Social Security and Medicare Figures for 2014
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IRA and Retirement Plan Limits for 2014
| The release of the 2014 limits is a reminder to make sure you maximize your 2013 contributions before December 31, 2013 in addition to starting your 2014 planning. | |||||||||||||||||||||||||||||||||||
| IRA contribution limits The maximum amount you can contribute to a traditional IRA or Roth IRA in 2014 remains unchanged at $5,500 (or 100% of your earned income, if less). The maximum catch-up contribution for those age 50 or older in 2014 is $1,000, also unchanged from 2013. (You can contribute to both a traditional and Roth IRA in 2014, but your total contributions can’t exceed this annual limit.)Traditional IRA deduction limits for 2014 The income limits for determining the deductibility of traditional IRA contributions have increased for 2014 (for those covered by employer retirement plans). For example, you can fully deduct your IRA contribution if your filing status is single/head of household, and your income (“modified adjusted gross income,” or MAGI) is $60,000 or less (up from $59,000 in 2013). If you’re married and filing a joint return, you can fully deduct your IRA contribution if your MAGI is $96,000 or less (up from $95,000 in 2013). If you’re not covered by an employer plan but your spouse is, and you file a joint return, you can fully deduct your IRA contribution if your MAGI is $181,000 or less (up from $178,000 in 2013).
*If you’re not covered by an employer plan but your spouse is, your deduction is limited if your MAGI is $181,000 to $191,000, and eliminated if your MAGI exceeds $191,000. Roth IRA contribution limits for 2014 The income limits for Roth IRA contributions have also increased. If your filing status is single/head of household, you can contribute the full $5,500 to a Roth IRA in 2014 if your MAGI is $114,000 or less (up from $112,000 in 2013). And if you’re married and filing a joint return, you can make a full contribution if your MAGI is $181,000 or less (up from $178,000 in 2013). (Again, contributions can’t exceed 100% of your earned income.)
Employer retirement plans The maximum amount you can contribute (your “elective deferrals”) to a 401(k) plan in 2014 remains unchanged at $17,500. The limit also applies to 403(b), 457(b), and SAR-SEP plans, as well as the Federal Thrift Savings Plan. If you’re age 50 or older, you can also make catch-up contributions of up to $5,500 to these plans in 2014 (unchanged from 2013). (Special catch-up limits apply to certain participants in 403(b) and 457(b) plans.) If you participate in more than one retirement plan, your total elective deferrals can’t exceed the annual limit ($17,500 in 2014 plus any applicable catch-up contribution). Deferrals to 401(k) plans, 403(b) plans, SIMPLE plans, and SAR-SEPs are included in this limit, but deferrals to Section 457(b) plans are not. For example, if you participate in both a 403(b) plan and a 457(b) plan, you can defer the full dollar limit to each plan–a total of $35,000 in 2014 (plus any catch-up contributions). The amount you can contribute to a SIMPLE IRA or SIMPLE 401(k) plan in 2014 is $12,000, unchanged from 2013. The catch-up limit for those age 50 or older also remains unchanged at $2,500.
Note: Contributions can’t exceed 100% of your income. The maximum amount that can be allocated to your account in a defined contribution plan (for example, a 401(k) plan or profit-sharing plan) in 2014 is $52,000 (up from $51,000 in 2013), plus age-50 catch-up contributions. (This includes both your contributions and your employer’s contributions. Special rules apply if your employer sponsors more than one retirement plan.) Finally, the maximum amount of compensation that can be taken into account in determining benefits for most plans in 2014 has increased to $260,000, up from $255,000 in 2013; and the dollar threshold for determining highly compensated employees remains unchanged at $115,000. |
College Costs 2013/2014: Increases Slow, but So Does Growth in Grant Aid
Every October, the College Board releases its Trends in College Pricing report that highlights college cost increases for the current academic year along with trends in the world of higher education. While costs can vary significantly depending on the region and individual college, the College Board publishes average cost figures, which are based on its survey of nearly 4,000 colleges across the country.
In its report, the College Board noted that even though this year’s increases in tuition and fees were the smallest in many years, the growth in student grant aid from previous years has not kept pace. As a result, many students will be facing higher costs, even in the face of smaller price increases.
