Richmond, Virginia (Thomas P. Marshall) – As some people return to the investing market, many are seeking ways to spread their risk.

With individual stocks, investors are obviously tied to the fate of a few companies. Also, some individual investors have found they don’t want to be playing the market, trying to time increases and decreases and earning more gray hair than money during prolonged downturns.

Some might turn to mutual funds, which would pool huge sums of money and invest it across many industries and types of investments. One fund can include stocks and bonds. Another type is a subcategory fund that might only have stocks and maybe even only focus on a particular industry. Individuals have a vast universe of funds to choose from to match their risk tolerance and investment preferences.

Some people might like the idea of the mutual fund but not the lack of control. They don’t want to just set it and forget it.

For them, exchange-traded funds offer an acceptable hybrid. ETFs can be thought of as a mutual fund that trades like a stock. Like an index mutual fund, an ETF represents a basket of stocks that reflect an index such as the S&P 500. But it can be traded on a stock exchange, just like a company. ETFs combine the benefits of a mutual fund’s investment diversification and low operating costs with the trading flexibility of individual stocks. Investors can short-sell ETFs, buy them on margin and purchase only one share, just like a stock.

ETFs have grown in popularity very quickly since they were introduced in the early 1990s. The first successful one was an SPDR fund, managed by State Street Global Advisors. The acronym came from the first fund, the Standard & Poor’s Depositary Receipts (SPY), which is also reportedly the biggest ETF in the United States. State Street now manages many SPDRs.

Now hundreds of ETFs are trading on the market, tracking a wide variety of sector-specific, country-specific and broad-market indexes. Some investors also like ETFs for their transparency; they are required to reveal their holdings on a daily basis, unlike mutual funds, which only do so periodically.

Whatever the reasons, it is clear that people like them, because ETFs have grown tremendously during the recession. ETFs now have more than $1 trillion invested in them, according to a BlackRock report in January. The assets under ETFs’ management worldwide grew by 45.2 percent in 2009 alone. That momentum does not appear to be slowing down this year.

Richmond, Virginia (Thomas P. Marshall) – As tax time approaches, many people really appreciate how complicated the tax code is and how there has got to be a simpler way to do it.

Those people would have plenty of company in that line of thinking. President Barack Obama has said the code needs to be streamlined and created a task force to recommend changes. He named as its chairman Paul Volcker, who, as the former head of the Federal Reserve, has been credited with taming another monster – the roaring inflation rate of the late ‘70s.

Although that group has not come up with recommendations, a couple of senators put forward a proposal in February that would significantly affect the code. Sens. Judd Gregg, R-N.H., and Ron Wyden, D-Ore., introduced the bill, which goes by the modest name of the Bipartisan Tax Fairness and Simplification Act of 2010. It would cut the number of income tax brackets in half and flatten the corporate tax rate.

There would be just three tax rates: 15 percent, 25 percent and 35 percent. The bill would also eliminate the alternative minimum tax, which threatens to ensnare middle-income taxpayers each year unless legislators pass a “patch.” Also, most taxpayers would be able to use a one-page form to submit their taxes, the senators said.

The law would almost triple the standard deduction and reduce taxes for those earning less than $200,000, Wyden said. It would still allow deductions for mortgage interest, charitable contributions and child tax credits.

The corporate income tax would have a single rate of 24 percent but allow small businesses with receipts of up to $1 million to expense equipment and inventory costs.

The capital gains tax also would be changed. The law would exempt the first 35 percent of capital gains income from the tax. The first $500,000 of investment would be considered long-term capital gains income after six months rather than a year.

The House of Representatives is expected to offer its own version of tax simplification.

Richmond, Virginia (Thomas P. Marshall) – Amid the debate about health care reform, some employers are already taking steps to control costs and at the same time improve productivity with wellness programs.

The idea is in the Senate version of the health care reform bill, and some people have criticized it because they say it penalizes people for lifestyle choices. Generally speaking, the programs would set certain goals, such as cutting smoking, dropping weight and reducing high cholesterol, and tie them to reductions in health care premiums. Some programs even offer a cash reward.

And what has some critics concerned is that some programs charge penalties if people do not meet the criteria. The Senate bill would allow insurers to penalize subscribers at a higher rate, even thousands of dollars, for not meeting the wellness targets. The idea has support among Democrats and Republicans, who have been proposing a version of this for the past few years.

But, controversy aside, it is clear that more companies and other entities are interested in the programs for controlling costs and boosting morale.

At Florida Health Care Plans, 93 percent of the employees qualify for wellness benefits, according to The Daytona Beach News-Journal. The insurer pays 80 percent of Weight Watchers dues, access fees to area gyms and 100 percent of any health care premium increases for eligible employees, who are nonsmokers with a body mass index less than 27.5.

