November 1 Begins Open Enrollment for Health Insurance Marketplaces
Beginning on November 1, 2019, individuals (including families) may apply for new health insurance, switch to a different health-care plan, or re-enroll in their current plan through a Health Insurance Marketplace under the Affordable Care Act (ACA). The open enrollment period for 2020 health coverage ends on December 15, 2019.
Individuals can use Health Insurance Marketplaces to compare health plans for benefits and prices and to select a plan that fits their needs. December 15 is the deadline to enroll in or change plans for new coverage to start January 1, 2020. For those who fail to meet the December 15 deadline, the only way to enroll in a Marketplace health plan is during a special enrollment period. To qualify for special enrollment, an individual must have a qualifying life event such as a change in family status (for example, marriage, divorce, birth, or adoption of a child), change in residence, or loss of other health coverage (e.g., loss of employer-based coverage, loss of eligibility for Medicare or Medicaid). Also, only plans sold through a Health Insurance Marketplace qualify for cost assistance.
Additional information about Obamacare
While the ACA (commonly referred to as Obamacare) has not been repealed or replaced, there have been changes to the law. The biggest change is the repeal of the tax penalty for failure to have qualifying health insurance. Though the individual mandate requiring that most people have minimum essential health insurance coverage still exists (unless an exception applies), the tax penalty for failure to have insurance has been reduced to $0, effectively repealing that penalty.
In addition, states have additional flexibility in how they select their essential health benefits. In effect, states may elect to sell short-term health insurance policies with coverage terms of up to one year. These plans may offer fewer benefits compared with the 10 Essential Health Benefits covered under the ACA. Also, California, Colorado, Massachusetts, Minnesota, New York, Rhode Island, and Washington, DC have extended open enrollment dates beyond December 15. Check with the state’s department of insurance for specific open enrollment dates.
The federal government no longer runs the marketplace for the Small Business Health Options Program (SHOP). As an alternative, small business employers may be able to contact insurance companies directly or work with a broker who is certified to sell SHOP policies.
The fate of Obamacare
Currently, the fate of the ACA is somewhat uncertain. At the end of 2018, a Texas federal judge ruled the Affordable Care Act unconstitutional. However, the judge ordered a stay pending appeals, so the ACA remains in place for the time being.
Upside Down: What Does the Yield Curve Suggest About Growth?
On August 14, 2019, the Dow Jones Industrial Avenue plunged 800 points, losing 3% of its value in its biggest drop of the year. The Nasdaq Composite also lost 3%, while the S&P 500 lost 2.9%.1
The slide started with bad economic news from Germany and China, which triggered a flight to the relative safety of U.S. Treasury securities. High demand briefly pushed the yield on the benchmark 10-year Treasury note below the two-year note for the first time since 2007.2 This is referred to as a yield curve inversion, which has been a reliable predictor of past recessions. The short-lived inversion spooked the stock market, which recovered only to see the curve begin a series of inversions a week later.3
From short to long
Yield relates to the return on capital invested in a bond. When prices rise due to increased demand, yields fall and vice versa. The yield curve is a graph with the daily yields of U.S. Treasury securities plotted by maturity. The slope of the curve represents the difference between yields on short-dated bonds and long-dated bonds. Normally, it curves upward as investors demand higher yields to compensate for the risk of lending money over a longer period. This suggests that investors expect stronger growth in the future, with the prospect of rising inflation and higher interest rates.
The curve flattens when the rates converge because investors are willing to accept lower rates to keep their money invested in Treasuries for longer terms. A flat yield curve suggests that inflation and interest rates are expected to stay low for an extended period of time, signaling economic weakness.
Parts of the curve started inverting in late 2018, so the recent inversions were not completely unexpected. However, investors tend to focus on the spread between the broadly traded two-year and 10-year notes.4
Inversion as an indicator
An inversion of the two-year and 10-year notes has occurred before each recession over the past 50 years, with only one “false positive” in that time. It does not indicate timing or severity but has reliably predicted a recession within the next one to two years. A recent Federal Reserve study suggested that an inversion of the three-month and 10-year Treasuries — which occurred in March and May 2019 — is an even more reliable indicator, predicting a recession in about 12 months.5
Is it different this time?
