s a moment of dread before opening the envelope containing what the county government thinks the fair market value of your home is.

State law requires the county assessor, in our case Ed Hughes, to determine the value of all real estate every five years. The amount the office comes up with determines how much you pay in taxes.

This time around could be especially painful because the fair market value of property is based on what the Assessor’s Office believes it was on Dec. 31, 2007 – before the real estate market plunged headfirst into the recession.

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This day in the markets: Oct. 1, 1907

“Currency is in short supply due to reckless over-speculation, and the stock markets have been weak all year. Suddenly, the public panics and begins a run on banks across the nation. In New York, thousands converge on the Knickerbocker Trust Co, which is forced to close its doors within two days. President Roosevelt asks his archenemy J.P. Morgan, to come out of retirement and deal with the crisis. Morgan and his friends import $100 million of gold from Europe to shore up the currency, and the panic is averted. The quick fix, however, does nothing to offset the Depression of 1907, which follows soon after.”

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Upcoming changes make it an attractive option for some investors

Upcoming changes make it an attractive option for some investorsIt’s not too early to prepare for 2010, when an important change in IRA regulations regarding Roth IRAs goes into effect for highincome investors.

Beginning in 2010, the $100,000 modified adjusted gross income limit, or MAGI, limiting conversion of funds from traditional IRAs to Roth IRAs, is waived. This presents an opportunity for thousands of investors whose income eliminated them from even considering a Roth conversion.

In addition, as an added incentive to convert in 2010, the taxable income resulting from a Roth conversion (in 2010 only) can be spread out over two tax years, 2010 (paid by April 15, 2010) and 2011 (paid by April 15, 2012.).

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Get the most out of Social Security

By Steven Weber, Gigi Harris and Elizabeth Loda

In our July column, we reviewed some general Social Security information as well as FAQs on rules and eligibility. In the second of this two-part series we will explore some lesser known strategies and situations that can impact your lifetime Social Security benefits.

Check your data

Make sure your Social Security record shows your correct name, birth date and earnings record. Employers report your earnings under the name you supply, so whenever you change your name, make sure you notify Social Security. Otherwise, your earnings may not be recorded properly and you may not receive all the benefits you’ve earned.

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Know what the future holds for your Social Security benefits

This is the first of two parts. Coming in August: Specific strategies to maximize your Social Security. This month: Frequently asked questions.

How safe is Social Security?

The trustees for Social Security and Medicare issued their annual report in May 2009. The report forecasts that Social Security will begin paying out more than it receives starting in 2016. At that point, the government would tap into the $2.4 trillion Social Security trust fund to cover promised benefits for at least a few more decades, according to the Congressional Budget Office.

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