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19
May

U.S. Census Bureau Releases Report on Young Adulthood

In an April 2017 report, the U.S. Census Bureau examines changes in young adulthood over the last 40 years. The study looks at how the economic and demographic characteristics of young adults (ages 18 to 34) have changed from 1975 to 2016.

The report defines adulthood as a period in life associated with common experiences and the achievement of particular milestones, such as living independently of parents, working full-time, getting married, and having children.

This puts some recent changes in perspective: In 1975, 45% of young adults (ages 25 to 34) had completed four specific milestones — lived independently of their parents, had ever married, lived with a child, and were in the labor force — compared with only 24% of 25- to 34-year-olds in 2016.

The report also reveals that while educational and economic accomplishments are considered important milestones of adulthood by most of today’s Americans, marriage and parenthood rank much lower.

Education and economic stability rated most important

The highest-ranked milestone of adulthood by Americans today is completing a formal education: More than 60% of Americans believe that doing so is extremely important. Ranked second is working full-time (52%), followed by the ability to support a family financially (50%).

More young adults today have achieved this educational milestone compared with their counterparts 40 years ago. For example, less than one-fourth of 25- to 34-year-olds had a college degree in 1975, compared with more than one-third in 2016.

Marriage and parenthood are delayed milestones

Over half of Americans believe that getting married and having children are not important to becoming an adult, but this does not mean they plan to forgo these milestones altogether. Instead, getting married and having children are occurring later in life.

Whereas eight in 10 young adults in the mid-1970s had married before age 30, this milestone isn’t reached today by the same proportion of Americans until their early 40s. Similarly, more than two-thirds of women in the mid-1970s were mothers by the time they were ages 25 to 29, but today that proportion is not reached until ages 30 to 34.

Living independently is less important

Only about one-fourth of Americans rank moving out of a parent’s home as an extremely important adult milestone. So it’s not surprising that the number of young adults living independently has declined. In 1975, 26% of young adults (ages 18 to 34) were living in their parents’ home, compared with 31% in 2016.

Also noteworthy is that in just a decade, living arrangements changed dramatically. In 2005, a majority of young adults lived independently in their own households (either alone, with a spouse, or with an unmarried partner) in 35 states. By 2015, though, only six states had a majority of young adults living independently.

Not completing a formal education and lack of a steady job are contributing factors to the decline in young adults living independently. Young people who still live with their parents today are far less likely than their peers to have a college degree or a full-time job. Of young adults (ages 25 to 34) today who are living independently, 41% have a bachelor’s degree and 64% have a full-time job. Not surprisingly, young people living independently also tend to have higher incomes: More than half of older millennials living in their own households earn $30,000 or more in income, compared with only about one-third of their peers who live with roommates and one-fourth who live with their parents.

Of young adults (ages 25 to 34) living in their parents’ home today, one in four are not attending school or working. Often they are older millennials who have only a high school education. This group typically faces challenges such as the loss or unavailability of a job, unaffordable housing rates, and child-rearing responsibilities.

The shifting paths of young adulthood

Over the last 40 years, the milestones of adulthood have remained largely the same, but the importance and timing of these milestones have changed. Young adults today are less focused on marriage and parenthood in their 20s and early 30s and are more concerned about establishing financial security by finishing school and gaining work experience. More of them have college degrees and full-time jobs than their counterparts did in 1975, but fewer own their own homes. As a result, young people today often delay establishing a household and settling down with a family until they are able to support themselves financially.

Source: Jonathan Vespa, “The Changing Economics and Demographics of Young Adulthood: 1975-2016,” Current Population Reports, P20-579, U.S. Census Bureau, Washington, DC, April 2017

view the full report, visit census.gov.
16
May

Six Steps to Consider Before Tapping Your Retirement Savings Plan

You’ve worked long and hard for years, saving diligently through your employer-sponsored retirement savings plan. Now, with retirement on the horizon, it’s time to begin thinking about how to tap your plan assets for income. But hold on, not so fast. You may need to take a few steps first.

Step 1: Evaluate your needs
The first step in any retirement income plan is to estimate how much income you’ll need to meet your desired lifestyle. The conventional guidance is to plan on needing anywhere from 70% to 100% of your pre-retirement income each year during retirement; however, your amount will depend on your unique circumstances. While some expenses may fall in retirement, others may rise. So before even thinking about how to tap your plan assets, you should have a concrete idea of how much you’ll need to (1) cover your basic needs and (2) live comfortably, according to your wishes.

