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STIFEL NICOLAUS |
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Investment StrategistTM
Making the Most of Your Economic
Stimulus Rebate
May 2008
On February 7, in an
effort to jump-start the economy and help boost consumer spending,
Congress passed the Economic Stimulus Act, which will provide tax
rebates to more than 130 million Americans. To receive a payment,
taxpayers must have a valid Social Security number, at least $3,000 of
income, and file a 2007 federal tax return. Economic stimulus payments
will be issued according to the last two digits of the main filer�s
Social Security number. People who use direct deposit also will be
among the first to receive the payments, starting May 2. Paper checks
will be put in the mail starting May 16. The amount of rebate you can
expect to receive depends on your filing status, income, and
dependents.
For individuals
filing single or head of household
| Income for 2007 |
Amount of Rebate |
 |
| Less than $3,000 |
$0 |
| $3,000 or more without a tax
liability |
$300 |
| $3,000 or more with a tax
liability |
Up to $600 |
| If you have qualifying children |
$300 per child |
| The
amount of the rebate is phased out for taxpayers with an adjusted
gross income between $75,000 and $87,000. |
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For married
taxpayers filing jointly |
| Income for
2007 |
Amount of
Rebate |
| Less than $3,000 |
$0 |
| $3,000 or more
without a tax liability |
$600 |
| $3,000 or more
with a tax liability |
Up to $1,200 |
|
If you have qualifying children |
$300 per child |
The amount of the rebate is phased out for taxpayers with an adjusted
gross income between $150,000 and $174,000.
Eliminate Debt
Before making the decision to spend your return on something new,
you may want to reflect upon any debt you may have from purchases
already made. In the past few years, as interest rates have been at
historical lows, many Americans took advantage of attractive rates
on home equity loans, lines of credit, and credit cards in order to
purchase products for their home, new cars, and other items. Now may
be a smart time to eliminate debt, especially debt with variable
rates.
Establish Emergency Funds
Have you ever considered what would happen if
you were out of work for a brief period of time? What if you or a
dependent experienced an illness or injury that caused you to incur
unexpected expenses? Many financial professionals will
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Making the Most of Your Economic
Stimulus Rebate
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agree that establishing an emergency fund that is equivalent to three
to six months of income can be a smart idea. While your stimulus check
won�t give you six months worth of income, it can be a good start to
your �emergency� savings.
Preparing for Retirement
Putting money away for retirement is probably the most
important investment you can make. If you are already taking
advantage of your employer�s retirement plan (such as a 401K,
403(b), etc.) � or your employer doesn�t offer a plan � perhaps you
should consider opening an Individual Retirement Account (IRA). For
2008, you can contribute as much as $5,000 to an IRA. And
individuals age 50 or older can make a �catch up� contribution of an
extra $1,000.
By investing in an IRA,
your contributions not only accumulate throughout the years, but
compound, as interest is earned on interest, and so on. This is why
starting a retirement fund early is best. With an IRA, your earnings
aren�t taxed along the way, since the earnings grow on a
tax-deferred basis. In a traditional IRA, income taxes will be due
upon withdrawal. In a Roth IRA, however, withdrawals will be
tax-free under certain conditions. Your tax advisor and Financial
Advisor can help you determine which IRA is best for your personal
situation.
Saving for College
With the cost of college
tuition and related expenses continuing to rise, parents and
grandparents are realizing the importance of saving early. A 529
College Savings Plan, for example, can help make securing your
child�s (or grandchild�s) college financial needs a reality.
Named after Section 529
of the Internal Revenue Code, 529 Plans allow investors to save
money on a tax-deferred basis that, when used to pay for qualified
higher education expenses, is free from federal income tax
(non-qualified withdrawals from either plan are taxable as ordinary
income and may also be subject to a 10% penalty). They are similar
in many regards to retirement plans such as 401Ks and IRAs, but do
have some subtle differences. These plans are state-administered,
and all 50 states now offer their own 529 plan. Many states even
offer additional incentives such as state tax deductions for
in-state investors. For more information on how 529 investments may
impact your particular tax situation, please consult your tax
professional.
