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Show A-20 The Park Record Wednesday, November 19, 1997 Talking New tax code creates opportunities by George E. Moldenhauer RECORD GUEST WRITER The recently enacted Taxpayer Relief Act of 1997 has brought about significant changes that could have dramatic impacts for all taxpayers. tax-payers. But along with these changes come opportunities. While many of the changes do not take effect until 1998, now is the time to make your financial plans. Some of the most dramatic changes come in the area of retirement retire-ment planning. For example, the eligibility eli-gibility limits for traditional IRA's will be expanded between 1998 and 2007. The new law also "de-links" spouses for the purposes of determining deter-mining who can make deductible contributions to an IRA. Previously, if one spouse participated in an employer-sponsored retirement plan (such as a 401k), both spouses were considered as active participants... even if the other spouse had no such option at their place of employment or was unemployed. starting January 1, this will no longer be the case. As a result, a married individual will now be able to make a deductible contribution to an IRA of up to $2,000 (subject to income limitations) even if their spouse is an active participant in a 401k plan at work. The IRA deduction for a spouse phases out for married couples cou-ples filing a joint return with an adjusted gross income between $150,000 and $160,000. Perhaps the most exciting opportunity oppor-tunity under the new Tax Act is a new type of IRA... the Roth IRA. This IRA is one of the two new Shop JLA QlJLJ nondeductible nonde-ductible IRA's that have been created under the new act. While they offer no upfront up-front tax deduction for the con tribution, the long-term effect on taxes is quite possibly more powerful. power-ful. Specifically, withdrawals from a Roth IRA plan could be tax-free if structured properly. Currently, contributions to a regular reg-ular IRA are tax deductible (within income limits). So if you and your spouse are both wage-earners and in the 28 percent Federal tax bracket and each make the full $2,000 contribution contri-bution (a total of $4,000, which is $333.34 monthly), your will create a tax deduction each year of $1,120. If you make contributions for 20 years, you will have created $22,400 in tax savings. Let's assume that you can invest your IRA and receive an average compounded return of 10 percent... a very conservative and realistic return in this day and age. If so, these IRA's would grow to $252,232 in 20 years. When you begin to withdraw money from your IRA's, all of the money received is considered ordinary ordi-nary income, and will be taxed as such. According to the IRS rules, you will probably have to withdraw over $25,000 each year. The result is a rise in your ordinary taxable income of more than $25,000 per year for the next 10 years. Let's assume that your income has now dropped due to retirement, and your tax bracket is now at 15 percent. You will now owe an additional addi-tional $3,783 in taxes in the first year and in each of the next nine years (adjusted for earnings in the IRA). In this case, you will pay almost $40,000 in taxes over the next 10 years. Under the new Tax Act, you can make your contribution to a Roth IRA without the front-end tax savings, sav-ings, but when you begin withdrawing withdraw-ing from the plan, this income will be tax-free to you. There might be a way for you to set up a new Roth IRA, which will allow you to create tax-free income when you retire and get a tax deduction deduc-tion now. The strategy is really quite simple: If you are a homeowner and have equity in your home, here is a strategy strate-gy for you. With interest rates near historic lows, now might be a great time to refinance your home loan. When you refinance, take out $75,000 cash. This cash will be placed into a stable sta-ble tax-free income-producing investment portfolio yielding $4,000 annually (about 5.3 percent... a very realistic amount in mid-grade tax-free tax-free municipal bonds). For the next 20 years, the $4,000 distribution from this investment is used to fund the Roth IRA. At the end of the 20 years, your Roth IRA will have grown to the same $252,223. You would have created cre-ated about $19350 in tax savings (about $3,000 less than a regular IRA), but now you have the same $75,000 in cash from the investment, a paid-off mortgage, and tax-free income from your Roth IRA-worth IRA-worth another $40,000 in tax savings. If you keep the $75,000 invested in tax-free municipal bonds, you would continue to earn about $4,000 per year... tax-free. In addition, your income from the Roth IRA ($25,000 per year) would be tax-free. That gives you a tax-free total of $29,000 annually. So now you have created a pro gram where you can, in essence, deduct your IRA contribution, receive tax-free income at retirement, retire-ment, and a substantial tax deduction deduc-tion along the