First, estimate your non-negotiable fixed needs — such as housing, food, and medical care. This will help you project how much you’ll need just to make ends meet. Then focus on your variable wants — including travel, leisure, and entertainment. This is the area that you’ll have the easiest time adjusting, if necessary, as you refine your income plan.

Step 2: Assess your sources of predictable income
Next, you’ll want to determine how much to expect from sources of predictable income, such as Social Security and traditional pension plans. These could be considered the foundation of your retirement income.

Social Security
A key decision regarding Social Security is when to claim benefits. Although you can begin receiving benefits as early as age 62, the longer you wait to begin (up to age 70), the more you’ll receive each month.

The Social Security Administration (SSA) calculates your retirement benefit using a formula that takes into account your 35 highest earning years, so if you had some years of no or low earnings, your benefit amount may be lower than if you had worked steadily.

You can estimate your retirement benefit by using the calculators on the SSA website, https://www.ssa.gov . You can also sign up for a my Social Security account so that you can view your Social Security Statement online. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits, along with other information about Social Security.

Pensions
Traditional pensions have been disappearing from employer benefit programs over the past couple of decades. If you’re one of the lucky workers who stand to receive a pension benefit, congratulations! But be aware of your pension’s features. For example, will your benefit remain steady throughout retirement or increase with inflation?

Your pension will most likely be offered as either a single or joint and survivor annuity. A single annuity provides benefits until the worker’s death, while a joint and survivor annuity generally provides reduced benefits until the survivor’s death.1

Step 3: Reflect
If it looks as though your Social Security and pension income will be enough to cover your fixed needs, you may be well positioned to use your retirement savings plan assets to fund the extra wants. On the other hand, if those sources are not sufficient to cover your fixed needs, you’ll need to think carefully about how to tap your retirement savings plan assets, as they will be a necessary component of your income.

Step 4: Understand your plan options
Upon leaving your employer, you typically have four options:

1. Plans may allow you to leave the money alone or may require that you begin taking distributions once you reach the plan’s normal retirement age.

2. You may choose to withdraw the money, either as a lump sum or a series of substantially equal periodic payments for the rest of your life, or you might use other withdrawal options offered by your plan. Note that the Government Accountability Office (GAO) found that only third of 401(k) plans offer other withdrawal options, such as installment payments, systematic withdrawals, and managed payout funds.

3. You may roll the money into an IRA. You’ll want to carefully compare the investment options, fees, and expenses of both your current plan and the IRA before making any rollover decision.

4. If you continue to work during your retirement years, you may be able to roll the money into your new employer’s plan, if that plan allows. Again, be sure to compare plans before making any decisions.

An annuity is an insurance contract designed to provide steady income over a set period of time or over either your lifetime or that of you and your spouse. According to the GAO, only about 25% of 401(k) plans offer an annuity option as a plan feature. If you think an annuity may apply to your situation, check to see if it is available in your plan. You may want to consider rolling at least some of your tax-deferred money into an IRA and purchasing an immediate fixed annuity. As noted above, however, you’ll want to carefully compare fees and expenses associated with all options before making any final decisions.3

Step 5: Compare tax deferred and tax-free
If you have both tax-deferred and tax-free (Roth) accounts, consider that the taxable portion of distributions from tax-deferred accounts will be taxed at your current income tax rate, while qualified withdrawals from Roth accounts are tax-free. For this reason, general guidelines often suggest tapping tax-deferred accounts before Roth accounts to allow those accounts to continue potentially growing free of taxes.

Note that all assets in employer-sponsored retirement savings plans — even money held in Roth accounts — will be subject to required minimum distributions (RMDs). These rules state that minimum distributions generally must begin in the year you turn age 70½; however, you may delay your first distribution up to April 1 of the following year.

Roth IRAs, however, are not subject to RMD rules until after your death. This is just one reason you might consider converting your employer-sponsored retirement assets to a Roth IRA. Keep in mind that a conversion will trigger an immediate tax consequence on the taxable portion of the converted assets, which can result in a hefty bill from Uncle Sam.

Step 6: Seek professional assistance
Determining the appropriate way to tap your assets can be challenging and should take into account a number of factors. These include not only your tax situation, but also whether you have other assets you’ll use for income, your overall health, and your estate plan. A financial professional can help make sense of your options in light of your unique situation.

