Money Blue Book

Updated Tables For 2007 and 2008 Tax Years.

Because of the power of compound interest, it is never too early to start saving for your future and planning your retirement nest egg. The earlier you start taking advantage of tax deferred investments, the more money you’ll have to live on when retirement rolls around. Don’t count on dying young to relieve you of the need to save either. Statistics show that improvements in medical technology and lifestyle changes, coupled with increased health awareness are extending our lives longer than before.

For the younger, single people out there, I know it can be strange discussing retirement so early on, but you must remember that your actions now have a huge impact on your future welfare. The cash you invest today in a tax deferred retirement account has a disproportionately more significant impact on your wealth level than money invested later. Don’t delay or keep putting it off - even catch up contributions won’t be much help if you wait too long to save for retirement.

When it comes to saving for retirement, there are a variety of tax deferred options such as the common employer sponsored 401K plan. But there is also the Traditional Investment Retirement Account (IRA) and the Roth IRA. Both are excellent ways to save for the future but you must be mindful of IRS rules when funding them - by being aware of the annual contribution limits, the contribution deadlines, and the applicable income phaseout ranges. I’ve created a list of helpful tables that cover the most important funding rules below. The income phaseouts listed on the charts are based on modified adjusted gross income (modified AGI or MAGI), which is derived by adding certain income back to the adjusted gross income (AGI). If you want clarification, check out the IRS explanation for modified AGI. For many taxpayers however, the MAGI will oftentimes be the same as their AGI.

1) Traditional IRA and Roth IRA Contribution Deadlines

With certain exceptions made for weekends, the April 15 deadline for filing your federal income tax is also the deadline for investors to make their final Traditional IRA and Roth IRA contributions for the closing tax year. For example, April 15, 2008 is the contribution deadline to make a IRA or Roth contribution towards the 2007 limit. After that date, all contribution money will go towards the 2008 tax year limit. This differs from a 401K, which has a contribution deadline that ends on December 31 of the tax year. Thus you should never miss the final deadline to contribute for the prior year. Contribution limits for the IRA and the Roth are considered by the IRS to be “used it or lose it” benefits. Those who fail to contribute the maximum allowed contribution to their IRA or Roth by the deadline, forfeit the limit for that year.

Note that even if you’ve already filed your tax return before April 15, you can still contribute to your IRA or Roth by the filing deadline, so long as you file an amended 1040X return thereafter to declare it.

2) Traditional IRA and Roth IRA Annual Contribution Limits

Qualification to contribute to an IRA or Roth account requires the contributing taxpayer to have earned income or taxable compensation, comprised of wages, salaries, fees, tips, commissions, bonuses, and taxable alimony. While the traditional IRA is available to all with no income restrictions or contribution phaseouts (not to be confused with IRA deduction limits), only the Roth reduces and limits your contribution if your income goes above certain levels. However for both the IRA and Roth, you are permitted to contribute the lesser of the normal contribution limit noted below or the entire amount of your total taxable income. You are not required to contribute the full amount but you cannot exceed the contribution limit. Those who are 50 years old or older are entitled to higher contribution limits called “catch ups” to help them expedite the pace of their investment.

Another thing to keep in mind is that for married couples, both the husband and wife may make separate contributions to their own individual retirement accounts, even if one of them is not working. This has the potential to effectively double the combined total they may contribute as a married couple.

3) Roth IRA Contribution Phase Out Due To Higher Income

Unlike the IRA which has no contribution phaseouts due to income, the amount of money that may be contributed to a Roth IRA per year is dependent on tax filing status, modified adjusted gross income, as well as age. Once the contributor reaches a certain modified AGI level, his or her maximum Roth contribution limit may be phased out or gradually eliminated in linear fashion. The phaseouts in the chart above show income ranges that span between a floor and a ceiling. Those with income below the lower floor amount may contribute the maximum amount. Those that exceed the higher ceiling are completely phased out and will not be permitted to contribute to a Roth IRA for that year. Of course, they can always still contribute to a traditional IRA.

Because the phaseout range is liner, if your income fell precisely in the middle of the income range, you would only be able to contribute 50% of the maximum Roth contribution limit shown above. Keep in mind that IRA and Roth’s share the same combined contribution limit. You may open multiple accounts, but the total contribution amount cannot exceed the limit.

