Like many entrepreneurs, Flather was accustomed to the ups and downs of his business – the price of his raw materials, Kevlar and carbon fiber, had ratcheted higher in recent years because of heavy demand from the military – but the drumbeat of retirement anxiety never faded: Will there be enough? Will I – or my spouse – outlive the wealth we’ve created?

While any number of financial planners will help you figure out your future, none can guarantee that all will be fine. Here’s the good news: A number of financial products now offer significant security for retirees.

Consider annuity policies, which allow you to invest a chunk of your savings in return for regular payouts. Annuities got a famously bad rap in the 1990s because of their unfamiliar – and surprisingly steep – fees. Since then, the variety of products has grown and some of the fees are down, especially if you shop around. Moreover, today there is an annuity to suit every stripe, and many are “unbundled,” allowing consumers to customize their annuity just as they might tweak a new car purchase to add side-curtain airbags.

At the suggestion of his financial advisor, Joel Flather invested $500,000, about a quarter of his savings, in a Vision variable annuity from Allianz Life. (A number of insurance companies offer annuity products.) “It will provide me and my wife with income for life,” he says. But it also offers access to his invested dollars should he and his wife need it, plus – in exchange for a hefty annual fee – full protection from negative investment performance. “It’s terrific,” says Flather.

Even with all the bells and whistles, annuities still roll out of the factory on one of two basic chassis. Fixed annuities yield a steady stream of income for a set number of years or the rest of your life. Variable annuities can also provide regular checks, but they tie the amount of your payouts to the performance of an investment portfolio. Both types allow you to choose whether to begin receiving payouts immediately (in monthly, quarterly, or annual installments) or at a later date. And both varieties pay out partly taxable money – you are taxed only on your gains, not your original investment – at regular income-tax rates, an important fact to weigh when considering annuities for your financial plan.

Just like a new-car purchase, you then start adding options. You can buy fixed annuities and tack on inflation protection for your payouts; you can choose to add a death benefit – or not. Some policies offer an option for long-term-care insurance, which raises your payouts if you become disabled. On certain variable annuities, you can opt to have your portfolio value (and thus your payouts) reflect your performance only in neutral or good years, just as Joel Flather’s annuity will do.

All these cool features come at a price, however, so do some soul searching to figure out what’s most important to you, and follow that with energetic comparison shopping. On fixed annuities, the price comparison among different firms’ offerings is relatively simple: “It all comes down to how much money you put in and what initial payment that produces,” says Christine Fahlund, a T. Rowe Price senior financial advisor.

On variable annuities, try to determine the cost of a specific feature (it’s usually expressed as percentage points deducted from your returns), then ask yourself how badly you want it. Features that limit downside investment risk tend to cost anywhere from 1¼ to 1½ percentage points deducted from your annual portfolio returns. That’s on top of annual investment-management fees, which can vary widely.

For fixed-annuity holders, the most important extra to consider is inflation protection. That’s because even modest price increases can ravage your purchasing power over decades. For example, somebody living on $100,000 a year in 1980 would need $253,000 a year today to maintain the same lifestyle. Inflation protection in the form of annual adjustments to your income from the annuity is not cheap – it will slice about 30% off the first payout you receive – but that’s not bad considering that the insurance company takes on a big unknown (after all, you could live to be 100).

Still, if all-out inflation protection seems too pricey, think about buying a policy with an escalation clause, which stipulates that your annual payout will rise, say, 3% each year through thick and thin. This typically shaves your initial payout by 25%. Notes T. Rowe Price advisor Fahlund: “I like this feature because it’s more affordable, and it keeps you apace with inflation in all but the really bad years.”

Annuity shopping can be tricky. But with the right product, you could glide through retirement like a canoe on Mirror Lake.

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Unlike traditional IRAs, Roths allow after-tax contributions to grow and be withdrawn tax-free. Historically, many successful business owners haven’t been able to take advantage of Roths because their income was too high. Next year, as in past years, you must earn less than $116,000 as an individual or less than $169,000 as a couple to be eligible to open a Roth. Similarly, under current law, you are not eligible to convert a traditional IRA to a Roth if you earn more than $100,000 a year.

But in 2010 the salary limit for conversions expires, and the back door opens – meaning that from that year forward anyone can convert a traditional IRA to a Roth IRA, regardless of income.

“As part of my long-term plan,” Heck says, “I will probably convert a portion of my retirement savings into a Roth.”

What’s the catch? Well, because traditional IRAs hold pretax dollars and Roth IRAs hold after-tax dollars, you will have to pay taxes immediately on the money you move into the Roth.

It may seem counterintuitive to pay taxes right away when they could be deferred. Most financial planners argue that it makes more sense for younger investors to roll over into Roths and incur the income tax hit, because they have a long time horizon to enjoy the tax-free growth.

There’s another factor to consider: tax rates. Because of the growing national deficit and recent corporate bailouts, many experts believe that higher income and capital gains tax rates are inevitable next year.

Heck took his cue from Vincent Barbera of TGS Financial Advisors in Radnor, Pa.

“We advise people close to retirement age to roll over into a Roth and take the tax hit now, because your tax bracket may be much higher by the time you start taking distributions,” says Barbera. “If you convert $100,000 in 2010, you might have to pay $25,000 in taxes. But if you wait five years it might go up to $33,000 by the time you withdraw.”

The deal is further sweetened by a provision that income taxes triggered by a Roth conversion in 2010 need not be paid all at once. As a one-time benefit for the first year the law changes, the taxes can be spread over 2011 and 2012. For example, if you convert a $100,000 traditional IRA to a Roth IRA, you would normally trigger a tax bill of $35,000 (assuming a 35% tax bracket). But if you make the move in 2010, you will be able to declare $50,000 of the income in 2011 and the other $50,000 in 2012 – in effect, getting a one-time, interest-free loan from Uncle Sam.

