Weekly Economic Update

December 26, 2011

PAYROLL TAX HOLIDAY EXTENDED FOR 2 MONTHS
Friday, President Obama signed an extension of the payroll tax cut lasting through February 29. The stopgap legislation also extends long-term unemployment benefits through that date and postpones a 27% reduction in Medicare payments to doctors. The federal government will pay for the extenders by having Fannie Mae and Freddie Mac hike guarantee fees on new mortgages, a cost that will be passed on to those buying or refinancing a home in 2012.¹

                                                                                                 

GAINS IN HARD GOODS ORDERS, CONSUMER SPENDING

November’s consumer spending increase was tiny: 0.1%. Wages advanced just 0.1% as well. However, last month also saw a 3.8% rise in durable goods orders (the best month for that indicator since July).^2,3

IMPROVED HOME SALES, HOUSING STARTS
The Census Bureau reported a 1.6% increase in new home purchases in November, with the new home inventory at its smallest since March 2006. Housing starts hit a 19-month peak in November, soaring 9.3% on the month. Existing home sales also improved notably in November, rising 4.0%; according to the National Association of Realtors, that was the best month since January.³

CONSUMERS FEELING MERRIER
December’s final Thomson Reuters/University of Michigan consumer sentiment survey came in at 69.9 compared with November’s final 64.1 mark. That also beat the 68.0 estimate forecast by economists Reuters had surveyed.⁴

A YEAR-END RALLY GETS ROLLING

Stocks showed definite momentum last week. The 5-day performances: DJIA, +3.60% to 12,294.00: NASDAQ, +2.48% to 2,618.64; S&P 500, +3.74% to 1,265.33. At the close on Friday, oil settled at $99.68 on the NYMEX, gold closed at $1,606.00 on the COMEX, retail gasoline prices had fallen 2.15% in the past 30 days and natural gas futures were at lows unseen in four years.^2,5

THIS WEEK: No major economic releases are on tap for Monday, Wednesday or Friday. Tuesday, the October edition of the S&P/Case-Shiller home price index arrives plus the Conference Board’s newest consumer confidence poll. Thursday, the National Association of Realtors issues its November report on pending home sales and we get the latest initial claims figures.

% CHANGE	Y-T-D	1-YR CHG	5-YR AVG	10-YR AVG
DJIA	+6.19	+6.23	-0.0008	+2.25
NASDAQ	-1.29	-1.76	+1.81	+3.47
S&P 500	+0.61	+0.68	-2.06	+1.05
REAL YIELD	12/23 RATE	1 YR AGO	5 YRS AGO	10 YRS AGO
10 YR TIPS	-0.04%	1.08%	2.35%	3.50%

Sources: money.msn.com, bigcharts.com, treasury.gov, treasurydirect.gov - 12/23/11^2,6,7,8

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

WHAT BENEFICIARIES NEED TO KNOW

What do you do when an account owner passes away?

If your loved ones have invested, saved or insured themselves to any degree, you may be named as a beneficiary to one or more of their accounts, policies or assets in the event of their deaths. While we all hope “that day” never comes, we do need to know what to do financially if and when it does.

Legally, just who is a “beneficiary”? IRAs, annuities, life insurance policies and qualified retirement plans such as 401(k)s and 403(b)s are set up so that the accounts, policies or assets are payable or transferrable on the death of the owner to a beneficiary, usually an individual named on a contractual document that is filled out when the account or policy is first created.

In addition to the primary beneficiary, the account or policy owner is asked to name a contingent (secondary) beneficiary. The contingent beneficiary will receive the asset if the primary beneficiary is deceased.

Some retirement accounts and policies may have multiple beneficiaries. Charities, schools and nonprofits are also occasionally named as beneficiaries. If you have individually listed one (or more) of your kids or grandkids as designated beneficiaries of your 401(k) or IRA, that designation should override a charitable bequest you have stated in a trust or will.¹

A will is NOT a beneficiary form. When it comes to 401(k)s and IRAs, beneficiary designations are commonly considered first and wills second. If you willed your IRA assets to your son in 2008 but named the man who is now your ex-husband as the beneficiary of your IRA back in 1996, those IRA assets are set up to transfer to your ex-husband in the event of your death. Sometimes beneficiary forms are revised; often they are never revised.¹

If a retirement account owner passes away, what steps need to be taken? First, the beneficiary form must be found, either with the IRA or retirement plan custodian (the financial firm overseeing the account) or within the financial records of the person deceased. Beyond that, the financial institution holding the IRA or retirement plan assets should also ask you to supply:

• A certified copy of the account owner's death certificate
• A notarized affidavit of domicile (a document certifying his or her place of residence at the time of death)

If the named beneficiary is a minor, a birth certificate for that person will be requested. If the beneficiary is a trust, the custodian will want to see a W-9 form and a copy of the trust agreement.^2,3,4

If you are named as the primary beneficiary, you usually have four options regardless of what kind of retirement savings account you have inherited:

1)    Open an inherited IRA and transfer or roll over the funds into it.

2)    Roll over or transfer the assets to your own, existing IRA.

3)    Withdraw the assets as a lump sum (liquidate the account, get a check).

