Economic Stimulus “Rebates”

With checks arriving any day, there is much talk concerning the economic stimulus package.  Many are calling for recipients to spend the money to help the economy keep moving.  Other reports talk of the money being used to pay down debt or used to enhance savings.

While these are all good for individual family situations, they are all the same thing for the general economy.  Whether you spend the money on gasoline, a new gadget or toy, or you invest the money with your broker or in your retirement account, it is still going into the economy.  The only place I think it may be a bad idea to but the money is toword debt.  Unless the debt is high-interest (i.e. double digit) it makes more sense to invest the money for yourself.  Some may ask why.  Quite simply, you are almost always going to have debt.  And debt is not always a bad thing–if you manage it correctly.  Also if you constantly try to pay down your debt, especially the lower interest kind, you will never have a chance to save for yourself.  Let’s look at some numbers.

Imagine you are a married family of four (if this describes you it shouldn’t be too difficult) and you had more than $3000 of income last year and you paid taxes.  This means you will receive a rebate of $1800.  Sure you could buy something–a new computer, TV, gas for the summer trip–but if you saved that money, it could stack up to big money.  And depending on where you invest it, you could actually save on future taxes.  How much would this add up to?  Assuming an annual investment return of 8%, 10 year value is $3,886, 20 year value is $8,390, 30 year value is $18,113.  Pretty significant totals from just a small $1800 investment.  Just think what investing that much every year could do for you!  In case you were wondering, after 30 years it would add up to $238,335!

Would you like to double your pleasure?  Take your rebate money and invest it in a traditional IRA.  You will get a tax deduction for that contribution and the growth will be tax-deferred until you withdraw that money in retirement.  Or invest it in a Roth IRA and that growth will be tax free when you withdraw it in retirement.  Additionally, with the increase in the contribution limits for IRAs/Roth IRAs, it is possible to really develop a nice nest egg.  Don’t hesitate to ask me any questions or get in touch with your local financial advisor.

“Takings” Freedom Day

Since it is Tax Freedom Day according to The Tax Foundation (www.taxfoundation.org), I have decided to hopefully make it hit home a little harder.  In case you don’t know what Tax Freedom Day is, it is the day each year that the average US taxpayer has stopped earning their aggregate tax bill for the year and is now earning money for themselves.

What if, instead of having your taxes taken out by your emloyer, included in your escrow payment on your house, or included in the bill at the restaurant/grocery store/laundromat, you had to write separate checks to each governmental institution that these taxes were owed to?  Most business owners understand this concept, but the majority of Americans do not.  It’s virtually invisible, so it has much less effect than having to pay these “takings” out of pocket.  By the way, simple math tells us that a Tax Freedom Day of April 23rd is equivalent to 31% of our wages “taken” by various taxing authorities.  I would venture to guess that the uproar over having to actually pay out of pocket for each of these levels of government would nearly cause a revolt.  If nothing else, there would be a serious call for major auditing of budgets and possibly more importantly, a complete overhaul of tax codes and methods at every level.

Why is this important, you may ask?  It is one of my goals as a financial advisor to help make sure that my clients are taking advantage of every tax break and method of tax abatement that they are legally entitled to.  But it’s not just about saving on taxes now.  As noted in a previous post, the best financial plans incorporate long-term strategies for tax planning.  Maybe that involves a Roth IRA.  Maybe it involves cash value life insurance.  Maybe it involves maximizing the equity in your home.  Long-term planning will help develop strategies and solutions for these and a host of other issues.

Tax Freedom Day

Now that most everyone has finished with their taxes for 2007, it is time to start looking forward for the rest of 2008.  Do you want to reduce the amount of taxes that you pay?  Of course –we would all like to keep more of our hard-earned money.

Every year, The Tax Foundation calculates when the average American will have earned what their tax bill for the year.  This year it arrives on April 23rd–three days earlier than last year.  After Tax Freedom Day, what you earn is considered to be what you get to keep.

One of my goals as a financial advisor is to help people make smart decisions with their money so that Tax Freedom Day comes earlier.  It’s your money, so why not keep as much of it as you are legally entitled to?  Through maximizing participation in tax-deductible and tax-deferred vehicles, as well as helping clients work with other professionals that help with mitigating taxes, I can help people keep more of their money working for them and their family.

2 more days!

Just two more business days to make a 2007 IRA contribution!

If you are working with a Waddell & Reed financial advisor, you can make a contribution it your check is dated on or before the 15th but received and processed by the 21st.

In many cases, a full contribution to a deductible Traditional IRA–$4000.00 for under 50/$5000.00 for 50+–can help move you into a lower tax bracket.  To find out how contributing to either a Traditional IRA or Roth IRA can help your retirement outlook, fell free to contact me or any other financial advisor for professional advice.

2007 Contribution Deadline

Don’t forget everbody!  You have until your tax filing deadline–April 15th for most of us, longer with extensions–to contribute to your IRA (Traditional or Roth) for 2007.  Contribution limits are $4,000 for all IRAs combined.  There is a catch-up provision for people over 50–an extra $1,000 for a total of $5,000.

April 2008 Newsletter

Refer a friend

April 2008

It’s Not What You Earn, It’s What You Keep You work hard for your money. So why shouldn’t you try to keep as much of it for yourself as you can? Here are some ways to pay less tax and keep more of your hard-earned dollars. More Details Coping with a Slower Economy Forecasting the direction of the economy can seem easy compared with trying to figure out how to weatherproof your finances. It can help to understand some of the questions that many investors ask themselves if they’re concerned about the potential impact of slower growth. More Details Retiring Overseas: A Passport to Adventure For many people, the idea of spending retirement on a beach in Mexico or buying a daily baguette in a French village is what makes all those retirement plan contributions worthwhile. If you’re one of them, here’s a sampling of some of the issues to research before packing your bags. More Details Ask the Experts: What can we learn from the subprime mortgage mess? The collapse of the subprime mortgage market and the jitters it’s sending through the entire economy contain lessons for us all. Here are a few. More Details Ask the Experts: When’s the best time to refinance my mortgage? Any time you can refinance your mortgage to save money is a good time to contemplate doing so. Generally, there are two situations when it may be wise to consider this. More Details

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