To read the full Trends in College Pricing 2013 report, go to trends.collegeboard.org.
Following are cost highlights. Note that total cost figures include tuition and fees, room and board, books and supplies, and a sum for transportation and personal expenses. Together, these items are officially referred to as the “total cost of attendance.”
Public colleges (in-state students)
Tuition and fees increased an average of 2.9% this year to $8,893
Room-and-board costs increased an average of 3.6% this year to $9,498
Total cost of attendance for 2013/2014 is $22,826 (up from $22,261 last year)
Public colleges (out-of-state students)
Tuition and fees increased an average of 3.1% this year to $22,203
Room-and-board costs increased an average of 3.6% this year to $9,498
Total cost of attendance for 2013/2014 is $36,136 (up from $35,312 last year)
Private colleges
Tuition and fees increased an average of 3.8% this year to $30,094
Room-and-board costs increased an average of 3.5% this year to $10,823
Total cost of attendance for 2013/2014 is $44,750 (up from $43,289 last year)
Cost trends
In its Trends in College Pricing 2013 report, the College Board noted that college prices have been rising more rapidly than the prices of other goods and services over the last three decades and that “the increasing economic inequality in the United States over recent decades has exacerbated the difficulty in paying for college for many students, in addition to straining federal, state, and institutional budgets.”
The College Board noted that even though this year’s increases in tuition and fees were the smallest in many years, the growth in student grant aid from previous years has not kept pace. As a result, many students will be facing higher costs, even in the face of smaller price increases.
Last-Minute Agreement Ends Government Shutdown, Suspends Debt Ceiling
After a 16-day federal government shutdown and gridlock over whether to raise the nation’s debt ceiling, a last-minute agreement brought a temporary end to the impasse. The measure, formally known as the “Continuing Appropriations Act, 2014,” was passed by both houses of Congress and signed by President Obama shortly after midnight on October 17–the day on which the Treasury had said it would begin running out of cash to pay the nation’s bills.
What does the agreement do?
The legislation suspends the debt ceiling until February 7 and provides sufficient funding to reopen the government for the next three months (through January 15). It applies retroactively through October 1, the day on which the federal government was forced to begin furloughing roughly 800,000 employees.
To try to address longer-term issues, the agreement also establishes a congressional budget conference that would issue a report no later than December 13. That will be run by Sen. Patty Murray (D-Washington) and Rep. Paul Ryan (R-Wisconsin), who head their respective chambers’ budget committees. The across-the-board budget cuts known as the sequester, which were adopted as part of the agreement that ended the 2011 debt ceiling and were implemented earlier this year, remain in effect. The new agreement also requires income verification for people receiving subsidies under the Affordable Care Act, and if the debt ceiling is reached again in February, the Treasury will not be prohibited from using measures like those it has been using since May to cope with the current debt ceiling.
What exactly is the debt ceiling?
The debt ceiling represents a limit on the amount the Treasury is allowed to borrow to manage the national debt (the total amount currently owed by the U.S. government). An increase in the debt limit does not authorize additional government spending, which only Congress can approve; it enables the Treasury to help manage its cash flow and pay bills that have already been incurred.
Technically, hitting the debt ceiling is not the same as defaulting on payments. In fact, the Treasury actually hit the debt ceiling in May, and has been using various accounting measures since then to temporarily extend its ability to borrow. That created greater uncertainty about whether hitting the debt ceiling on October 17 would have prevented the country from meeting its financial obligations. That was a special concern not only for recipients of Social Security and Medicare benefits but also for investors. Because Treasuries have traditionally been seen as the safest sovereign debt in the world, overseas investors hold a substantial amount of it. The uncertainty helped underscore fears not only of a default, but that some countries might increase calls for alternatives to the U.S. dollar as the global reserve currency.
How will the agreement affect financial markets?
Investors’ immediate reaction to the news was extremely positive. Word on Thursday that a deal had been reached sent the S&P 500 up 1.4% and added 206 points to the Dow Jones Industrial Average in a single day. Even if that enthusiasm fades as equities once again start to respond to other influences, it was a far cry from the reaction to the 2011 extension of the debt ceiling, which was followed by a 10.6% decline in the S&P over the week following the August 2 signing. But investors now must turn their attention once again to corporate earnings season and the question of whether the shutdown’s economic impact will affect when the Federal Reserve starts to taper its economic support.
