January, 2010
By Michael Kalscheur, CFP®
Senior Financial Consultant, Castle Wealth Advisors, LLC

So here we are, 1/12th of the way through 2010; where did the month go? If you are like me, I have already “bent” a couple of my New Year’s resolutions and am still writing 2009 on my checks.

This end-of-the-month update is designed to give you insight into some of the new things that you might be seeing this year. Some are good, some are not so good and some have yet to be determined. Here is a breakdown by category:


As January goes, so goes the year. There is a pseudo-science that says that if January is a good month for the stock market, the entire year should go well. However, if January is a bad month, the year will be down. So how did January go? Both the Dow and the S&P 500 were down about 2%.

The “January” Effect. This is another investment anomaly that says small cap stocks tend to outperform large cap stocks at the beginning of the year. This too has some statistical basis, but small cap stocks under performed their larger brethren this January.


Required Minimum Distributions (RMD’s) are back. In 2009, Congress said that if you were over the age of 70½, you did not need to take money out of your IRA or retirement plan. However, that was for 2009 only. Now that it is 2010, you must take this year’s distribution by December 31st, 2010.

Roth IRA Conversions are now available to everyone. Previously, only individuals with adjusted gross incomes of under $100,000 could convert a Traditional IRA to a Roth IRA. For 2010 this limit has been removed. An additional benefit is that the tax due on the conversion can be split evenly over tax years 2011 and 2012. Be advised, this may work against you a little if you make over $200,000, as the top tax brackets will most likely be higher in 2011 and 2012.

College Savings

Good news! According to CollegeBoard’s Independent College 500 Index, higher education costs for the 2009 – 2010 school year were up “only” 4.3%. Bear in mind that this is still much faster than the overall inflation rate of 2.7%, but that is the smallest increase in almost 10 years. Will this become the norm as people become more cost conscious about everything, including their college education? Only time will tell.

In the meantime, many states are continuing to improve college 529 savings options. Internal costs are going down, state tax deductions or credits are going up, and investment choices are expanding. With the recent stock market debacle in 2008, many plans are providing more conservative investment selections, even FDIC insured CD’s. All these things help when saving up for an increasingly necessary, but costly, college education.


There were several things that changed last year for 2009 and 2010, so make sure you look for these common tax cutting items:

  • Making Work Pay – This tax credit was part of the economic stimulus bill, providing $400 for working individuals ($800 for married couples). Most people received it throughout 2009 in the form of lower payroll taxes. However, if you have low or no federal payroll taxes taken out of your check, you can claim the refund by filing schedule M with your return.
  • American Opportunity Credit – This could go under the College Savings section, but if you had a student in school this year, up to $2,500 in tax credits per student are available. Income limits apply, but even if you don’t owe taxes, you can still benefit, as up to 40% of the credit is refundable.
  • Energy Improvements – If you purchased new windows, HVAC systems, heat pumps, solar systems, skylights, doors or insulation, you may qualify for a tax credit of up to 30% of the items’ costs. Some items are limited to a maximum credit of $1,500, while others do not have a limit. Go to http://www.irs.gov/newsroom/article/0,,id=206875,00.html for more information.

In addition, you can still do a couple things here in 2010 and still take a tax deduction for them on your 2009 taxes:

  • Traditional IRA contributions. Until April 15th, 2010, you are allowed to contribute up to $5,000 ($6,000 if over age 50) to your Traditional IRA and still deduct it on your 2009 taxes. However, if you are covered by a retirement plan at work (i.e. 401k, 403b, etc.), there are income limitations.
  • Just passed on January 25th, Congress has allowed cash contributions made on behalf of Haiti relief to be deducted on taxpayers’ 2009 return. You must make the contributions between January 11th and March 1st, 2010 to qualify.

Estate Planning

Estate Tax? What Estate Tax? In 2010, the federal estate tax “expired.” That means that a person dying today would not pay any federal estate tax, no matter how large their estate is. Is this Warren Buffet’s dream come true? Not exactly.

The federal estate tax is only gone for this year. In 2011 it reverts to what it was in 2001: a $1 Million exemption and 55% tax rate on everything over this amount (these were $3.5M and 45% in 2009). However, it is highly anticipated that Congress will pass a new estate tax law this year, making it retroactive to 1/1/2010. Just remember, nobody knows exactly when Congress will act or what they will end up passing.

Michael Kalscheur, CFP®, is a Senior Financial Consultant at Castle Wealth Advisors, LLC. Castle specializes in helping families and closely-held business owners with strategies to protect and transition family assets from one generation to the next. Castle’s senior partners also work with clients throughout the country in making logical decisions to help them fulfill their personal and business financial goals. For more information visit www.Castle3.com, call 1-888-849-9559 or contact Michael directly at .