Happy Holidays to our Friends and Family!

It is hard to believe how quickly this year has come and gone, how our history has been rewritten, and how many crises the American people have faced — and have yet to face — in the coming year. Changes will be coming fast and furiously, including a new administration, new tax laws, housing prices, job cuts; our everyday lives will be different. I am sure you have heard the expression “Cash is king.” We have said it before, and during these types of unforeseen market conditions, it proves our point again and again. The companies we select to include and hold in portfolios are strong cash generators. They have larger cash balances on the balance sheet than many of their competitors. In a tight banking environment, this is a large benefit. These companies can maintain running their business. They can also take advantage of market opportunities for purchases of assets (buildings, small companies, etc.) while many other competitors cannot even be in the game.

We want to touch on some tax hints that are also coming down the pike. The $700 billion bailout bill passed by the U.S. House of Representatives extends a provision allowing the tax-free rollover of IRA accounts for charitable purposes through 2009. There is also help for college bills. The new law extends the tuition and fees deduction through the end of 2009. This is a great way to write off college costs if you earn too much to qualify for the Hope and Lifetime Learning credits. Also, there is AMT (Alternative Minimum Tax) relief. There is a notable “patch” which will basically help people who were threatened to be pushed into AMT — land by inflation to avoid that now.

If you make less than $100,000 a year, consider converting your traditional IRA to a Roth IRA. The stock market fluctuations have likely hit your retirement accounts, but paying less tax on these savings in the long run (via a Roth IRA) will help resuscitate your nest egg. You will have to pay a one-time conversion tax on your federal tax return, but you aren’t dinged the 10% early withdrawal penalty. And contributions and earnings can be withdrawn tax-free after age 59½ (for accounts that are at least 5 years old), making it a great long-term savings vehicle. Please ask us about this if you are in this income category this year. For others above $100,000 in income, in 2010 there is a one-year income exemption for converting to a Roth IRA. We will be discussing this with clients at the appropriate time.

As a reminder: the required minimum distribution deadline for processing is December 12th to ensure requests are processed in good order. Distributions cannot be backdated to reflect a previous tax year. Also, conversions from IRAs to Roth IRAs must be made before December 31st for that tax year. If you have any questions on anything we have discussed in this cover letter, please feel free to call us. We are here to assist you in any way we can.

Sincerely,

Katz Family Financial