The new agreement also helps protect the nation’s credit rating from a threatened downgrade that would have affected borrowing costs. Yields on 1-month Treasury bills, which had soared in October when several institutional investors began unloading them as the debt ceiling deadline neared, were cut in half overnight after the announcement.*
When will government agencies return to fully functional status?
The roughly 800,000 federal employees furloughed during the shutdown were instructed by the Office of Management and Budget to be ready to return to work the day after the agreement was signed. However, individual agencies may vary depending on the method each uses to notify employees, who will be entitled to receive back pay for the shutdown period.
What was the economic impact of the shutdown?
Standard & Poor’s estimated that as of the day before the agreement, the shutdown had cost the U.S. economy $24 billion, cutting roughly 0.6% from inflation-adjusted Q4 gross domestic product.** (S&P also estimated that had there been a default, the result would have put the economy into recession.)
*Source: U.S. Treasury Resource Center (www.treasury.gov) Daily Treasury Yield Curve Rates as of 10/17/2013.
**Source: Standard & Poor’s press release, October 16, 2013.
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Conventional wisdom does not always apply.
This is the subject in Gregory Karp’s article, “Turning conventional wisdom on its head”, in his October 6th article in The Chicago Tribune. Following are excerpts from that article.
“Getting credit cards at a younger age can be a good thing. ‘It seems that the type of people who get credit early are better borrowers – less likely to default…’”.
“Part of the reason young borrowers become better borrowers may be that they are once bitten, twice shy. ‘They have some minor delinquencies and they learn their lesson’”.
“The takeaway? Don’t necessarily discourage a young adult from getting a credit card.”
“You might think that sticking with your auto insurer year after year breeds good will and maybe even lower rates…according to the Consumer Federation of America…some insurers are illegally jacking up car insurance rates on people who, faced with higher rates, are less likely to shop for a better deal, a practice called price optimization.” “…the takeaway is tried-and-true advice regardless of price optimization: Regularly shop around your insurance coverage to make sure you’re not overpaying.”
“Those ‘use by’ and ‘sell by’ dates on food items seem like helpful guides, but they actually don’t mean much. That’s because they are not standardized or regulated…”
Based on this article and numerous other similar articles, it may be more important than ever to exercise due diligence rather than rely on conventional wisdom.
U.S. Government Shutdown Explained
Congress failed to agree on a spending bill for the fiscal year starting October 1, 2013, resulting in the first government shutdown since 1995. According to the Congressional Research Service, this is the 18th time the federal government has shut down as a result of a failure to agree on an annual appropriations bill. Most shutdowns have lasted only a few hours or a few days. The most recent shutdown, in 1995, lasted three weeks.
What happens when the federal government shuts down?
When the government shuts down, federal agencies must generally suspend operations and furlough their employees. However, there are significant exceptions for government functions that promote national security, or protect human life and property. As a result, a shutdown doesn’t impact certain essential functions like the military, law enforcement, TSA, air traffic control, border patrol, emergency and disaster assistance, food safety, foreign embassies, prisons, and federal medical care (among others).
A shutdown also doesn’t impact federal entitlement programs (like Social Security and Medicare) that aren’t funded by discretionary annual appropriations. Funding for these programs is considered mandatory, because the legislation creating the benefit obligates the government to make payment. So benefits under these programs continue uninterrupted, and the employees who administer those benefits are generally exempt from furlough.
Finally, some agencies are funded by multiple year appropriations. Even though these agencies don’t yet have any funds appropriated for the new fiscal year, they may still have funds remaining from prior appropriations, which they can use to continue operations until those funds run out.
So what does a government shutdown mean to you?