Hudson Technologies, a company covered by the insurer, said between 75 and 80 percent qualify for the company to pay an extra 10 percent of employees’ health care premiums. The company’s program started slowly, with one success at a time.

“One person’s success just snowballs,” said Pam Price, Hudson’s human resources director. The company found absenteeism dropped substantially and has noticed that employees are more engaged.

Roy Braddy, Hudson’s director of supply chain management, used to be a 325-pound smoker of up to two Marlboro packs a day, the newspaper reported. He was able to get rid of blood pressure medicine, inhalers and the breathing machine he needed just to be able to sleep.

“To be rid of that shame (of being overweight) is so liberating,” he said. “It brings out a new part of your personality and it’s really cool.”

The legal and tax information contained in these articles is merely a summary of our understanding and interpretation of some current provisions of tax law and is not exhaustive. Consult your legal or tax advisor for advice concerning your particular circumstances.

Visit www.myverpa.com for more information

An IRA account can be passed on by its owner to a spouse or a non-spousal beneficiary when the owner dies. But the treatment of the two types of beneficiaries is different, and knowing the differences can mean significant tax savings. Advisors recommend making a plan to handle an IRA account inherited from someone other than a spouse.

One main difference between an IRA account inherited by a spouse and one inherited by a non-spouse is that the spouse can roll it over into either an existing or a new IRA account and continue contributing to it. If the spousal beneficiary is below the age of 59½, he or she can take funds from the inherited IRA without paying a 10 percent penalty for early withdrawal.

Previously, non-spousal beneficiaries had no other option but to take a lump sum distribution from an inherited account and pay the tax consequences. This is no longer the case. Under the Pension Protection Act, a non-spousal beneficiary can also roll over an inherited account, but only directly (trustee-to-trustee transfer) to a new IRA account. The non-spousal beneficiary will not be subject to taxes on the inherited IRA until he or she receives distributions from the account.

However, the new account cannot be in the non-spousal beneficiary’s name, and the beneficiary cannot make any contributions to the inherited IRA. For instance, the new account could be in the deceased IRA account owner’s name: John Smith, deceased, IRA f/b/o Jane Anderson (beneficiary).

The direct rollover must take place by Dec. 31 following the year of the death of the IRA account holder. However, if the inherited IRA has a stretch option, the rollover can occur anytime after the account owner’s death  —  as long as the non-spousal beneficiary took out the required minimum deductions.

In the case of a non-spousal beneficiary, any required minimum distributions made by the deceased owner are deducted from the total amount that may be rolled into the new IRA. If the owner of the IRA died before making the required minimum distributions, the IRS may use either the five-year rule or the life expectancy rule to determine how much must be taken out before rolling the remainder into the new IRA.

The IRS rules that apply to inherited IRAs and rollovers are complicated, and it’s best to consult an accountant or financial planner.

Every year the government rolls out new tax breaks, but too many taxpayers fail to take advantage of them. As a result many Americans pay higher taxes than they should. Tax rules also change, and missing out on these amendments could cost taxpayers dearly. This is why it’s important to do your tax planning way ahead of time instead of waiting for the last possible moment.

Here are some of the tax tips for 2010 that you should consider:

• $16,500 tax-free 401(k) maximum contribution limits. The IRS is holding the maximum amount an employee can contribute to a 401(k) in 2010 at $16,500. Catch-up contribution will remain unchanged from 2009 at $5,500 for individuals over the age of 50. The contribution limits are set annually based on the inflation rate in the third quarter vs. the previous year’s quarter. This is good news since many were expecting the IRS to reduce the limit.

• The return of the RMD. The required minimum distribution (RMD) was eliminated last year for taxpayers who are at least 70½ years of age. In 2010 RMDs are back. If you fail to withdraw an RMD, fail to withdraw the full amount of the RMD or fail to withdraw the RMD by the applicable deadline, you will have to pay a 50 percent tax on the amount not withdrawn.

• Income limits for Roth IRA conversions eliminated. Starting this year the adjusted gross income limit of $100,000 and the filing status requirement have both been abolished. Anyone is now eligible to convert a traditional IRA or any other retirement plans from a previous employer to a Roth IRA. When you make a conversion, the conversion amount counts as ordinary income. For this year, however, you have the option to recognize 50 percent of the conversion amount as ordinary income in 2011 and the other half in 2012.

Starting this year, thanks to a provision in the Pension Protection Act (PPA), qualified payouts from annuities with a tax-qualified long-term care insurance (LTCi) rider are now income-tax-free. The new tax treatment of these combination or hybrid products has been hailed as one of the most significant events affecting the insurance industry in years.