The new Roth loopholes are an obscure fringe benefit of the Bush administration’s tax cuts. When Congress extended the cuts in 2006, the Roth rollover measure was enacted as a revenue raiser, explains Mitch Drossman, a wealth adviser for U.S. Trust in New York City.

“It is particularly attractive to high-net-worth individuals – such as small business owners who have accumulated a lot of money in their IRAs,” Drossman says. “Who else would be able to voluntarily pay the tax early in return for a carrot that just gets bigger and bigger?”

At his adviser’s suggestion, Heck has already started putting aside the additional money he will need to cover the income taxes that will be triggered by his Roth conversion.

Of course, the limits on income remain if you want to open a new Roth IRA. So here’s a strategy that some planners recommend – you will have to act fast – instead of opening a Roth directly. You can open a SEP IRA (a traditional IRA for the self-employed) in 2008. This year and next, you can fund your new SEP to the limit of 25% of income, up to a maximum of $46,000. You’ll deduct the amount you contribute from your 2008 and 2009 taxes, but set aside money to pay the tax in 2011 and 2012 – after you convert the entire amount to a Roth in 2010.

You should also do some planning to minimize your 2010 income, perhaps by taking some of it in 2009 instead. You may have to use the back door to take advantage of a Roth IRA, but in these uncertain times you should grab any advantage you can.

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Those envelopes were undeliverable because of bad addresses. That’s left taxpayers frustrated as the IRS tries to figure out how to get $266 million in tax rebate and regular tax refund checks to their rightful owners.

The good news is that it’s easy to let the IRS know where to resend your rebate or refund check.

But don’t dally. If it’s a rebate you’re waiting on, you only have until Nov. 28 to claim your cash.

Nice-sized checks

Most of the money that didn’t make it to taxpayers is from returned rebate checks. They total $163 million, with the average rebate coming to $583.

The regular refunds are fewer and account for only $103 million, but the average returned refund check is $988.

Of course, those amounts are averages. Your unclaimed check might be less, but then again, it might be more. And any amount of money would be nice, especially in these tight economic times and with the holidays approaching.

An annual problem

This year’s number of returned tax checks is more than three times the number marked undeliverable last year. That increase is thanks to the economic stimulus payments, which were sent to taxpayers who met certain income requirements.

All these rebate-eligible filers had to do was file a 2007 tax return. But in 279,000 cases, the addresses on those 1040 forms were incorrect.

In many cases, the taxpayers moved after filing their returns and didn’t let the IRS know their new addresses. In some cases, though, the addresses on the forms were illegible, so they bounced back to Uncle Sam.

The same problems showed up on another 104,000 or so returns filed by taxpayers who are due regular tax refunds.

Whatever the reason and whichever tax payment is involved, the IRS has money that could be yours.

“People across the country are missing tax refunds and stimulus checks. We want to get this money into the hands of taxpayers where it belongs,” IRS Commissioner Doug Shulman said in announcing the returned check problem. The tax chief added that as soon his staff gets the updated addresses, the checks will once again be on their way.

Nov. 28 tax rebate deadline

Getting that information to the IRS is relatively simple, especially if you use the online options provided by the IRS.

If it’s a rebate check you’re missing, head to the IRS’s “Where’s My Stimulus Payment?” online tracking tool. There you can check the status of your stimulus check and receive instructions on how to update your address. If you prefer, you can do the same by calling the IRS at (866) 234-2942.

Just make sure you go online or make the call by Nov. 28.

By law, the rebate checks must be sent out by Dec. 31, so the IRS has established the late-November address change cutoff date to ensure that it can update its records and meet the final mailing deadline.

Recovering a regular refund
If it’s a regular refund you’re awaiting, check the IRS’s popular “Where’s My Refund?” money tracker. You’ll need your Social Security number, filing status and the amount of refund shown on your 2007 return.- advertisement -

The online search option then will provide the status of your refund and, in some cases, provide instructions on how to resolve delivery problems. You’ll also be given instructions on how to update your address.

Again, you can check on your refund and update your personal information by calling the IRS, this time at (800) 829-1954.

If you can afford to wait for your refund money or are just too busy right now to be bothered with tracking down missing tax money, you can wait. Your unclaimed tax refund check will find you next filing season when you send in your 2008 return that lists your current, correct address.

Missed deadline means credit, not cash
With a rebate check, however, such procrastination could be costly. You must meet the Nov. 28 address update deadline to get your money this year.

True, if you don’t get the correct mailing information into the IRS by then, you’ll get another chance in 2008 at a stimulus payment.

But next year the stimulus payment will be in the form of a credit on your tax return, not a separate check as was sent out this year.

And changes in your income and tax situation this year could affect your stimulus amount.

For example, if you have a child that qualified on your 2007 return for the child tax credit, you were eligible for an extra $300. However, if that child in 2008 does not meet the tax credit requirements, you won’t get that added economic stimulus money on the return you file next year.

Also, keep in mind that although the stimulus payment was distributed in 2007 as a check, it actually is a tax credit. That means any amount of stimulus for which you qualify on a 2008 return will be accounted for against your tax liability.

This means, for example, if you qualify for a $600 economic stimulus amount on your 2008 return and owe $1,000 in taxes, that $600 will be used to reduce your tax bill. You will not get the $600 as a separate payment.

So if you haven’t received your stimulus check yet, contact the IRS, either via the online rebate tracking tool or by phone, as soon as possible. And definitely do so by the Nov. 28 deadline. That’s the only way you’ll get your rebate money this year.

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