Investment advisory services offered through Fusion Capital Management, an SEC Registered Investment Advisor

Dan Dubyk
Life Insurance & Life Settlement Broker
Investment Advisor Representative with
Fusion Capital Management

American Brokerage Services, Inc.
803 E. Willow Grove Ave.
Wyndmoor, PA 19038
Phone: 888-227-3131 x 206
Fax: 267-420-1015

Volume 19, Issue 11

What You Need to Know About Financial Fraud

Many of us grew up in a world where it was customary to be friendly, courteous, and trusting. Unfortunately, assumptions concerning these standards of conduct can sometimes get us into trouble.
Con artists offering a variety of too-good-to-be-true investment "deals" are banking on the willingness of trusting individuals. Unfortunately, many people experience financial difficulties, thus making them more vulnerable to financial fraud.

With the multitude of contact options, ranging from the phone to the Internet, scammers have virtually an unlimited number of opportunities to obtain another individual's personal information. Common scams include e-mail chain letters that promise a pyramid of payoffs that always fall apart once the victim has bought into the system. Another is one in which a foreign prince, doctor, or chief e-mails the victim and claims to need assistance transferring his riches to an American bank account. The victim may be promised as much as 30% of the transferred millions and is asked to pay the perpetrator a fee to prove his or her honesty.

Fake charities are another common scam. Kind-hearted donors may be swindled into paying large sums to a cause that benefits only the con artist. Phone calls and postal mail can be used to offer individuals the chance to "win" the lottery or claim a sweepstakes prize. In the end, these supposed winnings only end up causing financial loss and heartache. Topping off all of these scams are fraudulent investment opportunities wherein the victim may be promised fantastic returns on capital from "lucrative" oil and gas leases, rare coins and metals, etc.

Too often, these scams go unreported because of the shame victims experience once they realize they have been had. And that's just what scammers are banking on. The FINRA Investor Education Foundation teamed up with WISE Senior Services and the AARP to study economic fraud. In a report entitled, "Off the Hook Again: Understanding Why the Elderly Are Victimized by Economic Fraud Crimes," several discoveries were made that can be applicable to people of all ages. One focus of the report was the psychological tactics typically used by cons to increase their success rates and decrease their chances of being reported. Victims may be led to believe that their only option is the one being presented in the scam, or the scammer may befriend the victim knowing that people are less inclined to ask friends hard-hitting questions. Another ploy is a request for help from the scammer, which taps into the victim's sympathy. Or the scammer may claim famous investors are also buying into the property, or the product is in such high demand and so rare that the victim is lucky to have even heard about it in the first place.

Con artists may also use their assumed authority to coerce victims into letting the con make the decision
for them; offer no-risk, guaranteed results; intimidate the victim by playing on his or her fears; or procure more and more payments by telling victims they are committed to the investment and must continue to invest in order to not lose the sums they have already paid.

On paper, these tactics might sound entirely transparent; in reality, they are often extremely effective. Anyone can become a victim, regardless of age. The FINRA study also revealed that fraud techniques may be tailored to the psychology of the individual. Financial education alone may not be enough to put an end to fraud, since one of the study's major findings indicated that fraud victims are more financially educated than non-victims and more willing to listen to sales pitches. In addition, victims are more likely to have experienced negative life events, such as job loss, divorce, or the death of a spouse.

Anyone approached with a "must-act-now" deal is advised to walk away and do some research. Be skeptical, question why the offer is being made to you, and contact the Better Business Bureau to learn more. Don't waste time listening to cold-call sales pitches, and make sure to get second opinions from friends and family before taking action on any "hot" deal. In the end, follow the old adage: If it sounds too good to be true, it probably is. To learn more, visit

Retirement Plan Rollover Options
for Non-Spouse Beneficiaries

If you participate in an employer-sponsored qualified retirement plan, such as a defined benefit plan,
401(k) plan, employee stock ownership plan (ESOP), 403(b) plan, or 457(b) plan, you may have chosen
a beneficiary to receive your account balance in the event of your death. If you are married, the law requires that your spouse be named the primary beneficiary of your account, unless he or she waives that right in writing. However, if you are unmarried, or your spouse has waived his or her right, you may wish to name a parent, sibling, child, domestic partner, other relative, friend, or trust as the beneficiary. As of 2010, non-spouse beneficiaries of inherited retirement plan accounts are permitted to roll over these assets into Individual Retirement Accounts (IRAs) on a tax-free basis. woman

The provision allowing rollovers by non-spouse beneficiaries was included in the Pension Protection Act of 2006 (PPA '06) and initially went into effect on January 1, 2007. Prior to this time, only the spouse of the deceased account owner was permitted to defer taxation on the account by rolling over the funds to an inherited IRA, while any non-spouse beneficiary was required to take a lump sum distribution from the account. Non-spouse beneficiaries were thereby obligated to pay taxes on the full amount received and to declare the income on their personal tax return, potentially creating a challenging tax situation. Starting in 2007, non-spouse beneficiaries were allowed to make the same tax-free rollovers as spouses.

However, under the PPA, tax-qualified employer-sponsored retirement plans were not required to offer direct rollovers to non-spouse beneficiaries. Consequently, many non-spouse beneficiaries did not have access to these tax-free rollovers, unless the plan sponsors had voluntarily chosen to provide the option.