1 Current federal law requires employer-sponsored plan participants to select a joint and survivor annuity unless the spouse waives those rights. This requirement is not mandated in an IRA, however.

2
“401(k) Plans: DOL Could Take Steps to Improve Retirement Income Options for Plan Participants,” GAO Report to Congressional Requesters, August 2016

3 Generally, annuity contracts have fees and expenses, limitations, exclusions, holding periods, termination provisions, and terms for keeping the annuity in force. Most annuities have surrender charges that are assessed if the contract owner surrenders the annuity in the early years of the contract. Qualified annuities are typically purchased with pre-tax money, so withdrawals are fully taxed as ordinary income. Withdrawals prior to age 59½ may be subject to a 10% federal income tax penalty. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing insurance company. It is important to understand that purchasing an annuity in an IRA or an employer-sponsored retirement plan provides no additional tax benefits other than those available through the tax-deferred retirement plan.

The foregoing is provided for information purposes only.  It is not intended or designed to provide legal, accounting, tax, investment or other professional advice.  Such advice requires consideration of individual circumstances.  Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained.  JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other sources.

16
Dec

What I learned from my grand daughter

Being with the family is generally very enjoyable. This year I received an extra benefit from my 5-year-old granddaughter.  She was telling us what she was going to be doing. It sounded like she was too young to be able accomplish the task. We asked her how she would complete the tasks. She explained that she would visualize what she was going to do.  Her teacher had taught the class to visualize what they want to do.

I realized that is also the approach to planning. If you know what you want to accomplish, you need to see where you are, where you want to be and the steps required to get there. This sets your focus. You need to be aware of your progress. You may need to adjust your course if there are changes in your priorities, what you have or your goals.

If you have postponed your planning, try visualizing.

Wishing you and yours the best for the Holiday’s and the entire New Year!

2
Nov

College Board releases 2016/2017 college cost data.

The College Board has released college cost figures for the 2016/2017 college cost data in its annual Trends in College Pricing report. “Total average cost” includes tuition and fees, room and board, books, transportation, and personal expenses. Here are the highlights:

Public colleges (in-state students):

  • Tuition and fees increased an average of 2.4% to $9,650
  • Room and board increased an average of 2.9% to $10,440
  • Total average cost for 2016/2017: $24,610 (up from $24,061 in 2015/2016)

Public colleges (out-of-state students):

  • Tuition and fees increased an average of 3.6% to $24,930
  • Room and board increased an average of 2.9% to $10,440
  • Total average cost for 2016/2017: $39,890 (up from $38,544 in 2015/2016)

Private colleges:

  • Tuition and fees increased an average of 3.6% to $33,480
  • Room and board increased an average of 3.0% to $11,890

Total average cost for 2016/2017: $49,320 (up from $47,831 in 2015/2016)

Link to “Trends in College Pricing 2016” https://trends.collegeboard.org/sites/default/files/2016-trends-college-pricing-web_0.pdf

College costs are a major expense. Understanding the current cost will help to plan how to meet the costs in the future. The information can also be helpful to grandparents in their gift planning.

One way to fund college expenses is to use a  “529” plan. These are offered by state or educational institutions. Earnings are not subject to federal tax and generally are not subject to state tax when used for “qualified education expenses” of the “designated beneficiary”. Some states offer tax incentives for state residents that  contribution to the plans in their states.

Not everyone should use a 529 plan.  Review the alternatives, benefits and drawbacks to determine if 529 plans should be part of your planning.

5
Oct

October Is National Disability Employment Awareness Month

Observed each year in October, National Disability Employment Awareness Month (NDEAM) is led by the Department of Labor’s Office of Disability Employment Policy (ODEP). The purpose of NDEAM is to build awareness about disability employment issues and celebrate the many and varied contributions of workers with disabilities.  This year’s theme is “InclusionWorks.”

Employers, associations, and unions in all industries are encouraged to participate. To help organizations build awareness of this  important initiative, the DOL has developed a number of resources, which can be accessed at dol.gov/odep/topics/ndeam/.

What is NDEAM?
National Disability Employment Awareness Month dates back to 1945, when Congress enacted a law declaring the first week in October “National Employ the Physically Handicapped Week.” In 1962, the word “physically” was removed to acknowledge the employment needs and contributions of individuals with all types of disabilities. In 1988, Congress expanded the week to a month and changed the name to National Disability Employment Awareness Month.

