Articles for December 2016

2017 Retirement Plan Contribution Limits

Minor inflation means small, but notable, changes for the new year.

Each October, the Internal Revenue Service announces changes to annual contribution limits for IRAs and workplace retirement plans. Are any of these limits rising for 2017?

Will IRA contribution limits go up? Unfortunately, no. Annual contributions for Roth and traditional IRAs remain capped at $5,500 for 2017, with an additional $1,000 catch-up contribution permitted for those 50 and older. This is the fifth consecutive year those limits have gone unchanged. The SIMPLE IRA contribution limit is the same in 2017 as well: $12,500 with a $3,000 catch-up permitted.1,2

There are some changes pertaining to IRAs. The limit on the employer contribution to a SEP-IRA rises $1,000 in 2017 to $54,000; this adjustment also applies for solo 401(k)s. The compensation limit applied to the savings calculation for SEP-IRAs and solo 401(k)s gets a $5,000 boost to $270,000 for 2017.

Next year will bring an adjustment to IRA phase-out ranges. Your maximum 2017 contribution to a Roth IRA may be reduced if your modified adjusted gross income falls within these ranges, and prohibited if it exceeds them.1

*Single/head of household         $118,000-133,000 ($1,000 higher than 2016)

*Married couples                            $186,000-196,000 ($2,000 higher than 2016)

If your MAGI falls within the applicable phase-out range below, you may claim a partial deduction for a traditional IRA contribution made in 2017. If it exceeds the top limit of the applicable phase-out range, you can’t claim a deduction.1

*Single or head of household,

covered by workplace retirement plan  $62,000-72,000 ($1,000 higher than 2016)

 

*Married filing jointly,

spouse making IRA contribution

covered by workplace retirement plan  $99,000-119,000 ($2,000 higher than 2016)

 

*Married filing jointly,

spouse making IRA contribution not

covered by workplace retirement plan,

other spouse is covered by one                                $186,000-196,000 ($2,000 higher than 2016)

 

*Married filing separately,

covered by workplace retirement plan  $0-10,000 (unchanged)

Will you be able to put a little more into your 401(k), 403(b), or 457 plan next year? No. The maximum yearly contribution limit for these plans stays at $18,000 for 2017. (That limit also applies to the Thrift Savings Plan for federal workers.) The additional catch-up contribution limit for plan participants 50 and older remains at $6,000.1

Are annual contribution limits on Health Savings Accounts rising? Just slightly. In 2017, the yearly limit on deductible HSA contributions stays at $6,750 for family coverage and increases $50 to $3,400 for individuals with self-only coverage. You must participate in a high-deductible health plan to make HSA contributions. The annual minimum deductible for an HDHP remains at $1,300 for self-only coverage and $2,600 for family coverage in 2017. Next year, the upper limit for out-of-pocket expenses stays at $6,550 for self-only coverage and $13,100 for family coverage. HSAs are sometimes called “backdoor IRAs” because they can essentially function as retirement accounts for people 65 and older; at that point, withdrawals from them can be used for any purpose.3,4   

Are you self-employed, with a defined benefits plan? The limit on the yearly benefit for those pension plans increases by $5,000 next year. The 2017 limit is set at $215,000.1

Mike Moffitt may be reached at ph# 641-782-5577 or mikem@cfgiowa.com.

Website:  www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. 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.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – forbes.com/sites/ashleaebeling/2016/10/27/irs-announces-2017-retirement-plans-contributions-limits-for-401ks-and-more/ [10/27/16]

2 – irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits [10/28/16]

3 – tinyurl.com/h4x5cf6 [4/29/16]

4 – cnbc.com/2016/08/19/dont-use-your-health-savings-account-funds-right-away.html [8/19/16]

As Anticipated, Interest Rates Rise

The Federal Reserve’s latest policy moves correspond to market expectations.

On December 14, 2016 – the Federal Reserve raised its key interest rate by 0.25%. That decision surprised no one – at least no one in the financial markets. Hours before the announcement, the CME Group’s FedWatch Tool, which calculates the chance of interest rate moves based on Fed futures contracts, showed a 97.1% probability of a quarter-point hike.1,2

The central bank made its decision “in view of realized and expected labor market conditions and inflation.” Equity investors reacted with some degree of calm: thirty minutes after the news broke, the S&P 500 was down less than 15 points. As for Treasuries, the yield on the 2-year note spiked and hit a peak unseen since 2009 within a half-hour of the release of the Federal Open Market Committee’s statement.2,3

Any other decision could have thrown market participants for a loop. There is no such thing as a “sure thing” on Wall Street, but a December interest rate hike looked like a lock to many analysts. Fed officials had hinted that a move was near, and with economic indicators broadly improving, the Federal Open Market Committee had little choice but to follow through.