Congress closed this gap in the Worker, Retiree and Employer Recovery Act of 2008 (WRERA), through a provision mandating employer-sponsored retirement plans to offer the rollover option to non-spouse beneficiaries in plan years beginning after December 31, 2009. The WRERA provision also stipulates that beneficiaries who do not opt for a direct rollover, and instead choose to take distributions in the form of a cash lump sum, will be subject to mandatory 20% income tax withholding rules. As a result of IRS Notice 2008-30, non-spouse beneficiaries may also choose to roll over retirement account funds into an inherited Roth IRA subject to taxation.

Under the rules, non-spouse beneficiaries are permitted to directly roll over funds inherited from employer-sponsored retirement plans into inherited IRAs. According to the IRS, retirement plan distributions to a non-spouse beneficiary are subject to many of the same rules that apply to other eligible rollover distributions. Retirement plan sponsors must offer a non-spouse beneficiary the option
of making a direct rollover, or a trustee-to-trustee transfer, of eligible rollover distributions to an inherited
IRA. This means the transfer is made from the retirement plan to the IRA, and not to the beneficiary.

Other restrictions apply. The rollover must be made to a new IRA, not one already owned by the non-spouse beneficiary, and the new IRA must bear the name of the deceased, not the beneficiary. The rollover must be completed by December 31 of the year following the account holder's death. In addition, beneficiaries are not permitted to make additional contributions to the inherited IRA. The beneficiary must have the same basis in the inherited IRA as the deceased account owner, and the beneficiary may not combine the basis in the inherited IRA with the basis in his or her own IRAs.

After the rollover has occurred, the beneficiary must begin receiving distributions under the beneficiary distribution rules. The beneficiary will not owe taxes on the inherited IRA assets until he or she starts to receive distributions.

These rule changes, which provide important options to non-spouse beneficiaries of employer-sponsored qualified retirement plan accounts, apply to all retirement plans as of 2010. For more information about your employer-sponsored retirement plan, consult the benefit plan administrator at your company.

Term Conversion: Changing Times, Changing Need

Although term insurance premiums are relatively low when a policy owner is younger, premiums can substantially increase with age. In some cases, the premiums may remain level, but typically either the death benefit decreases yearly or a significant premium increase occurs. Over time, you may want to consider converting your term policy to a permanent one. Here are some benefits of conversion to permanent life insurance:

  • Provided that premiums are paid on time, benefits will never decrease. Also, premiums will never increase and cannot be canceled due to any health changes.
  • Permanent policies have the potential to accumulate cash value over time, which can be withdrawn from the policy. Withdrawals may be subject to surrender charges, however, and could have a permanent effect on the cash value and death benefit. Loans reduce the cash value and death benefit by the amount of the loan outstanding plus interest.
  • Some permanent policies offer non-guaranteed dividend payouts when the insuring company's earnings exceed original projections.
  • Guaranteed purchase options allow the insured to purchase additional amounts of coverage without a medical exam.
  • If the policy owner decides to cancel the policy, he or she is guaranteed to receive the amount of cash value that accumulated during the life of the policy, minus any fees and surrender charges that apply to canceling the policy.

Converting your term insurance to a permanent insurance policy may allow you to continue coverage at an affordable cost, while your premiums build tax-deferred cash value for your financial future. Be sure to consult a qualified insurance professional to determine the appropriate coverage for your unique circumstances.

Why a Home May Still Be Your Best Investment

While everyone's situation is different, buying a home that you plan to live in for many years may still be one of the best investments you can make. An uncertain market should not necessarily deter prospective buyers, but rather prompt them to develop a more realistic perspective on homeownership.

Instead of viewing real estate primarily as an investment vehicle for the short term, potential buyers can recognize homeownership for what it really represents: a long-term financial commitment that can provide a secure, comfortable place to live for many years. home

Buying a home can provide a sense of stability because you are no longer subject to the uncertainty of the rental market. Paying a mortgage each month can be likened to a forced savings account. As the mortgage principal shrinks, you accumulate more equity in the home, and eventually, you will own the asset outright.

When you buy and live in a home, you can reap the benefits of what is known as "net imputed rent." Basically, the money you would have paid on rent contributes to the equity you accumulate over time, after maintenance and taxes. The U.S. Department of Commerce calculates this at approximately 6% per year, which is better than any savings account or CD available today.

Finally, homeowners have the opportunity to minimize their tax liability by taking a tax deduction for any mortgage interest paid for their primary residence.

Although there is no guarantee that your home will increase in value or even hold its value in the short term, it can provide a place for you and your family to live that you can continue to afford and to enjoy for many years to come.

Even in an unpredictable economy, the current real estate market can provide opportunities for those with good credit and the funds for a down payment. With relatively reasonable real estate prices and good mortgage rates, this may well be one of the best times to buy a home.

Experts project that the demand for housing may increase in the years ahead. Although new home con-
struction has slowed, the U.S. Census Bureau projects that the number of American households increases each year by 1 to 1.5 million. Eventually, demand may realign with the supply of new houses.

No one knows what's in store for today's real estate market. However, it does present opportunities for those with a long-term plan to buy a home that will provide a stable lifestyle for years to come.

The information contained in this newsletter is not written or intended as tax, legal, or financial advice and may not be relied on for purposes of avoiding any Federal tax penalties. Entities or persons distributing this information are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.

The information contained in this newsletter is for general use and it is not intended to cover all aspects of a particular matter. While we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. Therefore, information should be relied upon only when coordinated with professional tax and financial advice. The publisher is not engaged in rendering legal, accounting, or financial advice. Neither the information presented nor any opinion expressed constitutes a representation by us or a solicitation of the purchase or sale of any securities. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA, COPYRIGHT 2013.