4)    Disclaim as much as 100% of the assets, thereby permitting some or all of them to be inherited by a contingent beneficiary

However, these options may be influenced or limited by four factors:

1)    The kind of retirement plan you have inherited.

2)    Whether the named beneficiary is a spouse, non-spouse, trust or estate.

3)    The age at which the account owner passed away.

4)    The resulting tax consequences.

Before you make ANY choice, you should welcome the input of a tax advisor.^3,5

What if you are a spousal beneficiary? If that is the case, you may elect to:

• Roll over or transfer assets from a traditional IRA, Roth IRA, SEP-IRA or SIMPLE IRA into your own traditional or Roth IRA, or an inherited traditional or Roth IRA
• Withdraw the assets as a lump sum
• Roll over or transfer qualified retirement plan assets from a 401(k), 403(b), etc. into your own retirement account, or take them as a lump sum
• Disclaim up to 100% of the assets within 9 months of the original account owner’s death^3,5,8

                     

What if you are a non-spousal beneficiary? If this is so, you may elect to:

• Roll over or transfer assets from a traditional IRA, Roth IRA, SEP-IRA, SIMPLE IRA or qualified retirement plan into an Inherited IRA
• Withdraw the assets as a lump sum
• Disclaim up to 100% of the assets within 9 months of the original account owner’s death
• Leave the assets in the plan (sometimes permissible with qualified retirement plans) ^3,5

What if a trust, estate or charity is named as the beneficiary? If that is the circumstance, there are three choices:

• Transfer assets from a traditional IRA, Roth IRA, SEP-IRA, SIMPLE IRA or qualified retirement plan into an Inherited IRA
• Withdraw the assets as a lump sum
• Disclaim up to 100% of the assets within 9 months of the original account owner’s death^3,5

The next calendar year will be very important. Inheritors of retirement accounts have until September 30 of the year following the original account owner’s death to review and remove beneficiaries, and until December 31 of that year to divide the IRA assets among multiple beneficiaries. Usually, December 31 of the year after the original retirement plan owner’s passing is the deadline for the first RMD (Required Minimum Distribution) from an inherited traditional or Roth IRA.⁶

Now, how about U.S. Savings Bonds? If you are named as the primary beneficiary of a U.S. Treasury Bond, you have three options:

• Redeem it at a financial institution (you will need your personal I.D. for this).
• Get the security reissued in your name or the names of multiple beneficiaries. You do this via Treasury Department Form 4000, which you must sign before a certifying officer at a bank (not a notary). Then you send that signed form and a certified copy of the death certificate to a Savings Bond Processing Site.
• Do nothing at all, as the primary beneficiary automatically becomes the bond owner when the original bond owner passes away.⁷

What about savings & checking accounts? Bank accounts are often payable-on-death (POD) assets or “Totten trusts.” All a beneficiary needs to claim the assets is his or her personal identification and a certified copy of the death certificate of the original account holder. There is no need for probate. (Some states limit charities and non-profits from being POD beneficiaries of bank accounts.)⁷

How about real estate? Lastly, it is worth noting that about a dozen states use transfer-on-death (TOD) deeds for real property. If you live in such a state, you have to go to the county recorder or registrar, usually with a certified copy of the death certificate and a notarized affidavit which informs the recorder or registrar that ownership of the property has changed. If the deed names multiple beneficiaries and some are dead, the surviving beneficiaries must present the recorder or registrar with certified copies of the death certificates of the deceased beneficiaries.⁷

Citations.

1 - www.cbsnews.com/8301-505146_162-37941197/ira-beneficiary-forms-may-be-more-important-than-your-will/ [6/10/09]             

2 www.ehow.com/info_12081482_ira-beneficiary-require-death-certificate.html [9/20/11]

3 - www.schwab.com/cms/P-1625576.3/CS13416-02_MKT13598-10_FINAL_118091.pdf?cmsid=P-1625576&cv0 [12/10]

4 - personal.fidelity.com/accounts/pdf/InheritedNonRetirementIntro.pdf [12/16/11]

5 - www.fidelity.com/ira/inherited-ira [12/16/11]

6 - www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/12/14/investopedia6585.DTL [12/14/11]               

7 - www.nolo.com/legal-encyclopedia/claim-payable-on-death-assets-32436.html [12/16/11]

8 - http://www.montoyaregistry.com/Financial-Market.aspx?financial-market=who-should-inherit-your-ira-andor-401k&category=22 [12/16/11]

Weekly Economic Update

December 19, 2011

JOBLESS CLAIMS FALL TO 3½-YEAR LOW
Last Thursday, the Labor Department announced that 366,000 Americans filed initial jobless claims in the week ending December 10, the lowest weekly figure since March 2008. This was a drop of 19,000 from the preceding week and refuted the expectations of some economists. This may be a sign that the jobless rate, currently at 8.6%, could be poised to fall further.¹

                                                                                                 

HAS INFLATION PEAKED?
The federal government’s Consumer Price Index was flat in November after a 0.1% retreat in October. While core inflation rose 0.2% last month, the Federal Reserve now expects 1.7% inflation across 2012 compared to a projected 2.8% for 2011. Producer prices were up 0.3% in November; core PPI advanced 0.1%. The year-over-year rise in wholesale prices was 5.7%, the smallest 12-month gain since March.^2,3