If the Fed had left rates unchanged Wednesday after all of its recent signals, it would have lost credibility. Any inaction would have implied a lack of faith in the economy and uncertainty about the next presidential administration. A half-point increase in the federal funds rate would have come as a hawkish surprise. Either scenario might have upset the bulls.  

What does the Fed’s latest dot-plot forecast indicate? The central bank now sees a trio of quarter-point rate hikes occurring in 2017, as opposed to two in its prior projection. If carried out, those increases would take the target range on the federal funds rate to 1.25-1.50% by the end of next year. If the Fed gradually raises its key interest rate in 2017 to try and maintain its target inflation rate, short-term interest rates will be impacted, and both consumer spending and business spending will be affected. The question is whether Wall Street will take such tightening in stride.4

This quarter-point move is less momentous than it may seem. Banks, borrowers, bond issuers, and investors influence medium-term and long-term interest rates much more profoundly than the Fed does. The central bank has boosted the federal funds rate for overnight lending just twice in 12 months, yet interest rates have been rising anyway. On July 8, the yield on the 10-year note was down at 1.37%. On December 13, it hit 2.48%.5,6

Mike Moffitt may be reached at ph# 641-782-5577 or email:  mikem@cfgiowa.com

Website:  www.cfgiowa.com    

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. 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.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – cmegroup.com/trading/interest-rates/countdown-to-fomc.html [12/14/16]

2 – blogs.marketwatch.com/capitolreport/2016/12/14/fed-decision-and-janet-yellen-press-conference-live-blog-and-video/ [12/14/16]

3 – marketwatch.com/investing/index/spx [12/14/16]

4 – bloomberg.com/news/articles/2016-12-14/fed-raises-rates-boosts-outlook-for-borrowing-costs-in-2017 [12/14/16]

5 – knoxnews.com/story/money/business/2016/12/11/david-moon-fed-rate-increase-irrelevant/95103316/ [12/11/16]

6 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2016 [12/14/16]

Is Women’s Wealth Growing Faster Than Men’s Wealth?

One study says.  Two major factors may be influencing the trend.

Picture the women of the world growing wealthier. It’s happening right now. Research from the Boston Consulting Group affirms this development. BCG, a leading business strategy advisor, says that as the world grew 5.2% wealthier between 2015 and 2016, women’s wealth grew 6.6%. In total, women own about $39.6 trillion in assets worldwide, and possess a 5% greater share of global wealth in 2016 than they did in 2011.1

What are some of the reasons behind this shift? One reason is that more women are becoming successful business owners. Census Bureau data from 2012 (the most recently available year, at this writing) shows women owning 36% of U.S. businesses, a 30% leap from the levels of 2007. As the ranks of middle market companies rose 4% from 2008-2014, the number of women-owned or women-led middle market firms soared by 32%.2

This has all taken place even though female entrepreneurs typically start a business with 50% less money than their male peers, according to research from the National Women’s Business Council. Perhaps most impressive has been the growth of businesses owned by Latina and African-American women. American Express OPEN found that from 1997-2015, the number of U.S. firms owned by Latinas increased by 224%. Simultaneously, the number of businesses owned by black women rose by 322%. African-American women started up companies at six times the national average during those 18 years.2,3

Beyond the business world, there is a second major reason for the increased net worth of women. They are acquiring or inheriting significant wealth from parents, spouses, or relatives, some of whom are millionaire baby boomers or members of thriving business-class households in emerging economies.1

In reference to the latter phenomenon, the net worth of women who live in Asia-Pacific nations other than Japan has risen by an average of 13% a year since 2011. Globally, assets under management owned by female investors grew 8% per year in that time.1

The BCG white paper projects that women may grow even wealthier by 2020. It forecasts that by then, women will control $72.1 trillion of assets around the globe, thanks to their collective wealth increasing by about 7% a year.1

Mike Moffitt may be reached at Ph# 641-782-5577 or email:  mikem@cfgiowa.com

Website:  www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. 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.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.

1 – time.com/money/4360112/womens-wealth-share-increase/ [6/7/16]

2 – forbes.com/sites/geristengel/2016/01/06/why-the-force-will-be-with-women-entrepreneurs-in-2016/ [1/6/16]

3 – blackenterprise.com/small-business/black-women-business-owners-outpace-all-other-startups-six-times-national-average/ [3/4/16]

The Intriguing Post-Election Rally

Why did some sectors rise more than others?