Some analysts believe that the yield curve may no longer be a reliable indicator due to the Federal Reserve’s unprecedented balance sheet of Treasury securities — originally built to increase the money supply as an antidote to the Great Recession. Although the Fed has trimmed the balance sheet, it continues to buy bonds in large quantities to replace maturing securities. This reduces the supply of Treasuries and increases pressure on yields when demand rises, as it has in recent months.6
At the same time, the Fed has consistently raised its benchmark federal funds rate over the last three years in response to a stronger U.S. economy, while other central banks have kept their policy rates near or below zero in an effort to stimulate their sluggish economies. This has raised yields on short-term Treasuries, which are more directly affected by the funds rate, while increasing global demand for longer-term Treasuries. Even at lower rates, U.S. Treasuries offer relatively safe yields that cannot be obtained elsewhere.7
The Fed lowered the federal funds rate by 0.25% in late July, the first drop in more than a decade. While this slightly reduced short-term Treasury yields, it contributed to the demand for long-term bonds as investors anticipated declining interest rates. When interest rates fall, prices on existing bonds rise and yields decline. So the potential for further action by the Fed led investors to lock in long-term yields at current prices.8
Economic headwinds
Even if these technical factors are distorting the yield curve, the high demand for longer-term Treasuries represents a flight to safety — a shift of investment dollars into low-risk government securities — and a pessimistic economic outlook. One day after the initial two-year/10-year inversion, the yield on the 30-year Treasury bond fell below 2% for the first time. This suggests that investors see decades of low inflation and tepid growth.9
The flight to safety is being driven by many factors, including the U.S.-China trade war and a global economic slowdown. Five of the world’s largest economies — Germany, Britain, Italy, Brazil, and Mexico — are at risk of a recession and others are struggling.10
Although the United States remains strong by comparison, there are concerns about weak business investment and a manufacturing slowdown, both weighed down by the uncertainty of the trade war and costs of the tariffs.11 Inflation has been persistently low since the last recession, generally staying below the 2% rate that the Fed considers optimal for economic growth. On the positive side, unemployment remains low and consumer spending continues to drive the economy, but it remains to be seen how long consumers can carry the economic weight.12
Market bounceback
Regardless of further movement of the yield curve, there are likely to be market ups and downs for many other reasons in the coming months. Historically, the stock market has rallied in the period between an inversion and the beginning of a recession, so investors who overreacted lost out on potential gains.13 Of course, past performance does not guarantee future results. While economic indicators can be helpful, it’s important to make investment decisions based on your own risk tolerance, financial goals, and time horizon.
U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. The principal value of Treasury securities fluctuates with market conditions. If not held to maturity, they could be worth more or less than the original amount paid. The return and principal value of stocks fluctuate with changes in market conditions. 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 directly in any index.
1-2, 13) The Wall Street Journal, August 14, 2019
3) CNBC.com, August 23, 2019
4-5) Reuters, August 13, 2019
6) Forbes.com, August 16, 2019
7-9) The Wall Street Journal, August 16, 2019
10, 12) CNN, August 14 and 18, 2019
11) Reuters, July 1, 2019
2018 Tax Filing Data Shows Need to Review Withholding
The IRS continues to encourage taxpayers to review the amount of tax they have withheld to avoid an unexpected tax surprise when they file their 2019 tax returns next year. Preliminary 2018 tax filing data seems to show the need for taxpayers to review their withholding in order to make sure the appropriate amount of tax is being withheld from their paychecks to reflect recent tax law changes.
Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act made significant changes to the tax code, and 2018 was the first time that taxpayers filed with the new rules. Among other changes, the legislation modified individual income tax rates and brackets, eliminated the personal and dependency exemptions, raised the standard deduction amounts, limited certain itemized deductions (including the deduction for state and local taxes), increased the child tax credit and its phaseout thresholds, added a credit for other dependents, and increased the alternative minimum tax exemption amounts and the exemption phaseout thresholds.
