Get ready to save some more money! For the second year in a row, the IRS has increased the 401K contribution limit by $500. In 2013 the 401K contribution limit will be $17,500, pre-tax. For 2012 the limit was $17,000, pre-tax. Of course, your 401K contributions come out of your paycheck before you have taxes taken out. This lowers your taxable income and reduces your effective tax rate. The catch-up contribution limit is remaining the same at $5,500 for workers over the age of 50. This means that a worker over the age of 50 can put total contributions of $23,000 into their 401K in 2013. This is great news for savers in our economy who are trying to build a bigger nest egg for retirement.
The more you can put away now, the more you’ll have to retire on later. I recommend applying part of your pay raises each year to increased contributions into your 401K. That way you’ll never miss the extra money going into savings, and you’ll still have more take-home pay.
Some other tax changes coming in 2013 are:
The amount you can gift to anyone without having to worry about gift taxes is being increased from $13,000 to $14,000.
If you’re a U.S. citizen living abroad, the amount of foreign earnings you can exclude from your taxable income will rise from $95,100 to $97,600.
The Social Security Administration to announce earlier this week that Social Security recipients will be given a 1.7% boost to their monthly benefits next year.
Social Security checks will be bigger in 2013, which has not happened in a few years. However, the government has not yet announced all of the changes to Medicare for 2013. We do not yet know what the new Medicare premiums will be for people on Medicare. Currently, the Part B premiums are $99.90 per month for most people. This can be higher if you have an income above certain thresholds. This amount is very likely to go up, but we’ll probably have to wait until after the Presidential election to find out what they will be. We wouldn’t want to have any angry retirees going to the polls now would we. More on this to follow.
There are some major changes ahead for Medicare supplement and Medicare Advantage plans. Under the Affordable Patient Protection and Affordable Care Act, hundreds of billions in scheduled cuts to Medicare Advantage subsidies are scheduled to take effect in 2013. However, the Department of Health and Human Services recently announced that it will be $8.3 billion in 2013 to Medicare Advantage plans as a bonus to help offset the cuts in funding. GOA auditors suspect that the administration is trying to delay the cuts in coverage until after the election. This is because the annual election period for the 2013 plans start October 15th, right before the election, and that’s when people find out what their plan will look like for next year. So the bottom line for Medicare Advantage plan participants is that 2013 may not look too different from 2012, but by 2014 we’re likely to see some drastic increases in premiums that you pay for the plan. How does this make healthcare more affordable for Americans?
As for Medicare Supplement plans, there has not been a lot of news about what’s coming, but what we do know is not good. The President has promised a 15% excise tax on Medicare supplement plans C, F and G. This will take effect in 2017, along with a surcharge for your Medicare Part B premium for people who buy these plans. The aim of this strategy is to discourage people from buying the first dollar coverage plans. People who have these plans pay very little or nothing when they go see a doctor or are hospitalized. The fear is that people on these plans use healthcare more often since it doesn’t cost them anything. So they’re going to start taxing you more heavily if you buy those plans. Again I ask, how does this make healthcare more affordable for our seniors? I guess the idea is to make people use it less, and pay more for it, and then we save money on it…hmmm. Something just doesn’t seem right about that.
Plan F has long been one of the most popular plans as it covers all of the out-of-pocket costs on Medicare-approved services. However, in recent years there has been a big increase in people buying the new Plan N, which rolled out in June 2010. Plan N requires that the patient pays the Part B deductible ($140 per year in 2012) and a $20 copay for physician office visits. Plan N is quite a bit less expensive than Plan F, so it’s worth looking at. Another good option is Plan G, which is almost the same as Plan F. The only difference is that you have to pay the Part B deductible each year (which is only $140 this year). In some states Plan G is as much as $30 cheaper per month than Plan F. You save $360 in premiums for the year, pay the $140 deductible, and pocket the $220 savings. Often, Plan G will take slightly lower price increases than Plan F, so that is good for the long term as well. Plan G is currently still on the list of plans that will get the tax surcharge in 2017, but that could change.
One nice thing about Medicare Supplement plans is you can change plans at any time, as long as you can answer all the health questions OK. For more information on Medicare Supplment plans, and premium pricing CLICK HERE.