Wall Street likes certainty. When startling financial, political, or societal events occur, volatility usually follows, and the major indices may fall.

In late October, the Dow Jones Industrial Average went on a multi-day losing streak as Donald Trump caught up to Hillary Clinton in the polls tracking the presidential race. Wall Street had been anticipating a Clinton victory; suddenly, that looked less certain. The Dow gradually sank below 18,000. When Trump won, however, the Dow did not drop further. It rallied for seven days and notched four record closes.1,2

What sparked the Dow’s rally? One, a new presumption of massive federal spending on infrastructure and defense. In August, Trump pledged he would “at least double” Clinton’s proposed federal stimulus if elected, which would mean committing more than $500 billion to repair the nation’s highways, bridges, and ports. He has also talked of greater military spending. Many, if not all, of the 30 companies making up the Dow could play significant roles in such efforts. Two, a Trump presidency is perceived as pro-business, with the potential for decreased regulation, renegotiated trade agreements, and tax cuts.2,3

The small caps also soared after Trump’s win. The Russell 2000 advanced 9% during November 9-17, leading some investors to wonder what the small caps had in common with the record-setting blue chips. The quick answer is that these small-cap firms have greater exposure to the U.S. economy than they do to foreign economies. Bulls believe that these firms will be particularly well positioned if infrastructure spending increases.4

Why did the S&P 500 & Nasdaq Composite lag the Dow & the Russell? The S&P rose 1.8% from November 9-17. This returned the index to the level at which it had been for most of the third quarter.4,5

A closer look at the S&P’s recent performance reveals a striking gap between its industry groups. Its financial sector climbed 10% in the eight days after Trump’s victory, aided by hopes for friendlier bank regulation in the new administration. By November 15, its YTD performance was 17% better than that of the S&P’s worst-performing sector, utilities. This degree of difference had not been seen in the index since 2009. Basically, a major rotation happened, taking invested assets out of certain sectors and into other sectors presumed to benefit from the policies of a Trump presidency.2,6

Hearing about the Dow’s surge, some investors assumed their portfolios would see large, abrupt gains – but in any sector rotation, money flows away from some industry groups toward others. In the three days after Trump’s victory, the Dow had gained 2.81%; the S&P, 1.16%; and the Nasdaq, 0.84%. While the Dow is only comprised of 30 companies, the S&P and the Nasdaq are much broader benchmarks, exponentially larger in their scope. Both the Nasdaq and the S&P contain many tech companies – and, broadly speaking, Silicon Valley was not high on Trump.7

Investors scratching their heads at recent portfolio performance would also do well to remember that large caps are just one of six asset classes. The gains for U.S. equities stood out globally after the election; there were losses in emerging and developed markets abroad, and losses in the debt markets. As assets in many portfolios are allocated across various asset classes to try and manage risk, this helps to explain why many retail investors saw only small gains or no gains at all immediately after November 8. They were not invested merely in the member firms of the Dow Jones Industrial Average.7

Will this rally continue? It’s difficult to say. As you know, history provides information of the past, and no assurance of future returns. While it’s possible that the new administration’s policies will bear out this goodwill, it’s also possible, after the administration convenes, that there is a new perspective. Time will tell.

Mike Moffitt may be reached at  ph# 641-782-5577 or email:  mikem@cfgiowa.com

Website:  www.cfgiowa.com    

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. 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.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.

The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

The prices of small and mid-cap stocks are generally more volatile than large cap stocks.

Additionally, the prices of small cap stocks are generally more volatile than large cap stocks.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a egistered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial. 

Citations.

1 – money.cnn.com/data/markets/dow/ [11/17/16]

2 – investing.com/news/stock-market-news/s-amp;p,-nasdaq-higher-as-investors-digest-yellen-remarks-441723 [11/17/16]

3 – fortune.com/2016/08/03/donald-trump-infrastructure/ [8/3/16]

4 – blogs.wsj.com/moneybeat/2016/11/17/why-the-small-cap-rally-may-stick-around/ [11/17/16]

5 – marketwatch.com/story/stop-calling-stock-market-rise-a-trump-rally-2016-11-17 [11/17/16]

6 – bloomberg.com/news/articles/2016-11-15/s-p-500-futures-inch-ahead-as-investors-speculate-on-trump-plans [11/15/16]

7 – forbes.com/sites/davidmarotta/2016/11/14/how-the-markets-moved-after-a-trump-victory/ [11/14/16]

 

 

Your Year-End Financial Checklist

checklistSeven aspects of your financial life to review as the year draws to a close.

