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June 2009

Waddell & Reed Gregory S. DuPont Financial Advisor 555 Metro Place North Suite 475 Dublin, OH 43017 (614) 799-0373

A Small Business Plan for Uncertain Times
It's official: these are hard financial times. Many small business owners are feeling the pinch, and you may be one of them. Here are some tips to help you swim against the tide and help you keep your head above water. Review your business plan Your business plan represents the roadmap your company is following. Consider reviewing it as if through the eyes of someone new to the area. Is it still the best possible route to where you want to go, or should you consider some change in direction? It may be valuable to create an advisory team from your circle of business contacts to help you with this task. Keep current and vigilant When the times are changing, you need current and accurate financial information on which to base your decisions. Keep a close eye on all your expenses. If you must cut your expenses, consider reducing expenditures only on goods or services that are no longer profitable. And try not to slash all of your advertising budget. If people don't know you're there, before long you may not be. cash reserve to cover times when your accounts receivable may be slow. Finally, meet with your banker. Try to keep a line of credit available to hedge against potentially declining revenues. Perhaps you're thinking you should defer making the capital improvements you were planning. However, while interest rates are low, consider if this would be a good time to lock in financing for them. Work with me here Your existing customer base may be your best prospects for new business, so remain in close contact with them. Determine their needs and seek to help them meet those needs. Consider offering them discounts in exchange for advance payment or long-term contracts with you. And always provide them with excellent customer service. In return, they may refer other potential customers or clients to you. By the same token, work closely with your own suppliers. Agree to longterm contracts in exchange for a fixed price, if doing so would be beneficial to you. Consider seeking discounts if you pay in cash, or asking for longer payment terms if you are willing to pay full price. Be willing to contract for supplies at the regular price if they will give you great discounts on any of their own overstock that you might need. If you are open about your needs with each other, you might be able to create win-win situations for you both. Value your employees You no doubt have good people working for you, and they are a valuable part of what has made your business thrive. They have a stake in your business, too. Try to find ways (even if only simple gestures) to thank them for jobs well done. Look for ways to boost productivity, and reward those employees who meet the challenge of becoming even more productive.

In this issue: A Small Business Plan for Uncertain Times Income Annuities Can Help Fill the Retirement Income Gap Going to Graduate School: Ways to Pay What tax credits are available for making homes more energy efficient?

Be careful about the urge to cut your prices without exploring alternatives or without adequate justification. Doing so might lead to a temporary swell in your sales volume, but it will also undercut your margins, and may dilute your brand name. You might also want to continue spending money on development. The hard times will eventually pass, and when they do you'll want to have new items or services for your customers or clients to buy. Examine your revenue stream, and think about ways to pursue any delinquent accounts receivable. Be careful of the credit terms you extend to your customers, especially new ones; if they can't meet their obligations, you might fall behind on your own. Try to maintain a healthy cash flow, and create a

Page 2 Income Annuities Can Help Fill the Retirement Income Gap
If you're like many retirees, you may find that your sources of fixed retirement income, such as employer or military pensions and Social Security, aren't enough to meet all of your retirement income needs. To make up the difference, you can draw from your savings and investments, but how much can you safely withdraw without running out of money? One option is to create a stream of income for the rest of your life by investing some of your savings in an income annuity. Income annuities (also known as immediate annuities) are purchased from insurance companies. In exchange for a lump sum of money, the issuer promises to make payments to you for a fixed period of time or for the rest of your life, or for the rest of your life and that of your spouse. You can use almost any type of savings or investments to create a stream of income that can last for your lifetime. For example, you can purchase an income annuity with money from your personal savings accounts, matured CDs, or investments such as stocks, bonds, and mutual funds. You can even convert a portion of your retirement plan, such as an IRA or 401(k), to a lifetime stream of income by purchasing an income annuity within the retirement plan. However, some of these transactions may have income tax implications, so consult your tax advisor before you proceed. You have options You generally can choose how long your income annuity payments will last. For example, you can choose to receive payments for the rest of your life. This option allows you to supplement lifetime income from other sources, such as Social Security. However, payments end at your death, providing no benefits to your surviving spouse or heirs. To ensure that your spouse continues to receive income after your death, you can select a joint and survivor payment option. The annuity will make payments to you, then at your death, to your surviving spouse until his or her death. Payments end at the death of the surviving spouse, with no benefits payable to your heirs. You also can choose to receive income payments for a fixed period of time, such as 5 or 10 years, by setting up an income annuity. If you die during the payment period, your beneficiary will receive the remainder of the payments, either systematically or in a lump sum. Another choice combines lifetime payments with the fixed period option. Payments are made for life or for a fixed period of time, whichever is longer. This alternative makes certain that payments will last for a minimum number of years. Other factors to consider !" Payments from income annuities funded with pretax dollars, such as 401(k)s and IRAs, may be subject to income tax. Income annuities purchased with after-tax funds are taxed only on the earnings part of each payment. The remaining portion is considered a return of your investment and is not subject to taxation. Usually, once you select a payment option, you can't change it. This means you may not have access to any of the funds you used to purchase the income annuity aside from the income payments you receive. Since some payment choices, such as the life or the joint and survivor life options, end at death, it's possible you won't live long enough to receive at least the return of your investment in the income annuity. Fixed income annuity payments don't change, even if your income requirements do. You may find that the income from the annuity isn't enough to meet increased income needs. Choose a financially strong company. Annuity guarantees are entirely dependent on the insurance company's financial ability to meet its obligations. Check the financial ratings of the company offering the income annuity before making your purchase.