2018 tax filing statistics
Preliminary data for the 2018 tax year shows that more than 106 million federal income tax individual returns resulted in refunds, with an average refund of $2,879. Over 24 million individual returns showed tax due at the time of filing, averaging $5,160.1 Because of the difficulty many taxpayers seemed to have with their 2018 tax year withholding (some may not have realized changes were needed), the IRS waived certain penalties for many 2018 tax returns. It is important that you get withholding right for 2019 while there still may be time for any adjustments to take effect.
Getting it right
If you have too much tax withheld, you will receive a refund when you file your tax return, but it might make more sense to reduce your withholding and receive more in your paycheck. If you have too little tax withheld, you will owe tax when you file your tax return, and you might owe a penalty. You can generally change the amount of federal tax you have withheld from your paycheck by giving a new Form W-4 to your employer. You can use a number of worksheets for the Form W-4 or the IRS Withholding Calculator (available at irs.gov) to help you plan your tax withholding strategy.
If changes reduce the number of allowances you are permitted to claim or your marital status changes from married to single, you must give your employer a new Form W-4 within 10 days. You can generally submit a new Form W-4 whenever you wish to change your withholding allowances for any other reason.
In general, you can claim various withholding allowances on the Form W-4 based on your tax filing status and the tax credits, itemized deductions (or any additional standard deduction for age or blindness), and adjustments to income that you expect to claim. You might increase the tax withheld or claim fewer allowances if you have a large amount of nonwage income. (If you have a significant amount of nonwage income, you might also consider making estimated tax payments using IRS Form 1040-ES.) The amount withheld can also be adjusted to reflect that you have more than one job at a time and whether both you and your spouse work. You might reduce the amount of tax withheld by increasing the amount of allowances you claim (to the extent permissible) on Form W-4.
You can claim exemption from withholding for the current year if: (1) for the prior year, you were entitled to a refund of all federal income tax withheld because you had no tax liability; and (2) for the current year, you expect a refund of all federal income tax withheld because you expect to have no tax liability.
If you need help, talk to a tax professional about your individual situation.
1Internal Revenue Service, 2019
Qualified Charitable Distributions (QCD)
Changes in tax laws can require updating your planning.
The 2017 tax act has caused many to rethink their charitable giving. Charitable contributions for those over the age of 70.5 may benefit them by making their charitable contributions directly from their Individual Retirement Accounts (IRA). These QCDs are treated as part of the Required Minimum Distribution (RMD) for the year they are distributed, but are not taxed.
You must be at least 70.5 when you make the contribution.
The contribution must be made from a traditional IRA. Payment from other retirement accounts do not qualify.
The payments must be to a public charity.
The maximum annual amount cannot exceed $100,000. There is no limit on the number of distributions or charities you make contributions to.
The distribution must be made directly from your IRA account to the charitable organization.
You may not receive benefits in exchange for the contribution. Examples include tickets to paid events and preferential seating.
The distribution must be part of your RMD. Amounts contributed after you have withdrawn your RMD do not qualify as QCD. If you have already taken your annual RMD for the year, you cannot make a QCD for the year. Plan the timing of your QCD before you have taken your RMDs for the year. Distribute your QCDs early in the year before you have withdrawn all your RMDs for the year.
Include a cover letter specifying the payment is a QCD and request an acknowledgement.
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.
U.S.-China Trade War: Who Pays the Price?
On May 13, 2019, escalating trade tensions between the United States and China sparked a worldwide stock sell-off that wiped out more than $1 trillion in global equity values.1 The markets recovered over the next three days, but tensions between the economic giants continued to drive volatility with no resolution in sight.2 Investors sometimes overreact to short-term events, but the conflict with China has been simmering for decades, and an extended trade war could have long-term economic consequences.
The issues
China was the largest U.S. trading partner in 2018, with $737 billion in goods and services exchanged between the two nations, accounting for 13% of all U.S. trade. The fundamental issue is the imbalance in this relationship; the goods and services trade deficit of $379 billion represented more than 60% of the total U.S. trade deficit. The United States maintains a surplus in services (primarily travel spending by Chinese citizens and software), so the critical concern is the deficit in goods, which totaled $419 billion in 2018 — an increase of 11.6% over the previous year.3-4
For years, U.S. officials have accused China of using unfair trade practices to maintain this imbalance, even as China has grown into a global economic powerhouse. Among the most contentious issues are currency manipulation, excessive restrictions on U.S. companies, forced technology transfers, and theft of intellectual property.
