The Seven Habits

One of my old advertising bosses materialized a few weeks ago. He's living in Orlando and got a little uppity after the Magic won A game in the NBA championships against my Lakers. He emailed to see how I was doing and to strike up a little competitive banter. Perhaps a wager or two was placed on the series.

Besides being thankful for his generous donation to the Coe college fund, I was reminded of a piece of paper that he gave me when I first started working for him in Atlanta. It's titled "The Seven Habits" and is a summary of the seven habits of highly effective people, a book written by Stephen Covey. I still have that same piece of paper, yellowed and ripped, taped to my desk today.

Here are the 7 habits:

1) Be pro-active. You are responsible for your life. Decide what you should do and get on with it.
2) Begin with the end in mind. Think of how you want to be remembered at your funeral. Use this as a basis for your everyday behavior.
3) Put first things first. Devote more time to what's important but not necessarily urgent.
4) Think win-win. Have an abundance mentality. Seek solutions that benefit all parties.
5) Seek first to understand, then to be understood. Don't dive into a conversation. Listen until you truly understand the other person.
6) Synergize. Find ways to cooperate with everyone. Value the differences between people.
7. Sharpen the saw. Continually exercise and renew four elements of your self: physical, mental, emotional-social and spiritual.

Thanks Jack for sharing these habits with me and for all of the other lessons I learned from you. To everyone else, go back and re-read these 7 tips again. I hope they have an impact on both your professional and personal life.

The Next 18 Months Could Make Your Retirement

For those with serious plans to retire self-sufficiently, retire early or, dare I say, both, a very unique investment strategy is possible in the next 18 months. There are two provisions in the IRS tax code that if implemented strategically will allow you to drastically improve your retirement outlook. But you need to take action before December 31, 2010.

The Gulf Opportunity Zone Act of 2005, or "Go Zone" is a provision in the tax code created to encourage private investment into the regions devastated by Hurricanes Katrina, Rita and Wilma. The most useful section of the code allows for a single, one-time write-off of 50% of the depreciable basis of the property. For example, if you purchase a property in the Go Zone area of Mississippi for $150,000 and the depreciable portion is $120,000, you could receive a tax deduction of $60,000 in the year the property is put into service. Obtaining this deduction is part one of the strategy.

Part two involves the Tax Increase Prevention and Reconciliation Act (TIRPA) passed on May 17, 2006. TIRPA allows for an individual to convert a traditional IRA to a Roth IRA in 2010 regardless of your income level. For those who have always wondered, traditional IRA contributions are not taxed in the year the contribution is made but are taxed when the funds are withdrawn during retirement. Roth IRA contributions are taxed in the year they're contributed, but can be withdrawn 100% tax-free during retirement. Roths are a very powerful way to save for retirement when you factor compounded annual growth rates into the size of your retirement portfolio. But Roths are limited to those households that make less than $160K per year, preventing most wealthy Americans from utilizing them.

The TIPRA exemption presents a big opportunity...here's how. When you convert your traditional IRA to a Roth, the total amount converted is considered a taxable distribution, taxed at your current rate. But the 10% early withdrawal penalty is waived. So if a $200K IRA was converted and you're in the 30% tax bracket, you would have $60K to pay in taxes. That's not cheap, but consider the long-term tax advantages.

That same $200K invested for 15 years earning 10% annually would be worth $835K in 2025. Assuming your tax bracket in 2025 is 20%, you would pay $167K in taxes upon withdrawal. By paying the $60K in taxes now, you can earn $107K in tax savings to use or invest when you retire! Of course, if you have a larger IRA to convert, longer to invest or if you achieve a higher annual return, the tax savings will be even more dramatic.

So here's the strategy in its simplest form. You purchase a Go Zone property in the next 18 months to not only obtain a cash-flowing investment property in one of the fastest growing real estate markets in the country, but you also receive a huge tax deduction. Then next year you convert your traditional IRA to a Roth. You can then use the Go Zone tax deduction to OFFSET the additional taxes from the Roth conversion and avoid "paying" any taxes!

So, using the numbers from the examples above, you purchase a $150K Go Zone property and receive the $60K tax deduction. You then convert your $200K traditional IRA to a Roth triggering the $60K tax bill. You offset the $60K bill with your $60K deduction. You're left with a cash flowing investment property AND a $200K Roth IRA that will continue to appreciate tax free until you retire. I challenge anyone to find a better opportunity.

Of course there are a lot of stipulations in the tax code that require very precise implementation of this strategy. Your financial planner, CPA, or real estate agent may not be versed with the nuances of each program, but Freedom Growth and our partners are. We know how to implement this investment strategy allowing you to take full advantage of this once-in-YOUR-lifetime gift from the IRS!.

Don't let this opportunity pass you by. Contact us to learn more about this strategy and to see how it makes sense for your retirement and long term financial health.