“By fostering a culture that embraces individual differences, including disabilities, businesses profit by having a wider variety of tools to confront challenges,” said Jennifer Sheehy, deputy assistant secretary of labor for disability employment policy. “Our nation’s most successful companies proudly make inclusion a core value. They know that inclusion works. It works for workers, it works for employers, it works for opportunity, and it works for innovation.”

How can organizations participate?
The DOL’s suggestions range from simple promotional activities, such as putting up a poster, to comprehensive programs, such as implementing a disability education program for all employees or organization members. Resources available on the website include press releases, posters, a sample proclamation for organizational and government leaders, articles for internal publications, sample social media content, and tips for improving social media accessibility.

What is the ODEP?
The Office of Disability Employment Policy  is the only nonregulatory federal agency that promotes policies and coordinates with employers and all levels of government to increase workplace success for people with disabilities. Recognizing the need for a national policy to ensure that people with disabilities are fully integrated into the 21st century workforce, the Secretary of Labor delegated authority and assigned responsibility to the Assistant Secretary for Disability Employment Policy. ODEP is a subcabinet-level policy agency in the Department of Labor.

For more information on ODEP, visit dol.gov/odep/.

27
Sep

IRS Announces New Waiver Procedure for Taxpayers Who Inadvertently Miss the 60-day Rollover Deadline

Background–direct and indirect (60-day) rollovers
If you’re eligible to receive a taxable distribution from an employer-sponsored retirement plan (like a 401(k)) you can avoid current taxation by directly rolling the distribution over to another employer plan or IRA (with a direct rollover you never actually receive the funds). You can also avoid current taxation by actually receiving the distribution from the plan, and then rolling it over to another employer  plan or IRA within 60 days following receipt (a “60-day” or “indirect” rollover). But if you choose to receive the funds instead of making a direct rollover the plan must withhold 20 percent of the taxable portion of your distribution, even if you intend to make a 60-day rollover. (You’ll need to make up those withheld funds from your other assets if you want to roll over the entire amount of your plan distribution.)

Similarly, if you’re eligible to receive a taxable distribution from an IRA, you can  avoid current taxation by either transferring the funds directly to another IRA or to an employer plan that accepts rollovers (sometimes called a “trustee-to-trustee transfer”), or by taking the  distribution and making a 60-day indirect rollover (20% withholding doesn’t apply to IRA distributions).

Under recently revised IRS rules you can make only one tax-free, 60-day, rollover from any IRA  you own (traditional or Roth) to any other IRA you own in any 12-month period. However, this limit does not apply to direct  rollovers or trustee-to-trustee transfers (or to Roth IRA conversions). Because of the 20% withholding rule, the one-rollover-per-year rule, and the possibility of missing the 60-day deadline, in almost all cases you’re better off making a direct rollover or trustee-to-trustee transfer to move your retirement plan funds from one account to another.
 

Exceptions to the 60-day rollover deadline
But what happens if you do receive an actual distribution from your employer plan or IRA and you want to roll over the funds, but you’ve missed the 60 day deadline? There are limited statutory exceptions to the 60-day rule. For example, the time for making a rollover may be extended for those serving in a combat zone or in the event of a presidentially declared disaster or a terrorist or military action.

But the IRS also has the authority to waive the 60-day limit “where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the [individual’s] reasonable control.” To seek a waiver you previously had to  request a private letter ruling from the IRS. However, the IRS has just announced (in Revenue Procedure 2016-47) a simpler alternative to seeking a private letter ruling.

The new waiver alternative: “self-certification”
Under the new procedure, if you want to make a rollover but the 60-day limit has expired, you can simply send a letter (the Revenue Procedure contains a sample)  to the plan administrator or IRA trustee/custodian certifying that you missed the 60-day deadline due to one of the following 11 reasons:

  1. The financial institution receiving the contribution, or making the distribution to which the contribution relates, made an error.
  2. You misplaced and never cashed a distribution made in the form of a check.
  3. Your distribution was deposited into and remained in an account that you mistakenly thought was an eligible retirement plan.
  4. Your principal residence was severely damaged.
  5. A member of your family died.
  6. You or a member of your family was seriously ill.
  7. You were  incarcerated.
  8. Restrictions were imposed by a foreign country.
  9. A postal error occurred.
  10. Your distribution was made on account of an IRS tax levy and the proceeds of the levy have been returned to you.
  11. The party making the distribution delayed providing information that the receiving plan or IRA needed to complete the rollover, despite your reasonable efforts to obtain the information.