The tariffs
In early 2018, the Trump administration began imposing global tariffs on imported steel, aluminum, solar panels, and washing machines. While these tariffs were intended to stimulate U.S. manufacturing by protecting domestic production, the primary focus soon turned to China. Between July and September 2018, the United States imposed a 25% levy on $50 billion of Chinese goods and a 10% tax on an additional $200 billion of goods, which was set to rise to 25% on January 1, 2019, unless China took steps to level the playing field. China retaliated by placing tariffs of 5% to 25% on $110 billion of U.S. goods, covering almost all U.S. exports to China.5-6
In December 2018, both nations agreed to a truce, and President Trump extended the deadline to raise tariffs. When negotiations broke down in early May 2019, the U.S. raised the 10% tariffs to 25% effective May 10, and the president threatened to levy tariffs on the remaining $300 billion of Chinese goods. China retaliated by raising tariffs on more than half of U.S. goods already being taxed.7
Carrying the costs
U.S. importers of Chinese goods must pay the actual tax, but the question is who absorbs the additional costs. An academic study of the 2018 tariffs found that Chinese exporters generally did not lower their prices, so part of the increased cost was absorbed by the importers, cutting into their profit margins, and the rest was passed on to U.S. consumers in the form of higher prices. The net cost to the U.S. economy was estimated to be $1.4 billion per month.8
A separate study found that prices for nine categories of goods most affected by the tariffs increased by an average of 3% from early 2018 to early 2019, while the prices of other goods (excluding volatile food and energy) declined by 2%. This study also found that some U.S. manufacturers used the tariffs as an opportunity to raise prices, which is the fundamental purpose of protective tariffs — to allow domestic producers to set prices without being undercut by imports.9
The new 25% tariffs do not apply to Chinese goods that were already in transit as of May 10, so the effects may not reach U.S. consumers until later this summer. Based on the 2018 tariffs — only 10% on most imported goods — the increase to 25% will likely raise prices significantly on a wide range of consumer goods from laptops and mobile phones to clothing, furniture, sporting goods, luggage, and fish. Higher tariffs on supplies such as circuit boards, computer chips, and auto parts will likely be passed on to consumers as well.10 A Federal Reserve study estimated that the tariffs will cost the average household $831 per year.11
Shifting supply chains
Many U.S. manufacturers and importers are looking for suppliers in other countries and/or moving production out of China. Over the long term, this should reduce U.S. dependence on Chinese products, but the “Made in China” label is so pervasive in the U.S. market that it will be a slow process. Consumers may not notice the difference in products made in Cambodia or Mexico rather than China, but the long-term effect on consumer prices remains to be seen.12
The Chinese market is far less dependent on U.S. goods, which gives China less of an edge in levying tariffs but also causes less disruption for Chinese consumers. Agricultural products are a major U.S. export to China, and the Chinese have already shifted to other suppliers, drying up an important market for American farmers. The Trump administration has authorized subsidies to affected farmers, but uncertainty about potential markets has disrupted farming operations.13
While U.S. consumers and businesses may bear the brunt of the tariffs in the short term, the United States is better positioned to outlast China in an extended trade war. Despite headwinds from trade concerns, the U.S. economy remains strong. One estimate suggests that the 25% tariffs may reduce gross domestic product growth by 0.3% — enough to slow the current pace but not enough to shift the economy into reverse.14
Market volatility is likely to continue as long as investors react to moves on either side of the conflict. However, many other factors also influence the markets, and it would be wise to focus on your long-term investment goals without overreacting to short-term market swings.
All investments are subject to market volatility and loss of principal. Investments, when sold, may be worth more or less than their original cost. Investing internationally carries additional risks such as differences in financial reporting, currency exchange risk, and economic and political risk unique to the specific country. This may result in greater share price volatility.
