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2006 J.J.B. Hilliard, W.L. Lyons, Inc., NYSE and SIPC | Not FDIC insured. No bank guarantee. May lose value.
Becoming a parent is an exercise in self-sacrifice. No doubt about it. Hilliard Lyons can ease the way with a college savings plan designed around your budget.
Call a Hilliard Lyons Financial Consultant today to discuss ways to keep the boss happy.
Meet the boss.
Carl Reisen | Senior Vice President | Complex Manager 105 E. 4th Street, Suite 700 | Cincinnati, OH 45202 | 513.421.1750
Money. It gets our attention.This is true for schoolchildren too.
How do we develop childrens intrinsic interest in capital and its uses?
At the Kentucky Council on Economic Education ,* we recommend using the Stock Market Game. The game is sponsored statewide by Hilliard Lyons. This powerful curricular tool helps students make a real world connection between mathematics and economics.
Free instruction in using the Stock Market Game is available at www.econ.org. The market simula-tion offers students the opportunity to gain first-hand knowledge of the stock market and pertinent investment strategies. In 2004, 233 Kentucky teachers, 1,770 teams and 8,347 students, participated.*The KCEE promotes economic literacy in the classroom. For more information, call KCEE tollfree at 1-800-I DO ECON.
6976_KCEE_Poster.indd 1 10/31/2005 10:43:21 AM
Planning ahead.The task is righteous.
Investment Insight for Every Generation Since 1854 sm
85 East 8th St. | Suite 350 Holland, MI 49423 6163949199 | 18002857116
2007 J.J.B. Hilliard, W.L. Lyons, Inc. NYSE and SIPC. Not FDIC Insured. No Bank Guarantee. May Lose Value.
8167_Christian program.indd 1 8/23/2007 10:39:33 AM
Life is a marathon not a sprint. Pace yourself with Hilliard Lyons.
Not FDIC Insured. No Bank Guarantee. May Lose Value. | J.J.B. Hilliard, W.L. Lyons, Inc., member NYSE & SIPC.
In the investment game, slow and steady wins the race. Call today for an investment schedule that goes the distance.
Dan Foutch | Senior Vice President | Financial ConsultantSam Dickinson | Vice President | Financial ConsultantBryan Baysinger | Financial Consultant102 E. Wayne St. | Glasgow, Ky.(270) 651-2663 | (800) 714-2663
TIME IS MONEY.
Not FDIC Insured. No Bank Guarantee. May Lose Value. | J.J.B. Hilliard, W.L. Lyons, Inc. | Member NYSE & SIPC
DAVID E. OLDHAMSenior Vice President Financial Consultant
ROBYN PEPPERRegistered Client Service Associate
JANICE HAZELClient Service
121 N. Hart St. | Princeton, IN 47670 8123853323 | 8008405966
Turn one into the other with guidance from The Oldham Group of Hilliard Lyons.
Investment Insight for Every Generation Since 1854 sm
Call us to review your strategy before Dec. 31, 2007. You may need to take action before Jan. 1, 2008 to
respond to new legislation.
Chartered Wealth Advisor WEALTH WATCH
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Volume III | Number IV
Take Action Before Year-End Regarding Kiddie Tax ChangesAs parents and grandparents, we are attuned to news that directly impacts our children and grandchildren. One such radical development unfolded over the last couple of years in the heart of our government in Washington, D.C.
In the good old days, (prior to 2006), the so-called Kiddie Tax applied only to the unearned income of individuals under the age of 14 that exceeded an annually adjusted threshold amount ($1,700 in 2007). The Kiddie Tax, when applicable, causes unearned income, including investment income and capital gains from the sale of investments, to be taxed to a child at his or her parents highest marginal income tax rate. In those good old days, a child under age 14 whose unearned income might otherwise be taxed at a 10 percent ordinary income tax rate could be taxed at a 35 percent rate if his or her parents occupied the 35 percent marginal income tax bracket.
BEHOLD THE FACTS
In May 2006, federal lawmakers drastically expanded the reach of the law. Congress passed legislation that increased the age of individuals subject to the Kiddie Tax to everyone under 18 years of age. It also made the law retroactive to the beginning of 2006.
In an era of general income tax cuts, this significant tax increase came as a jolt to many parents and grandparents who have been financially secure enough to:
Establish accounts or trusts for the benefit of their children and grandchildren.