To qualify for this new procedure, you must make your rollover contribution to the employer plan or IRA as soon as practicable after the applicable reason(s) above no longer prevent you from doing so. In general, a rollover contribution made within 30 days is deemed to satisfy this requirement.

Effect of self-certification
It’s important to understand that this new self-certification process is not an automatic waiver by the IRS of the 60-day rollover requirement. The self-certification simply allows you and the financial institution to treat and report the contribution as a valid rollover. However, if you’re subsequently audited, the IRS can still review whether your contribution met the requirements for a waiver.

For example, the IRS may determine that the requirements for a waiver were not met because (1) you made a material misstatement in the self-certification, (2)  the reason(s) you claimed for missing the 60-day deadline did not prevent you from completing the rollover within 60 days following receipt, or (3) you failed to make the contribution as soon as practicable after the reason(s) no longer prevented you from making the contribution. In that case, you may still be subject to additional income taxes and penalties. Because of this potential risk, some taxpayers may still prefer the certainty of a private letter ruling from the IRS waiving the 60-day deadline,  despite the additional time and expense involved.

Remember, you can make only one tax-free, 60-day, rollover from any IRA you own (traditional or Roth) to any other IRA you own in any 12-month period. This limit does not apply to direct  rollovers or trustee-to-trustee transfers (or to Roth IRA conversions).

Also keep in mind that you can generally leave your funds in a 401(k) or similar plan (at least until the plan’s normal retirement age) if your vested account balance at the time you terminate employment exceeds $5,000.

 

The foregoing is provided for information purposes only.  It is not intended or designed to provide legal, accounting, tax, investment or other professional advice.  Such advice requires consideration of individual circumstances.  Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained.  JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other sources.
22
Sep

IRS warning about fake emails(CP2000) relating to the Affordable Care Act

Confronting the latest scheme to target taxpayers, the IRS and its Security Summit partners warned Thursday that scammers have sent fake emails purportedly containing CP2000 notices, which are used in the IRS’s Automated Underreporter Program. The IRS emphasized that it never sends these notices by email, and instead uses the U.S. Postal Service (IR-2016-123).

The notices contain an IRS tax bill supposedly related to the Patient Protection and Affordable Care Act and 2014 health care coverage. They use an Austin, Texas, post office box and request payments to the “I.R.S.” at the “Austin Processing Center.” The email also contains a payment link. The fraudulent email lists the letter number as “105C.”

The IRS explains that its procedures for taxpayers who owe additional tax require taxpayers to write checks payable to the “United States Treasury,” not the “I.R.S.,” as in the fake notice. It also advises taxpayers that they can check a notice’s validity on the IRS’s website by doing a search, and they can see sample notices at Understanding Your IRS Notice or Letter.

IRS impersonation scams take many forms: threatening telephone calls, phishing emails and demanding letters. Learn more at Reporting Phishing and Online Scams.

Taxpayers  who receive this scam email should forward it to phishing@irs.gov  and then delete it from their email account.

Taxpayers  should always beware of any unsolicited email purported to be from the IRS or any unknown source. They should never open an attachment or click on a link within an email sent by sources they do not know.

20
Sep

New Real Estate Sector Puts Equity REITs in the Spotlight

Publicly traded REITs and other listed real estate companies are being moved to a distinct Real Estate sector by S&P Dow Jones Indices and MSCI.

S&P Dow Jones Indices and MSCI recently moved publicly traded equity real estate investment trusts (REITs) and other listed real estate companies from the Financials sector into a new, separate Real Estate sector effective September 1, 2016. (Mortgage REITs remain in the Financials sector, along with banks and insurance companies.)  There are now 11 headline sectors instead of 10. It’s the first time a new sector has been added to the Global Industry Classification  Standard (GICS®) since it was created in 1999. (1)

The move has implications for investors, because S&P and MSCI   indexes are common benchmarks for investment performance, and the GICS is often used as a framework for portfolio construction. By some estimates, fund managers could shift as much as $100 billion to the Real Estate sector in a collective effort to follow the market weightings of various indexes. (2)

The change could also affect the asset allocation decisions of some individual investors by drawing more attention to equity REITs as income-generating assets with the potential for capital appreciation.

Fixed-income appeal

An equity REIT is a company that combines capital from investors to buy and manage income properties such as apartments, shopping centers, hotels, medical facilities, offices, self-storage units, and industrial buildings. Publicly traded REIT shares can generally be bought or sold on an exchange at a moment’s notice, making them more liquid than physical real estate investments, which involve transactions that can take months to complete.

