Synergy Financial Group Newsletter - February 2009
Synergy Financial Group
George Van Dyke
Financial Consultant
401 Washington Ave Suite
700
Towson, MD 21204
410-825-3200
gvandyke@synergyfinancialgrp.com
www.synergyfinancialgrp.com
In this issue:
Tax-Friendly States for
Retirees
Retirement Plan and IRA
Limits for 2009
Rethinking Your Retirement
Game Plan
What is an expense ratio?
Tax-Friendly States for Retirees
If you're retired, or about to retire, you may be
thinking about relocating to a state that has
low tax rates, or that provides special tax
benefits to retirees. Here's a survey that may
jump-start your search for a tax-friendly state
in which to spend your golden years.
Income taxes generally
State income taxes
typically account for a
large percentage of
the total taxes you
pay. So, you may
consider yourself
lucky if you live in one
of the seven no-income-tax states--Alaska,
Florida, Nevada, South Dakota, Texas, Wash-
ington, and Wyoming (New Hampshire and
Tennessee impose income tax only on inter-
est and dividends). If you're considering a
state that does impose an income tax, you'll
want to know how it treats Social Security and
pensions in particular.
State income tax and Social Security
Social Security income is completely exempt
from tax in 27 of the states with an income tax
(as well as the District of Columbia): Alabama,
Arizona, Arkansas, California, Delaware,
Georgia, Hawaii, Idaho, Illinois, Indiana, Ken-
tucky, Louisiana, Maine, Maryland, Massachu-
setts, Michigan, Mississippi, New Jersey, New
York, North Carolina, Ohio, Oklahoma, Ore-
gon, Pennsylvania, South Carolina, Virginia,
and Wisconsin. Missouri and Iowa partially tax
benefits, but will fully exempt benefits begin-
ning in 2012 and 2014, respectively.
Two states (Connecticut and Kansas) don't
tax Social Security benefits if your other in-
come is less than a specified dollar amount
($50,000 or $60,000 in CT, $50,000 in KS).
Three states (Colorado, Utah, and West Vir-
ginia) provide a general retirement income
exclusion that takes Social Security benefits
into account. Most of the remaining states tax
Social Security benefits to the same extent
they're taxed for federal income tax purposes.
State income tax and pensions
Of the states with an income tax, 36 fully or
partially exempt pension income--only
California, Indiana, Nebraska, Rhode Island,
and Vermont do not. But the exemptions vary
considerably by state. Some states exempt
public pensions from taxation but tax private
pensions, or exempt public pensions earned
in that state, but not public pensions earned in
another state.
Some states exempt employer retirement
benefits, but not IRA income. Some states
exempt a specific dollar amount of retirement
income, but only if you've reached a certain
age or have income within certain limits. In
some states, military pensions are partially or
fully exempt, while in others they're fully
taxable. Some states exempt defined benefit
pension payments, but tax 401(k) benefits.
Make sure you understand how your particular
type of retirement income is treated.
Keep in mind that federal law prohibits states
from taxing certain retirement income (chiefly
pension income) unless you're a resident of,
or domiciled in, that state. For example, if you
receive a pension from your former California
employer, but you now reside in Florida,
California can't tax your retirement income.
Other considerations
Remember that states impose many other
kinds of taxes (for example, sales, real estate,
and gift and estate taxes). Some states offer
tax breaks to seniors, like property tax reduc-
tions, or additional exemptions, standard de-
ductions, or credits based on age.
For an accurate comparison among the
states, you'll need to consider your total tax
burden. A number of web sites dedicated to
providing information to retirees can help you
in this daunting task.
Page 2