4) Income Phase Out For The Traditional IRA Contribution Deduction

Traditional IRA’s, unlike the Roth, offer a unique tax benefit - contributers may be qualified to take a tax deduction on the amount they contribute. However, whether the entire amount can be deducted or only partially deducted from income depends on factors including tax filing status and income range.

An important factor that affects the phase out range is whether the contributer is already an active participant in an employer sponsored retirement plan, such as a 401K from work. For those who already participate in such a plan, their IRA contribution deductions are phased out quicker and at lower income levels than those who don’t participate in such a plan.

For married couples, if neither you nor your spouse participate in such a plan, the entire amount you are qualified to contribute towards your IRA may be deducted from income. If either of you participates in such a plan however, then deductibility depends on your tax filing status. There are two tables below - one for those covered under an employer plan, and the second one for those who are not. For those who are not personally covered by an employer plan, different rules apply if their spouses are covered (Spouse Covered) and for those whose spouses are not (Spouse Not).

For Those Who Are Covered By An Employer Sponsored Retirement Plan:

For Those Who NOT Covered by An Employer Sponsored Retirement Plan:

So what are you waiting for? Go open a Roth IRA right now! If you don’t qualify due to income phaseout, then at the very least you should go open a Traditional IRA.

This is so classic. On March 11, 2008, this financial commentary by “financial guru” Jim Cramer was featured on his popular Mad Money television show on CNBC. The customary Cramer angry rant was made in response to a call and write-in question about the serious viability and liquidity concerns regarding Bear Stearns, one of the world’s largest global investment banks and brokerage firms, and a company that has been hit particularly hard by the subprime mortgage meltdown. The abbreviated Mad Mail question and exchange can be viewed on Jim Cramer’s CNBC Mad Money Blog. Frankly, his response should be written in all caps, since he tends to holler his answers. I wouldn’t be surprised if Jim Cramer later requests to have it take down out of sheer embarrassment.

This is what blindly listening to the advice and commentary of financial gurus and pundits in the mainstream financial media outlets like CNBC will get you:

Tuesday, March 11, 2008 On Mad Money

• Dear Jim: “Should I be worried about Bear Stearns in terms of liquidity and get my money out of there?” - Peter
• Jim Cramer: “No! No! No! Bear Stearns is fine. Do not take your money out. Bear sterns is not in trouble. If anything, they’re more likely to be taken over. Don’t move your money from Bear. That’s just being silly. Don’t be silly.”

Friday, March 14, 2008:

With liquidity problems snowballing and financial conditions deteriorating, Bear Stearns reaches for a life preserver, and works out a financial rescue deal with JP Morgan Chase and the United States Federal Reserve to help keep the 5th largest U.S. bank afloat. Bear Stearns’ chief executive, Alan Schwartz, explaining why the bank turned to the Fed and a rival bank, said:

• “Our liquidity position in the last 24 hours had significantly deteriorated. We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations.” (Reuters).

With the mood deathly grim and takeover speculation rampant, investors bail - sending Bear Sterns stock price plunging on record volume, losing more than 45% of its total market capitalization in one fell swoop.

Sunday, March 16, 2008, And The Day After

Facing the brink of imminent collapse and financial insolvency, Bear Stearns is bailed out and acquired by JP Morgan Chase, preventing the worst case scenario of bankruptcy protection. The company is acquired for only a tiny fraction of what it was once worth at a mere $2 per share for a total all stock deal of $236 million. The Federal Reserve agrees to provide additional funding to help the dying bank and prevent widespread panic and frenzy (CNN). Next day, the price of Bear Sterns stock plunges by almost 85%, sending deathly chills down the back hairs of all investment banks and those in the financial sector. Companies that dabbled in subprime mortgage backed securities continue to wait anxiously for the credit crunch guillotines still making their rounds.

My Take On Jim Cramer’s Advisory Statement and The Moral Of the Story

While Jim Cramer’s statment about Bear Stearns seems utterly ridiculous now, on the flip side, there is a slight possibility that perhaps he wasn’t addressing the stock price of Bear Stearns but rather those customers who had investment and brokerage accounts held at the ailing company. He didn’t exactly recommend that investors buy or hold Bear Stearns stock in that particular comment, although, he has made such comments in the past. If the latter was what he meant, Jim Cramer, as an educated financial commentator, should have framed his comment better by addressing FDIC and SIPC protections to alleviate account holder concerns. But instead of discussing the relevance of broker bankruptcy protections, he chose to address the performance and on-going concern issues of Bear Stearns. This leads me to believe he was in fact rendering an opinion about Bear Stearns as an equity investment, and was completely blindsided by the investment banker’s later revelations about its liquidity.