Many REITs generate a reliable income stream regardless of share price performance, primarily because they are required by law to pay out 90% of their taxable incomes as dividends to stakeholders. In the second quarter of 2016, the S&P REIT index had a dividend yield of 3.73%. (3) The performance of an unmanaged index is not indicative of the performance of any specific security. Individuals cannot invest directly in an index.

REIT share prices can be sensitive to interest rates. As rates rise, steady dividends may appear less attractive to investors relative to the safety of bonds offering similar yields. On the other hand, current fundamentals, including modest economic growth, lower unemployment, and rising rents, are generally seen as positive conditions for REITs and other real estate businesses.

Diversification tool

Breaking real estate out of the Financials sector acknowledges that the industry’s business models and ties to underlying property markets produce a distinctive risk-return profile, including a relatively low correlation to the rest of the stock market. (4) Because the share prices of equity REITs don’t rise and fall in lockstep with the broader stock market, including them in your portfolio could help reduce the overall level of risk.

The return and principal value of all stocks, including REITs, fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Diversification and asset allocation do not guarantee a profit or protect against investment loss; they are methods used to help manage investment risk.

REIT distributions are taxable to the extent they include any ordinary income and capital gains. Some REITs may not qualify as a REIT as defined in the tax code, which could affect operations and negatively impact the ability to make distributions.

There are inherent risks associated with real estate investments that could have an adverse effect on financial performance. Such risks may include a deterioration in the economy or local real estate conditions; tenant defaults; property mismanagement; and changes in operating expenses (including insurance costs, energy prices, real estate taxes, and the cost of compliance with laws, regulations, and government policies).

Breaking real estate out of the Financials sector acknowledges that the industry’s business models and ties to underlying property markets produce a distinctive risk-return profile, including a relatively low correlation to the rest of the stock market.

(1) , (3) S&P Dow Jones Indices, 2015-2016
(2) Investor’s Business Daily, March 18, 2016
(4) FinancialAdvisor.com, March 1, 2016

The foregoing is provided for information purposes only.  It is not intended or designed to provide legal, accounting, tax, investment or other professional advice.  Such advice requires consideration of individual circumstances.  Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained.  JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other sources.

 

 

 

 

27
Jun

The British Are Leaving! Why the Brexit Matters to Investors

Here’s an overview of the economic issues surrounding the Brexit, and what this historic

decision could mean for the United Kingdom, world trade, and international investors.

On June 23, citizens of the United Kingdom (England, Scotland, Wales, and Northern

Ireland) voted to leave the European Union by a margin of 52% to 48%.1 Though pre-election

polls suggested that public opinion was evenly divided, when the election results became

clear, financial markets around the world reacted swiftly to concerns about potential economic

ramifications of a British exit—or Brexit—from the EU.

On June 24, the British pound plunged more than 10% against the dollar to its lowest point

since 1985, before recovering slightly to settle nearly 8% lower at the end of the day.2 European

stocks suffered the worst sell-off since 2008, with the Stoxx Europe 600 Index tumbling 7%, and

the Japanese Nikkei Index posted a one-day drop of 7.9%.3–4 In the United States, the S&P 500 Index fell 3.6%, reversing year-to-date gains.5
Here’s an overview of the economic issues surrounding the Brexit, and what this historic

decision could mean for the United Kingdom, world trade, and international investors.

The EU and the Referendum

The European Union was formed after World War II to help promote peace through

economic cooperation. Over time, it became a common market, allowing goods and people to

move freely around 28 member states as if they were one country. The U.K. joined the trading

bloc in 1973, when there were only 9 member states.

In 2012, Prime Minister David Cameron rejected calls for a referendum on EU membership

but later agreed to hold one if the Conservative party won the 2015 election.6 The leaders of

all five major political parties campaigned to remain in the EU, including Cameron, warning

voters that leaving the EU was a leap into the unknown that could damage the U.K.’s economy

and weaken national security.7

Brexit supporters said leaving the EU allows the nation to take back control over business,

labor, and immigration regulations and policies. They also claimed the money being

contributed to the EU budget (a net contribution of 9.8 billion pounds in 2014) would be better

spent on infrastructure and public services in the U.K.8

Economic Expectations

The negative outlook for the U.K. economy depends on the terms of trade deals yet to

be negotiated with the EU and other nations. For example, the International Monetary Fund