Retirement Plan and IRA Limits for 2009

An increasing number of retirement plan and Contribution limits: 2009 tax year*
IRA limits are indexed for inflation each year. (2008 limits in parentheses)
Some of the key numbers for 2009 are dis-
cussed below. Annual Catch-up
Plan type
dollar limit limit
Elective deferrals
401(k), 403(b),
$16,500 $5,500
If you're lucky enough to be eligible to partici- and 457(b)**
($15,500) ($5,000)
pate in a 401(k), 403(b), 457(b), or SAR-SEP plans
plan, you can make elective deferrals of up to $11,500 $2,500
$16,500 in 2009, up from $15,500 in 2008. If SIMPLE plans
($10,500) ($2,500)
you're age 50 or older, you also can make a
catch-up contribution of up to $5,500 to these Traditional
$5,000 $1,000
plans in 2009, up from $5,000 in 2008. and Roth
($5,000) ($1,000)
IRAs
If your 401(k) or 403(b) plan allows Roth con-
tributions, your total elective contributions, *Contributions can't exceed 100% of your pay. If you par-
ticipate in a 403(b) or 457(b) plan, special rules may allow
pretax and Roth, can't exceed $16,500 an even greater catch-up contribution.
($22,000 with catch-up contributions). You **$5,500 catch-up applies only to governmental 457(b)
can split your contribution any way you wish. plans.
For example, you can make $9,500 of Roth Some other key numbers for 2009
contributions and $7,000 of pretax 401(k) con-
tributions. It's up to you. For 2009, the maximum amount of compensa-
tion your employer can take into account
If you participate in a SIMPLE IRA or SIMPLE when calculating SEP and qualified plan con-
401(k) plan, you can contribute up to $11,500 tributions and benefits is $245,000 (up from
in 2009 (up from $10,500 in 2008). If you're $230,000 in 2008).
age 50 or older, the maximum catch-up contri-
bution to a SIMPLE IRA or SIMPLE 401(k) The maximum annual benefit you can receive
plan in 2009 is $2,500, unchanged from 2008. from a defined benefit pension plan is limited
to $195,000 in 2009 (up from $185,000 in
IRA limits remain the same for 2009 2008).
The amount you can contribute to a traditional And the maximum amount that can be allo-
or Roth IRA remains at $5,000 for 2009, and cated to your account in a defined contribution
the maximum catch-up contribution for those plan (for example, a 401(k) plan or profit shar-
age 50 or older remains at $1,000. You can ing plan) in 2009 is $49,000 (up from $46,000
contribute to an IRA in addition to an em- in 2008), plus age-50 catch-up contributions.
ployer-sponsored retirement plan. But if you (This includes both your contributions and
(or your spouse) participate in an employer- your employer's contributions. Special rules
sponsored plan, your ability to deduct tradi- apply if your employer sponsors more than
tional IRA contributions may be limited, de- one retirement plan.)
pending on your income. Roth contributions
are also subject to income limits.
Income phaseout range for determining deductibility of traditional IRA contributions in 2009
1. Covered by an employer plan
Single/Head of household $55,000 - $65,000 ($53,000 - $63,000 in 2008)
Married filing jointly $89,000 - $109,000 ($85,000 - $105,000 in 2008)
Married filing separately $0 - $10,000 (same for 2008)
2. Not covered by an employer plan, but filing
$166,000 - $176,000 ($159,000 - $169,000 in 2008)
joint return with a spouse who is covered
Income phaseout range for determining ability to fund Roth IRA in 2009

Single/Head of household $105,000 - $120,000 ($101,000 - $116,000 in 2008)

Married filing jointly $166,000 - $176,000 ($159,000 - $169,000 in 2008)

Married filing separately $0 - $10,000 (same in 2008)


Rethinking Your Retirement Game Plan
Periodic market downturns may result in sig-
nificant investment losses, particularly within
retirement accounts. If you are faced with this
situation, you may have to reconsider when,
or even if, you can retire.
The effects of a decline
Historically, the stock market has had its ups
and downs. How any substantial market
change impacts your retirement outlook may
depend on how close you are to retirement. If
you plan on working and contributing to your
retirement savings for many more years, you
may have time to recoup losses to your ac-
counts due to poor investment performance.
But if you're closing in on retirement or you're
already there, a dip in your savings may affect
how much you can safely withdraw and how
long your savings can last.
To demonstrate, assume you and your spouse
have $1 million in retirement savings, expect
an annual average rate of return of 7%, and
estimate that you presently need $100,000
annual retirement income for both of you to
live comfortably, of which $30,000 will come
from Social Security. Presuming withdrawals
increase by 3% each year to offset the effects
of inflation, your savings will last about 22
years, as shown in the chart below
(scenario 1).
However, a decrease of 14% in the value of
your savings in one year shortens the duration
of your savings by over 4 years (scenario 2).
(This example is hypothetical and does not
reflect a specific investment or strategy.)
$1,000,000
$900,000
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
67 69 71 73 75 77 79 81 83 85 87 89
Age
Scenario 1 Scenario 2
Page 3
What are your options?
If you're fortunate, even a significant decrease
in savings may not impact your retirement
income dramatically. You may have other
sources of fixed income such as company-
sponsored pensions, so you won't need to rely By 2016, the number
on your savings to provide much of your in- of working people
come. Or you may be able to offset the effect over age 65 is
of diminished savings by spending less -- expected to increase
forgoing that planned cruise, putting off buying by 80%.
that new car, or making smaller gifts to chil- Source: U.S. Bureau
dren and grandchildren, for example. But if of Labor Statistics
you rely on your savings for most of your re-
tirement income, considerable investment
losses of the magnitude recently experienced
can require major lifestyle changes. Here are
a few ideas to help you cope with the erosion
of your retirement savings.
Continue working
You may have to delay the retirement party a
little longer. Postponing retirement lets you
continue to add to your retirement savings,
which can offset losses caused by poor in-
vestment performance. Also, working allows
you to delay withdrawing from your savings.
That could allow more time for your retirement
accounts to recover from investment-related
losses.
Delay taking Social Security
Social Security may be the only source of
fixed income you'll have in retirement. If you
delay applying for benefits until your full retire-
ment age, you can get as much as 30% more
in monthly payments compared to taking
benefits early. And, for each year you defer
benefits past your full retirement age (between
65 and 67, depending on when you were If you delay your
born) to age 70, your benefit is increased by Social Security
8%. That could mean an additional $500 or benefit, don't forget to
more in your benefit check each month--and sign up for Medicare
that doesn't include annual cost of living in- at age 65.
creases.
Consider fixed income investments
Investments such as single premium immedi-
ate annuities (SPIAs) provide an income for
the rest of your life, or for the combined lives
of you and your spouse. However, while the
income is dependable (subject to the claims-
paying ability of the annuity issuer), you gen-
erally don't have access to the money you
paid for the SPIA and you may not be able to
change the amount of income payments or
their duration once you've started.

