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October 15, 2007

Synergy Financial Group

George Van Dyke
Financial Consultant 2007 Year-End Tax Planning Considerations
401 Washington Ave Suite
703 For the most part, the window of opportunity at your (presumably higher) tax rate, eliminat-
Towson, MD 21204 for 2007 tax year planning closes on ing most or all of any potential tax savings.
410-825-3200 December 31. Here are a few points to For the remainder of 2007, though, the old
410-530-2500 (cell) consider as you contemplate any 2007 year- rules apply--a child who will reach age 18 by
www.synergyfinancialgrp.com end tax moves, and look forward to the 2008 year end is able to sell appreciated assets
tax year. and potentially pay tax on any resulting in-
come at the (still low) 5% rate.
New zero percent tax rate
AMT uncertainty
Currently, the maximum federal income tax
rate for most long-term capital gains and Legislation signed into law in early 2006
qualifying dividend income is 15%. Individuals brought the most recent in a long series of
in the lowest two tax brackets receive the temporary "fixes" for the alternative minimum
benefit of an even lower 5% maximum rate. tax (AMT), which continues to reach further
Beginning January 1, 2008, however (and into the ranks of middle-income families. This
continuing through 2010), the maximum rate temporary fix, in the form of increased AMT
Securities offered drops all the way to zero for individuals in the exemption amounts, expired at the end of
through Linsco Private lowest two tax brackets. 2006. If Congress doesn't act, the number of
Ledger (LPL). taxpayers subject to AMT is projected to in-
This presents an important planning opportu- crease from 4.24 million in 2006 to 23.19 mil-
Member FINRA,SIPC. nity. Make year-end gifts (up to $12,000 per lion in 2007 (Source: Joint Committee on
individual gift tax free) of appreciated assets Taxation, March 5, 2007). Some action re-
to family members currently in the lowest two garding the AMT is likely, but the form it will
tax brackets, who would then be able to sell take is uncertain, making it important to stay
the assets after January 1, 2008 without any up to date on any new developments.
resulting federal income tax. There's one big
catch, though: the new "kiddie tax" rules. Other important considerations
New "kiddie tax" rules • Unless there is additional legislative
action, 2007 is the last year that a tax-
Generally, the kiddie tax rules apply when a
payer age 70½ or older is able to make
child has unearned annual income (e.g., inter-
In this issue: charitable contributions of up to $100,000
est, investment earnings, taxable gain result-
directly from an IRA to a qualified charity.
2007 Year-End Tax Planning ing from the sale of an asset) exceeding
Considerations $1,700 (2007 figure). • 2007 is also the last year for other
The Power of Dividends in a deductions, including the option to deduct
In 2007, the kiddie tax rules apply to children
Portfolio state and local general sales tax (instead
under the age of 18. Beginning in 2008, how-
of state and local income tax) and the
Figuring Out the College ever, the kiddie tax rules apply to children who
above-the-line deduction for qualified
Payoff are under age 19, and to full-time students
higher education expenses.
Ask the Experts under age 24. (There's an exception for any
child who earns more than one-half of his or • For small businesses, legislation this year
her own support.) increased the Section 179 expensing
So, if you want to take advantage of the zero limits.
tax bracket in 2008 by transferring appreci- Talk to a professional
ated assets to a low-tax-bracket family mem-
ber, make sure the kiddie tax rules won't ap- A financial professional can explain how these
ply. Otherwise, the resulting income--at least issues, and others, might affect your 2007 tax
the portion that exceeds $1,700--will be taxed situation.
Page 2

The Power of Dividends in a Portfolio

It wasn't so long ago that many investors re- Dividends can be especially attractive if the
garded dividends as roughly the financial market is producing relatively low or mediocre
equivalent of a record turntable at a gathering returns. If a stock's price rises 8% a year,
of MP3 users--a throwback to an earlier era, even a 2.5% dividend yield can push its total
irrelevant to the real action. return into the double-digit range; in some
cases, dividends could also help turn a nega-
But fast-forward a few years, and things look a tive return positive. Also, many dividend-
little different. Since 2003, when the top fed- paying stocks represent large, established
eral income tax rate on qualified dividends companies that may have significant re-
was reduced to 15% from a maximum of sources to weather an economic downturn.
38.6%, dividends have acquired renewed
respect. Favorable tax treatment isn't the only The corporate incentive
reason, either; the ability of dividends to pro-
vide income and potentially help mitigate mar- Financial and utility companies have been
ket volatility also is attractive to investors. As traditional mainstays for investors interested in
baby boomers approach retirement and begin dividends, but other sectors of the market also
to focus on income-producing investments, are beginning to offer them. For example,
the demand for high-quality, reliable dividends investors are stepping up pressure on cash-
is likely to increase. rich technology companies to distribute some
of their profits as dividends. In June 2007, the
Why consider dividends? number of companies offering dividends was
3% higher than the year before, according to
Dividend income has represented roughly S&P, though increases in the amounts paid
one-third of the monthly total return on the have been slowing in recent years.
Standard and Poor's 500 since 1926. Accord-
ing to S&P, the portion of total return attribut- Dividends are by no means guaranteed; a
able to dividends has ranged from a high of company's board of directors can decide to
53% during the 1940s--in other words, more reduce or even eliminate them. However, a
than half that decade's return resulted from steady and increasing dividend is generally
dividends--to a low of 14% during the 1990s, regarded as one sign of a company's ongoing
when investors tended to focus on growth. health and stability. For that reason, most
corporate boards are reluctant to send nega-
Dividends and If dividends are reinvested, their impact over tive signals by cutting dividends.
interest: A bigger time becomes even more dramatic. S&P
piece of the pie Look before you leap
Average Return
In 2006, personal Investing in dividend-paying stocks isn't as
Jan. 2006-Jan. 2007
dividend income simple as just picking the highest yield. Some
represented roughly 20 dividends, such as those paid by real estate
$696.3 billion--6.3% of investment trusts (REITS) and master limited
% Increase