(IMF) projects that U.K. gross domestic product could decline about 1.5% by 2021, assuming

the United Kingdom is granted access to the EU market quickly. Under a more adverse

scenario (which assumes trade defaults to World Trade Organization rules), the IMF projects a

precarious decline in GDP of about 4.5%.9

 

The U.K.’s departure strikes a serious blow to the EU, which has been beleaguered by debt

crises, a Greek bailout, the influx of millions of refugees, high unemployment, and weak GDP

growth. If trade activity and business conditions in the region deteriorate, it’s possible that the

U.K. and the EU could fall back into recession.


Next Steps

 Once Article 50 of the Lisbon Treaty is invoked, the formal process of leaving the EU will

begin, opening up a two-year window of negotiations on the terms of the exit. The U.K. will

remain a member of the EU until it officially departs.10
The U.K. is the first nation to break away from the EU, but a larger concern is that anti-EU

factions in other nations could be empowered to follow suit. Moreover, Scotland could seek

independence from the U.K. in order to remain in the EU, and Northern Ireland might consider

reunification with the Republic of Ireland.11


What About Us?

The EU is the largest trading partner of the United States, so the Brexit complicates

pending trade negotiations and will require adjustments to existing agreements. It may also

take time to forge new deals with the U.K.12
U.S. companies with a significant presence in the U.K. could take a hit. With the British

pound weakening against an already strong dollar, U.S. exports become more expensive,

reducing foreign sales. The U.S. economy is not as vulnerable as the EU, but the U.S. Federal

Reserve may be more likely to delay its decision to raise interest rates until the consequences

of the Brexit on U.S. and global markets can be assessed.13
Brexit-related anxiety could continue to spark market volatility until the details are finalized

and the economic fallout is better understood, possibly for several years. Having a sound

investing strategy that matches your risk tolerance could prevent you from making emotional

decisions and losing sight of your long-term financial goals.

 

Investments are subject to market fluctuation, risk, and loss of principal. Investing internationally

carries additional risks such as differences in financial reporting, currency exchange risk, as well as economic

and political risk unique to a specific country. This may result in greater share price volatility.

Shares, when sold, may be worth more or less than their original cost. The performance of an unmanaged

index is not indicative of the performance of any specific security. Individuals cannot invest in any

index.

1-2, 7, 10-11) BBC News, June 24, 2016

3, 5) Bloomberg.com, June 24, 2016

4) Reuters, June 24, 2016

6) The New York Times, June 25, 2016

8) CNNMoney, June 2, 2016

9) International Monetary Fund, 2016

12-13) The Wall Street Journal, June 24, 2016

 

The foregoing is provided for information purposes only.  It is not intended or designed to provide legal, accounting, tax, investment or other professional advice.  Such advice requires consideration of individual circumstances.  Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained.  JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other sources.

 

 

13
Apr

Federal Income Tax Returns Due

The federal income tax filing deadline for most individuals is Monday, April 18, 2016. That’s because Emancipation Day, a legal holiday in Washington, D.C., falls on Friday, April 15, this year. If you live in Massachusetts or Maine, you have until Tuesday, April 19, to file your return because Patriots’ Day, a legal holiday in both states, is celebrated on April 18.

Not ready to file?
You can file for an extension using IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. Filing this extension gives you an additional six months (until October 17, 2016) to file your federal income tax return. You can also file for an automatic six-month extension electronically (details on how to do so can be found in the Form 4868 instructions).

Outside of the country?
Special rules apply if you are living outside of the county, or serving in the military outside the country, on the regular due date of your federal income tax return.

Pay what you owe by the due date of the return.
Filing for an automatic extension to file your return does not provide any additional time to pay your tax. Make the best estimate you can of the amount you owe. You should pay the estimated amount by the April 18 (April 19 if you live in Massachusetts or Maine) due date. If you don’t, you will owe interest, and you may owe penalties as well. If the IRS believes that your estimate of taxes was not reasonable, it may void your extension.

Do not make the mistakes of thinking you do not have to pay any tax until you file your tax return.  If you absolutely cannot pay what you owe, file the return and pay as much as you can afford. You’ll owe interest and possibly penalties on the unpaid tax, but you will limit the penalties assessed by filing your return on time, and you may be able to work with the IRS to pay the unpaid balance (options available may include the ability to enter into an installment agreement).