Three to watch in '09: IRAS, Munis, Capital Gains

By Tim Suffish CFA, CPA Vice President, St. Germain Investments Just when you thought there was no good news in the investment world, we were thrown a bone in late December when President Bush signed into law the Worker, Retiree and Employer Recovery act of 2008. This is important to IRA account holders, as for 2009, the mandatory minimum distribution is no longer required ! One important point to keep in mind is that this is for your 2009 distribution. Your required minimum distributions (RMDs) for 2008, (including individuals who are required to take their first-year RMDs, due by April 1, 2009), must still be taken. This is tax law that we're dealing with here, so it is advisable to have a professional review your personal situation. The tax man will come, eventually Given what we've seen in the economy, the response from the government to date, and the continuation of spending and stimulus in the years to come, we're likely to see tax rates rise in the near future. As it stands today, the federal budget deficit for 2009 is expected to come in at $1.2 trillion. Although he has softened his talk of tax hikes due to the soft economy, President Obama will undoubtedly raise taxes on the investor class once the economic situation is stabilized. This means that the capital gains rate, which now stands at 15 percent will go higher, probably to 20 percent. Additionally, the higher income tax brackets will likely revert back to rates that we saw in the 1990s. Plan now to lessen the bite In anticipation of this, there is opportunity today to take advantage of tax-mitigating laws that are on the books but are either scheduled to lapse, or will go away by legislative action. Here are the ones to capitalize on: 1. If you are currently in the 15 percent bracket (up to $32,550 for single, $65,100 for married filers), you can take advantage of a zero percent capital gains rate, as well as no tax on qualified dividends. Accelerating the taking of gains if this is available to you is certainly advisable. This is scheduled to be in effect through 2010. 2. When tax rates rise, or preferably, your income rises, municipal bonds (munis) get more attractive. The level at which to begin considering munis is the 25 percent marginal bracket. For singles, that is income of $32,550 or better, and $65,100 for married filers. Most investors overlook munis and assume that they're only for the rich, but the reality is that many more can benefit from their preferred tax treatment. The coming year is setting up to be an interesting one. In an environment such as this, any and all opportunities to earn more and pay less should be taken. Column provided to PRIME by: St. Germain Investment Management; 1500 Main Street, Springfield, MA; Phone is 413-733-5111 or 1-800443-7624; web site:www.stgermaininvestments.com