Annuity guarantees are subject to the claims-paying ability of the annuity issuer.




Is an income annuity right for you? Consider an income annuity if you want a guaranteed income to fill the gap between your retirement income needs and your fixed retirement income. Also be sure you can buy the income annuity and still have enough savings for other expenses.

Page 3 Going to Graduate School: Ways to Pay
Are you thinking about going to graduate school? Whether you want to advance in your current field or move your career in a new direction, graduate school might open doors for you. But it isn't cheap. Here are some suggestions on where to look for financial help. Loans, loans, loans Students attending graduate school can borrow from two sources: the federal government and private lenders. Uncle Sam's three major loan programs--the Stafford loan, Perkins loan, and graduate PLUS loan--are all available to graduate students, provided they attend school on at least a half-time basis. The following chart highlights each loan program:
Stafford Based on need? Subsidized: Yes

graduate students. Many scholarships and grants are awarded at the departmental level, so your chances might depend on what subject you plan to study. Employer educational assistance If you plan to work while you attend graduate school, check to see if your employer offers any educational assistance. The first $5,250 of such assistance is exempt from federal income tax. But make sure to read your employer's fine print: some may require that you maintain a certain grade, or that you remain at the company for a certain number of years after you obtain your degree. Education tax benefits Education tax benefits may not help you pay the upfront costs of tuition, but they might help defray some of those costs later on when you file your taxes. For more information, see IRS Publication 970, Tax Benefits for Education. In 2009, you may qualify for the: Lifetime Learning credit--Is worth up to $2,000 for tuition and fees if your modified adjusted gross income (MAGI) is below $50,000 (single) or $100,000 (married filing jointly). Deduction for qualified higher education expenses--Lets you deduct $4,000 in tuition and fees if your MAGI is below $65,000 (single) or $130,000 (married filing jointly). Student loan interest deduction--Lets you deduct up to $2,500 of qualifying student loan interest if your income is $60,000 or less (single) or $120,000 or less (married filing jointly). A partial credit/deduction is available for each of these tax benefits for filers with slightly higher incomes than those listed. Look before you leap Finally, before you make that first tuition payment, ask yourself whether a graduate degree makes sense for your long-term career goals. Will you be more marketable after getting your degree? Will the return on your investment be worthwhile? Do you plan to stay in this career going forward? Assuming the answers to these questions are yes, the expense of graduate school might be a worthwhile investment for you.

Perkins Yes


Unsubsidized: No $6,000 Up to full cost of education for year 8.5%

Loan Subsidized: limit for $8,500 2008/09 Unsubsidized: $12,000 Interest Subsidized: 6.0%2 rate Unsubsidized: 6.8%


Subsidized means the government pays the interest during school, deferment, and grace periods.
2 The interest rate on subsidized Stafford loans disbursed on or after July 1, 2009, and before July 1, 2010, is 5.6%.


To apply for federal loans, students should file the government's aid application, the FAFSA. It can be filed online at Students can also obtain loans from private lenders, though such loans typically carry higher, variable interest rates. Scholarships and grants At the graduate level, most scholarships and grants come from the school itself, rather than outside organizations, and are often awarded on the basis of merit, not need. So it's always a good idea to contact the financial aid office of any school you're considering to see what special scholarships and grants they offer for

Graduate school numbers heading up Many colleges have seen graduate school applications rise 10% to 20% over last year, and applications are expected to grow even more next year, because graduate school enrollment is typically a lagging indicator of the economy. Source: Council of Graduate Schools, Washington, D.C.

