MERRY CHRISTMAS!!!
1) Phil's Financial Tip of the Day:
Low income workers who save for retirement using a 401(k) or IRA can earn a tax credit worth up to $1,000 for individuals and $2,000 for couples in 2011 and future years.
I have no more Christmas shopping tips. If you haven't bought anything by now, you are on your own. Now it is time to start focusing on tax tips for the upcoming filing.
How to Get the Saver's Credit-From USA Today
Low income workers who save for retirement using a 401(k) or IRA can earn a tax credit worth up to $1,000 for individuals and $2,000 for couples in 2011 and future years.
The saver's credit can be claimed by workers whose modified adjusted gross incomes are up to $28,250 for singles, $42,375 for heads of households, and $56,500 for married couples in 2011. In 2012 those income limits will increase to $28,750 for singles, $43,125 for heads of households, and $57,500 for couples.
The first $2,000 workers contribute to an IRA, 401(k), or similar workplace retirement account can count towards the saver's credit. The credit can be used to increase your refund or reduce the tax you owe. This tax credit is available in addition to the tax deferral you get for making a traditional 401(k) and IRA contribution and any 401(k) match you get from your employer.
Consider a married couple who earned $30,000 in 2011 and contributed $1,000 to an IRA. They will be able to claim a $500 tax credit for their $1,000 IRA contribution.
[See 11 Retirement Benefit Changes Coming in 2012.]
Saver's credits totaling just over $1 billion were claimed on approximately 6.25 million individual income tax returns in 2009. The credit varies based on your income and tax filing status and ranges from 10 percent to 50 percent of the amount you saved up to $2,000. Most taxpayers received modest tax credits for their retirement account contributions. Saver's credits averaged $121 for single filers, $159 for heads of households, and $202 for married couples. "Though the maximum saver's credit is $1,000, $2,000 for married couples, it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers," the IRS says in a statement.
Awareness of the saver's credit is increasing, but remains low. Just 21 percent of people earning less than $50,000 say they are aware of the saver's credit, according to a Transamerica Center for Retirement Studies online survey of 4,080 workers age 18 and older at for-profit companies, but that's up from 12 percent in 2010.
The saver's credit was first added to the tax code in 2002 as a temporary provision, and was then made permanent in 2006. Income limits are now adjusted annually to keep pace with inflation. Workers under age 18, full-time students, and individuals claimed as dependents on someone else's tax return are not eligible for the credit. Rollovers and trustee-to-trustee transfers into retirement accounts don't count toward the credit. Your eligible contributions may be reduced by recent distributions you have taken from a retirement account.
Workers interested in getting the saver's credit in 2011 must make 401(k), 403(b), 457, or Thrift Savings Plan contributions by the end of the calendar year. However, retirement savers have until April 17, 2012 to add money to an IRA that will allow them to get the credit in tax year 2011.
2) In the Markets today:
Stocks rose in quiet, pre-holiday trading Friday. The S&P 500 index turned positive for the year.Traders were relieved by news that Congress extended a payroll tax holiday for workers and emergency unemployment.
Stocks close higher; S&P turns positive for 2011-From the AP
Stocks closed higher Friday after a quiet, pre-holiday session that turned the S&P 500 index positive for the year.
Traders were relieved by news that Congress extended a payroll tax holiday for workers and emergency unemployment benefits. Both programs were set to expire at the end of the year. Letting that happen would have reduced economic growth by about 1 percent, analysts said.
The final business day before Christmas also was the slowest full day of trading so far this year.
Traders exchanged just 2.22 billion shares, about half of the recent average. The market will be closed on Monday because Christmas falls on a Sunday this year.
Stocks have risen steadily since Tuesday on hopeful signs about the pace of economic growth in the fourth quarter, which ends next week. New claims for unemployment benefits fell last week to the lowest level since April 2008, long before anyone realized the nation was in a recession.
A series of mixed economic reports Friday did little to derail that optimism. The Standard & Poor's 500 index added 11.33 points, or 0.9 percent, to 1,265.33. It started the year at 1,257.64.
Stocks might surge into the new year if the S&P 500 passes a couple of key technical thresholds, said Todd Salamone, research director at Schaeffer's Investment Research.
Fund managers currently hold relatively few stocks, Salamone noted, and many of their funds have underperformed the market and are negative for the year. If the index rises farther above its break-even point for the year or its average over the past several months, fund managers might flood into the market in a last-ditch attempt to improve their annual returns, he said.
"The worst thing that can happen for a fund manager is to underperform and be in the red when your benchmark, the S&P index, is in the green" for the year, Salamone said.
The Dow Jones industrial average rose 124.35 points, or 1 percent, to 12,294. Bank of America Corp. was the Dow's biggest gainer, adding 2.4 percent. All but two of the 30 Dow stocks rose, Alcoa Inc. and Boeing Co.
The Dow has risen 527.74 points, or 4.5 percent in the past four days. It was the first four-day winning streak for the Dow since mid-September.
