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END OF THE AMERICAN DREAM?
These past couple of years we've been lamenting the death of the
American Dream. We were referring to homeownership in the wake of the
Yet that's only an offshoot of the dream that has symbolized America
throughout history. I'm talking about the dream that brought our
ancestors to this soil in search of a better life for their children.
I'm talking about the ability to achieve success through hard work
And this dream, too, may soon be shattered.
My grandparents left the Italian island of Sicily in the 1920s. They
lived in a region considered backwoods by our standards. My
grandfather used the skills he gained working the farm to open a
butcher shop in Cleveland, Ohio where they settled.
He earned enough to buy a home and provide for his family. He was
not considered wealthy by any stretch of the imagination.
But he never would have had the opportunity to become a business
owner in his native land, nor own a home aside from a working farm.
That was all he really needed to feel successful. He lived the true
Contrary to popular belief, most millionaires were not born into
wealthy families. Only an estimated 20 percent inherited their
That leaves 80 percent who worked hard to earn their own cash, saved
wisely and lived within their means to gain their status. Half are
self-employed or business owners.
Most face the same money worries that keep the rest of us up at
night. Can they continue to pay their mortgage? Can they fund their
children's college education? Will they able to retire securely?
After the bottom dropped out of the markets in 2008, their life
savings took a drastic hit.
You can't always tell a millionaire by looks alone. Many favor their
old, trusty car over a high-end luxury model. Many dress the part of
their locale rather than the image portrayed in an executive board
I now live in a tourist area where the wealthy come to escape the
trappings of their status, or just drop in to do a little big game
fishing now and then. I'm always surprised to learn the eccentric-
appearing man at the next table with his buttons fastened askew is
among the richest folks in the county.
I'm equally surprised when these same folks are the subject of every
tax increase suggested by Congress.
It's simply not true to assume the rich dodge paying taxes through
calculated misuse of loopholes. The top one percent of our country's
earners pay 40 percent of all income tax collected. And with upcoming
changes to our tax law, that percentage will soon increase.
Here's a look at the new tax brackets proposed by Congress:
|| Married Filing Jointly
||2010 Tax Bracket
||2011 Tax Bracket
|$0 - $8,375
||$0 - $16,750
|$8,375 - $34,000
||$16,750 - $68,000
|$34,000 - $82,400
||$68,000 - $137,300
|$82,400 - $171,850
||$137,300 - $209,250
|$171,850 - $373,650
||$209,250 - $373,650
Those in the higher income brackets will see an exponentially more
significant increase in taxes, some up to six digits. The numbers
will skew even further once the new healthcare legislation comes to
This is not politically based. President Obama himself earned nearly
$5 million in 2009. Under this current proposal, he will pay over
$200,000 more in taxes next year than he did last. To be clear, that
number does not reflect the amount of taxes due. It's merely the
projected increase over the prior year.
Those earners at the very top of the scale will not be too impacted
overall. Yet some of those currently striving to reach their ranks
may become disillusioned.
Some will continue to work hard and gladly pay their own fair share,
and be happy to pitch in for those less fortunate.
But they aren't quite so willing to bail out those who mismanaged
funds or made poor leadership decisions. They resent carrying along
those that merely work the system for a free ride.
Many who could have made a valuable contribution to our society may
deem it no longer worth their effort. That's a very real risk, no
matter which side of the budget debate fence we sit on. And that's
sad. It could well signal the end of our nation's claim as the Land
SAVING FOR COLLEGE? THINK ABOUT A 529 PLAN!
If you have children today, one of the major expenses you need to
plan and save for is college tuition. Tuition prices have only gone
up… and up. And in this day and age, it is never too early to start
saving for your child's future. In the past few years, there has been
a lot of talk about 529 Plans; however, many people only have a vague
idea of what exactly they are or how they work. This article is
designed to clear up some of the mystery and give you some basic
What is a 529 Plan?
A 529 Plan is either a college savings plan or a prepaid tuition
plan sponsored by a state, state agency, or educational institution.
The name is derived from section 529 of the Internal Revenue Code
that gives one of these entities the authority to offer such plans.
These plans allow anyone, at any income level, to put aside money tax-
free for a child, or even for themselves, to help pay for college.
Basic 529 Plan Features
There are two types of 529 Plans. They are College Savings Plans
and Prepaid Tuition Plans. States, state agencies, and colleges offer
different types of these two plans. It helps to have an idea of where
the student may want attend (or at least in what state) before
exploring available plans in that area.
- Earnings grow tax-free.
- Withdrawals are tax-free if used for qualified education
expenses. Qualified expenses will vary by plan.
- The account owner is the person who opens the account and
contributes money. The beneficiary is the person for whom the funds
will be used.
- The account owner maintains control over the funds for the
life of the account.