1) Bloomberg, May 13, 2019
2) Yahoo! Finance, May 22, 2019
3) Office of the U.S. Trade Representative, 2019
4) U.S. Census Bureau, 2019
5) Reuters, May 8, 2019
6) BBC News, May 14, 2019
7) CNN Business, May 13, 2019
8-9) The Wall Street Journal, May 15, 2019
10, 13-14) The Wall Street Journal, May 10, 2019
11) Federal Reserve Bank of New York, May 23, 2019
12) The Wall Street Journal, May 9, 2019
Retirement Confidence Increases for Workers and Retirees
The 29th annual Retirement Confidence Survey (RCS), conducted by the Employee Benefit Research Institute (EBRI) in 2019, found that two-thirds of U.S. workers (67%) are confident in their ability to live comfortably throughout their retirement years (up from 64% in 2018). Worker confidence now matches levels reported in 2007 — before the 2008 financial crisis.
Confidence among retirees continues to be greater than that of workers. Eighty-two percent of retirees are either very or somewhat confident about having enough money to live comfortably throughout their retirement years (up from 75% in 2018).
Retirement plan participation
Retirement confidence seems to be strongly related to retirement plan participation. “Workers reporting they or their spouse have money in a defined contribution plan or IRA, or have benefits in a defined benefit plan, are nearly twice as likely to be at least somewhat confident about retirement (74% with a plan vs. 39% without),” said Craig Copeland, EBRI senior research associate and co-author of the report.
Basic retirement expenses and medical care
Retirees are more confident than workers when it comes to basic expenses and medical care. Eighty-five percent of retirees report feeling very or somewhat confident about being able to afford basic expenses in retirement, compared with 72% of workers. Confidence in having enough money to pay medical expenses in retirement was also higher among retirees than workers: 80% versus 60%. However, 41% of retirees and 49% of workers are not confident about covering potential long-term care needs.
Debt levels
The survey consistently shows a relationship between debt levels and retirement confidence. “In 2019, 41% of workers with a major debt problem say that they are very or somewhat confident about having enough money to live comfortably in retirement, compared with 85% of workers who indicate debt is not a problem. Thirty-two percent of workers with a major debt problem are not at all confident about their prospects for a financially secure retirement, compared with 5% of workers without a debt problem,” said Copeland.
What Are the Costs of the Government Shutdown?
The longest government shutdown in U.S. history ended after 35 days on January 25, 2019. A temporary appropriations bill extended funding for shuttered federal agencies to February 15, 2019, while a bipartisan committee negotiates a new spending bill for the Department of Homeland Security.1
The full impact of the shutdown will not be known for months, but official estimates have been released, and it may be helpful to look at the estimated cost to the U.S. economy, as well as the effect on public safety and other government services.
Nine departments closed
The shutdown began on December 22, 2018, when funding lapsed for nine cabinet-level departments (agriculture, commerce, homeland security, housing and urban development, interior, justice, transportation, Treasury, and state) as well as a number of other government agencies.2
About 800,000 federal workers in these organizations missed two consecutive paychecks.3 Some 380,000 of these workers were originally placed on unpaid leave (furlough), while 420,000 were deemed “essential” and required to report to work without pay.4 As the stoppage progressed, tens of thousands of furloughed workers were ordered back to work without pay.5
All federal employees will receive full back pay as soon as possible — many by the end of January — but about 1.2 million government contractors had no guarantees and may lose income permanently. It has been estimated that contractors faced more than $200 million a day in lost or delayed revenue.6-7
Family hardship and public safety
Missing paychecks was a hardship for many families and especially difficult on lower-paid essential workers. (Furloughed workers in many states could apply for unemployment benefits or seek other employment opportunities.)
