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Whether you're investing for your kids' education or your retirement, the
new federal tax law may make your goals easier to reach. The $1.35-trillion tax relief package could affect your finances in many areas, from investing for college and retirement to managing income and estate taxes. Many of the tax cuts will phase in gradually over the next several years. But to help you take advantage of all possible provisions, we should start planning soon. Some of the ways you may benefit include: Lower income tax rates. The gradual reduction of tax rates has already begun. In fact, the new withholding schedule went into effect on July 1. And, you should receive a tax rebate check soon due to the creation of a new 10% bottom rate retroactive to January 1, 2001. As tax rates fall over the next few years, your disposable income will likely rise - offering an opportunity to invest more toward your various goals. Education-funding incentives. Parents who want to help their children attend college may now find their financial task easier. The tax relief act will improve education savings tools such as: ? Education IRAs - The accounts' contribution limit will rise from $500 to $2,000 in 2002. What's more, money in these accounts can now be used for elementary and secondary school costs in addition to higher education expenses. ? State sponsored 529 college savings plans - Also beginning in 2002, distributions from these plans for qualified education expenses will be tax free. Currently earnings in the accounts are deferred and taxed at the beneficiary's rate upon withdrawal. 529s are particularly attractive due to their generous contribution limits. ? Deductions for education expenses - The act increases eligibility for student loan interest deductions and it creates a new deduction for higher education expenses. ? The Child Tax Credit - Though not tied specifically to education expenses, this credit will provide increasing help to parents investing for college. Previously $500 per qualifying child under 17, the credit increases to $600 in 2001-2004, $700 in 2005-2008, $800 in 2009 and $1,000 in 2010 and thereafter. Higher retirement plan contribution limits. The tax act will allow people with earned income to invest more in retirement plans and IRAs - possibly helping them retire sooner and more comfortably. Your options may include: ? Traditional and Roth IRAs - Annual contribution limits for both of these types of IRAs will gradually rise from $2,000 this year to $5,000 in 2008. After that, the limits will be indexed to inflation in $500 increments. ? 401(k)s and 403(b)s - Working individuals also may be able to invest more in their employer retirement plan. The limit on elective deferrals will gradually rise from $10,500 this year to $15,000 in 2006, and this doesn't include the catch-up contribution provision for people 50 years and older. And much more. There are other provisions in the new tax law that may benefit you and your family. When we meet, we'll identify the ones that apply to you and help you make the most of them. As you can see, the new tax law provides meaningful tax savings in a number of areas. But because the changes will be phased in gradually - and some are set to expire after 2010 without reauthorization - your planning must be flexible enough to react to year-by-year changes. Such planning is where American Express Financial Advisors excels. I'm backed by a corporate team of specialists in taxation, investments, estate and retirement planning, and more to help you make the most of your finances. Let me know if you have any questions. I look forward to seeing you. Byron "Make all you can, save all you can, give all you can." JOHN WESLEY Byron W. Ellis, CFP(tm), CLU, ChFC Senior Financial Advisor American Express Financial Advisors IDS Life Insurance Company 1450 Lake Robbins Drive Suite 100 The Woodlands, TX 77380 Phone 281.367.8658 ext. 2227 Fax 281.364.9628 E mail byronellis@usa.net - winmail.dat
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