way. You will actually save over $59,000 in Federal taxes (under the current law) as opposed to paying over $17,000 with a standard IRA, which give a net tax benefit of $77,000. You have an additional $4,000 of tax-free income per year. You will pay an additional $267 per month to execute this plan, but the returns are tremendous about $7 benefit for every $1 that you invest without consideration of the impact of ordinary ordi-nary income on your other retirement retire-ment income such as Social Security. As you can see, a little creative planning under the new Tax Act can yield large returns. As always, planning plan-ning strategies such as these can help keep you one step ahead. George Moldenhauer is a strategic financial consultant, licensed stock broker and mortgage consultant. He has been an investment officer and personal financial consultant for one of the largest banks in America. He is a regular contributor to financial television tele-vision programs on CNBC, KWHY-TV KWHY-TV in Los Angeles, Channel 26 in Chicago, and has appeared on The Nightly Business Report and The Financial News Network. The information contained in this column is for educational purposes only. Readers are urged to consult with their financial advisors before taking any action based on information informa-tion contained in this column. All information is obtained from sources believed to be reliable, but no guarantee guar-antee exists to its accuracy or completeness. com-pleteness. Readers with questions can send their letters to George Moldenhauer, Columnist; do The Park Record, P.O. Box 3688, Park City, UT 84060. SLOC certifies vendors The Salt Lake Organizing Committee for the Olympic Winter Games of 2002 has begun an electronic elec-tronic vendor registration process to receive and store information on companies interested in doing business busi-ness with the committee. According to Marcie Gibboney, SLOC's director for Administrative Services, SLOC will make significant signifi-cant purchases as it plans and stages the 2002 Olympic Winter Games, and the on-line process will ensure that the committee provides a fair and equitable opportunity to poten tial vendors who hope to provide goods and services to the SLOC.The program calls for vendors to submit information about their companies, products and services on an electronic elec-tronic form via the SLOC Web site. SLOC will notify each vendor to confirm receipt of the information, or if there are problems or questions regarding the material submitted, which will be retained in a database. For more information, access Vendor Purchases in the Business Opportunities section of the SLOC Web site at http:www.slc2002.org.!! Local convention properties report the following groups are meeting in Park City the week of Nov. 23-29, 1997. Information is provided by the Park City ChamberBureau. 4 Groups PetersonHoechel Wedding Clock & Instrument Repair Bombardier Motor Corporation RC Fire Distribution TOTAL Attendees 50 10 100 30 190 THIS IS A 239 INCREASE COMPARED TO THE SAME WEEK LAST YEAR BECAUSE OF THANKSGIVING HOLIDAY DATES. Program Rate Point Down CflM Index Bank One 30yrFix 7.375 0 5 15yrFix 7.000 0 5 1 yrARM 6.750 0 10 26 T-Bill Chase Manhattan Mortgage 30yrFix 7.500 0 5 15 yr Fix 7.250 0 5 1 yrARM 6.750 0 5 26 T-Bill Countrywide Funding 30yrFix 7.625 0 10 15yrFix 7.250 0 5 1 yrARM 6.125 0 10 26 T-Bill Crossland Mortgage 30yrFix 7.375 0 5 15yrFix 7.000 0 10 31 ARM 6.125 0 10 16 Libor t First Colony Mortgage 30yrFix 7.250 0 5 15yrFix 6.875 0 10 1 yrARM 5.375 0 10 26 T-Bill Key Bank of Utah 30yrFix 7.625 0 5 30 yr Jumbo 7.875 0 5 5 yr Balloon 7.625 0 10 North American Mortgage 30yrFix 7.625 0 5 15 yr Fix 7.375 0 5 1 yrARM 6.375 0 10 26 T-Bill Triad Financial 30yrFix 7.625 0 5 15 yr Fix 7.250 0 5 1 yrARM 6.250 0 5 26 T-Bill Washington Mutual 30yrFix 7.375 0 5 1 5 yr Fix 7.000 0 5 1 yr FHA 6.000 0 10 15 T-Bill Zions Mortgage 30yrFix 7.250 0 5 1 5 yr Fix 7.000 0 5 1 yrARM 5.875 0 10 26 T-Bill The Utah Mortgage Pulse includes up-to-date information on home loan rates charged by Salt Lake City area lenders. The information was accurate on Monday, November 17, but is subject to change without notice. Closing points: One point equals 1 percent of the loan amount. Most lenders also require private pri-vate mortgage insurance with down payments of less than 20 percent. Also, most lenders charge loan processing fees up to $300, credit and appraisal fees up to $400, origination fees of 1 along with other closing costs. Index: T-Bill Yield on 1 yr T-Bill, COFI Cost of Funds Index, 11th D 11th District Cost of Funds, LIBOR London InterBank Offered Rate. Source: Mountain Express Mortgage (801) 647-3700 bULOJlWololi 4:00 jim - frilay, Jember Zlst Orion's Music Shop MOO SnoW Creek OrtVe fork City In 'Oan's fool flazaKern b rk Avenue) Acoustic Performance f'ryff autofapkec, intertievl GO With purchase of their HollyvJool co'rcs Vehut release.." Monsoon While Supplies last) ?ldym$ tWo 'Ntyhts at Cicero s 1enkr 20th b 2ht RECORDS |