2015 and 2016 Roth IRA TAX UPDATES!!

Contribution Limits And Deadlines

Tax Year 2015           Maximum Contributions $5,500   (if under age 50)         $6,500 (if over age 50)         Contribution Deadline 04/18/2016

Tax Year 2016       Maximum Contributions $5,500     (if under age 50)           $6,500 (if over age 50)           Contribution Deadline 04/15/2017

Contribute to Roth at any Age.


For Small Businesses & Entrepreneurs 

IR-2016-68, April 28, 2016 — The IRS is marking National Small Business Week, May 1 to 7, by encouraging small business owners and self-employed individuals to check out several products to help them understand and meet their tax obligations.


Brexit Vote: The Market Impact

With last night’s public referendum votes tallied, Great Britain became the first country in the European Union’s (EU) 60-year history to leave the EU bloc of nations—a momentous decision with enormous consequences for financial markets, the economy, politics, and business.  It seems appropriate that the U.K. media are calling it “Independence Day,” considering the fireworks taking place.

The vote to “leave” the EU rattled global financial markets, which had largely expected Britons to vote “remain,” and sent the British pound to a 30-year low, losing -12.4% against the U.S. dollar even before the official results were announced.  Stock markets around the globe were down significantly immediately after the vote, with Dow Industrial futures predicting a -800 start to the day.  Across Europe, banks, builders, travel, insurance, and real estate stocks declined by -10% or more.  Defensive stocks, such as foods and healthcare, were the best of the worst, with losses of just -4%. (By daybreak in the United States, markets had recovered somewhat, once the initial shock of the vote was absorbed.)

So-called “safe haven”  or “risk-off” bets dominated trading; spot gold prices soared; the Japanese yen and U.S. dollar were pushed higher against their major competitors; demand for U.S. Treasuries soared.  The yield on the German 10-year bund dropped to a negative -0.074%.

The U.K.’s decision to leave the EU after 43 years will have wide repercussions beyond the financial markets, the most immediate of which was the announcement by Prime Minister David Cameron that he would resign in October.  Meanwhile, Standard & Poor’s said it will be reviewing the nation’s ‘AAA’ credit rating for a possible downgrade.  And the possibility of other EU-member nations planning similar exits adds another destabilizing force to global markets. 

Moreover, as we write this, central banks around the globe are holding emergency meetings, and a number have already intervened in currency markets to stem any drastic declines.  As the fifth most-held reserve currency in the world, the British pound’s importance in world markets cannot be exaggerated. It is the most traded currency in the foreign exchange market, after the U.S. dollar, the euro, and the Japanese yen.  Together with those three currencies and the Chinese yuan, it forms the basket of currencies used to calculate the value of the International Monetary Fund’s Special Drawing Rights, with an 8.09% weighting (as of 2015). 

What Does All of This Mean for Investors?
We believe the decision to leave the EU will be a headwind for both Great Britain and the eurozone economies and their respective financial markets.  While in the United States, however, internally driven economic growth should provide some insulation for domestic stock and bond investments.  Lower yields produced by central bank liquidity efforts should also translate into global interest in U.S. domestic debt of all qualities.

So, investors concerned about the impact on non-U.S. markets and economies might want to consider increasing their allocation to U.S. stocks and bonds. FactSet reports that U.S. companies derive just 2.9% of their revenue from Great Britain.  One sweet spot for investors may be in U.S. mid- and small-cap stocks, where the greatest exposure to the resilient U.S. consumer is typically found.  Another potential investment opportunity may be found in U.S. high-quality dividend-growth stocks, which historically have aided investors during periods of volatility and market decline.  Finally, the market sell-off itself may present investment opportunity, particularly in a slow-growth economic environment when secular growth industries such as biotech and Internet retail may distinguish themselves from the broad market and reward long-term investors.

On the fixed-income side, as the shock of the “Leave” vote fades, and investors realize in the coming weeks that there isn’t a significant risk of a global recession—and that there is even less risk when it comes to U.S. companies—they may realize that U.S. high-yield bonds can provide needed income when it’s absent everywhere else in the world.

What other segments of the fixed-income market may prove attractive in the post–Brexit period? We think short-duration and other investment-grade securities and municipal bonds—another U.S.-centered asset class—also will be well positioned in the coming months. As we noted in an earlier article, municipal bonds have provided an oasis of calm during recent periods of market volatility. Unlike other markets that are being whipsawed by fast-moving global developments, municipal bonds are influenced largely by fundamental factors that are U.S. focused. These are the health of the U.S. economy, and supply/demand factors, each of which continues to provide support for the asset class.

A word of caution, however: Investors can expect that capital markets will be filled with uncertainty and volatility in the near term, which may increase the temptation to time the market. History has shown, however, that market timing is a risky approach. The equity markets reward those who stay invested for the long term.  In fact, missing just a small number of days with strong performance can have an outsized impact on an investor’s portfolio. 

Stay calm and stay invested.  We will continue to keep you posted in what is likely to be a highly turbulent market over the next week.

Lord Abbett welcomes your feedback on this blog. Comments will be moderated and will be published at the discretion of Lord Abbett. Please do not include personal, financial or account information or endorsement of Lord Abbett or any of its products or services in your comment. Click here to read the full text of Lord Abbett’s social media policy. 

