The Pension Protection Act of 2006 allows unmarried partners to inherit qualified plans and extend distributions over his or her lifetime.  Until now, only spousal beneficiaries were allowed to do so; unmarried beneficiaries were required to distribute the plan in a lump sum, or at most, over five years. 

The Tax Increase Protection & Reconciliation Act extends or makes some provisions of the 2001 "EGTTRA" act, including permanent tax-exemption of 529 College Savings Plan distributions.  Previously distributions would revert to being taxed in 2011.

The maximum 15% tax rate on capital gains and dividends is extended through 2010.

The increased AMT exemption is extended through 2006.  This increase has been renewed each year since 2003.

The "kiddie tax" has been eliminated:  children's investment income will be taxed at the parent's highest rate until children are 18. 

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Several clients have recently received notices from the IRS questioning items on 2004 tax returns.  Some of the notices resulted from revised Forms 1099 issued in February through April 2004.   Other notices stated that state tax refunds were not properly included in interest.

We have written explanatory letters to the IRS for clients.  In all cases the letters have been accepted without additional action or payment required.

Current tax law allows taxpayers to convert regular IRAs to Roth IRAs in a year in which the taxpayer's gross income is less than $100,000.

The amount converted is included in gross income and is subject to tax  (although the conversion amount does not count towards the $100,000 threshold).

A Roth IRA differs from a regular IRA in that contributions are not deductible, distributions are not taxed and there is no required minimum distribution at age 70 and older.

In 2010 the $100,000 limitation will be removed, allowing any taxpayer to convert to a Roth.

This change presents a unique opportunity for some high-income taxpayers to make conversions with little tax cost.  For this reason we recommend making IRA contributions in 2006 and after, even if the contributions are non-deductible. 

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Dalbar, Inc., a financial services market research firm, recently published a study of investors' returns over the last 20 years, from 1986 through 2005.  The results are startling:

    The average equity investor earned 3.9% annually

             while the S&P 500 index earned 11.9%

Although we have written extensively of the costs associated with market timing and active management, the lost opportunity of 8% annually is almost beyond belief. 

An article by Schwab's Chief Investment Officer Liz Sonders offers telling insight into why investors so often make the wrong decisions.                                                                

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Emily Hahn is our new client service specialist.  Emily received a B.A. in English from Berkeley, and then worked in the Berkeley library system performing public service, curatorial and research duties.

Emily joined Grubman Financial in August.  She takes care of clients' service needs, including account applications and changes, money transfers, and document handling. 

Who's Who: 

• Emily Hahn, Client Service Specialist
• Halle Brown, Operations Manager
• Jonathan Young, I.T. Specialist
• Audrey Grubman, Financial Planner / Portfolio Manager
• Henry C. Levy & Company (subcontractor), Tax Preparers

We will be closed from Monday December 25 through Monday January 1, 2007.

We will reopen on Tuesday, January 2, 2007.

If you have a year-end service request please notify us as soon as possible so we can accomodate your request.