With winter upon us, you may be looking for ways to cut your utility bills. We all know about the benefits of energy efficient appliances, insulation and programmable thermostats, but did you know that you may qualify for rebates or tax credits when making these changes? To learn about federal, state, and local government and utility incentives go to: http://www.dsireusa.org/incentives/ Click on See Federal Incentives; or to see state-specific incentives, scroll down to find your state. It’s an easy way to get more bang for your buck.
The American Recovery and Reinvestment Act of 2009 (a.k.a the stimulus package) has help for those who lost their health insurance between September 1, 2009 and December 31, 2009. Among the many provisions, those who lost their jobs and health insurance will pay only 35% for their COBRA premium for up to 9 months. Their past employer will pay the rest of the 65% and get a tax credit for reimbursement.
The class of 2009 is more likely to become Boomerang offspring than previous classes. With employers continuing to shed jobs, many recent graduates are deciding to stay in – or move back into – the parental home. The National Association of Colleges says their job prospects are considerably lower than those of the past 5 classes. Clearly this can lead to some new challenges however, remember this is a temporary situation. Most economists expect job growth to resume next year.
The Journal of Financial Planning reports that $16,771 is the 2009 average annual medical spending for an American family of four enrolled in a company-sponsored Preferred Provider Option (PPO). This includes both employee and employer costs and compares to $15,609 in 2008.
The Roth IRA has been somewhat limited in its use however, beginning in 2010 a key restriction is scheduled to be removed. There are some big advantages to a Roth IRA, along with potential drawbacks. New York Times Your Money columnist Ron Lieber discusses some of these issues in a July 17 story: http://www.nytimes.com/2009/07/18/your-money/individual-retirement-account-iras/18money.html. Our email contribution to the story ended with: “As with any financial move, many factors must be considered to determine if, when and how much of a move to make.”
The Journal of Financial Planning reports that American consumers are cutting spending in hopes of achieving their retirement goal. Consumers are focusing on paying down debt and plan to reduce the size of the estate they leave to their heirs in order to retire when they planned. Even with these changes, many will find they need to work longer than anticipated to retire comfortably. Sometimes working part time for several years is enough to bridge the gap; keeping expenses low is a key factor.
With Certificate of Deposit interest rates so low, you may wonder if there is a benefit to put any money into a CD. However, the annual inflation rate is near zero which means that a 2-3% CD purchased today has greater inflation-adjusted purchasing power than a CD earning 4% when the inflation rate is 3%. Also, keep in mind the CDs are generally insured up to a certain amount.
The massive economic stimulus bill includes a substantial tax break – $8,000 – for first-time home buyers and people who have not owned a home in the past 3 years. Other qualifications are that married couples must earn $150,000 or less and singles must earn $75,000 or less to take full advantage of the credit. This tax credit, along with very low interest rates and low housing prices will help slow the downward spiral of housing prices. The credit is refundable which means that if you owe less than $8,000, say $5,000, you will not only owe $0 taxes, you will receive a check from Uncle Sam of $3,000. However, act quickly; the home must be purchased before the end of the year. There are other stipulations, so do your research or call a professional before moving forward.
April 15th is the tax filing deadline and you may contribute to your IRA or Roth IRA up to the 15th and still have it count as your 2008 contribution. The contribution maximum for 2009 remains the same as 2008, $5,000 for those under age 50, and for people 50 and better, an extra $1,000, for a total of $6,000. While the IRA limits have remained the same, annual gift tax exclusion has increased to $13,000, up from $12,000 and the estate tax exclusion is $3,500,000, up from $2,000,000.
The new “Making Work Pay” tax credit is available for singles earning up to $75,000 and married couples earning up to $150,000. The credit gets phased out beyond these levels. You may have heard about this on the news. Making Work Pay will reduce payroll taxes and the net effect for those who qualify for the full credit will be an additional $13 per week in your paycheck starting in June. In January 2010 this credit will drop from $13 to $9 per week.
The economy is still struggling and may continue to do so while our elected officials hash out the latest stimulus plan. When the markets get some sense of understanding of the final plan and implications, and a hint of stability, a recovery should soon follow. Jobs and growth (GDP) typically lag the market recovery; ideally, the stimulus will create jobs in the short run, with the return to growth creating jobs in the longer term.
The S&P 500 index hit its most recent low on November 20th and has risen 17% in the 6 weeks that followed. Was that the low for this bear market? No one knows for sure. What we do know is that we have been in a recession for a year (the average length is 11 months) and that the stock market historically starts to recover months before the economy begins to rebound. We may experience some more bumps and bruises on the road to recovery however, there are unprecedented efforts underway to get the economic engine moving again.