nov by nuhman10


									Retirement Advisor
A monthly resource for protecting your income
November 2009

By Lynda Wilson, Editor

ECONOMY                                                      indicate that a growing number of people believe the
                                                             economy is on the rebound.
Consumer Confidence Boosts Economy                                Consumer confidence got an even bigger boost
                                                             when, on Oct. 18, the Dow Jones Industrial Average
     f the economy were a glass of water, do you see it      climbed above 10,000 for the first time in a year.

I    as half empty or half full? How consumers look at
     it actually affects the health of the economy,
     according to experts. They say the economy
would be much better if more Americans viewed it
                                                             While some remain cautious, experts say the Dow's
                                                             climb breached a psychological barrier for many
                                                             investors who got burned when the Dow fell to a low
                                                             of 6,547 in March 2009.
with optimism.                                                    Paul Wharton, a Seattle-based TV personality,
    What transforms optimism into actual economic            recently purchased a pair of python shoes that set him
gains is "herd mentality." Herd mentality refers to          back more than $1,000. The shoes, Wharton said, are
how people are strongly influenced by their peers to         a talisman of better times to come. "It's almost like
adopt certain behaviors, follow trends and inspire (or       I've come out of the recession before the market," he
depress) consumer confidence.                                told The Washington Post. "I made a choice. I just
    Consumer confidence and spending tend to rise            refused to be in the recession any longer!"
and fall with the economy.                                        Economists feel more positive about the economy
    Low consumer confidence tends to make                    and are hoping this optimism will spread, that it will
consumers save more than they spend. This in turn            translate into more spending. When some people start
causes the economy to contract, as evidenced by the          buying, it encourages others to start buying as well.
fact that consumer spending has made up around 70
percent of all economic activity in recent years.            TAX AND LEGAL
    For example, consumer confidence went from
54.4 in August 2009 down to 53.1 in September 2009,          Charitable Giving Gives Back
according to The Conference Board, which tracks
consumer confidence levels every month. Experts say                    mericans lead the world in charitable giving
this is bad news for retailers that were hoping that this
year's holiday shopping season would be better than it
was in 2008.
    And that is particularly bad news for those
                                                             A         – twice as much as the next most charitable
                                                                       country, according to a 2006 Charities Aid
                                                                       Foundation report. In 2006, Americans set a
                                                             new record in philanthropic contributions, with an
retailers that depend on the holidays to make up for         estimated $295 billion. A large percentage of that
losses during other quarters. This makes consumer            comes from individual donors.
spending a critical factor in determining how quickly            Experts say the practice of voluntary giving has
an economy will recover from a recession.                    positive effects on the giver's health, happiness and
    The good news is that the consumer confidence            even personal wealth.
level for September 2009 was much higher than for                A direct effect on wealth is, of course, the tax
September 2008, when it was measured at only 44.7.           deduction. But only certain donations qualify.
In fact, furniture sales rose for the first time in a year       The tax benefits are applicable only to
and a half in September. Additionally, various polls         contributions made to qualified organizations and are

                      Khameleon Advisors * 815 N. La Brea Ave., #371 * Inglewood, CA * 90302
not set aside for use by a specific person. Legitimate     what they had the previous year. This year, however,
public charities are mostly federally approved             may be a little different.
501(c)(3) organizations. Generally, they include               The number of large employers that will introduce
religious, educational, scientific, literary and           consumer-directed health plans (CDHPs) this year
charitable organizations. Certain organizations that       went up sharply to 20 percent, from 14 percent last
foster national or international amateur sports            year, according to Mercer, a firm specializing in
competition may also qualify. The IRS has on its Web       employee benefits. In fact, some large-employer
site a list of organizations eligible to receive tax-      clients that had previously considered launching
deductible charitable contributions.                       CDHPs within the next three to five years will
     Generally, deductions for monetary contributions      implement them in 2010, says a consultant with
are limited to 50 percent of adjusted gross income         Towers Perrin.
(AGI). For example, the deduction limit for an AGI of          Like it or not, it's time to grasp the basics of
$100,000 is $50,000 for that year. In some cases, 20       CDHPs and Health Savings Accounts (HSAs).
percent and 30 percent limits may apply to gifts of            CDHPs are a broad range of health plans that
property that have appreciated in value and are held       allow their members to use personal HSAs to directly
for more than one year. Any amount in excess of the        pay qualified medical expenses. The idea behind a
applicable limitation to charity in one year can be        CDHP is that employees will act more judiciously,
carried over for the next five years.                      like consumers, comparing health care quality and
     Charitable donations made by credit card are          costs, and negotiating lower prices. Because plan
deductible in the year they are charged to the credit      participants are spending their own dollars for health
card, even if the giver pays the credit card company in    care, it also discourages unnecessary utilization such
a later year. Donations made through a pay-by-phone        as emergency room visits for nonemergency care.
bank account are not deductible until the payment date         An HSA is the most common account under a
is shown on the bank statement.                            CDHP, which may also offer Flexible Spending
     Different tax rules apply for cash contributions      Accounts (FSAs) and Health Reimbursement
where the donor receives a financial or economic           Accounts (HRAs).
benefit in return, such as purchasing a ticket for a           The HSA is set up in conjunction with a high-
dinner dance at a church or for a fundraising auction      deductible health plan (HDHP). Members must be
conducted by a charity.                                    enrolled in an HDHP in order to set up an HSA.
     There are many ways to contribute to a qualified      Annual HSA contributions are used by individual and
cause. These may include charitable gift annuities,        covered family members to pay for the cost of the
gifts in kind, volunteer work and endowments. While        deductible, out-of-pocket expenses and any other
some of these ways may not provide direct tax              qualified expenses. In 2010, employees will be able to
benefits, the IRS may allow indirect write-offs.           set aside as much as $3,050 in an HSA for individual
Consult with a tax advisor about the many ways Uncle       coverage and $6,150 for family plans. Employees over
Sam repays good deeds.                                     age 55 can also make increased payments until they
                                                           reach Medicare eligibility.
HEALTH AND WELL-BEING                                          The funds contributed by the employer and the
                                                           employee to the HSA are not subject to federal
Health Enrollees May See New Plans                         income tax at the time of deposit. The account is
                                                           owned by the employee and can be used to pay for
        he typical employee welcomes the open              qualified medical expenses at any time without federal

T       enrollment season with as much enthusiasm
        as he or she would a documentary chronicling
        the life cycle of a garden slug. Too many
employees – 60 percent, according to a survey
                                                           tax liability. HSA funds not used within a calendar
                                                           year stay in the account, where they earn interest and
                                                           can be accessed for future use.

conducted by Hewitt Associates – don't bother to           The legal and tax information contained in these articles is
                                                           merely a summary of our understanding and interpretation of
study their options and do nothing at all during this      some current provisions of tax law and is not exhaustive. Consult
time. This forces their employers to sign them up for      your legal or tax advisor for advice concerning your particular

                     Khameleon Advisors * 815 N. La Brea Ave., #371 * Inglewood, CA * 90302
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