Synergy Financial Group
George Van Dyke
Financial Consultant
401 Washington Ave Suite
700
Towson, MD 21204
410-825-3200
gvandyke@synergyfinancialgrp.com
www.synergyfinancialgrp.com
The opinions voiced in this
material are for general
information only and are not
intended to provide specific
advice or recommendations for
any individual. To determine
which investment(s) may be
appropriate for you, consult your
financial advisor prior to
investing. All performance
referenced is historical and is no
guarantee of future results. All
indices are unmanaged and
cannot be invested into directly.
Securities offered through LPL
Financial, Member FINRA/SIPC
Prepared by Forefield Inc,
Copyright 2009
Ask the Experts
What is an expense ratio?
Every mutual fund must
disclose certain costs asso-
ciated with running the
fund. Those costs, which
are expressed as a percent-
age of the fund's assets, represent a fund's
expense ratio, which can be found in its pro-
spectus. For example, a fund that has $100
million in assets and annual expenses of $1
million would report a 1% expense ratio (1%
of $100 million equals $1 million).
An expense ratio includes the following:
Management fees: Fees paid to the fund's
investment manager or advisor, which man-
ages the fund and makes investment deci-
sions. These often represent the single largest
portion of a typical fund's expense ratio.
Marketing costs: Also known as 12b-1 fees,
named after the legal provision that permits
them. These were originally designed to let
funds recoup costs associated with distribu-
tion and advertising, on the theory that attract-
ing new investors and additional assets would
What are trading expenses and why do they matter?
Trading expenses represent the cost of buy-
ing or selling securities, and can have a sub-
stantial impact on your net return over time.
Brokerage commissions are the most obvious
example of trading expenses, but there are
others. For example, the bid/ask spread is the
difference between the price sellers are ask-
ing for a security and the price buyers are
willing to pay for it. Still another example of
trading expenses is what's known as market-
impact effect costs, which occur when an in-
stitutional investor's purchases or sales of
large quantities of a given security affect that
security's price. If you use leverage--for exam-
ple, if you buy on margin--you will likely pay
interest, which also should be included in your
estimate of trading costs.
For individual securities, it's relatively easy to
know what your trading costs are. However,
with a mutual fund, understanding the impact
of trading expenses can be more challenging.
Funds also incur brokerage commissions and
bid/ask spreads on their trades, but those
help make a fund more cost-effective for each
investor. In recent years, there has been dis-
cussion of whether 12b-1 fees should be
eliminated--especially for funds that are
closed to new investors and therefore should
have little need to market themselves--but
they are still very common.
Administrative fees: Includes the cost of re-
cord keeping, custodianship, taxes, and legal,
accounting, and auditing services.
A fund's expense ratio can help you gauge
how efficiently it operates. You do not need to
deduct a fund's expense ratio from the returns
quoted in its prospectus; the figures that
measure average annual and cumulative re-
turn have already taken them into account.
Before investing in a mutual fund, carefully
consider its investment objectives and risks as
well as its charges and expenses. This infor-
mation is available in the prospectus, which
can be obtained from the fund. Read it care-
fully before investing; a fund's expense ratio
can affect your long-term net returns.
costs aren't included in a fund's expense ratio.
However, funds are required to report the per-
share cost of their annual commissions; this
can be found in a fund's annual report or
Statement of Additional Information.
Many investors use a fund's turnover ratio to
help gauge the impact of its trading expenses.
The turnover ratio indicates the value of a
fund's trades as a percentage of its net asset
value. Trading expenses for a fund with a high
turnover ratio would typically be higher than
for one that trades infrequently and therefore
incurs fewer brokerage commissions.
Though not part of a fund's internal trading
expenses, there are other potential trading
costs of which you should be aware. A fund
may charge a redemption fee if you sell your
shares before a designated length of time. It
also may impose a sales charge, either when
you buy a fund (a front-end load) or sell it (a
back-end load). Not all funds have a redemp-
tion fee or sales charge, but they should be
considered when estimating your total trading
costs.