Ben Bernanke announced today that QE3 (Quantitative Easing 3) would be an open-ended round of buying mortgage securities and keeping rates between 0% and 0.25% through mid-2015. This move is the biggest and boldest of all the easing the committee has done yet. Unlike QE1 and QE2 where there were limits set to how much they would spend, and how long it would last, this time they’re just saying that they’re going to buy $40 BILLION of mortgage backed securities PER MONTH until things get better. The paragraph from the FOMC statement that sums it up best reads:
“….The Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions…should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”
While this sounds very promising for stock prices, gold prices, oil prices (virtually everything BUT the dollar), the next paragraph is scary:
If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.
So what they’re really saying is, things don’t look great out there, and we’re going to keep spending until we fix it. This truely is unprecedented. Employment is still very weak across the country, and that’s our biggest problem. Rates have gotten low and stayed low for a while now, and it’s still not working. They’ve basically made up new rules with this move, and hopefully it will work.
Will this help Obama get re-elected? It probably won’t hurt him. But is this really what our country needs right now? I would love to hear your comments.
One headline for the August jobs report today read, “US economy added 96,000 jobs in August and the unemployment rate fell to 8.1%”. Well that sounds pretty good, until you look deeper into the numbers to see what it really meant. Economists were expecting 125,000 new jobs in August which would have been much better. You see, in order for our employment rate to stay steady, our economy needs to be adding about 150,000 jobs per month due mostly to new people imigrating to our country. We were 54,000 jobs shy of that breakeven number. One might think that the unemployment rate should have increased since we didn’t meet the 125k job level. The reason the unemployment rate went down is because about 368,000 people who were previously looking for work decided to quit looking all together. That takes them out of the calculation for being unemployed. I’m not sure why they don’t count those people, but I guess the government assumes have retired and don’t need a job anymore. So the unemployment number went from 8.3% down to 8.1%, not really good news for anyone. Now our nations unemployment rate has been above 8% for 42 straight months. The jobs we did add in August were mostly jobs at restaurants and drinking places. Something tells me that those jobs probably don’t pay as much as most people would like to earn, but at least it’s a job. To pour some more salt in the wound, average hourly earnings for those employed in our country went down a little bit. And finally, the employment numbers for June and July were both revised to a lower number than had previously been reported. For the year 2012, we’ve been adding and average of 139,000 jobs per month, compared to 153,000 per month in 2011.
I guess the good news is that we are adding jobs right now instead of losing jobs. And, we’ve been averaging 139,000 new jobs per month so far this year, which is not too far off our breakeven number. Hopefully things will continue to go in a positive direction, and go a little quicker. Our nation needs to get people back to work!
It is not well known that many 401K plans can be expensive for investors to keep money inside of. Most employees never see the real cost of owning mutual funds through their 401K, and in fact, most people think of it as a FREE benefit from their employer. This is completely understandable since your employer is often matching part of your contribution and you don’t ever see the fees come out. But new changes in legislation will now make it easier for employees to see just how much they’re paying to keep money inside their 401K plans. As of August 1st, 2012 the Department of Labor is now requiring all 401K plans to give full and clear disclosure of the all-in costs of having money in your 401K plans. This will be a shock to many employees if they actually review this information.
Many employers set up their 401K plans in a way that minimizes the cost to them and shifts more of the cost to the employees. They can do this by paying a small annual administration fee and then selecting investments that have higher internal costs. Those internal costs are paid by the investors who put money into them, which is mostly coming from all the employees. These internal costs are already disclosed in the fund prospectuses, but if you’ve ever read a prospectus you know that they are written by attorneys, and you would probably rather eat shards of broken glass than ever read another one. Most people have never read a prospectus from a fund that they own. The new law will require employers to give employees full and clear disclosure of all the costs associated with 401K investing.
With a 401K plan that is set up to pass along the bulk of the costs to employees, they can be paying as much as 2% or more per year in investment costs and not even know it. These extra costs eat away at your performance and translate into a lot less money in your account when you retire. Because of this, employees need to be careful to select investments that both meet their planning and allocation goals, and also keep fees at a minimum. As an example: If you have $250,000 in your 401K and you’re paying an extra 1% in investment fees per year, that equals and extra $2500 per year in additional fees. In just 10 years that would be $25,000 if you assume no growth or additional conributions to your plan. In reality, what most people will end up paying before they retire will be a lot more than that.
Here is a report from ABC News just a few months ago on this very subject:
What can you do about this?