The most visible manifestation of this issue was increased absences by Transportation Security Administration (TSA) workers. On January 20, the absentee rate for TSA airport screeners was 10%, up from 3.1% on a comparable day last year. According to the TSA, many workers took time off for financial reasons, such as an inability to pay for child care or transportation. Increased absences resulted in long lines, delays, and gate closures at some airports.8
Air traffic controllers, who are better paid, remained on the job without pay and normal support staff. However, on January 25, an increase in absences by controllers temporarily shut down New York’s LaGuardia Airport and led to substantial delays at airports in Newark, Philadelphia, and Atlanta. This may have been an impetus to reopen the government later that day.9
Other public safety employees who worked without pay include the U.S. Coast Guard, customs and border protection agents, and law-enforcement officers at the Federal Bureau of Investigation, U.S. Marshals Service, Drug Enforcement Administration, and Bureau of Prisons.10
Disrupted services
While essential workers maintained some federal services, furloughed workers left significant gaps. National parks were closed or understaffed, resulting in lost revenue, vandalism, and mounting trash.11 Many federal services were delayed or suspended, ranging from food inspections and civil court cases to consumer protection services, rural home loans, and federal reports used for everything from projecting the economy to deciding what crops to plant.12-16
The IRS called back 26,000 furloughed workers to process tax refunds, but almost 14,000 of them had not reported as of January 22. The IRS is understaffed under normal circumstances, and it may take time to get up to speed, adding to the challenges of processing returns that reflect changes in the new tax law.17 About $2 billion in tax revenue may be lost as a result of reduced IRS compliance efforts during the shutdown.18
Broader economic impact
According to the nonpartisan Congressional Budget Office (CBO), an estimated $18 billion in government spending was lost or delayed during the shutdown. This includes $9 billion of direct spending on goods and services and $9 billion in compensation for federal employees. Assuming the government stays open, most of this is expected to be recouped over the next eight months, but $3 billion in gross domestic product (GDP) may be permanently lost.19
Three billion dollars is a tiny fraction of total U.S. GDP — about 0.02% — but quarterly GDP growth may take a larger hit. The CBO projects an annualized loss of 0.2% growth in the fourth quarter of 2018 and 0.4% in the first quarter of 2019. So the CBO’s pre-shutdown estimate of 2.5% annualized growth in the first quarter would be reduced to 2.1%. GDP growth may be 1% higher than expected in the second quarter.20
Even if delayed spending is recovered, lost productivity by furloughed workers and government contractors will not be regained.21 Consumer confidence dropped in December and January due in part to the shutdown, but may rebound if the government remains open.22 A longer-term concern is the potential loss of federal workers, including those who leave for other opportunities and qualified candidates who may look elsewhere due to doubts about the future stability of federal jobs.23
It remains to be seen whether all government agencies continue to operate with full funding after the February 15 deadline. If so, the long-term economic costs of the shutdown may be relatively small, but the impact on individuals who fell behind financially or missed out on government services could be significant.
1, 9) The Washington Post, January 25, 2019
2, 18-20) Congressional Budget Office, January 2019
3, 23) CNBC, January 26, 2019
4) The Wall Street Journal, December 21, 2018
5, 13) CNN, January 16, 2019
6) Federal News Network, January 28, 2019
7) Bloomberg, January 17, 2019
8) Associated Press, January 21, 2019
10) ABC News, December 29, 2018
11) nationalgeographic.com, January 7, 2019
12) The Wall Street Journal, January 9, 2019
14) Federal Trade Commission, December 28, 2018
15) CNBC, January 9, 2019
16) CNN, January 8, 2019
17) The New York Times, January 25, 2019
21) S&P Global Ratings, January 11, 2019
22) The Conference Board, January 29, 2019
Prioritizing Savings for College and/or Retirement
The November 2018 AAII Journal, American Association of Individual Investors, included an interview with Harold Pollack. The discussion was about “The Index Card: Why Personal Finance Doesn’t Have to Be Complicated” (Portfolio, 2016). He wrote it with Helaine Olen.
The following passage is from a response to a question about prioritizing where to direct money.
“There are different ways that people can do this. You should match your method with what gives you the mojo to actually do it.” … “Suppose I’m a young parent and I’m choosing between prioritizing my retirement and savings for my kid’s college. Mathematically, retirement tends to be the answer for most people, but your kid’s college gives you mojo in a different way. If you’re walking with your seven-year-old daughter in a store and you see a sweet $500 camera lens, you can point to it, and tell your daughter: “I really want that lens, I’m going to put that $500 toward paying for your college. Maybe some day you’ll do that for your daughter.’ That’s powerful and motivating.”
2018 Nov.Beyond-the-Index-Card-Implement
2018 Year-end opportunity
The end of the year presents a unique opportunity to look at your overall personal financial situation. With factors like tax reform, life changes or just working towards your goals, end of year is an especially important time to review things. Weaving together your prior planning, subsequent changes and revised goals helps you stay on course. Following are some things you consider before the year ends.