Transfer assets for their benefit that generate unearned income.
The bad news for parents and grandparents didnt end with the 2006 legislation.1 In early 2007, federal lawmakers passed another law relevant to the topic.2 Once again, Congress hiked the age of children subject to the Kiddie Tax. This most recent law goes into effect beginning Jan. 1, 2008 and makes the Kiddie Tax applicable to:
All children under the age of 19.
Children between 19 and under the age of 24 who are full-time students and who do not provide for more than one-half of their own support.
Chartered Wealth Advisor WEALTH WATCHIf you have children or grandchildren who might be subject to the expanded reach of Kiddie Tax, contact us at Hilliard Lyons immediately so we can set up an appointment to review your children or grandchildrens investment portfolio. Some decisions need to be made by Dec. 31, 2007. For example, some individuals under the age of 24 with investment portfolios may benefit from liquidating some of their appreciated investments before the end of 2007.3
No individuals 18 years of age and older are subject to the Kiddie Tax in 2007, however some of them will be subject to it in 2008. Be aware that a child does not have to be a dependent to be subject to the Kiddie Tax.
Example: Mary is a 19-year-old full-time college student. Marys parents occupy the 35 percent federal income tax bracket. Mary has long-term appreciated stock worth $30,000 with a $10,000 cost basis4 in her investment account. If Mary has no other income and sold the securities in 2007, she would be subject to a capital gains tax at a rate of 5 percent on the $20,000 worth of gain and therefore have a tax liability of $1,000 as a result of the sale. If instead, Mary sells the same securities in 2008, she would be subject to the Kiddie Tax and the rate of taxation on long-term capital gains would be 15 percent rather than 5 percent (her parents top marginal rate on long-term capital gain). This would result in a total tax of $3,000 on the $20,000 of gain. In this situation, waiting until 2008 would cost Mary an additional $2,000.
WHAT TO DO?
Call us to review your strategy before Dec. 31, 2007. You may need to take action before Jan. 1, 2008 to respond to new legislation. At this appointment, we can revisit all current investment strategies for your children and grandchildren and pursue greater tax efficiency for their appreciable assets.
Possible solutions include:
Close down UGMA5 and UTMA accounts in favor of more tax efficient investments. For example, we recommend placing savings for college-bound children in 529 plans.6 Why? Because withdrawals from 529 plans are tax free and may avoid the Kiddie Tax issue altogether.
Spend down the childs income-producing assets now to help reduce the taxable income they produce after 2007. If you dont presently need the money for college expenses, consider reinvesting the funds in a tax-advantaged account.
We at Hilliard Lyons are eager to meet with you and collaborate with your legal and/or tax advisors to review opportunities related to these new laws.
1The Tax Increase Prevention and Reconciliation Act (TIPRA) of May 2006.
2Small Business and Work Opportunity Tax Act of May 2007. Sometimes referred to as the U.S. Troop Readiness, Veterans Care, Katrina Recovery and Iraq Accountability Appropriations Act of 2007.
3Works only if childs tax bracket is known.
4Cost basis is a tax term that means the original price paid for a security. When does it become significant? When you sell.
5UGMA/UTMA stands for Uniform Gift to Minors Act or the Uniform Transfers to Minors Act. Be aware that UGMA/UTMA custodial assets transferred to a 529 account come under the childs control at 18 or 21.
6State tax laws and treatment will vary. Earnings on non-qualified distributions will be subject to income tax and a 10 percent federal penalty tax. College savings plans offered by each state government vary widely in features and benefits. The optimal plan for each investor depends on his or her individual investment objectives and circumstances. If your state government, or your designated beneficiarys state, offers a 529 plan you may want to consider what, if any, potential state income tax or other benefits it offers, before investing. Talk to your tax advisor. Investors should carefully consider the investment objectives, risks, charges and expenses of the 529 plan and underlying funds before investing. This and other information may be found in the plans Offering Statement. To obtain an offering statement or prospectus, contact your Financial Consultant. Read the prospectus and offering statement carefully before investing. Not FDIC Insured. No Bank Guarantee.
Hilliard Lyons does not offer tax or legal advice. Please consult your tax advisor or attorney before making any decision that may affect your tax or legal situation.