There are many things you can do to reduce the amount of fees you’re paying in your 401K plan. The first thing you should do is review the investment choices inside your plan and find the mutual funds that have the best balance of good performance and low fees. This will add an extra layer of research for you to analyze the fees, but it will be well worth it. You may want to consider hiring a professional to help you with this, as it may be well worth the expense. At Turning Point Financial we provide this service for a flat fee of $150.
Here is what our service includes:
Step 1: First we will have you complete an interview questionnaire that will tell us about your financial situation and risk tolerance. You can find the interview “HERE”
Step 2: Next you need to provide us with a list of the available investment choices inside your 401K plan. You can usually get these in digital format and then email them to us at email@example.com Or you can fax them to us at 704-243-4252. Make sure to include your name, phone number, and your employers name with your fax or email.
Step 3: We will then analyze the investment choices inside your plan to find those that have the best balance of low fees and good performance. Based on your responses to the interview questionnaire, we will be able to formulate an investment strategy for your 401K plan.
Step 4: We will provide you with a recommendation of how to allocate your money inside the plan. We will email this to you and also personally call and speak with you to make sure you are comfortable with the recommendation. If not, we can make adjustments to make it customize it to your comfort level.
Whether you hire us to assist you with this process, or you do it on your own, you will be able to minimize the fees that you’re paying, maximize the returns of your investment dollars, and minimize the risk of losing money due to being in the wrong funds.
The other choice you have is to do an in-service rollover of part of your money to an IRA while you’re still working. This is a non-taxable event, and would allow you to get most of your money into a less expensive IRA where you also have more investment choices to choose from. My next post will give more information about doing this.
Worldwide media continues to report that cases of bed bugs are still on the rise. These nasty little creatures are turning up everywhere from hotels, apartment buildings, commercial buildings, and of course residences. Bed bug bites can be very itchy and irritating, and difficult to diagnose. They usually appear as small red bumps in groups of two or three. This is what makes them difficult to diagnose because they look just like mosquito bites or spider bites. Bed bugs are very small, although they are visible to the human eye. They mostly come out of their hiding places at night when you are asleep, and they are hungry! They can sense and are attracted to your breath from up to about 50 meters, and they will make their way towards their victim. And the worst part of a bed bug problem is that they are very hard to get rid of without hiring a professional exterminator, which can be very expensive. In some cases it may be cheaper to throw out old furniture and just replace it.
What can you do about it? If you’re thinking of traveling and will be staying in a hotel, it may be a good idea to check the www.bedbugregistry.com first and see if any reports of bed bug bites have been made at that hotel. You may also want to reconsider buying used furniture such as beds, couches, and chairs. Bed bugs like to hide in fabric nooks and crannys, but they are not limited to fabric habitat. If they get a ride home on a used couch, they can and will travel through your carpet and make their way into other rooms in your house, and they will soon start to multiply. Bed bugs can reproduce at a pretty amazing rate. Adult female bed bugs will lay about a dozen eggs per day. In as little as 2-3 months you could have over 1000 bed bugs crawling around your house, and about half of them would be females. Waiting for the problem to go away will not help, it will only get worse as time goes on.
Bed bugs don’t care who they feast on, they don’t discriminate at all. If you can fog up a mirror, you’re a potential meal!
What does this have to do with my financial plan?
Everyone who is planning for retirement, or is currently retired is prone to financial bed bugs. Financial bed bugs are sneaky little pests that can wreak havoc on your retirement plan. They can be difficult to see and diagnose. But with the help of a professional who knows what to look for, and who knows how to correct the problems, you can easily get your plan back on track.
Financial bed bugs can include issues like stock market losses, capital gains taxes, high management fees, high trading costs, poor investment performance and an investment advisor who doesn’t understand your situation.
If you think you might have a few financial bed bugs lurking somewhere in your life, call us today at 1-866-983-4222 and let’s talk about it. Don’t stand by and suffer through pain and agony while you wait for your problem to go away. Just like with real bed bugs, waiting only makes the problem worse, and more difficult to correct. The best thing to do is to take action now!
