Category Archives: Investing and fiduciary requirements

IMPORTANT IRS ADJUSTMENTS FOR 2013

IRAs & workplace retirement plans have higher contribution limits.

Presented by Reeve Conover

The IRS has set annual contribution limits for IRAs, 401(k)s and other retirement plans higher for 2013, and made other important adjustments for inflation as well. Here is an overview of some notable changes just announced.

The 2013 IRA contribution limit: $5,500. This is a $500 increase from 2012, and it applies to both Roth and traditional IRAs. The IRA catch-up contribution limit for those 50 and older remains $1,000.1,3

The 2013 contribution limit for 401(k), 403(b), TSP & most 457 plans: $17,500. For the second year in a row, we see a $500 increase. The catch-up contribution limit on these plans for participants 50 and older remains $5,500.1,2

The phase-out range on Roth IRA contributions has increased. It starts $5,000 higher in 2013 than in 2012 for married couples filing jointly ($178,000-$188,000) and $2,000 higher for single filers and heads of household ($112,000-$127,000).3

The phase-out range on deductible contributions to traditional IRAs has risen. In 2013 it increases by $1,000 for single filers ($59,000-$69,000) and $3,000 for married couples filing jointly ($95,000-$115,000), provided the spouse making the contribution is covered by a workplace retirement plan. If not, the deduction is phased out if the couple’s income is between $178,000-$188,000 – up $5,000 from 2012.1,3

The annual gift tax exclusion rises to $14,000 next year. The IRS has kept this at $13,000 for several years; no more. In 2013, a taxpayer can gift up to $14,000 each to as many different people as he or she wishes, tax-free.4

You may be able to deduct a greater portion of LTCI premiums. For 2013, the deductible portion of eligible long term care insurance premiums that may be included as medical expenses on Schedule A rises. The new limits are $360 for taxpayers 40 or less, $680 for taxpayers aged 41-50, $1,360 for taxpayers aged 51-60, $3,640 for taxpayers aged 61-70, and $4,550 for taxpayers age 71 or older.4,5

The kiddie tax exemption increases to $1,000. It was set at $950 in 2012.4

The foreign earned income exclusion rises to $97,600. That is a $2,600 increase over 2012.4

   In addition to these 2013 IRS adjustments, Social Security recipients will see a 1.7% rise in their benefits next year.2

    

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

   

Citations.

1 – benefitslink.com/src/irs/IR-2012-77.pdf [10/18/12]

2 – money.cnn.com/2012/10/18/pf/taxes/401k-contribution-limit/4021136.html [10/18/12]

3 – www.bankrate.com/financing/taxes/saving-more-for-retirement-in-2013/ [10/18/12]

4 – blogs.wsj.com/totalreturn/2012/10/18/irs-announces-2013-inflation-adjustments/ [10/18/12]

5 – blog.oregonlive.com/taxes/2012/01/are_long-term_care_premiums_de.html [1/17/12]

 

BIG SPENDERS vs. BIG SAVERS

Who would you rather emulate?

 Presented by Reeve Conover

 You stand at your window and look across the street. Nice house, you think. Nice landscaping. Nice sports car. Nice driveway. New bikes for the kids. Wow, your neighbors are really well off. If only you had that kind of money.

That plain home down the street with the older model sedan parked out front pales in comparison. A couple in their seventies lives there, and the front yard hasn’t been spruced up in a decade. Who knows, maybe they struggle just to get by.

If you could somehow look into the financial lives of those two households, you might be surprised. The couple with all the toys might not be as wealthy as the neighborhood perceives, while the vanilla exterior on that humble rancher might hide a multimillionaire next door.

Remember that affluence does not = net worth. When you look across the street at the house of that well-to-do family, you are not necessarily gazing at a portrait of wealth. You are seeing a portrait of their spending habits.

What are they spending their money on? Perhaps, quite literally, a façade; their house may be the best house in the neighborhood, but what of kind of mortgage payment are they grappling with? Are they making payments on that sports car? That vehicle is a depreciating asset (unless they keep it garaged for a few decades). The flat-screen, the pool, the home audio system … they have put their dollars into things that their neighbors can see. They may be engaging in all-too-common financial behavior: thinking of wealth in terms of material items, spending money on toys instead of their lives.

Real wealth may not be advertised. Perhaps the older couple down the street isn’t interested in the hottest new luxuries. Decades ago, they put extra money toward their mortgage; even with housing values currently depressed, their residence is still worth much more than they paid for it. Most importantly, it is paid off.

Maybe they are good savers, always have been. When they were the age of the flashy couple up the street, they directed money into things that their neighbors couldn’t see – their investments, their retirement accounts, their bank accounts.

Years ago, they could have lived ostentatiously like that high-earning couple up the street – but instead of living on margin, they chose to live within their means. They saw some of their friends “rent” a luxury lifestyle for a few years, only to lose homes and cars they couldn’t really afford. Sometimes the economy or fate had a hand in it, but too often their friends simply made poor decisions. 