Individuals of all
income levels can open a 529 Plan, which makes it easy for
grandparents, or other relatives, to contribute to the beneficiary�s
education. 529 Plans also feature high maximum contribution limits,
which vary from state to state.
A 529 offers a
relatively simple way to save for college expenses. Plan assets are
professionally managed by either an outside investment company hired
to be the program manager or by the state treasurer�s office. Most
states offer the option of making automatic investments in which
your contribution is deducted from your bank account on a recurring
basis.
529 College Savings
Plans can provide significant benefits in the area of estate
planning. The plan allows you to contribute a lump sum of up to five
times the annual gift exclusion ($12,000) in a single year, with no
gift tax due on the transfer. This amount (up to $60,000 or $120,000
for married couples) may be contributed to as many 529 College
Savings Plans as you desire, provided there is a separate
beneficiary for each account and no other gifts are made to that
beneficiary, either directly or through a 529 College Savings Plan,
for five years. Contributions are considered a completed gift and
are removed from the donor�s estate, provided the donor lives beyond
the number of years for which the gifts were pre-funded.
Investors should
consider carefully the investment objectives, risks, and charges and
expenses associated with a 529 College Savings Plans before
investing or sending money. The official program offering statement,
which includes information on municipal fund securities, is
available from your Financial Advisor and should be read carefully
before investing.
The value of a 529
College Savings account may fluctuate, and there is no guarantee
that any investment portfolio will achieve the stated goal. Your
investment may be worth more or less than its original value.
Making Smart Financial Choices
Paying off debt, establishing a rainy day fund, or saving for your
retirement or the college education of a loved one are just a few of
the choices available when considering how to spend your rebate
payment. You may want to discuss these options, as well as other
investment or savings opportunities, with your Financial Advisor. By
investing a small amount today, you may be able to enjoy rewards in
the future.
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Are Recent Fed Rate Cuts Impacting Your Investment
Income? |
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If you rely
on certificates of deposit (CDs) to provide you with income, you may
be suffering from a bit of �sticker shock� lately, as a result of
recent declines in interest rates. If you locked your money in a CD
before the Fed cut interest rates, you�re likely faring better than
individuals whose CDs are maturing now, and who are faced with a
decision about reinvesting their funds. And, to make matters worse, in
order to determine the real rate of return on your CDs, it�s also
important to figure in the rising cost of living due to inflation and
the impact of taxes. The chart below illustrates the historic real
returns on CDs, factoring in inflation and taxes. The CD income shown
below is calculated using the six month annualized average monthly CD
rate reported by the Federal Reserve. The tax rate used in the example
is the highest rate as listed in the Advisory Commission on
Intergovernmental Relationships/Significant Features of Fiscal
Federalism. The tax rate is not indicative of the experience of every
investor, and a lower tax rate will have a favorable effect on the
real return. Of course, past performance cannot guarantee comparable
future results.
Sources: AIM
Management Group Inc.; Morningstar, Inc.; Lipper Inc.; Internal
Revenue Service. This information does not constitute tax advice.
Please consult your tax advisor regarding your particular situation.
Inflation rates are based on the Consumer Price Index (CPI), a measure
of change in consumer prices as determined by the U.S. Bureau of Labor
Statistics. An investment cannot be made directly in an index.
For those
who wish to keep their funds invested in CDs, Stifel has
access to rates from banks across the country and can streamline your
search for competitive rates. If you are looking for ways to
potentially increase the income from your investments, your Stifel Financial Advisor can assist you on that front as well,
providing you with information on various income-producing
alternatives to CDs. However, CDs are insured by the Federal Deposit
Insurance Corporation and may provide fixed yields, whereas
alternative investments� principal and yield will fluctuate with
changes in market conditions and may not be insured. In order to help
ensure that your money is in the fixed income investment that�s best
for your particular needs, talk to your Financial Advisor today.
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Account Disclosures |
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Stifel,
Nicolaus & Company, Incorporated � Member
SIPC and New York Stock Exchange � One Financial Plaza, 501 North
Broadway, St. Louis, Missouri 63102 � www.stifel.com
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