For the week of May 26, 2008
Despite their struggle last week against record oil prices that have raised gas to over $4 in some areas,
the markets remain above their mid-March lows. The Dow is up 6.3 percent from March 10, when it
closed at 11,740.15. With oil pressuring other prices, including food and air travel, economists remain
uncertain about the direction of possible action by the Federal Reserve at its next meeting in late June.
Markets were closed Monday in observance of Memorial Day.
Source: Morningstar.com. * Past performance is no guarantee of future results. Indexes are unmanaged and
cannot be invested into directly. Three and five-year returns are annualized. The S&P, excluding “1 Week”
returns, is a reflection of return to an investor, by reinvesting dividends after the deduction of withholding tax.
Might Be A Little High – More than one in four Americans (27 percent) believe they will be able to
withdraw at least 10 percent per year from their accumulated assets throughout their retirement years
(Source: Investment News, USA Today, BTN Research).
Not Your Call – Fifty-one percent of retirees left the work force sooner than they expected, oftentimes
the result of health issues, disabilities or corporate downsizing. Only 7 percent of those individuals who
retired earlier than they anticipated did so for positive reasons, e.g., their retirement accumulation was
larger than expected (Source: EBRI, BTN Research).
Just From The Dividends – Thirty-two percent of the S&P 500’s total return over the past 50 years
(1958-2007) is the result of reinvested dividends. The S&P 500 is an unmanaged index of 500 widely
held stocks that is generally considered representative of the U.S. stock market (Source: BTN
Not Even Half – Medicare does not cover 55 percent of the health care expenditures of an average
American retiree (Source: Kaiser Family Foundation, Investment News, BTN Research).
One Up, One Down – For the first seven months of fiscal year 2008 (10/01/07 to 4/30/08), the payment
of income taxes by individuals is up 6 percent (over the same seven-month period from a year earlier)
while the payment of income taxes by corporations is down 15 percent (Source: Treasury Department,
What Was Your Number? – The average American has retirement assets (e.g., 401(k), IRA) that grew
by 6.7 percent in calendar year 2007, including the addition of any elective deferrals, the growth (or loss)
of the assets in the account, and a subtraction for any withdrawals taken (Source: ICI, BTN Research).
WEEKLY FOCUS - Oops! Wrong Account!
Tax payers who had their refunds directly deposited into
a tax-advantaged account, such as an IRA, health savings
account (HSA), Coverdell education savings account or
Section 529 plan got (or will get) an unexpected extra
contribution – their economic stimulus payment. To get
stimulus payments out as quickly and economically as
possible, the IRS decided to send those payments
electronically where possible, using the same account
tax payers selected to receive their refunds.
Normally, contributions to tax-advantaged accounts are
subject to rules that restrict withdrawals or subject them to
a penalty. In Announcement 2008-44, the IRS indicated it
will allow stimulus funds to be withdrawn from
tax-advantaged accounts without adverse tax consequences under the following rules:
make the withdrawal.
- The withdrawal may be equal to or less than the amount of the deposited stimulus payment.
- Tax payers have until the due date for filing a 2008 federal income tax return, plus extensions, to
Withdrawals that meet these two criteria will be treated as a non-taxable event – neither a contribution
nor a distribution – and will not be subject to federal income tax or any additional tax or penalty,
according to Forefield Inc. According to the IRS announcement, taxpayers who choose to withdraw their
Economic Stimulus Payments will receive instructions in their Form 1040 package that will allow them to
report the distribution on their individual income tax return in a manner that shows that the amount
withdrawn is not subject to taxes or penalties.
If left in a tax-advantaged account, the economic stimulus funds will be considered a contribution. Tax
payers who have established regular automatic deposits into a tax-advantaged account like an IRA may
need to adjust those payments for the rest of the year to ensure they do not exceed the contribution limit.
Individuals should check with their tax preparer to ensure taking the admirable action of saving the
stimulus payment rather than spending it doesn’t create a headache at tax time.
You can still save and invest your stimulus payment, even if you remove it from a tax-advantaged account.
Contact our office for help in determining where your stimulus payment can do the most good.
* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of
the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded
blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter
common stocks traded on the National Association of Securities Dealers Automated Quotation System. The
Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely
recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies
representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all
dividends. WMCSAI# 278340
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