It could be that it was just more important for them to think about the future rather than the moment. Parenting reinforced that philosophy. Their good financial habits kept their family away from a bunch of bad debts, and helped them build wealth slowly. Indirectly, it also helped their kids, who grew up in a household with less financial stress and with an appreciation and understanding of key financial principles. Now, they are applying those principles to build wealth in their own lives.

Roughly every fortieth American is a millionaire. There are nearly 8 million people with a net worth of $1 million or more in the U.S., and their financial characteristics may differ slightly from what you expect.1

Fidelity’s 2012 Millionaire Outlook survey (which polled 1,000 households with $1 million or more in investable assets) notes that 86% of millionaires are self-made. Not so amazing, perhaps, but here is a striking detail. Among the self-made millionaires, the top sources of assets were 1) investments and/or capital appreciation, 2) compensation and 3) employee stock options or profit sharing. Millionaires born into wealth were the most likely to cite entrepreneurship and real estate investing as key factors behind their fortunes.2

According to the survey, the average U.S. millionaire is 61 years old with $3.05 million in investable assets. Fidelity also found that with regard to the financial future, more than (30%) of these millionaires were focused on preserving wealth, rather than growing it (20%).2 

What will you spend your money on, tomorrow or today?

As Thomas J. Stanley and William D. Danko noted in their classic study The Millionaire Next Door, the typical millionaire lives on 7% of his or her wealth. That was in 1997; the percentage could be lower today. Call it frugal, call it boring, but such financial conservation may help promote lifetime wealth. Today, with so many enticements to spend your money as soon as you earn it, this mindset may have a lot of financial merit.1

         

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

    

 

Citations.

1 – www.investopedia.com/financial-edge/0411/why-many-millionaires-dont-feel-rich.aspx#axzz2AM2TWb3m [4/13/11]

2 – www.reuters.com/article/2012/07/19/idUS126070+19-Jul-2012+BW20120719 [7/19/12]

Urgent message for S.C. businesses to protect against identity theft

It was recently announced that tax information for as many as 657,000 S.C. businesses was compromised as part of the recent cyber attack at the S.C. Department of Revenue.
 
The State of South Carolina has arranged through Dun & Bradstreet Credibility Corp for free credit monitoring services for all S.C. businesses for the life of the business.

Starting Friday, Nov. 2 at 8 a.m., businesses can register at www.dandb.com/sc/ or by calling 800.279.9881 to receive the credit monitoring service.  After signing up, businesses will be notified of any changes to their accounts.
 
The Governor’s press conference yesterday regarding the breach is available here.

SDOR Cyber Attack Information is available here.
 
Make sure your business is protected!  We will continue to keep our members informed as we receive information.

*message shared from US Chamber of Commerce

Sincerely,

Rita

Rita C. Berry, IOM

President/CEO
Greater Summerville/Dorchester County
Chamber of Commerce
402 North Main Street/PO Box 670
Summerville, SC 29484

Study: Privatized Medicare would raise premiums

The Associated Press

RICARDO ALONSO-ZALDIVAR – AP Politics | October 15, 2012

WASHINGTON (AP) — Nearly six in 10 Medicare recipients would pay higher premiums under a hypothetical privatized system along the lines of what Republican presidential candidate Mitt Romney has proposed, according to a study released Monday.

The report by the nonpartisan Kaiser Family Foundation also found striking regional differences that could lead to big premium hikes in some states and counties. That finding instantly made it ammunition in the presidential campaign.

In the senior-rich political swing state of Florida, the hypothetical plan modeled by Kaiser would boost premiums for traditional Medicare by more than $200 a month on average. In Nevada, another competitive state, 50 percent of seniors would face additional monthly premiums of $100 or more for their coverage. A new pattern of regional disparities would emerge from overhauling Medicare’s payment system, the report said.

Romney and his running mate, Wisconsin Rep. Paul Ryan, have proposed changing Medicare to a “premium support” system dominated by private plans that are paid a fixed amount by the government. President Barack Obama says replacing the current open-ended Medicare benefit would shift costs to seniors.

Romney’s approach would mirror the difference between traditional workplace pensions and modern-day 401(k) plans, in which the employer contribution is limited. While Medicare financing wouldn’t be as heavy a lift for taxpayers, the risk is that retirees could end up paying more if medical costs rise.

The study carried a prominent disclaimer: It should not be taken as a specific analysis of the Romney-Ryan proposal, partly because their plan lacks details. However, Kaiser says it is modeled on what Romney and Ryan propose.

“This approach is similar to the premium support proposal included in (House Budget) Chairman Paul Ryan’s … budget proposal for (fiscal year) 2013 that was embraced by presidential nominee Mitt Romney,” the report said.

Like the Romney-Ryan plan, government health insurance payments for individual seniors would be tied to the cost of the second-lowest private insurance plan in their geographical area, or traditional Medicare, whichever is less expensive. Seniors could pick a private plan or a new public program modeled on traditional Medicare. But if their pick costs more than the government payment, they would have to pay the difference themselves.

