Stock Market Commentary
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.
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 Research).
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, BTN Research).
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 tona 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:
– 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 make the withdrawal.
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 IRA 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