the $10.98 trillion in partnerships, don't qualify for the 15% maxi-
personal income in the 10 7.78 mum tax rate, and a portion may be taxed as
U.S. that year. That ordinary income. If you're investing for in-
was up from 5 come, consider whether the company's cash
approximately 5.5% in flow can sustain its dividend. Also, the 15%
0 rate is scheduled to expire at the end of 2010,
2004. Interest income
represented about 10% S&P 500 S&P 500 Non- and there is no guarantee dividends will con-
of personal income in Dividend Payers payers tinue to receive favorable tax treatment.
2006, compared to If you're interested in a dividend-focused in-
9.2% in 2004. Source: Standard and Poor's vesting style, look for terms such as "equity
Source: U.S. Dept. of income," "dividend income," or "growth and
calculates that $1 invested in the Standard income." Also, some exchange-traded funds
Commerce, Bureau of
and Poor's 500 in December 1929 would have (ETFs) track an index comprised of dividend-
Economic Analysis
grown to $57 by September 2005. However, paying stocks, or that is based on dividend
when coupled with reinvested dividends, that yield; be sure to check the prospectus for in-
same $1 investment would have resulted in formation about expenses, fees and potential
$1,353. (Bear in mind that past performance is risks, and consider them carefully before you
no guarantee of future results, and taxes were invest. A financial professional can evaluate
not factored into the calculations.) the role dividends might play in your portfolio.
Page 3

Figuring Out the College Payoff

If you have a child or grandchild approaching If your child graduates The monthly student
college age, you may be wondering if an Ivy with this much debt... loan payment will be...
League education is really worth the steep
price of admission. Will a diploma from an $10,000 $115
elite college guarantee your offspring a bright Will a diploma
$15,000 $173
and prosperous future, or just a pile of debt? from an elite
$25,000 $288 college guarantee
Dollars and cents your offspring
$50,000 $575
The cost of tuition, fees, and room and board a bright and
at Harvard University for the 2007/08 year is $75,000 $863 prosperous
$45,620. (Source: Harvard Crimson, March future, or just a
Note: Results are based on a standard 10-year
22, 2007) If your child entered the freshman repayment term and a fixed interest rate of 6.8%--
pile of debt?
class this September, that would translate into the current rate on all new federal Stafford loans.
a total cost of $196,628 for four years
(assuming a rather tame As you weigh the cost factor, keep in mind
5% annual rate of college that a high amount of debt might impact your
inflation). And this doesn't child's future major life decisions on job oppor-
include money for books, tunities, living arrangements, graduate school,
transportation, and per- getting married, and/or starting a family.
sonal expenses!
What about the intangibles?
By comparison, the cost Putting aside cost, there are benefits to an Ivy
for the 2007/08 year at the education that can't be measured in nickels
University of North Caro- and dimes--the prestige of the name on your
lina at Chapel Hill, a child's resume, strong mentoring that can lead
school widely regarded as to coveted jobs and graduate school spots
a top-notch public college, is $28,684 for out- after graduation, the opportunity to build
of-state students and $13,036 for in-state stu- friendships with future leaders, and an alumni
dents. (Source: UNC Financial Aid Office) network that can open doors throughout life.
This equals a four-year cost of $123,632 for
the out-of-state student and $56,187 for the But critics of the "Ivy-at-any-cost" group point The corner office--
in-state student (again, assuming a 5% rate of to excessive competition at the Ivies. They public vs. private
inflation). That's an out-of-pocket savings of claim that students are more likely to get indi-
$72,996 and $140,441, respectively, com- vidualized attention at other colleges, and In 2001, about 10%
pared to the cost of Harvard. note that as time goes on, achievement in the of top executives
workplace will matter more than the name on at Fortune 100
The debt factor your child's resume. Indeed, Warren Buffett, companies received
CEO of Berkshire Hathaway and graduate of their degrees from
The Ivies often note that, while their schools
the University of Nebraska-Lincoln, once Ivy League colleges
might be expensive, most students rarely pay
stated: "I don't care where someone went to (down from 14% in
the full sticker price. But even as Ivy League
school, and that never caused me to hire any- 1980) vs. 48% who
colleges dole out millions of dollars in need-
one or buy a business." What counts most, graduated from
based aid each year from their huge endow-
some CEOs say, is a person's ability to seize public colleges (up
ments, non-Ivy private schools and public
opportunities. (Source: Wall Street Journal, from 32% in 1980).
colleges distribute more merit aid, which is aid
awarded on the basis of good grades or some Any College Will Do, September 18, 2006) Source: Wharton School
special talent. Up-to-date college guidebooks of Business, University
The bottom line
can tell you how generous each college is in of Pennsylvania
helping its students meet annual costs, and To decide if an Ivy League education is worth
the breakdown of loans vs. grants. it, weigh the cost with the potential long-term
economic and life experience benefits. But
Still, you won't actually know what your child keep in mind that highly motivated students
will receive in the way of "free" grant and who are independent thinkers and hard work-
scholarship money until he or she actually ers will likely do well in life no matter where
applies to a particular college. So you won't they attend college. The important thing is to
know for sure how much you or your child make sure that the match between your child
might need to borrow. But if your child does and the college is a good one.
require student loans, here's an idea of what
he or she will owe each month:
Ask the Experts