The end of a year makes us think about last-minute things we need to address and good habits we want to start keeping. To that end, here are seven aspects of your financial life to think about as this year leads into the next…

Your investments. Review your approach to investing and make sure it suits your objectives. Look over your portfolio positions and revisit your asset allocation.

Your retirement planning strategy. Does it seem as practical as it did a few years ago? Are you able to max out contributions to IRAs and workplace retirement plans like 401(k)s? Is it time to make catch-up contributions? Finally, consider Roth IRA conversion scenarios, and whether the potential tax-free retirement distributions tomorrow seem worth the taxes you may incur today. If you are at the age when a Required Minimum Distribution (RMD) is required from your traditional IRA(s), be sure to take your RMD by December 31. If you don’t, the IRS will assess a penalty of 50% of the RMD amount on top of the taxes you will already pay on that income. (While you can postpone your very first IRA RMD until April 1, 2017, that forces you into taking two RMDs next year, both taxable events.)1

Your tax situation. How many potential credits and/or deductions can you and your accountant find before the year ends? Have your CPA craft a year-end projection including Alternative Minimum Tax (AMT). In years past, some business owners and executives didn’t really look into deductions and credits because they just assumed they would be hit by the AMT. The recent rise in the top marginal tax bracket (to 39.6%) made fewer high-earning executives and business owners subject to the AMT – their ordinary income tax liabilities grew. That calls for a closer look at accelerated depreciation, R&D credits, the Work Opportunity Tax Credit, incentive stock options, and certain types of tax-advantaged investments.2

Review any sales of appreciated property and both realized and unrealized losses and gains. Take a look back at last year’s loss carry-forwards. If you’ve sold securities, gather up cost-basis information. Look for any transactions that could potentially enhance your circumstances.

Your charitable gifting goals. Plan charitable contributions or contributions to education accounts, and make any desired cash gifts to family members. The annual federal gift tax exclusion is $14,000 per individual for 2016, meaning you can gift as much as $14,000 to as many individuals as you like this year tax-free. A married couple can gift up to $28,000 tax-free to as many individuals as they like. The gifts do count against the lifetime estate tax exemption amount, which is $5.45 million per individual and $10.9 million per married couple for 2016.3

You could also gift appreciated securities to a charity. If you have owned them for more than a year, you can deduct 100% of their fair market value and legally avoid capital gains tax you would normally incur from selling them.4

Besides outright gifts, you can plan other financial moves on behalf of your family – you can create and fund trusts, for example. The end of the year is a good time to review any trusts you have in place.

Your life insurance coverage. Are your policies and beneficiaries up-to-date? Review premium costs, beneficiaries, and any and all life events that may have altered your coverage needs.

Speaking of life events…did you happen to get married or divorced in 2016? Did you move or change jobs? Buy a home or business? Did you lose a family member, or see a severe illness or ailment affect a loved one? Did you reach the point at which Mom or Dad needed assisted living? Was there a new addition to your family this year? Did you receive an inheritance or a gift? All of these circumstances can have a financial impact on your life, the way you invest and plan for retirement, and how you wind down your career or business. They are worth discussing with the financial or tax professional you know and trust.

Lastly, did you reach any of these financially important ages in 2016? If so, act accordingly.

Did you turn 70½ this year? If so, you must now take Required Minimum Distributions (RMDs) from your IRA(s).

Did you turn 65 this year? If so, you are likely now eligible to apply for Medicare.

Did you turn 62 this year? If so, you can choose to apply for Social Security benefits.

Did you turn 59½ this year? If so, you may take IRA distributions without a 10% penalty.

Did you turn 55 this year? If so, you may be allowed to take distributions from your 401(k) account without penalty, provided you no longer work for that employer.

Did you turn 50 this year? If so, you can make “catch-up” contributions to IRAs (and certain qualified retirement plans).1,5

The end of the year is a key time to review your financial “health” & well-being. If you feel you need to address any of the items above, please feel free to give me a call.

Mike Moffitt may be reached at ph# 641-782-5577 or email:  mikem@cfgiowa.com.

Website:  www.cfgiowa.com    

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. 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.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.  

Citations.

1 – fool.com/retirement/general/2016/04/11/required-minimum-distributions-common-questions-ab.aspx [4/11/16]

2 – nerdwallet.com/blog/taxes/income-taxes/federal-income-tax-brackets/ [9/8/16]

3 – turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/INF12127.html [11/7/16]

4 – marketwatch.com/story/what-to-know-when-deducting-charitable-donations-2016-02-23 [2/23/16]

5 – merrilledge.com/Publish/Content/application/pdf/GWMOL/retirement-deadlines-checklist.pdf [11/7/16]