The Nasdaq composite index gained 19.19 points, or 0.7 percent, to 2,618.64.
Earlier Friday, the government said that consumer spending and incomes barely grew in November.
The weak gains suggest that consumers may have trouble sustaining their spending into 2012.
In another worrying sign, a measure of business investment decreased for the second straight month.
Business investment has been a pocket of strong demand and spending amid a sluggish recovery. A tax break that encouraged companies to invest in new equipment and facilities expires at the end of the year.
Yet hopes for the economy remained high after this week's encouraging news about the job market and strong holiday sales for retailers.
Among the companies making big moves:
— Rambus Inc. jumped 12.2 percent after the technology licensing company said it reached a patent license deal with Broadcom Corp. and settled a lawsuit with the chip maker.
— TripAdvisor Inc. rose 6.1 percent, the most in the S&P 500, as traders reassessed the value of the newly-spun off travel review website. The stock had fallen sharply since it officially started trading on Wednesday. It recovered some losses on Friday as analysts weighed its rapidly growing revenue and market share.
— Eastman Kodak Co. rose 9.5 percent after the struggling photography company said its general counsel, Laura Quatela, would become co-president on Jan. 1.
3) Top financial story of the day:
Consumer spending and personal incomes show weak gains; core durable goods orders fall.
Spending and incomes show weak November gains-From AP
Consumers spent at a lackluster rate in November as their incomes barely grew, suggesting that Americans may struggle to keep spending more into 2012.
Consumer spending rose just 0.1 percent in November, matching the modest October increase, the Commerce Department reported Friday. Incomes also rose 0.1 percent. That was the weakest showing since a 0.1 percent decline in August.
Both the spending and income gains fell below expectations. Economists have said that solid increases in spending could boost economic growth in the final three months of what has been a disappointing year.
Paul Ashworth, chief U.S. economist at Capital Economics, called the consumer spending figure disappointing. He said it would probably mean lower economic growth than had been expected.
Rather than grow at an annual rate of up to 3 percent in the October-December quarter, the economy will likely expand at a rate of about 2.5 percent this quarter, Ashworth says. That would still be an improvement from the 1.8 percent growth in the July-September quarter.
Separately, the government said companies' demand for long-lasting manufactured goods rose by the largest amount in four months in November, driven by a jump in orders for planes.
Orders to U.S. factories for durable goods rose 3.8 percent in November. It was the biggest gain since July. But so-called core capital goods, a proxy for business investment spending, dropped for a second straight month. They fell 1.2 percent.
The declines in business capital goods excluding aircraft raise doubts about a pocket of strength for the economy this year. Business investment spending has surged as companies stepped up orders to take advantage of tax breaks that are set to expire at year's end.
While the economy remains vulnerable to threats, particularly a recession in Europe, the job market has improved, lifting hopes for next year.
The government said this week that applications for unemployment benefits fell by 4,000 last week to 364,000. It was the third straight weekly drop. And it pushed applications to the lowest level since April 2008, in the midst of the Great Recession.
The weakness in incomes reflected a decline in wages and salaries, the biggest component of incomes, in November.
The sluggish gain in spending was held back by a 0.3 percent fall in spending on non-durable goods such as food, clothing and gasoline. Spending on durable goods jumped 0.8 percent. It reflected the solid auto sales during the month.
Spending on services, which includes such items as medical treatments and rent, rose a modest 0.1 percent.
After-tax incomes showed no growth in November. The savings rate dipped to 3.5 percent of after-tax incomes, down from 3.6 percent in October. Both months marked the lowest savings rate since late 2007. They show that consumers are having to tap their savings to finance their spending because of the weak income growth.
The small rise in overall consumer spending was puzzling given that other reports have shown solid holiday shopping this season. Those reports had caused many economists to revise up their growth forecasts for the current quarter.
Analysts at JPMorgan think the economy is growing at an annual rate of 3.5 percent in the current October-December quarter. That would be up from 1.8 percent growth in the July-September quarter and would be the best quarterly gain since the spring of 2010.
Economists still expect that growth to be driven by an improvement in consumer spending, which accounts for 70 percent of economic activity. Spending rose at a 1.7 percent rate in the third quarter, more than double the second-quarter gain. JPMorgan analysts expect consumer spending to grow at a 3 percent pace in the current quarter.
Even with the spurt of activity at the end of the year, economists think growth for all of 2011 will be a lackluster 1.7 percent.
They had much higher expectations when the year began. But then a spike in gasoline prices held back consumer spending for other items. And the earthquake in Japan disrupted supply chains for auto and electronic parts, dampening factory production in the United States.
Many analysts do not expect growth in 2012 to be significantly better than in 2011. JPMorgan economists predict the economy will expand 1.9 percent in 2012, only slightly better than this year.
4) Inspirational Quotes@Inspire_Us from Twitter
Those that know, do. Those that understand, teach. -Aristotle
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