Two-career couples--who should retire first?

You and your spouse are continuing to work would impact your
both employed and nearing Social Security benefits.
retirement age. Even if
you've accumulated enough • Insurance: Are either of you eligible for
assets to allow you both to retiree health insurance? If so, are you
retire at the same time, however, you might required to work to a certain age to get
not want to do so. The transition into retire- that important coverage?
Synergy Financial Group ment can often be difficult, and doubly so if
George Van Dyke • Plans: Does one of you have specific
you're both struggling through that phase si- plans for your retirement years? Perhaps
Financial Consultant
401 Washington Ave Suite multaneously. So, who should retire first? you'd like to concentrate on a hobby, or
703 If one spouse is earning significantly more spend time volunteering, or even learn a
Towson, MD 21204 new skill? If so, consider whether that
410-825-3200 than the other, then it usually makes sense for
that spouse to continue to work in order to person should retire first in order to pur-
410-530-2500 (cell)
gvandyke@synergyfinancialgrp.com maximize current income, ease the financial sue those goals.
transition into retirement, and perhaps even • Job satisfaction: Does one of you find
increase your retirement nest egg. working more self-fulfilling than the other?
George Van Dyke is a Financial Would one of you feel more lost without
Consultant with Synergy Financial But what if your incomes are relatively equal?
your current routine?
Group of Towson Maryland. Securities
offered through Linsco Private Ledger
Here are some other factors to consider:
(LPL) - Member FINRA, SIPC. LPL One thing is clear--you'll need to discuss this
does not provide legal or tax advice. • Pensions: If only one of you is covered by with your spouse, preferably well ahead of
The information contained in this
report should be used for informational an employer pension plan, it may make time.
purposes only. sense for that person to continue to work
Synergy's mission is to build, preserve if he or she hasn't yet maximized that
and protect the capital of our clients by pension benefit. Similarly, consider how
offering a comprehensive and
professional level of advisory and
planning services as well as providing
exceptional customer service. Our
investment objective is to provide
serious investors with a very
Are online retirement planning calculators useful?
acceptable after tax (where
applicable) total return over a long The answer is an unqualified "maybe." Online expectancy tables, it could significantly
term horizon. We recommend
investing in a diversified portfolio of retirement calculators are designed to help understate the amount of retirement as-
high quality securities spread over you determine whether or not you've saved sets you'll need.
multiple asset classes. We place
enough for retirement, and if not, how much
emphasis on creating tax efficient
portfolios and managing risk. Through you'll need to save each year in order to elimi- • Can you input your own expected rates of
modern asset allocation techniques,
nate the shortfall. return? Does the calculator take inflation
portfolios are assembled to match
each investor's individual investment into account? At what rate?
goals and risk tolerance. We believe But the output of a retirement calculator is
that strict adherence to a disciplined only as good as the data that goes in, and it's • Can you specify your anticipated ex-
approach increases the likelihood of
generating consistent returns and here that the various online calculators differ penses during retirement?
limits the risk of significant loss. greatly. Some ask you only a few simple • Are amounts you've already saved taken
questions, and base their results on a large into account?
number of assumptions. These are easy to
use, but the results can be suspect. Other, • Can you input your expected income dur-
more sophisticated, calculators require more ing retirement (for example, from a part-
effort on your part, but may (or may not) come time job, Social Security, a retirement
up with more meaningful results. plan, or an annuity contract)?
In many cases, online calculators fall short All retirement calculators, sophisticated or not,
because you can't override their built-in as- have one good trait in common--they get you
sumptions, even though they clearly don't thinking about your retirement. But in most
apply to you. Some specific items to consider: cases, the results should be considered a
Copyright 2007 Forefield Inc. ballpark estimate, and a starting point for a
All Rights Reserved. • Can you insert your own life expectancy? more detailed discussion with a seasoned
If a calculator is using standard life financial professional.