…Which leads me to the whole point of this article. Do not believe everything you hear from financial pundits and so-called experts or gurus. All investors should learn to perform their own research and due diligence. No one can predict the movement of market action and stock prices. While the stock market is inherently designed to be efficient with demand complimenting supply, the truth of the matter is that not all crucial information is in the public domain. As someone who works in a legal field with some first hand and indirect observation of what goes on behind the scenes, I can assure you that there is a lot of inside trading and underhanded conflict of interest transactions going on, despite the SEC, DOJ, and FTC’s valiant attempts to root out the evil do-doers.

The movement of the market is also heavily influenced by the emotional lemming-like horde mentality of investors. Like ESPN sportscasters, financial reporters can only truly and accurately report what they observe on the spot. No one has the magical crystal ball to see into the future. They may attempt to make reasonable projections, but those stock picks, like March Madness basketball pool selections, are frequently wrong. The only way to weather investment storms and financial unpredictability, is to remain diversified and invest in broad stock indexes such as low commission mutual funds and exchange traded funds (ETF’s).

Updated! Active $50 Promotion Codes Verified

Sign up with ShareBuilder today to take advantage of their $50 promotional offers for new accounts before they expire. The ShareBuilder bonus codes listed below are for new individual customers. While some people have been able to successfully open up several ShareBuilder accounts and earn multiple new account bonuses, the policy technically limits such bonuses to just one.

If you are a Costco member, you may be entitled to special Costco Member Benefits for new ShareBuilder customers by using this link - they are worth even more! If you are a Costco Executive Member, use code: COEXECWALL08, to earn $90. If you are a Costco Gold Star or Business Member, use code: COGOLDWALL08, to earn $70. All non-Costco members should use the following table of codes to claim their free bonus money for new accounts:

ShareBuilder is still currently offering $50 cash promotions to new ShareBuilder broker customers who fund their accounts with at least $50 of their own money or make at least one purchase transaction on their accounts (terms vary). Taking advantage of this free offer is relatively straightforward as ShareBuilder’s basic accounts have no minimum balance requirement, which means you can maintain your account with any amount of money you wish. Basic accounts also have no inactivity or subscriptions fees.

For a few years now, the company has become a popular online discount broker option for many new investors. Most people are attracted to the company’s low trading fees and their lack of maintenance or minimum balance requirements for basic accounts. At $4 per trade for equity transactions through an automatic investment plan, and $9.95 for regular real time market orders, ShareBuilder’s commission fees are competitive with that offered by other discount brokers.

Steps To Open A New ShareBuilder Account and To Qualify For Your Bonus Offer:

1. First, you’ll need to open a new ShareBuilder account and make sure you enter one of the active promotion codes listed on the table above. When selecting the account type, you should choose the basic individual account since there is no minimum for that account type and no additional subscription fee required.
2. The exact qualification terms will vary slightly. But next, you will either need to fund your new account with at least $50 of your own money, or you will need to execute at least one purchase. Either way, you will need to transfer into your account a bare minimum of funds.
3. Finally, after your account has been funded with at least $50 and your first purchase has been executed, you’ll need to wait around 4-6 weeks to receive your bonus money. Upon receiving your promo code bonus, you can transfer your bonus money into your checking account and decide what you want to do with the stock trade you made.

With The Qualifying ShareBuilder Stock Purchase You Made, You Should Leave It Alone And Let It Grow

One of the requirements to qualifying for the ShareBuilder promo offer is to make at least one equity trade. If you’re a new investor or you are opening the account merely to take advantage of the free bonus offer, then I’d recommend buying a stock that you will likely hold onto for a long time. Since there is no hard credit check for opening a ShareBuilder account and a modest transaction fee is required to sell your small stock position, I’d recommend holding onto whatever shares you purchase for a long, long time. After all, once you receive your $50 bonus in a few weeks and transfer the free promo money to your checking account, your monetary situation will have nearly evened out in terms of out of pocket money invested.

