Monterey Wealth

1. Monterey Wealth Strategies for 2013 Jay Cohen, MPA, CPA, CFP® Mark Koppelmann, MBA, CFP® Securities offered through LPL Financial, Member FINRA/SIPC. This information is not intended to be a substitute to individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

2. 2013 OUTLOOK • Our outlook depends on whether we get a long-term solution (10-15%), a compromise (55-65%), or we go over the cliff (25-30%) • A compromise is the most likely scenario

3. 2013 OUTLOOK Source: LPL Research 11/26/12. Based on our assessment of market conditions, fundamental, technical, and valuation analysis and the backdrop of the situation in Washington, D.C. There is no assurance that the techniques, outcomes, or strategies discussed are suitable for all investors or will yield positive outcomes. The purchase of certain securities may be required to effect some of the strategies. Investing involves risk including possible loss of principal.

4. CALENDAR Q113 Source: LPL Financial Research 11/26/12 *Medicare physician reimbursement

5. IMPACT OF FISCAL ISSUES Source: LPL Financial Research 10/22/12 *This is the peak-to-trough pullback associated with the fiscal drag. The Standard & Poor’s 500 Index is an unmanaged index, which cannot be invested into directly. Past performance is no guarantee of future results.

6. 2013 OUTLOOK Positive Forces Negative Forces Increasing taxes Increasing regulations Higher employment costs with Patient Affordability Act Environment conducive to rapid inflation • Accommodative Fed • Low mortgage rates provide a “put” in the housing market • Housing likely bottomed • Oldest fleet of autos in U.S. (11+ years) = pent-up demand • Employment trending in right direction

7. 2013 OUTLOOK Wildcards Predictions Strengthening economy Interest rates higher at end of 2013 Inflation begins to accelerate Congress finds a compromise • Favorable corporate tax policy • Compromise in Washington • Consumer confidence • Business confidence • Europe stabilizes • China accelerates

8. STRATEGIES • Taxes • Life insurance • Roth 401k • IRA conversion to Roth • Year-end tax loss harvesting • Interest Rates • Life insurance • Re-finance mortgages • Wealth Accumulation/Protection • Hedges against inflation

9. LIFE INSURANCE • Difference between life insurance company and bond mutual fund • Life Insurance Company • Accepts current premiums and invests for long-term liabilities • Conservative investments • Holds bonds to maturity • Expenses are slightly higher but less than 2.5% • Returns are income tax free • Mutual Fund Company • Mark-to-market every day • Portfolio never matures • Operating expenses plus money management fees > 1.40% • Returns in non-retirement accounts are taxed

10. LIFE INSURANCE • Concept • Overfund life insurance policy • Advantages • Excess funds don’t acquire additional death benefit • Earn fixed income-like returns • Asset protection • No daily mark-to-marketmitigates interest rate risk • Can avoid ordinary income tax, dividend tax, capital gains tax, and new ObamaCare tax • Requirements • Must have time on your side • Have to go through underwriting

11. ROTH IRA/401K • You should evaluate whether it makes sense to pay tax now on IRA and convert to a Roth IRA • Strategy for Roth 401k • Pay tax now and put money into Roth 401k • When retire, roll money into Roth IRA • Invest in high quality, dividend portfolio • Use dividend income to fund retirement • Assuming you are in 25% tax bracket, you will increase your dividend income by 33% on a pre-tax basis • Example: • Save $17,500/year for 20 years = $350,000; grows to $700k (Est.) • Estimated yield = 2.5%; Estimate income = $17,500/year • Pre-tax equivalent = $23,333/year

12. INTEREST RATES/MORTGAGES • Interest rates will go up • Mortgage rates are 2.875% for 15 year fixed and 3.50% for 30 year fixed with broker paying closing costs • Value of interest deduction could decline if it gets capped • Inflation erodes value of debt • Lock in low rates while you can • Rising interest rates are very bad for value of fixed income • As a lender, avoid long-term obligations • As a borrower, embrace long-term obligations

13. INVESTMENT PORTFOLIOS • Consider municipal bond investments, growth oriented equities, or separately managed accounts • Hold certain investments in specific types of accounts to maximize current and future after-tax returns • Bonds and REIT should be located in tax-deferred accounts • Growth oriented equities or buy and hold positions should be located in taxable accounts • Review current portfolios for any tax loss selling opportunities This information is not intended to be a substitute to individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. Investing in Real Estate Investment Trusts (REIT) involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.

14. RETIREMENT PLANS • Complete a review of any existing qualified plans • Money purchase plans are obsolete • Profit Sharing and SEP IRA plans may not be as beneficial as a New Comparability Plan • Defined Benefit plans for owner-only businesses • Review non-qualified deferred compensation options • Advantages: • Allows employees to defer current income • Earnings accumulate tax-deferred • Distributions at retirement can potentially be taxed at lower rates

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