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TIAA-CREF Offers Tips for Investors on Making the Most of Federal Stimulus Plan Tax Rebates


Many individual investors and families will receive one-time tax rebates under an economic stimulus plan approved by Congress and signed into law today by President Bush. TIAA-CREF, the financial services organization and leading provider of financial services in the academic, medical and cultural fields, offers the following tips for investors looking to use the tax rebates to help achieve future financial goals.

The $168 billion stimulus plan would offer tax rebates of at least $600 to many individuals and $1,200 to couples filing jointly, with families with children receiving an additional $300 per child.1

The rebates can be directed to investments that can potentially provide dividends in the future. While we understand and appreciate that Washington policymakers intend middle class taxpayers to spend these rebates to stimulate the economy, we have a responsibility to encourage Americans to save.

The following are suggestions from TIAA-CREF:

“We want to give investors good guidance on how best to use their tax refunds,” said Maliz Beams, Executive Vice President for Individual Client Services. “Even dedicating a few hundred dollars toward retirement or higher education savings can potentially offer substantial benefits down the road.”

With their federal rebate, investors can:

Open a new IRA or fund an existing IRA: Individual Retirement Accounts, or IRAs, offer tax-advantaged investing for retirement. There are two types of IRAs available to investors that both offer tax advantages in allowing money to accumulate for use in retirement.

A Traditional IRA allows investors to make potentially tax-deductible contributions that can also accumulate tax-deferred. Anyone with earned income who is under 70½ can make after-tax contributions to an IRA. Funds in an IRA accumulate tax-free until withdrawals are made. Although withdrawals before the age of 59 ½ are subject to a 10% federal tax penalty, exceptions are made for a first home purchase, tuition costs or medical expenses (certain restrictions apply).

A Roth IRA enables investors to contribute after-tax dollars to a tax-deferred account. The advantage of a Roth IRA is that contributions can be withdrawn at any time, making the investment appealing for investors who may want access to the funds before retirement. Individuals who qualify can contribute up to $5,000 in 2008 in either a Traditional or Roth IRA, or $6,000 for investors 50 and over.

Investors interested in opening an IRA through TIAA-CREF can apply here:

TIAA-CREF also offers retirement planning and advice from retirement specialists that receive no sales commissions as part of their total compensation. Instead, they are compensated through a salary plus incentive program that rewards client service excellence, rather than product promotion.

Open a 529 account: A 529 plan offers a vehicle to save for higher education expenses. Contributions to a 529 plan can grow tax-deferred, and any distributions for qualified education expenses are not subject to federal taxes. In addition to the federal tax benefit, many states offer a state income tax deduction for contributions to their plans as well as state income-tax free withdrawals for qualified distributions (restrictions apply so be sure to carefully review the applicable disclosure booklet and consult with your tax advisor).

Investors interested in 529 plans managed by TIAA-CREF Tuition Financing, Inc., a TIAA-CREF affiliate, can click here:

Pay down credit card debt: Investors who are on track with retirement and higher education savings can put their refund to good use by paying down or paying off credit card balances. Interest rates charged by many cards means consumers with balances often pay much a much higher amount than their original purchase.

Establish an emergency fund: An emergency fund equal to several months’ salary can help prevent using a credit card or requiring a loan to pay for surprise repairs, health care costs or living expenses in the case of a job loss.

Fully fund an employer-sponsored retirement plan: If you have already established an emergency fund, directing your rebate to it can free up the funds originally allocated to it which can then be used to increase funding to your employer-sponsored retirement plans, such as a 401(k) or 403(b). Money invested in those plans comes from pretax dollars, and can grow tax-deferred until it is withdrawn. In addition, many employers offer to match a portion of employees’ contributions to the plan.

In 2008, eligible employees can contribute as much as $15,500 to either a 401(k) or 403(b), and up to $20,500 for workers over 50.


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