What you can do during the shutdown:
Receive and send mail–the post office is an independent agency unaffected by the budget process
Buy insurance through one of the new health insurance Exchanges
Receive your Social Security and Medicare benefits, or apply for new benefits
Get a passport or visa–but only until the State Department’s available funding runs out (during the 1995 shutdown, 200,000 U.S. applications for passports went unprocessed)
Conduct business with the United States Patent and Trademark Office–but only until the USPTO’s available funding runs out
Receive unemployment benefits and food stamps
Get an FHA or VA mortgage
Receive medical care at a veterans hospital
Use the federal court system–but only for about 10 days
What you can’t do during the shutdown:
Stop paying taxes–the IRS will continue to process electronically submitted tax returns, but if you’re being audited, you’ll get a temporary reprieve
Get taxpayer assistance from the IRS
Get a small business loan
Go to a national park, zoo, or museum–if you’re already overnighting in a national park, you generally have two days to leave
Get a paycheck, if you’re a federal employee–unless you’re the president, a member of Congress, or in the military; however, in the past workers were paid retroactively after a new appropriations bill was passed
If you need more information, most government agencies have posted their shutdown contingency plans on their websites.
And there’s more to come…
The shutdown is separate and distinct from another looming crisis–the debt ceiling. According to Treasury Secretary Jacob Lew, it’s anticipated that the United States will run out of funds as soon as October 17, and will default on its debts, unless Congress acts to raise the debt ceiling before then. More on that crisis to follow…
The shutdown is separate and distinct from another looming crisis–the debt ceiling. According to Treasury Secretary Jacob Lew, it’s anticipated the United States will run out of funds as soon as October 17, and will default on its debts, unless Congress acts to raise the debt ceiling before then.
Fees of a Fee-Only adviser are only paid by the client.
I have not understood why there has been any resistance to requiring financial planners and investment managers to be held to a fiduciary standard. A recent article in the Wall Street Journal (WSJ) may indicate why some do not want to be held to a fiduciary standard.
The Free Dictionary by FARLEX defines a Fiduciary as: “An individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another’s benefit.”
A fiduciary relationship encompasses the idea of faith and confidence and is generally established only when the confidence given by one person is actually accepted by the other person.”
Many of us believe it is putting the client first.
Jason Zweig’s September 20th article “ ‘Fee-Only’ Financial Advisers Who Don’t Charge Fees Alone” may show why there is resistance to a fiduciary standard for financial planners and investment managers. They found that 24% of the 33,949 certified financial planners (CFP) they analyzed described their compensation as “fee-only”.
The article notes that “Securities lawyers and government regulators say that an adviser who works for a brokerage firm or insurance company that charges commissions shouldn’t describe his services as ‘fee only’, even if the adviser himself doesn’t charge commissions to his clients.” Although none of the CFPs at major banks and brokerage firms, the WSJ identified 661 listed CFPs who call themselves ‘fee-only’” at some of the major banks and brokerage firms. The problem extends beyond CFPs.
Can you argue that if the compensation is not accurate, the advisor is not a fiduciary?
IRS provides guidance for recognition of same-sex marriages
IRS recently ruled (Rev. Rul. 2013-17) that all legal same-sex marriages will be recognized for Federal Tax purposes. This applies to all taxes including: income, gift and estate taxes. That would include qualified retirement plans and other employee benefits. The determination is based on the status under the laws of the state where the marriage was established. This is the rule even if the state of their domicile does not recognize the marriage.
The ruling does not apply to registered domestic partnerships, civil unions or similar relationships recognized under state law that are not denominated as marriages. Currently Illinois has authorized civil unions but does not denominate them as marriages. Individuals that have had a civil union in Illinois are not considered married for Federal tax purposes.
The ruling was triggered by the recent decision of the Supreme Court in “United States v. Windsor”. That case ruled that a portion of the “Defense of Marriage Act “ (DOMA) relating to the definition of “marriage’ was unconstitutional.
Following are excerpts from the ruling:
“There are more than two hundred Code provisions and Treasury regulations relating to the internal revenue laws that include the terms ‘spouse’, ‘marriage’ …” husband and/or wife. “The Service concludes that gender-neutral terms in the Code that refer to marital status, such as ‘spouse’ and ‘marriage, ‘include, respectively, (1) an individual married to a person of the same sex if the couple is lawfully married under state law, and (2) such a marriage between “individuals of the same sex.”
“Given our increasingly mobile society, it is important to have a uniform rule of recognition that can be applied with certainty by the Service and taxpayers alike for all Federal tax purposes. Those overriding tax administration policy goals generally apply with equal force in the context of same-sex marriages.”
“For Federal tax purposes, the Service adopts a general rule recognizing a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages.”