Income Tax Planning –Ensure you are implementing tax reduction strategies like maximizing your retirement plan contributions, tax loss harvesting in portfolios and making charitable contributions can all help reduce current and future tax bills. It is also good to review your current year tax projection based on your income and deductions year to date and how that may be different from before.
Estate Planning – Examine your current estate plan to visualize what would happen to each of your assets and how the current estate tax law will impact you. Be sure that your estate planning documents are up to date – not just your will, but also your power of attorney, health care documents, and any trust agreements and beneficiary designations are in line with your desires. If you have recently been through a significant life event such as marriage, divorce or the death of a spouse, this is especially important right now.
Investment Strategy– The recent market volatility has some people feeling uncomfortable. Market declines are a natural part of investing, and understanding the importance of maintaining discipline during these times is imperative. Regular portfolio rebalancing will allow you to maintain the appropriate amount of risk in your portfolio. And, if you are retired and living off your portfolio, you also want to maintain an appropriate cash reserve to cover living expenses for a certain period of time so that you do not have to sell equities in a down market.
Charitable Giving – There are many ways to be tax efficient when making charitable gifts. For example, donating appreciated stock could make sense in order to avoid paying capital gains taxes. Further, you may want to consider bunching charitable deductions by deferring donations to next year or making your planned 2019 donations ahead of time. If the numbers are large enough, you might even consider a private foundation or donor advised fund for your charitable giving. If you are at least 70.5 you may want to consider Qualified Charitable Distributions (QCD) from your IRA.
Retirement Planning –Think about your future when working becomes optional. Whether you expect a typical full retirement or a career change to something different, determining an appropriate balance between spending and saving, both now and in the future is important. There are many options available for saving for retirement, and we can help you understand which option is best for you. If you are at least 70.5 you should be sure your 2018 Required Minimum Distributions (RMD) from your IRAs are paid before year-end. Qualified Charitable Contributions, up to $100,000, will be treated as part of your RMD but not taxed.
Cash Flow Planning – Review your 2018 spending and plan ahead for next year. Understanding your cash flow needs is an important aspect of determining if you have sufficient assets to meet your goals. If you are retired, it is particularly important to maintain a tax efficient withdrawal strategy to cover your spending needs. If you have not yet reached age 70.5, it is prudent to ensure you are making tax-efficient withdrawal decisions. If you are over age 70.5 make sure you are taking your RMDs because the penalties are significant if you don’t.
Risk Management – It is always a good idea to periodically review your insurance coverages in various areas. Recent catastrophic events like hurricanes serve as a powerful reminder to make sure your property insurance coverage is right for your needs. If you are in a Federal disaster area, there are additional steps necessary to recover what you can and explore the tax treatment of casualty losses. Other areas of risk management that may need to be revisited include life and disability insurance.
Education Funding – Funding education costs for children or grandchildren is important to many people. While the increase in college costs have slowed some lately, this is still a major expense for most families. It is important to know the many different ways you can save for education to determine the optimal strategy. Often, funding a 529 plan comes with tax benefits, so making contributions before the end of the year is key. With the added flexibility of funding k-12 years (set at a $10,000 limit), 529 accounts become even more advantageous.
Elder Planning – There are many financial planning elements to consider as you age, and it is important to consider these things before it’s too late. Having a plan in place for who will handle your financial affairs should you suffer cognitive decline is critical. Making sure your spouse and/or family understands your plans will help reduce future family conflicts and ensure your wishes are considered.
The decisions you make each year with your personal finances will have a lasting impact. I hope this has begun to generate some insight to areas of your personal finance that need attention. Please contact me if you have any comments or questions.
2019 retirement account limits announced by IRS
The limit on 401(k) contribution are increased to $19,000, $25,000 for those that are are 50 or older.
The limit on IRA contribution are increased to $6,000, $7,000 for those that are 50 or older.
IRA Adjusted Gross Income deduction phase- will start at $103,000 fir joint returns and $64,000 for single and head of household filers.
IRS Link: COLA Increases for Dollar Limitations on Benefits and Contributions
The above apply for contributions made for 2019 not for 2018 contributions made in 2019