Ask the Experts What tax credits are available for making homes more energy efficient?
To encourage energy savings, the American Recovery and Reinvestment Act of 2009 expanded the tax credits related to energy-efficient home improvements. For 2009 and 2010, you may be able to claim a tax credit equal to 30% of the cost of energy-efficient property that you install in your principal residence. Qualified products can include new windows, doors (exterior and storm), insulation, roofing, HVAC systems, nonsolar water heaters, and biomass stoves (e.g., those that use plant-derived fuels, including wood and wood pellets) for your existing principal residence. (Note that installation costs are covered for HVAC, biomass stoves, and nonsolar water heaters, but not for the other products listed here.) A total combined credit cap of $1,500 applies to all 2009 and 2010 improvements. For property placed in service in 2009 through 2016, you may be able to claim a separate tax credit for 30% of the cost of buying and installing qualified geothermal heat pumps, solar panels, solar water heaters (pool or hot tub heaters do not qualify), small wind energy systems, and fuel cell power systems (limited to $500 per 0.5kW of power capacity); generally, no cap applies to these improvements. This tax credit is available for products installed in both new and existing homes. With the exception of fuel cell systems (which, to qualify, must be used in a home that is or will be your principal residence), these products may be used in a second or vacation home as well. Only products that meet very high energyefficiency standards qualify, so you'll need to carefully check the manufacturer's certification. It will tell you whether or not the product qualifies for a tax credit. Keep a copy of the statement, and receipts, for your tax records. A tax professional can give you more information about these tax credits. You can also visit the Energy Star website,, to find out more about energy-efficiency standards and products.

Waddell & Reed Gregory S. DuPont Financial Advisor 555 Metro Place North Suite 475 Dublin, OH 43017 (614) 799-0373

The accompanying pages have been developed by an independent third party. Forefield's content and information is provided for informational and educational purposes only. Neither Forefield Inc. nor Forefield Advisor provides legal, tax, insurance, investment or other advice and should not be relied upon for such purposes. Waddell & Reed does not guarantee their accuracy or completeness, and they should not be relied upon as such. These materials are general in nature and do not address your specific situation. For your specific financial planning and investment needs, please discuss your individual circumstances with your Financial Advisor. The accompanying pages may include information regarding retirement plans, estate planning, business planning or a variety of other topics that involve tax and legal issues beyond the scope of Waddell & Reed's area of practice and expertise. Such information is intended to explain or illustrate planning topics, options or strategies that you may wish to consider in advance of, or at the time of, seeking the assistance of legal and/or tax advisors in implementing your plans and should not be considered as an authoritative or comprehensive explanation of any of the particular planning topics, options or strategies described. The information in the accompanying pages describes the general aspects of various planning topics, options or strategies but does not necessarily address all the pertinent facts and issues of your personal situation. Waddell & Reed does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice or may be relied on for the purpose of avoiding any federal tax penalties. The selection of appropriate planning options or strategies should be made on an individual basis after consultation with appropriate legal, tax and financial advisors. It is important that you retain the services of legal counsel to plan and implement any legal documents that you may require and that you consult a tax advisor for an explanation of the tax effects of any particular planning options or strategies on your personal financial situation. Waddell & Reed financial advisors are able to offer insurance products through arrangements with insurance companies. Guarantees provided by insurance products are subject to the claims-paying-ability of the issuing insurance company.

I'm buying my first home, but I already own an investment property. Will I qualify for the first-time homebuyer's tax credit?
Even though you already own an investment property, you may be able to qualify for the first-time homebuyer's credit that was included in the American Recovery and Reinvestment Act of 2009. For the purposes of qualifying for the credit, a first-time homebuyer is defined as someone who has not owned a principal residence during the three-year period prior to the home's purchase. Your investment property is not considered to be your principal residence, so you may still be eligible for the first-time homebuyer's credit, assuming you meet other requirements. One requirement is that you must purchase a home on or after January 1 and before December 1, 2009. You must also meet certain income limits. To qualify for the full credit, which is equal to 10% of the home's purchase price (up to a maximum credit of $8,000), your modified adjusted gross income must be no greater than $75,000 if you're single, or $150,000 if you're married. The credit is reduced if your income exceeds these amounts, and is eliminated if your modified adjusted gross income exceeds $95,000 ($170,000 if you're married filing jointly). If you're married, and your spouse has owned a principal residence within the past three years even if you have not, neither of you will qualify for the credit. But if you're single, and are buying a home with someone else who has owned a principal residence within the last three years, you may still qualify, even though the other buyer will not. Note that if the home you're buying ceases to be the principal residence of you and your spouse within 36 months of the purchase date, you'll have to pay back the credit. For more details, visit the IRS website,

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