“Except as provided below, affected taxpayers also may rely on this revenue ruling for the purpose of filing original returns, amended returns, adjusted returns, or claims for credit or refund for any overpayment of tax resulting from these holdings, provided the applicable limitations period for filing such claim under section 6511 has not expired. If an affected taxpayer files an original return, amended return, adjusted return, or claim for credit or refund in reliance on this revenue ruling, all items required to be reported on the return or claim that are affected by the marital status of the taxpayer must be adjusted to be consistent with the marital status reported on the return or claim.”
Taxpayers may rely (subject to the conditions in the preceding paragraph regarding the applicable limitations period and consistency within the return or claim) on this revenue ruling retroactively with respect to any employee benefit plan or arrangement or any benefit provided there under only for purposes of filing original returns, amended returns, adjusted returns, or claims for credit or refund of an overpayment of tax concerning employment tax and income tax with respect to employer-provided health coverage benefits or fringe benefits that were provided by the employer and are excludable from income under sections 106, 117(d), 119, 129, or 132 based on an individual’s marital status. For purposes of the preceding sentence, if an employee made a pre-tax salary-reduction election for health coverage under a section 125 cafeteria plan sponsored by an employer and also elected to provide health coverage for a same-sex spouse on an after-tax basis under a group health plan sponsored by that employer, an affected taxpayer may treat the amounts that were paid by the employee for the coverage of the same-sex spouse on an after-tax basis as pre-tax salary reduction amounts.”
IRS recognizes marriaged based on state of the ceremony
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Risk
It is important for you to understand your tolerance for risk and capacity to recover from investment losses. Financial professionals need to understand this also. It is part of the understanding needed to help develop a foundation to guide you through your life’s journey.
Risk tolerance is your capacity to withstand a loss. Your capacity to withstand a financial loss is your ability to recover from or absorb a financial loss and still be able reach your financial goals. If the probability of an investment portfolio is too low, then the person does not have the capacity to withstand the loss.
If you do not have the tolerance or capacity to withstand a loss, something else may need to be changed. It may be any combination of actions including: increasing income, lowering expenses, increasing savings, or lowering financial goals.
The reliability of your sources of income is another factor to consider. If have a good job with a strong reliable company in a growing industry, you are in a better position to withstand investment losses. However, if you are not satisfied with your employment you are not in as good of a position to withstand investment losses.
Age and health are two other factors to consider. If you are in the earlier stages of you career, you have more time and resources to recover from investment losses. The existence of health issues generally reduces the ability and flexibility to withstand losses.
Future plans to start a new business and to travel extensively are two other factors to consider. These plans may reduce your ability and flexibility to recover from investment risks.
This discussion is an introduction to an understanding of your risk tolerance and capacity. Without this understanding, your financial planning may not be achievable.
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Tips for selecting a fianncial professional
Linda Stern (Reuters) provided some tips for getting help selecting a financial planner and/or adviser in her August 4, 2013 column in the Chicago Tribune.
The first part of the article summarizes the battle that has been going on since the 1990s to impose a requirement that all financial planners and/or advisers put their client’s interest first. The point she was making is that you should not wait until Congress decides who should be covered and by what standard as an excuse for not getting help with your financial matters.
“If you are getting your financial advice for free, you are not getting an adviser who is putting…” your interest first. “Smart and unconflicted financial advice is worth something…” Many of us provide guidance, support, etc. for those that want to manage their financial matters themselves.
“Look for the term ‘fiduciary planner’.” Until Washington waters it down, it means the adviser has to make sure your investments are the best possible investments for you.” Those that have the Personal Financial Specialists Credential (PFS) had to establish they had the specified experience, specified education and successful completion of the required examination. As a member of the AICPA, we are also are subject to the AICPA Code of Professional Conduct. CPA/PFS professionals must maintain objectivity and integrity, be free of conflicts of interest, and shall not knowingly misrepresent the facts. Some believe these requirements are the essence of the fiduciary duty.
“Regardless of where you get your advice, make sure your assets are held in a bona fide brokerage account insured by the Securities Investor Protection Corp. “
Bottom line is that you should not delay planning. Delays can limit you alternatives and require more effort to reach your financial goals. You should also do your due diligence in selecting a professional to guide you through the process.
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