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STRATEGIC ISSUES...ONLINE 
For week of October 23, 2006, Issue #281
 
Featured Articles:
1.  The Best Use of Spare Cash
2.  Tech Tip Weekly:  MS Outlook Express File Formats
3.  Compliance Calendar
 
If you would like to have further information on any of these articles, let us know.  We would appreciate receiving your comments and/or suggestions, anytime!
acarroll@pmcpa.com
 
1.  The Best Use of Spare Cash
 
Is it better to invest, add to retirement accounts or pay off debts?  Here are a few different steps you may want to consider:
 
Step 1
Make the Most of Matching Contributions
When you have any available cash, your first choice always should be to increase retirement account contributions to the maximum employer match.  Contributions to 401(k) or 403(b) retirement accounts that are fully matched by the employer yield an immediate return equal to the employer's matching percentage.
 
Step 2
Pay Off High- And Moderate-Interest Rate Debts
The next most effective strategy is to pay down high-interest-rate debts, particularly credit card balances.  Pay off debts in order of their after-tax interest rates, beginning with the highest. 
 
Step 3
Participate in a College Savings Plan if it Provides State Income Tax Savings
If  you are facing future higher education costs you should investigate state-sponsored tax-advantaged college savings plans.  In qualified plans covered by section 529 of the Internal Revenue Code, withdrawals generally are not subject to federal income tax if the money is used to pay for qualified educational expenses.  If a child decides not to go to college, the funds generally can be used to pay for another family member.
 
Individuals who invest in a 529 plan that produces state income tax savings always enjoy a better after-tax return  than they would receive on the same investment for the same length of time in a Roth IRA, and generally enjoy a better after-tax return than in a traditional IRA or 401(k) plan.
 
Step 4
Make Other Retirement Investments
The next move is to contribute to a traditional IRA (if you are eligible to take a deduction on the contribution; we'll call this a deductible IRA) or a Roth IRA.  At this point, you also should contribute to any available 401(k) account - even if there is no employer match - and to any other employer-sponsored retirement plan that allows pretax contributions.
 
Step 5
Make Personal Investments and Pay off Low-Interest Rate Debts
If you have taken advantage of the previous steps, it's time to consider investing.  Choosing a financial advisor can be difficult.  Please talk to us about helping you choose someone who is right for you and your specific situation.  Your investment plan should at least consider individual stocks, mutual funs, and annuities.
 
Finally, it's a good idea to pay off remaining debts.  Pay down loans with nondeductible interest (such as auto loans with low financing rates) and loans with deductible interest (such as mortgage or home-equity loans).  Begin with those with the highest after-tax interest rate.
 
Practical Tips
-Always begin by taking advantage of the maximum matching contribution from an employer's retirement plan.
-List all debts according to their annual interest rates, from highest to lowest, and adjust the interest rate to its after-tax interest rate.  Use this list to determine the order for paying off debts.
 
 
2.  Tech Tip Weekly:  MS Outlook Express File Formats

MS Outlook Express uses one of two file formats for e-mail messages that you compose: Rich Text (or HTML) and Plain Text. The HTML format displays all the formatting you see on Web pages on the Internet (including colors and graphics). The Plain Text format shows only text characters (similar to a file opened in Windows Notepad).
When you install MS Outlook Express, it uses the HTML format for any new e-mail messages that you compose. This setting is fine as long as the e-mail program used by the recipient(s) of the message can deal with HTML formatting. (Many older e-mail programs, especially ones running under the UNIX operating system, cannot.)

If you send a message using the HTML format to someone whose e-mail program can't accept anything but plain text, the message comes to the recipient as plain text with an HTML document attached. That way, he or she can view all the HTML formatting bells and whistles that you added to the original e-mail message by opening the attached document in the Web browser.

 
3.  Compliance Calendar
 
October 25
-Employers deposit Social Security, Medicare and withheld income tax for October 18, 19, and 20.
 
 
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Prangley Marks, LLP
Accountants & Consultants
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