The new rule dramatically enhances the value of LTCi. For instance, a hybrid annuity contract purchased in 2010 for $100,000 grows to $250,000 over the years. If the insured requires qualified long-term care, he or she can withdraw the entire $250,000 without paying income tax on it. Another provision under the PPA says the $150,000 gain on the original value can be tax-free as well. If the insured needs only a small amount to cover qualified long-term care, the fund will be taken from the principal rather than from any gains.

The favorable tax treatment applies to payments from reimbursement contracts where insureds submit claims and are paid for qualified LTC benefit expenses incurred. These payouts are totally income-tax-free.

For contracts where carriers pay a fixed daily or monthly benefit regardless of the expenditures actually incurred, the Internal Revenue Code stipulates a per diem rate or other periodic basis. For 2010 the limit on the exclusion for payments made is $290 per day. So an insured could collect payouts of $8,700 monthly (assuming a 30-day month) tax-free. Any amount above that is taxable.

People who already own annuities or life insurance can use the 1035 exchange to acquire a hybrid annuity with an LTCi rider without paying any taxes. Basically, the insured switches from a tax-deferred to a tax-free vehicle when funds are used to pay for LTC expenses.

For instance, an annuity holder exchanges an existing variable annuity originally purchased for $100,000 that now has a value of $400,000 for a combo product with a rider that adds $200,000 of LTC protection. All portions of gain paid out from the hybrid contract to reimburse LTC expenses will be income-tax-free.

It is important to note that any existing policy with a death benefit or income guarantee will be forfeited in such an exchange. Any surrender penalty that applies should also be taken into consideration.

www.myverpa.com

The legal and tax information contained in these articles is merely a summary of our understanding and interpretation of some current provisions of tax law and is not exhaustive. Consult your legal or tax advisor for advice concerning your particular circumstances.

Men and women are not equal when it comes to retirement risk. Women face a higher chance of outliving their assets and experiencing poverty in old age because they have longer life expectancy, exhibit lower risk tolerance and make less income than men.

On average, a woman’s life expectancy is three years longer than a man’s, and 30 percent of women now age 65 can expect to reach age 90. That means women need to save more to fund a longer retirement.

Women are more likely to spend some of their retirement years on their own as they outlive their spouses or because of divorce. This makes retirement more expensive. Almost 40 percent of older women living alone depend on Social Security for almost all their income. If their Social Security benefits were taken away, more than 50 percent of older women living alone would be living in poverty.

Some of the challenges that women face in retirement can be traced back to their working years. Women have less income than men, earning an average of 77 cents for every $1 earned by men. This translates to a loss of more than $300,000 over a lifetime.

Women also spend fewer years working than men. In a 15-year time frame, women spend twice as much time as men outside the work force because they interrupt their careers, says management expert Marcus Buckingham. This leads to lower employer-based retirement plan benefits.

In fact, 50 percent of women workers hold relatively low paying jobs without pensions. Those who do have pension benefits receive just 50 percent of the average pension benefits received by their male counterparts, the Women’s Institute for a Secure Retirement reported.

Because the odds are stacked against women, WISER recommends the following strategy to help address gender-based retirement risk:

Consider a guaranteed source of retirement income that cannot be outlived, such as lifetime annuities.

Delay claiming Social Security benefits to increase the level of both spousal and widow’s benefits.

Purchase long-term care insurance.

Plan for an income stream that will continue in the event of a spouse’s death, through life insurance and joint and survivor annuities.

You can reduce the amount of your taxes or increase your tax refunds by claiming an additional personal exemption for each of your dependents. You may also save thousands of dollars by claiming the child tax credit, the child and dependent care tax credit, and the earned income tax credit.

However, the IRS rules for claiming a dependent – child or relative – aren’t as easy as picking a name off your family tree. Many possible scenarios make it hard to determine qualified dependents for your tax return. Here are the general tests to help you determine a qualified child dependent.

He or she can be a biological, step-, adopted or foster child; a full, half or stepsibling; or a grandchild, nephew or niece – but only if the person lives with you for at least six months and one day of the year.

Only one taxpayer can claim a child as a dependent. If the child is under shared custody, the household where he or she spends the most prescribed time gets the prize. If the child spends equal time between the two parents, the one with the bigger adjusted gross income (AGI) can claim the child as a dependent.

The child dependent must be under age 19 by Dec. 31 of the tax year. If the person is a full-time student for at least five months out of the year, he or she can be a dependent until the age of 24. There is no age limit for dependents who are totally and permanently disabled.

