Friday Financial Five – January 22, 2016
Friday, January 22, 2016
The start of 2016 hasn’t felt warm and fuzzy for stock investors, as there really hasn’t been anywhere to hide. Domestic, international, and emerging companies, whether small, medium or large have all taken lumps. It’s helped bolster the concept that bonds belong in portfolios for times like this, but risk tolerance is an intangible quality that’s hard to completely grasp when markets are on the upside. It’s during the downturns, absent a global financial meltdown, that investors get an indication of how much loss they’re willing and able to stomach.
CBO pessimistic on budget projections
The Congressional Budget Office (CBO) released the “Economic Outlook” for the next 10 years and expectations are for deficits to continue. In 2016, the projected deficit is $544 billion, more than $100 billion higher than 2015. The report details growing deficits over the next decade, eclipsing the 50-year average by the year 2026 but also anticipates solid growth for the economy over the next few years.
Important date for Required Minimum Distribution
Those that turned 70 ½ in 2015 have until April 1st of this year to take their first required minimum distribution from traditional retirement accounts. That includes IRAs and 401(k)s, among others. Withdrawing the 2015 amount doesn’t count toward the 2016 requirement, which must be taken by the end of this year. It’s no small penalty for missing out on the distribution deadline, as the retirement account holder would be subject to a 50% surcharge on the amount that was not withdrawn.
HSA’s increasing importance in retirement health planning
Health Savings Accounts (HSA) create a uniquely beneficial way to save for retirement health care costs. They allow for pre-tax contributions, tax free growth and tax free withdrawals when used for qualified medical expenses. Older account holders may not have enough time to accumulate a meaningful amount prior to retirement, but younger users should consider fully funding each year. Maximum contributions are currently set at $3,350 for singles and $6,750 for families and provide triple tax benefits. Since it’s not a “use-it-or-lose-it” account, younger users have time to build the account for retirement health expenses or transfer remaining funds to a surviving spouse after death.
Closing the “carried interest” loophole
Policy discussions on how to alter spending or tax revenues will dominate the year 2016, but there’s one concept that seems to unite both sides of the political aisle. That concept is “carried interest”, which allows hedge fund and private equity firm managers to pay a more preferential tax rate than some would otherwise think applicable. In essence, income received from a percentage of fund gains is currently considered capital gains instead of a payment for services rendered. Estimates of lost tax revenue based on this tax treatment is in the billions.
Dan Forbes, a CFP Board Ambassador, is a regular contributor on financial issues. 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.
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.
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.
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.
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 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.
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.
#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.
The Pew Charitable Trusts
#45 The Pew Charitable Trusts
The Pew Charitable Trusts ranks each state in job growth and job creation.
Massachusetts added 38,368 jobs in 2014.
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