One of the biggest differences, however, is that the report assumes the privatization plan is already in place. Under Romney-Ryan, current beneficiaries and those 10 years from retirement could stay in the traditional system. But the Kaiser study assumed the change has already happened, and all Medicare recipients are already in the new system.

The study also did not model the effects of additional financial help that Romney has promised for low-income seniors and those in frail health, because such details have not been filled in.

The Obama campaign pounced on the findings, while the Romney camp pointed to the disclaimer, saying the report does not reflect the candidate’s own plan.

“As the authors stress, this is not a study of the Romney-Ryan plan,” said Romney spokeswoman Andrea Saul. “Our plan would always provide future beneficiaries guaranteed coverage options with no increase in out-of-pocket costs from today’s Medicare.”

The Obama campaign posted a link to the study on its website.

“Under Romney’s plan, millions of people —especially those with complicated health needs who see a lot of different doctors— would have to give up their doctors or pay extra to maintain access to their choices,” said Obama spokesman Adam Fetcher.

Kaiser’s top Medicare expert, Tricia Neuman, said the organization has been working on the report since the early part of the year, well before Romney picked Ryan as his running mate and cemented his support for the congressman’s Medicare overhaul.

Kaiser serves as an information clearinghouse about the health care system. Neuman, a vice president of the group, said the goal is to help inform next year’s budget debates, regardless of who is elected president.

Currently about 75 percent of Medicare’s nearly 50 million beneficiaries are in the traditional government program, while the remaining 25 percent have opted for private Medicare Advantage plans. The standard Part B premium most beneficiaries pay is now $99.90 a month.

The study’s main finding is that changing Medicare from an open-ended program that covers the same benefits across the country will have profound local implications.

Since Medicare spending per person varies dramatically around the country, privatizing the program would create big regional disparities. In high-cost areas, the difference between the second-least expensive private insurance plan and traditional Medicare can be substantial, said Neuman.

Because the government’s contribution would be limited under the new system, seniors in areas with high medical costs would see an increase in their premiums for traditional Medicare unless they switch to a low-cost private plan.

In low-cost areas, the reverse would be true: seniors in private plans would pay higher premiums unless they switched to traditional Medicare.

Overall, the study found that 59 percent of all Medicare recipients would face higher premiums if they stick with their current coverage, including about half of those in the traditional program.

In five states — California, Connecticut, Florida, New Jersey and Nevada — more than 45 percent of beneficiaries would pay at least $100 a month more in premiums.

Premiums could also vary within states. In San Francisco and Sacramento counties in the northern part of California, premiums for traditional Medicare would remain unchanged. But to the south, in Los Angeles and Orange counties, premiums would go up more than $200 a month.

“If coupled with caps on the growth in Medicare spending, a premium support approach could make federal (spending) for the Medicare program more predictable but also increase costs and financial risks for beneficiaries over time,” the report said.

IRS Announces 403b Correction Programs on the way

Correction procedures at “top of the list” for forthcoming guidance, IRS official saysOctober 11, 2012 By

The IRS is working on two revenue procedures on correction programs for qualified retirement plans and tax-sheltered annuities, an IRS official said on September 21, 2012. The IRS is updating Rev. Proc. 2008-50, which provides guidance on the Employee Plans Compliance Resolution System (EPCRS), Victoria Judson, associate chief counsel (Tax Exempt and Government Entities), told participants at the ALI-CLE Conference on Retirement Plans and Welfare Plans of Tax-Exempt and Governmental Employers. The IRS is also developing a correction program under Code Sec. 403(b), Judson said. Both items are “at the top of the list” of guidance priorities that the IRS hopes to issue soon, she indicated.

Other pending guidance projects, according to Judson, concern plan funding, the basis of plan rollovers and Roth account rollovers. Asked about guidance under Code Sec. 457(f), Judson said that the IRS had some discussions about drafting the regulations with Bill Bortz of the Treasury, before he left. Treasury Benefits Tax Counsel George Bostick, who also spoke at the conference, said the 457(f) guidance is “still in the works,” that there are some issues to resolve, and that he did not expect guidance to be issued in 2012.

Bostick told conference moderator Louis Mazawey, Groom Law Group, Chartered, Washington, D.C., that there will be more guidance on longevity annuities. The government is looking at potential impediments to rollovers, target date funds and guaranteed lifetime withdrawal benefits, Bostick said. The government is struggling with the question of whether benefits that accrue each year under a target date fund are discriminatory, he said. For guaranteed lifetime benefits, there are Code Sec. 411 issues that require additional consideration, he indicated.

Source: IRS and Treasury officials, speaking at ALI-CLE Conference on Retirement Plans and Welfare Plans of Tax-Exempt and Governmental Employers, September 21, 2012.

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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Reeve Conover is a Registered Representative. Securities offered through Cambridge Investment Research, Inc., a Broker/dealer member FINRA/SPIC. Cambridge and Conover Consulting are not affiliated. Licensed in SC, NC, NY, CT, NJ, and CA.
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