I suggest putting your starter money into a more stable exchange traded fund (ETF), which is basically a broad index fund that trades like an ordinary stock. Most ETF’s are less prone to wild trading swings and are less adversely affected by the news of a single company. Since I invest mostly in Asia funds, I recommend ETF’s that track the performance of emerging markets like China, Taiwan, South Korea, and Singapore, although Brazil and Mexico are worthy mentions as well.

If you want broader coverage, go for the iShare MSCI Emerging Markets Index (EEM). If you want regional growth coverage, go for the South Korea iShare MSCI Index (EWY), or if you’re gutsier, try the iShare FTSE/Xinhua China 25 Index (FXI). Yes, they are all certainly riskier and more volatile than your average bear, but do remember that you are investing with free ShareBuilder promotional money anyway. $50 is not that much so you might as well bet the house and hold for the ages. Who knows, in 25-30 years your $50 may have steadily grown into a few thousand dollars through the magic of compound interest. In that time I will personally report back here on how much my bonus money has grown.

So you’re thinking of opening a Roth IRA account? Congratulations! Although it’s only one small step forward in sound financial planning, it’s one giant leap towards building your financial future and saving for retirement. By now you’ve likely settled on which investment retirement account (IRA) vehicle is best for you. There are three major types - Roth IRA, deductible IRA, and the non deductible IRA. All offer tax deferral benefits but the retirement account that is most appropriate for the majority of ordinary individuals and married couples is the Roth IRA. Unlike traditional IRA’s (both tax-deductible and non-deductible), Roth IRA’s enjoy several great advantages and benefits which make them very attractive for those who want to invest and plan for their future retirement. Here is what every prospective Roth IRA investor and account holder should know:

1. Withdraws from Roth IRA’s after age 59.5 are generally not taxed, because you pay your taxes on the front end by contributing after tax dollars.
2. Because most people steadily increase their total income over time as they get older, they usually either stay in the same marginal tax bracket or end up at a higher bracket level at retirement. Thus, Roth IRAs enable savvy savers at retirement to accumulate more money than even tax-deductible IRA’s.
3. Unlike a traditional IRA, not everyone is eligible to open and contribute to a Roth IRA. For 2008, the Roth contribution limit is $5,000 as long as your income falls below $101,000 if you’re single, and $159,000 if you’re married filing a joint tax return. There are income phaseouts after that.
4. Unlike a traditional IRA, with a Roth you can withdraw your original contribution money at any time for any emergency reason, tax free, and without penalty and you don’t have to replace the funds, unlike a 401K or a traditional IRA. Of course, it’s always best not to withdraw because that stops the compound interest process.

Choosing The Best Broker To Open Your ROTH IRA Account With, And What To Look For:

The majority of investors choose to start their retirement savings with a Roth IRA. The best course of action is to open the account with a reputable broker rather than a bank. Some banks and credit unions offer retirement accounts but their choice of investment vehicles like certificate of deposits are often limited with low rates of return. Here are some basic criteria you should take into consideration when deciding which broker to open your Roth IRA account with:

1. Choice Of Investment Options Including Mutual Funds and Exchange Traded Funds (ETF’s) - A Roth account is merely the account type. With the funds your contribute to it, you can use it to trade any type of investment vehicle you wish from stocks, bonds, to mutual funds.
2. Low Commission Costs and Account Fees - My recommendation for new investors is to stick with mutual funds and low cost index funds. Always make sure the maintenance fees for funds are reasonable.
3. Automatic Contribution - For those who wish to invest regularly, try to look for a retirement broker that offers the ability to make automated fund transfers into your Roth from your linked bank account.
4. Minimum Balance Requirement - Most brokers have minimum initial investment and balance requirements. For new investors, the minimum requirement may be an initial hurdle if the limit is to high. However, even for those who only want to start up with a few hundred dollars, there are options available.

Investing In Mutual Funds - The Best Approach For New Roth IRA Account Holders

New Roth investors should put their money primarily into mutual or index funds. Here are two of the top brokerage firms that specialize in their own family of mutual funds and have built a reputable track record of solid returns. For new retirement account holders and those who are unsure about their investment approach, low cost, no load mutual funds are the less volatile and smarter way to invest for your future.

