Friday Financial Five – February 6, 2015

Friday, February 06, 2015

Dan Forbes, GoLocalWorcester MINDSETTER™

The 2016 Fiscal Year Budget

The most recent budget proposal was released this week, and the message seems to be pretty clear. With an improving economy, the government is focused on ending austerity in several areas, while attempting to plug several perceived loopholes within the tax code. Notably, the budget aims to restrict Roth IRA conversions to pre-tax dollars while also imposing Required Minimum Distribution rules to Roth IRAs. Many that have utilized Roths over the years opted to do so specifically to avoid that requirement. The government will also attempt to impose a “cap” on tax favored retirement savings.

Roth IRAs and the five-year period

Prior to 2010, higher income individuals wanting to convert to Roth IRAs were prevented from doing so. In 2010, that income restriction was removed. This year marks the first time that 2010 converters can meet the five year requirement and take qualified distributions from their Roth IRAs. Qualified distribution requirements include a Roth owner reaching age 59 ½ or taking up to $10,000 for a first time home purchase. By waiting the five years and meeting the qualified requirements, the distribution avoids penalties, as well as any income taxes.

Fannie Mae’s new appraisal review

The housing market is still in recovery mode, and regulators are mindful of factors that could lead to crisis, including inaccurate home appraisals. Fannie Mae has introduced a new appraisal review program, called Collateral Underwriter. The purpose of the program is to provide an automated risk assessment of the appraisals that banks use when lending. Identifying properties that may have an “overvalued” appraisal may delay some closings but is ultimately intended to minimize negative equity and loan losses.

Supreme Court decision may lead to retiree health changes

A recent Supreme Court ruling could have major consequences for some retirees’ health care benefits. The heart of the dispute stems from the treatment of agreements that don’t specify how long health benefits are supposed to last. The Yard-Man inference (from a 1983 decision) has long maintained the “presumption of vesting of retiree medical benefits in the absence of a termination provision in a collective bargaining agreement.” This week, the Supreme Court decision held that “when a contract is silent as to the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life.” There could be major changes for groups operating under an unspecified agreement

Financial aspects of the Super Bowl

The Super Bowl, considered the biggest sporting event of the year, continues to have eye-popping financial implications. The economy of the ticket sales took most brokers by surprise. This led to many people flying to Arizona thinking they had a ticket, only to be told by their broker that tickets were unavailable. Price Waterhouse estimated over $200 million in total spending was generated in the Phoenix area including entertaining, lodging and transportation. Companies spent upward of $4.5 million to feature 30 second commercials, money that Nationwide may want back after a highly criticized advertisement.

Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in East Greenwich, RI and can be reached at [email protected].

Related Slideshow: Massachusetts Business Rankings

See how Massachusetts stacked up.

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WalletHub

Massachusetts has 2015's 28th highest insurance premium penalties for high risk drivers, according to a WalletHub report.

Mass is behind Colorado and New Mexico who come in at 26 and 27 spots respectively while Mass is ahead of Tennessee and the District of Columbia who rank 29 and 30 respectively.

Massachusetts ranks 14th overall in the category of DUI conviction annual premium increase with an amount of $756.

Massachusetts ranks 20th overall in the category of speeding over 20 mph annual premium increase with a total of $261 while ranking 21 overall in the category of two accidents annual premium increase with a total of $1,364.

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WalletHub

Massachusetts has been ranked as the 5th most eco-friendly state in the country, according to a recent study by WalletHub.

Mass ranks tenth in environmental quality and fourth in Eco-Friendly Behaviors landing them in 8th overall.

Mass is behind Minnesota and New York who are in the fourth and third spots respectively, and in front of Washington and New Hampshire who come in at the six and seven spots.

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The Economist

Small Business Friendliness Grade: D+

The Economist grades states on an A+ to F grading scale for its small business climate. Massachusetts ranks near the bottom of the nation, joining New Mexico and New York in receiving D+ grades. 9 states scored worse than a D+ in the Economist rankings.

Overbearing bureaucracy and excessive licensing is stifling small business in America.

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CNBC

#25 CNBC

CNBC ranks each state in cost of doing business, economy, technology and innovation.

Massachusetts' unemployment rate as of May 2014 was 5.6 percent. The state added 9,100 jobs in the month of May.

Forbes

#13 Forbes

Forbes ranks each state in business costs, economic climate, and growth prospects.

The most damning in the commentary:

Massachusetts’ business costs, including labor, energy and taxes, are the highest of the 48 contiguous states—only Hawaii is higher—at 20% above the national average.

ChiefExecutive.net

#47 ChiefExecutive.net

ChiefExecutive.net ranks each state in taxations and regulations, workforce quality, and living environment.

The most damning in the commentary:

Taxation and regulation are always the key barometers. Massachusetts and Oregon are the worst.

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Tax Foundation

#25 Tax Foundation

Tax Foundation ranks each state in corporate tax rank, sales tax rank, and unemployment insurance tax rank.

Massachusetts ranked #49 in unemployment insurance tax.

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Wallet Hub

#10 Wallet Hub

Wallet Hub ranks each state in ROI rank, state tax rank, and overall government services.

Massachusetts ranked #49 in worst roads and bridges, but ranked #7 in overall government services.

ALEC

#41 ALEC

ALEC ranks each state in economic performance and outlook.

Although Massachusetts ranked low in economic performance, a forward-looking forecast is based on the state’s standing in 15 important state policy variables. Some of these variables include top marginal personal income tax rate and sales tax burden.

Kauffman Foundation

#29 Kauffman Foundation

Kauffman Foundation ranks each state in entrepreneurship.

Entrepreneurial activity generally is highest in Western and Southern states
and lowest in Midwestern and Northeastern states.

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Free Enterprise

#18 Free Enterprise

Free Enterprise ranks each state in performance, exports, innovation + entrepreneurship, business climate, talent pipeline, infrastructure.

Massachusetts's reputation as a hotspot for science and technology endures in this year's rankings. The commonwealth is a center for STEM jobs and university research and development, ranking 4th and 2nd, respectively, in those two categories. It also ranks 6th as a center for high-tech establishments. Massachusetts is taking aggressive steps to bolster economic activity with high-impact university-industry R&D projects and new tools for tech-based startup companies.