-Published By Lord Abbott Editorial Staff

The value of investments in fixed-income securities will change as interest rates fluctuate and in response to market movements. Generally, when interest rates rise, the prices of debt securities fall, and when interest rates fall, prices generally rise. Bonds may also be subject to other types of risk, such as call, credit, liquidity, interest-rate, and general market risks. Foreign investments generally pose greater risks than domestic investments, including greater price fluctuations and higher transaction costs. Special risks are inherent in international investing, including those related to currency fluctuations and foreign, political, and economic events. Further, investing in the securities of issuers located in certain emerging countries may present a greater risk of loss resulting from problems in security registration and custody or substantial economic or political disruptions. The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy. No investing strategy can overcome all market volatility or guarantee future results.

Market forecasts and projections are based on current market conditions and are subject to change without notice.


Health savings account limits to increase for some in 2017

Posted By Investment News Jul 29, 2016 @ 11:30 am By Mary Beth Franklin

 

Health savings accounts, which were established in 2003 to allow individuals and families to save money from their paychecks in tax-deferred accounts, have been touted as a great way to save for medical expenses both today and in retirement. Despite an enormous growth in the HSA market over the past few years, these popular accounts are facing some regulatory headwinds.

By the end of 2015, more than 16 million HSA accounts had been established, up 22% from 2014, according to the 2015 Year-End Devenir HSA market survey. HSA assets topped $30 billion dollars in 2015, up 25% from the previous year. Devenir projects that by the end of 2018, the HSA market will likely exceed $50 billion in assets covering almost 30 million accounts.

Earlier this summer, the Internal Revenue Service announced new HSA contribution limits for 2017. Individuals will be allowed to contribute a maximum $3,400 to an HSA in 2017, a mere $50 more than this year. The maximum contribution for family coverage next year of $6,750 is unchanged from 2016.

 

That's the good news.

The bad news affects people who purchase their health insurance through their state or federal health insurance exchanges. New rules will make it virtually impossible for anyone to find an HSA-compatible plan on the government exchanges starting next year. So far, more than 2.8 million people have purchased HSA-compatible plans through the government exchanges, according to Kevin McKechnie, executive director of the American Bankers Association HSA Council.

HSAs offer a triple tax break. Contributions are made with pre-tax dollars, while assets grow tax-free and distributions are tax-free if used for qualified medical expenses. Unlike more familiar flexible spending accounts, HSAs have no “use it or lose it” provision. Unused funds can be rolled over from year to year and accounts are portable, so they can move with an employee from job to job.

But if money is withdrawn from an HSA to pay for anything other than qualified medical expenses, the price is high. Income taxes are owed on the entire withdrawal plus a 20% penalty. Once an HSA account owner turns 65, HSA funds can be spent on anything penalty-free but taxes will still apply if the money is spent on anything other than qualified medical expenses.

A recent study published in the Journal of Financial Planning suggested that the tax savings on an employee's contribution to a health savings account could trump the wealth-building potential of a similar contribution to a 401(k) — even if that includes an employer's matching contribution. Using tax-free assets to pay medical expenses in retirement is a great strategy to hold down income taxes and to reduce the possibility of being hit with high-income surcharges on Medicare premiums.

In order to utilize an HSA, one must be enrolled in a high-deductible health insurance plan and cannot be enrolled in Medicare. For 2017, the IRS defines a high-deductible health plan as a plan with an annual minimum deductible of $1,300 for self-only coverage and $2,600 for family coverage — the same as this year. The maximum annual out-of-pocket expenses for 2017, including deductibles, co-payments and other amounts, have also not increased. They remain $6,550 for self-only coverage and $13,100 for family coverage.

 

And therein lies the problem for some HSA account holders next year.

The Department of Health and Human Services issued final regulations last spring that will make it virtually impossible for health care plans offered on the government health exchanges to comply with both HSA rules and the Affordable Care Act. The rule, known as “standardization” will remove HSAs from the exchanges starting in 2017. These new rules do not apply to high-deductible policies offered through employer-based group health insurance plans.

For a plan to meet the qualifications of one of the standard options on the exchanges, it must conform to a uniform set of features related to deductibles, out-of-pocket limits, co-payments and coinsurance levels. Plus, first-dollar coverage must apply to specific services. But the standard option deductibles and out-of-pocket limits of the new rules contradict the requirements to be considered an HSA. And the requirement that high-deductible policies offered on the health care exchange provide first-dollar coverage for non-preventive services eliminate HSAs entirely.

“These new plan designs are optional for 2017 and most likely mandatory in 2018,” said Peter Stahl, founder of Bedrock Business Results, which provides training and resources for financial advisers on retiree health issues and costs. “You'll have few, if any, HSAs on federal exchanges next year,” he predicted.

In a letter to the Centers for Medicare & Medicaid Services, Acting Administrator Andy Slavitt and 22 Republican senators posed a series of questions about the reason for the new rules. “It is clear to see the potential disruption in consumer choice by creating the 'standard option' and limiting the types of plans that qualify for it to exclude HSAs,” the lawmakers said. “These accounts have been widely popular, [but] your agency continues to try to suppress these popular plans.”

Although most financial advisory clients probably get their health insurance through their employer-provided plans, clients who retire early and are too young for Medicare may turn to the health care exchanges for coverage, Mr. Stahl said. If they are looking for a high-deductible plan to qualify them for an HSA contribution next year or beyond, they may be out of luck.