1) Fidelity - (Sign Up) - Fidelity Investments is where I chose to open my Roth IRA account and it’s also the place where I manage my 401k. I like their clean and easy to use website interface and the fact that they have a very established track record. They offer a basic approach to opening a Traditional or Roth IRA. The minimum investment requirement is $2,500, but that amount is waived if you can commit to future automatic monthly contributions of $200 per month. For new and young investors who don’t have $2,500 to invest right away, they can start out with just $200 and agree to put in $200 per month in the future.

Fidelity offers a huge variety of attractive mutual fund and index fund options, many of which have no transaction fees (although minimum balance requirements for Fidelity’s index funds are rather high at $10,000). With a Fidelity account, you can trade Fidelity family funds for free, although there may be early redemption fees.

2) Vanguard - (Sign Up) - Vanguard is most well known for offering one of those lowest expense ratios for access to their family of Vanguard index funds. Opening a Roth with Vanguard will enable you to trade Vanguard mutual funds for free as well. While they ordinarily charge an annual $20 fee for each Vanguard fund account with a balance under $10,000, the maintenance fee is completely waived and eliminated if you simply register for account access on Vanguard.com and agree to accept electronic delivery of statements, reports, and other shareholder materials through Vanguard’s e-service package.

For most Vanguard funds, the minimum investment requirement requirement is $3,000 per fund. However, with the broadly indexed Vanguard STAR Fund (VGSTX), the initial minimum balance requirement is only $1,000. The STAR Fund is a stable fund well suited for the beginner retirement account investor with limited funds to start. Once your investment has grown, you can always upgrade to one of the more targeted Vanguard Life Cycle Funds designed to suit investors depending according to their target retirement date. For me, I would choose the Target Retirement 2045 fund (VTIVX).

Vanguard expense ratios are quite low - a predictable trademark of most Vanguard funds. Vanguard is probably best suited for fund investors who want to concentrate their investing efforts primarily in index and mutual funds rather than individual stocks, the best course for the vast majority of investors.

Investing In Exchange Traded Funds and Individual Stocks - Another Approach For Roth IRA Investors

Currently there is an investment movement away from loaded investments and expensive adviser managed funds, and towards exchange traded funds (ETF). ETF’s are attractive because not only do they track the diversified performance of broad indexes, they also offer very low expense ratios and may be easily traded like ordinary stocks. If ETF’s are your intended approach, then you will need to find a Roth IRA discount broker that offers low per trade commissions and low fees. Here are a few low cost discount brokers that I either have accounts with or have had a history of positive trading experiences with:

Top Discount Broker Picks For Roth IRA Investors Who Want To Trade ETF’s And Individual Stocks

1) Zecco - (Sign Up) - Zecco was one of the pioneers for the movement towards free stock trades. Although it has since scaled back the terms of its original free trade promotion, this discount broker still offers a great commission deal for free equity trades. Currently, account holders receive 10 free trades per month so long as they can maintain at least $2,500 in total account equity, which includes the total value of cash and stock positions. Otherwise, individual equity transactions for market and limit orders cost $4.50 per trade. Although there is technically no minimum balance investment requirement, if you want to take advantage of the free trade offer, you should maintain at least $2,500 in your account.

2) TradeKing - (Sign Up) - Notice: For a limited time only, TradeKing is offering new account applicants a free instant $50 bonus in their brokerage account when they fund and trade via the provided link). TradeKing is a popular deep discount broker that offers very low commission fees. Currently, each market and limit trade costs $4.95 per trade. There are no annual fees for IRA accounts and no minimum balance investment requirements to open a Roth account.

3) ShareBuilder - (Sign Up) - ShareBuilder has established itself as a popular discount broker, offering comparatively low commission fees for equity transactions at $4 per trade through automatic investment plans, and $9.95 for regular real time market orders. There is no minimum investment balance requirement to open a new Roth or an ordinary brokerage account. The $25 annual fee is waived if you sign up for a trading plan other than their basic plan.

New ShareBuilder Promotion Codes: (Updated)

• Gift50 - $50 promo code
• Huskeralum45 - $45 promo code (Not for Roth or IRA accounts - individual accounts only)
• Student50 - $50 promo code (Not for Roth or IRA accounts - individual accounts only)
• Share50 - $50 promo code (Not for Roth or IRA accounts - individual accounts only)