RETAIL SALES RISE 0.2% in NOVEMBER
While many economists hoped for a bigger advance, the November increase marked the sixth straight monthly gain for the indicator. Lower gas prices may have left consumers with greater discretionary funds: on Friday, AAA said a gallon of regular unleaded averaged $3.25 nationally, 18.4% below a peak hit in early May.^2,4

GOLD & OIL TAKE A HIT
Gold lost a whopping 6.93% last week; oil fell 5.49%. Gold settled at $1,597.90 on the COMEX and oil closed Friday’s NYMEX trading day at $93.87.²

STOCKS PULL BACK Citing “the absence of a credible financial backstop” in the EU debt crisis, Fitch Ratings downgraded France Friday and placed the credit ratings of Spain and Italy on review. It was a wan note to end a rough week, as these numbers point out: DJIA, -2.61% to 11,866.39; S&P 500, -2.83% t0 1,219.66; NASDAQ, -3.46% to 2,555.33.^2,5,6

THIS WEEK: No major U.S. economic releases are scheduled for Monday. On Tuesday, we learn about November housing starts and earnings reports arrive from Nike, Oracle, ConAgra and General Mills. Wednesday brings the NAR report on November existing home sales plus earnings out of CarMax, Bed Bath & Beyond and Walgreen’s. Thursday we get the final December consumer sentiment survey from the University of Michigan, the Conference Board’s LEI for November, initial claims numbers and the final 3Q GDP estimate from Washington. Friday brings three big reports: November new home sales, durable goods orders and consumer spending.

% CHANGE	Y-T-D	1-YR CHG	5-YR AVG	10-YR AVG
DJIA	+2.50	+3.19	-0.93	+2.00
NASDAQ	-3.68	-3.11	+0.80	+2.86
S&P 500	-3.02	-1.87	-2.91	+0.75
REAL YIELD	12/16 RATE	1 YR AGO	5 YRS AGO	10 YRS AGO
10 YR TIPS	-0.05%	1.15%	2.29%	3.50%

Sources: money.msn.com, bigcharts.com, treasury.gov, treasurydirect.gov - 12/16/11^2,7,8,9

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

Weekly Economic Update

December 5, 2011

JOBLESS RATE FALLS TO 8.6%
In November, U.S. unemployment hit its lowest level since March 2009. November’s net job gain was 120,000. While the Bureau of Labor Statistics report showed that the majority of the new hires were made by retailers and temp agencies, this is still a sign of recovery. The underemployment rate fell to 15.6% from the prior 16.2%.¹

                                                                                                 

SOME (MOSTLY) POSITIVE HOUSING NEWS Pending home sales soared 10.4% in October, the National Association of Realtors reported. New home sales also were up 1.3% in that month according to the Census Bureau. The September edition of the S&P/Case-Shiller Home Price Index showed price gains in 14 of 20 metro markets; the index gained 0.1% in the third quarter, but was down 3.9% from a year ago.²

MANUFACTURING SECTOR EXPANDS
The Institute for Supply Management’s manufacturing index showed sector growth in November. It came in at 52.7; economists polled by Briefing.com had forecast it would read 51.0.³

                                 

OIL TOPS $100 AGAIN, GOLD ADVANCES
Crude prices ended the week at $100.96 on the NYMEX, going up 4.33% in five days. Gold futures had their best week in more than a month (+3.64%) and settled at $1747.00 Friday.⁴

S&P 500 GAINS 7.4% IN 5 DAYSThe index had its best week since March 2009, going +7.39% to settle at 1,244.28 Friday. A coordinated central bank move to make cheaper dollar loans available to EU lenders set off a massive Dow rally Wednesday, a big factor behind great weeks for the DJIA (+7.01 to 12,019.42) and NASDAQ (+7.59% to 2,626.93).^5,6

THIS WEEK: All eyes will be on Europe late next week, as there will be an EU summit and we could see notable developments regarding EU member fiscal policies and the future of the euro. Stateside, Monday brings the latest ISM report on the service sector, a look at October factory orders and earnings from Dollar General. Tuesday, Toll Brothers comes out with 3Q results. No major economic releases are slated for Wednesday. Thursday, the Bank of England and European Central Bank conclude policy meetings and Costco announces 3Q results. Friday, we have the conclusion of the EU summit meeting and the initial December consumer sentiment survey from the University of Michigan.

% CHANGE	Y-T-D	1-YR CHG	5-YR AVG	10-YR AVG
DJIA	+3.82	+5.78	-0.29	+2.31
NASDAQ	-0.98	+1.84	+1.77	+3.79
S&P 500	-1.06	+1.86	-2.18	+1.01
REAL YIELD	12/2 RATE	1 YR AGO	5 YRS AGO	10 YRS AGO
10 YR TIPS	0.00%	0.84%	2.10%	3.50%

Sources: cnbc.com, bigcharts.com, treasury.gov, treasurydirect.gov - 12/2/11^5,7,8,9

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.