- Assets from one plan can be transferred tax-free to a
different plan with a different beneficiary as long as the new
beneficiary is a family member of the original beneficiary.
- If you withdraw funds from the plan and use them for anything
not considered qualified educational expenses, you will have to pay
- Depending on the plan selected, there are federal tax
benefits and possibly state tax benefits for contributions.
- Plans are subject to the vagaries of the market.
COLLEGE SAVINGS PLANS
A college savings plan allows students to set aside funds for
college tuition and expenses. The funds grow tax-free and withdrawals
are tax-free if used for qualified education expenses.
PREPAID TUITION PLANS
- Qualified educational expenses usually include: tuition,
mandatory fees, room and board, books, computers, and equipment.
- Plans are open to adults and children.
- You can enroll in a plan year-round.
- There is no residency requirement, so you can purchase a plan
from a state where you are not a resident.
- Many plans have contribution limits in excess of $200,000.
A prepaid tuition plan allows parents to lock-in tuition at today's
prices at eligible public and private colleges and universities and
to set aside funds to pay for the tuition. As with a college savings
plan, the funds grow tax-free and withdrawals are tax-free when used
for qualified education expenses.
529 Plans are not federally regulated, so plans can vary widely.
Each plan will have different rules, investment choices, pricing, and
fees. It is important to shop around for the plan that best meets
- Qualified education expenses usually only include tuition and
mandatory fees. Some plans may offer an option to include room and
board or other expenses.
- Many plans are backed or guaranteed by the state.
- Most plans have age or grade limit requirements for
enrollment and have a limited enrollment period.
- Most plans have a residency requirement (either the account
owner or beneficiary must have residency in the state where the
account is held).
- Contribution limits are based on the locked-in tuition rate,
fees, and the number of years of attendance (two year school or four
There are heavy penalties for withdrawing money for non-educational
expenses. Penalties can be as high as 10% to the federal government
and state, in addition to federal taxes.
Most plans offer account owners a selection of different types of
funds from which to choose to invest their money. Types can include
money market fund, bond fund, blue chip stock fund, etc. Although you
can select the type of fund you want, you cannot select the
individual stocks that make up the fund.
This is just a brief overview of 529 Plans. For more information,
check out the web sites of the College Savings Plans
Network or the Investors section of the Financial Industry Regulatory
Authority. Information is also available on the Federal Citizen Information Center's
web site or call 1-888-878-3256. For specific federal or state
tax benefits, consult your tax advisor.
Mixed economics news continues. Consumer spending increased 0.4
percent in July, exceeding expectations. Income rose by 0.2 percent
in July, less than projected, but an increase. The savings rate,
however, dropped. The continued increase in consumer spending is a
positive sign for the economy. However, disposable incomes dropped
for the first time since the beginning of the year when adjusted for
Housing prices reported by Fiserv Case-Shiller shows continued gains
for home prices in June but at a slower pace. The composite-10 index
rose 1.0 percent in June compared to 1.3 percent in May. The
seasonality in home prices during the spring/summer months improves
sales. So, adjusted data show a much smaller increase of 0.3 percent
in June and 0.5 May and April. The year-on-year rate in June also
slowed to 5.0 percent for both the unadjusted and adjusted index
compared to increases of 5.4 percent unadjusted in May and 5.5
percent when adjusted. Despite the continued gains, the slowed growth
in home prices, along with recent increase in houses for sale and
decreasing home sales isn't a positive sign for the housing market.
The up and down indicators don't make the stock market very
comfortable, causing those watching to proceed with caution.
Today’s Market Rates
Tuesday, August 31, 2010
Dow Jones Industrial Average
(Down 413.33 or 3.96% since 12/31/09)
(Down 65.77 or 5.90% since 12/31/09)
(Down 155.12 or 6.84% since 12/31/09)
|10 Year Treasury Bond Yield
Tip of the Week
Previously, under a 529 Plan, taxpayers with children were
encouraged to invest after-tax money into an account that increased
with tax free withdrawals assuming the money was being used to
contribute towards educational plans. However, in 2011, 529 Plan
withdrawals will not be tax free when paying for the cost of
computers or internet access. Coverdell ESA Plan will see changes as
well. This plan is similar to the 529 Plan but is directed towards
elementary and secondary educational costs. In 2011, the maximum
contribution limit per year on this plan will drop dramatically from
$2,000 to $500 unless Congress moves quickly.
"Open your arms to change, but don't let go of your values." -
Today in History
1994 - The Irish Republican Army (IRA) announces a "complete
cessation of military operations," opening the way to a political
settlement in Ireland for the first time in a quarter of a century.
The number of U.S. households with a net worth of $1 million or
more, excluding their primary residence, grew 16 percent in 2009 to a
total of 7.8 million American millionaires.
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