Twenty observations by our Capital Investment Counsel researchers that
could make the difference in the coming year.
Four From Bynum Satterwhite: A new addition to Capital after 13 years at Smith Barney.
Six from Hal Eddins:
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7.59% | |||||||||||
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| 3-Month T-Bills | 5.06% | |||||||||||
| 3-Month CDs | 5.31% | |||||||||||
| Prime Interest Rates | 8.5% | |||||||||||
Phillip Morris Co's. (MO-41 3/8-NYSE) recent 3 for 1 stock split was the seventh time the stock has split since 1966.
In Coca Cola's (KO-65 1/2, NYSE) annual report, there was a statement that caught our eye:
A billion hours ago . . .
(Human life appeared on earth)
A billion seconds ago . . .
(The Beatles changed music forever)
A billion Coca-Colas ago . . .
(was yesterday morning)
Our Challenge:
To make a billion Coca-Colas ago be this morning . . .
Thirsty?
The average American spent the first 127 days of 1996 paying Federal,
State and Local Taxes, according to the Tax Foundation. Since 1992, the
total tax burden borne by the average American jumped a full week! To
put it in daily terms, this average American worked 2 hours and 47 minutes
each day laboring to pay his or her taxes. More time than it took to pay
for food, housing and clothing combined.
In March, there were 4 stocks deleted and 4 stocks added to the Dow which is the 30-Stock Blue-Chip Barometer. Newcomers were Johnson & Johnson (JNJ-60 5/8-NYSE), Hewlett-Packard (HWP-53 5/8-NYSE), Wal-Mart Stores (WMT-28 5/8-NYSE) and Travelers Group (TRV-55 3/8-NYSE). They will replace Texaco (TX-107 1/2-NYSE), Bethlehem Steel (BS-95/8-NYSE), Woolworth (Z-21 1/8/6-NYSE) and Westinghouse Electric (WX-16 3/4-NYSE). The "Divisor" used to calculate the average will change to 0.33098002 from 0.32481605, meaning that each $1 move in a Dow component stock will now move the index by 3.02 points instead of 3.08.
Up until this year, amounts withdrawn or received by individuals from their qualified plans and IRAs in excess of $155,000 were subject to a 15% excess distributions excise tax. The Business Act suspended this tax for tax years 1997, 1998 and 1999. Consequently, individuals can effectively access their qualified assets with inpunity, albeit subject to income tax.
NOTE:The excess accumulation estate tax of 15% remains in full effect and was not amended by the Business Act. (i.e. any plan assets at death are still subject to the 15% excise tax.)
This three-year "window" of excise tax-free withdrawal creates numerous planning opportunities. First, if nothing else, individuals who wish to receive more than the government mandated so-called "threshold" amount, can do so in 1997, 1998 and 1999. Furthermore, individuals with large qualified accounts who cannot avoid the 15% excise tax by spreading out distributions over a number of years, can consider accelerating distributions to take advantage of the suspension of the excise tax.
This planning opportunity is particularly advantageous for older individuals who are willing to exchange tax deferred growth for reducing or eliminating the 15% excise tax. In addition, individuals with short life expectancies or in poor health can consider accelerated distributions to reduce or eliminate the excess accumulations estate excise tax. On the other hand, individuals should recognize that Congress intended this change in the law to raise revenue and all amounts received from qualified plans are subject to income tax at ordinary tax rates.
Second, when an individual attains age 70 1/2, so-called "required minimum distributions" must commence. Such an individual is allowed to wait, however, until April 1 of the calendar year following the year in which he turns 70 1/2 to take this first distribution. The second required minimum distribution must be taken by December 31 of that same calendar year. Under prior law, therefore, for individuals with large qualified account balances, taking two distributions in one calendar year could result in the imposition of the 15% excess distributions penalty tax. For 1997, 1998 and 1999, this result will not occur.
Very often, qualified account balances represent an individual's major source of liquidity for estate planning purposes. Specifically, distributions from qualified accounts can finance the purchase of life insurance. Life insurance can provide liquidity for someone facing considerable death taxes and/or estate erosion problems. Based on the change in this law, individuals with large qualified accounts can maximize distributions without excise tax, and use the net after tax distribution to purchase life insurance.
If you would like to learn more about planning opportunities created
by this three-year-tax window, please contact your broker or Bill Nicholson
at CapitalInvestment Group, Inc. (919-831-2370).
From
1968 to 1977, Pete was Assistant Vice President/Investment Officer of
Bethlehem Steel Corporation with investment responsibilities for their
self-managed one billion dollar pension fund. Pete co-founded American
Asset Management in 1978. As President, he built the investment advisory
firm to $500 million under management which included equity and debt management
as well as hedging currency risks for foreign clients. He received his
Bachelor and Masters Degrees in Economics at North Carolina State University.
Stephen C. Cadwallader
From 1991 to 1997, Steve was Managing Director and Co-Founder of Capital
Management Associates, a merchant and investment banking advisory partnership.
From 1983 to 1991, he was Senior Vice President and Director of Thomson
McKinnon/Carolina Securities, Inc. in Corporate Finance, where he managed
over 20 initial and secondary public offerings, in addition to advising
clients on private placements and M&A activities. Steve holds a Bachelor
and Masters Degrees in Business Administration from the University of
North Carolina at Chapel Hill.
Everybody has seen this form (1040). It probably is still fresh in your mind-or at least the check you just wrote to the government is. If you want to reduce your taxes next year, look at lines "8a, 9, 13 & 14" of this year's 1040. Line 20a may even show that you are being taxed on your Social Security income if you listed income in lines "8a, 9, 13 & 14." If that amount is more than you spend, perhaps you should be invested in professionally managed funds that grow tax deferred-Variable Annuities. Ask your broker about the advantages of a variable annuity.