Brokerages Eager for Taxpayers’ Rebates
Most of the 92 million income tax rebate checks aren’t even in the mail, but investment companies already are suggesting to taxpayers what to do with their $300 or $600: You could, you know, invest it.
From online upstart Netstock Corp., which offers unlimited stock purchases for $8 a month, to brokerage giant Fidelity Investments, firms are advising investors to resist the urge to splurge on dinner or a new outfit and instead fund a Roth IRA or 529 college savings plan.
Some pitches are more subtle than others.
“The rebate will be cash in your pocket. You can use it for any purpose,” Fidelity says on its Web site, https://www.fidelity.com. More direct is the approach of brokerage Edward Jones, whose Web site proclaims: “Uncle Sam wants you to take advantage of all the tax relief offered by the Tax Act of 2001,” adding an earnest image of Uncle Sam for emphasis.
Most taxpayers will get a rebate check this summer as a result of legislation signed last month by President Bush.
The tax cut law also will gradually reduce income tax rates across all brackets over the next several years and increase savings limits for IRAs and other plans.
The majority of taxpayers will get the top rebate amount: $300 for singles, $500 for heads of households and $600 for married couples. Taxpayers who owe the IRS money or were claimed as dependents last year are among those who will get less, if anything.
Brokerage firms’ battling for business in a brutal bear market are eager to attract some of the rebate cash:
* Netstock Chief Executive Jeff Seely, whose firm runs the ShareBuilder.com service, sent an e-mail to customers this week spelling out the added opportunities for retirement and college savings provided by the tax law. “I urge you to save and invest your rebate and the tax savings, instead of spending it,” Seely said.
* In a Web site question and answer, Fidelity executive Doug Fisher points out that taxpayers can use the money however they’d like, but adds, “Fidelity investors might consider putting some or all of the rebate into an IRA, or using the extra money to boost contributions to employer-sponsored retirement plans like 401(k)s or a college savings plan for your children or grandchildren.”
* The patriotic appeal on Edward Jones’ Web site at https://www.edwardjones.com includes an online tax act “checklist” in which Uncle Sam says, among other things, “Resolve to put that rebate check to work by investing it. Earmark it to help with your 2001 IRA contribution.”
* Brokerage A.G. Edwards presents a tax refund shopping list at its site, https://www.agedwards.com. A $600 contribution to an education IRA or 529 college savings plan would grow to $2,400 in 18 years assuming an 8% annual return, the firm notes. An extra $600 IRA contribution this year would generate more than $6,000 in extra savings over 30 years, assuming the same return. The firm also suggests paying off credit card balances with high interest rates.
* In a news release Wednesday, Pax World Management, whose mutual funds shun companies that make weapons, tobacco and liquor or promote gambling, tries a bit of the old guilt trip. Noting that its Pax World Balanced Fund requires an initial deposit of just $250, the firm says, “Instead of just frittering away your refund, consider using it to become a socially responsible investor.”
Though the pitches may seem self-serving, financial planners say the basic idea is on the money.
In a column at CBSMarketwatch.com, planner Ray Martin said that the rebates, which some call too puny to invest, offer a potential bonanza. A couple’s $600 would grow to more than $11,500 in 30 years given an average annual return of 10%, he said, and investing the money saved by the cut in tax rates in future years could produce far more.
But customers interviewed Wednesday at a downtown Los Angeles Starbucks said they have other plans for their $300 or $600 check.
“It’s going right into my wedding,” said lawyer Kamaria Ward, who is getting married in August.
“My plans are to reduce some debt,” said Bellflower retiree Gary Murph. “I have a second mortgage, and I’m going to earmark that money to pay down the principal.”
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OPEC Cutbacks
Oil ministers agreed Wednesday to cut crude oil output by 1 million barrels a day. It is the third reduction this year.
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Oil output targets (in millions of barrels per day)
End of 2000: 26.7
Feb. 1: 25.2
April 1: 24.2
Sept. 1: 23.2
Sources: OPEC, Associated Press