Generally, you cannot claim a married person who lived with you for a year as a dependent, unless the married person does not file a joint tax return.

If the child dependent is employed, he or she must have a gross income of less than $3,400 or be unable to provide more than half of his or her own support for the tax year. For instance, 17-year old Miley Cyrus would not qualify as Billy Ray’s dependent since she made something like $25 million last year.

The other category, qualifying relative, applies to individuals related to you in ways specified in the qualifying child dependent section. It also includes parents and stepparents, aunts, uncles, grandparents and other direct ancestors. You can also add your in-laws: father, mother, brother and sister. The relative must have lived with you the whole year and meet some of the requirements that apply to the child dependent.

There’s more to coffee than just perking up your energy level. New medical studies suggest that drinking coffee can help reduce the risk of developing diabetes, prostate and liver cancer, and Parkinson’s disease.

Drinking more than three or four cups of coffee, regular or decaffeinated, helps reduce the risk of getting Type 2 diabetes by as much as 36 percent, while every additional cup of coffee consumed each day could reduce the risk of diabetes by 7 percent, a study published in the Archives of Internal Medicine revealed.

Meanwhile, men who drink six or more cups of coffee every day, regular or decaf, have a 60 percent lower chance of advanced or lethal prostate cancer than those who don’t drink coffee, according to separate studies affiliated with the Harvard School of Public Health – this despite the findings that men who drink large amounts of coffee are also more likely to smoke, exercise less, and be overweight. These are factors known to increase the risk of prostate cancer.

Drinking one to two cups a day of the beverage reduced the risk of liver cancer, and drinking up to four cups increased coffee’s protective benefit, a Japanese study concluded. Other medical research links coffee to providing protection against Parkinson’s disease, the Mayo Clinic reported.

Researchers believe it’s the antioxidants known as polyphenols that are behind the benefits. A cup of coffee contains a higher level of polyphenols than do green tea, herbal teas and cocoa. The average adult consumes 1,299 milligrams of antioxidants from coffee every day, making it the biggest source of those precious natural chemicals in the diet.

However, doctors say these studies do not suggest that you drink coffee by the gallon. Too much of it can make you jittery, keep you awake at night, cause headaches and elevate cholesterol levels. Also, sugar and cream add extra calories. Coffee may be good for the body, but people still need regular exercise and a healthy diet.

The legal and tax information contained in these articles is merely a summary of our understanding and interpretation of some current provisions of tax law and is not exhaustive. Consult your legal or tax advisor for advice concerning your particular circumstances.

A bond ladder is a strategy for managing a collection of individual bonds or CDs. Under this strategy, the maturities and the timing of interest payments of the fixed-income investments are simultaneously staggered – or laddered – at specific intervals. Each of these bonds represents a different rung on the ladder. The rungs are determined by the amount of investments divided by the number of bonds. Most experts recommend bond ladders with at least five rungs. This requires total investments between $10,000 and $50,000.

For example, an investor who puts $50,000 in five different bonds with a face value of $10,000 each has set up a bond ladder with five rungs. Each rung has a different maturity date. The first rung of bonds matures in one year, the second rung matures in two years, the third rung in three years, the fourth in four years and the fifth in five years. In effect, each rung of bonds reaches maturity at an interval of one year.

The distance between the rungs – that is, the interval of bond maturities – can be set anywhere from every few months to a few years. Bonds, however, are long-term investment vehicles that earn higher yields with time. Making the distance between the rungs longer typically results in better yields. The trade-off is that this exposes the investor to reinvestment risks and lack of access to the funds. Making the distance between the rungs shorter reduces the average return.

Financial experts use bond ladders to generate consistent returns and low risk, and to adjust cash flows according to the investor’s financial objectives. For example, the bond ladder can be set up to function as a source of income during retirement..

By staggering the maturity dates the investor also avoids being locked into one particular bond for a long duration, unprotected from bull and bear bond markets. If the investor poured the full $50,000 into one single bond with a yield of 5 percent for a term of 10 years, he or she wouldn’t be able to capitalize on increasing or decreasing interest rates. The bond ladder approach smoothes out market fluctuations because bonds mature at regular intervals.

A bond ladder also protects the bond portfolio from call risk. Call risk is when a bond issuer takes advantage of the callable bond feature and redeems the issue prior to maturity because of the high rate being paid on the bond. In a bond ladder, there is little chance that all bonds in one portfolio will be called at once because the maturities are staggered.

The bond ladder approach can be used for various fixed-income investment vehicles, including debentures, government bonds, municipal bonds, Treasury bills and certificates of deposit. The “ideal” bond for this strategy depends on the investment objectives and the investor’s preference.