The US Supreme Court had it’s second of three days for this historic case today, and it appears that the Republican appointees may band together to strike down Obamacare. This would be a huge blow to Obama since it has been his biggest achievement in his Presidential term, and it would be happening just months before the election. Many justices expressed concerns about Obamacare that it forces citizens to “act” and changes the Federal governments power from being limited to being all powerful. Another justice called the penalties associated with not buying insurance as a subsidy from the young and healthy who don’t want to buy insurance to those who need a lot of care. Another said that the law would “require people who are never going to need pediatric or maternity services to participate in that market.”
If enacted, Obamacare would extend coverage to 32 million people who currently do not have insurance. The healthcare industry already accounts for about 18% of our nations economy. Toppling this law would be the biggest overturn that the Supreme Court has tackled since the 1930s when it voided parts ofFranklin D. Roosevelt’s New Deal.
The court will most likely make its decision in late June.
Anyone who buys thier own health insurance, or anyone who sells it, knows that the system is terribly broken. Insurance companies are turning down coverage for thousands of people who would normally be considered healthy. If they don’t turn them down completely, then coverage is often limited by not covering certain conditions. For example, I recently helped a gentleman who is taking cholesterol medication obtain some health insurance. He was accepted for coverage but with the condition that medication for cholesterol would not be covered. He decided to accept the coverage that was offered and just pay for his cholesterol medication himself. The plan is going to cost him over $500 per month, just for him. For his age, this was actually a good rate. He is in the red zone: too young for Medicare, but old enough that insurance companies consider him an expensive risk.
Now lets say that this gentleman could not afford an extra $500 per month for health insurance and did not want to buy it. Obamacare would force him to buy it, or something like it. And if he did not buy it, he would be penalized with a tax/fee/penalty. Can anyone explain to me how that fixes the problem of the high cost of healthcare? Yes, it would put more money into the insurance companies pockets. And it would put more people into doctors offices because now they can see a doctor for a mere copay. But it doesn’t seem to address the real problem of how expensive healthcare and health insurance really is. Forcing more people to buy it would also mean forcing insurance companies to cover everyone, which may actually make insurance premiums go higher. Unless the government is going to subsidize the cost of it with more taxpayer money. I think we all know that is not a good solution. But what is the right answer? If the government can make us buy health insurance, then why couldn’t they make us also brush our teeth and go to the gym every day. Sure, those are good things to do. But is that the government’s role? I welcome your comments and suggestions.
This morning Ben Bernanke spoke to the National Association for Business Economics and stated that the Central bank will continue it’s supportive policy even as unemployment rates decline. He said that the U.S. economy needs to grow more quickly if it is to produce enough jobs to bring down the unemployment rate further. In other words, we still have a long way to go before we are back to normal unemployment rates. Mr. Bernanke did also make it known that QE3 was still on the table. This means that they will likely keep interest rates low for some time to come, which hopefully will drive unemployment ever lower.
These are very comforting comments for the market, and so we see that it’s rallying up again today. The optimism in the market right now is at some pretty high levels. The stock indexes are pushing ever closer to their pre-2008 crash levels.
Bernanke did however say that he is concerned that this recent improvements in unemployment may be temporary and short-lived. This is another reason the Fed is not ready to tighten monitary policy yet.
Many people have been asking when the deadline is for year-end tax forms to be mailed out to customers. The IRS has set a deadline of today, February 15th. This is the day by which brokerage firms are supposed to have 1099-B forms in the mail to customers. This deadline used to be on January 31st. But the IRS extended the deadline to February 15th in hopes that the forms would be more accurate and require fewer revisions. As many of you know, 1099-B forms often get revised and re-mailed as we get closer to the April 15th filing deadline. This happens when a company makes a change to the tax-qualified status of dividends that were paid out in the previous year. Any time this happens, brokerage firms have to re-send corrected 1099′s to all of its customers who owned that stock. For this reason, I like to advise clients to hold off on preparing their taxes as long as possible just in case you end up getting a corrected or revised 1099. This will save you money by not having to go back to your tax preparer for your return to be revised. I have had clients who got their taxes all prepared, signed and mailed in, only to find a corrected 1099 in the mailbox the next day. That will ruin your day!
Just yesterday I was informed by Fidelity Investments that the IRS granted them an extension to the Feb 15th mailing deadline. Fidelity made this request due to delays from certain third-parties, causing tax information to not being available yet. The deadline extension was approved by the IRS and Fidelity says they are committed to mailing the documents by the end of February.
The good news is that this extension will likely reduce the number of corrected 1099′s that will be sent out in March or later.