As we head into the final lap, 2017 has been a banner year for stocks not just in the U.S., but around the world.
Investors have been focused on the upbeat fundamentals–corporate profit growth sparked by economic gains at home and abroad. (Mostly due to company buy backs, financed with cheap debt, which reduces the number of shares in the marketplace; i.e. less shares = higher earnings per share)
The U.S. economy grew at 3.3% in Q3, according to revisions released by the U.S. BEA. It’s the second quarter in a row that GDP has exceeded 3%, a feat that hasn’t occurred in the three previous years.
As Q3 concludes, S&P 500 earnings are up a solid 8.4% versus a year ago, according to Thomson Reuters. And analysts are forecasting a return to double-digit earnings growth in 2018.
Strong gains in the market sometimes encourage investors to plow headfirst into stocks. Others openly wonder if it’s time to move to the sidelines.
Let me take this moment to tell you market timing is a game best left to gamblers. We’ve had almost 60 all-time closing highs in the S&P 500 Index this year (LPL Research, St. Louis Federal Reserve). That comes on top of a string of highs the market has recorded since 2013.
A new high means one thing–stocks closed higher that day versus the prior day. By itself, it doesn’t foreshadow an imminent downturn.
Nevertheless, if you are concerned and want to talk, we’re simply a phone call way. We’d love to hear from you!
12 smart planning moves to consider as tax reform looms
It’s hard to believe, but another year is almost behind us. With January just around the corner, now is a great time to review various items you may want to consider as you get set to enter 2018. Many of the IRS publications referenced below are for tax year 2016. Changes are not anticipated when 2017 guides are published.
Before we get started, let me stress that it is our job to assist and help you! I can’t overemphasize this, and we would be happy to review the options that are best suited to your situation. When it comes to tax matters, I recommend you check with your tax advisor. (We have several we work closely with if a referral is needed)
Right off the bat, let’s talk about what’s on everyone’s mind–tax reform.
That said, how we file for tax year 2018 may differ from how we file for tax year 2017.
For example, will the alternative minimum tax (the AMT) be wiped from the tax code? Will Congress kill the estate tax?
Both the Senate and House proposals make few, if any, changes to retirement accounts, but we could see tweaks in a final bill.
Personally, I’m encouraged that the House and Senate have yet to materially alter the tax treatment for retirement accounts and the favorable treatment dividends and capital gains receive.
However, I should point out that the Senate bill changes the way we would account for capital gains, i.e., a first-in, first-out method to calculate gains when a stock is sold. That said, I’m reluctant to speculate how these key categories may emerge if tax reform is signed into law.
Investment and financial planning
Typically, I would counsel that profits should be taken next year, pushing the tax burden into tax year 2018.
But I must caution that there is an outside possibility the final version that may land on the President’s desk could produce changes in how capital gains are treated.
However, let me caution about making changes based simply on market performance.
One of our goals has always been to remove the emotional component from your investment plan. You know, the one that encourages investors to load up on stocks when the market is soaring and to sell when stocks have taken a beating.
We know that markets rise and fall. I get that declines can be unnerving, I really do. Yet over the long term, markets rise much more than they fall.
While stocks have been on a record run, it’s a good time to once again remind you that a disciplined approach that avoids emotional decisions has historically been the shortest path to reaching one’s financial goals.
I know I’ve said this before, but it is a key principle for successful investing.
Yet, following the distribution, the net asset value of the fund will fall by the amount of the payout. Put another way, your investment in the fund remains the same. It’s a tax sting that’s best avoided. Therefore, it is usually a good idea to wait until after the annual distribution to make the purchase.
The first payment can be delayed until April 1 of the year following the year in which you turn 70½. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31 of that year.
The RMD rules also apply to 401(k), profit-sharing, 403(b), 457(b) or other defined contribution plans as well as SEP IRAs and Simple IRAs.
Don’t miss the deadline or you could be subject to steep penalties!
If you satisfy the requirements, qualified distributions are tax-free. You can make contributions to your Roth IRA after you reach age 70½ and there are no requirements to take mandatory distributions.
You may also be eligible to contribute to a traditional IRA, and contributions may be fully or partially deductible, depending on your circumstances. The same contribution limit that applies to a Roth IRA also applies to traditional IRAs. Total contributions for both accounts cannot exceed the prescribed limit.
You can make 2017 IRA contributions until April 17, 2018 (Note: statewide holidays can impact final date).
Currently, total contributions for a beneficiary cannot exceed $2,000 in any year. Any individual (including the designated beneficiary) can contribute to a Coverdell ESA if the individual’s modified adjusted gross income for the year is less than $110,000. For individuals filing joint returns, the amount is $220,000. Contribution limits get phased out after hitting the respective limits.
If reform passes, the House proposes that Coverdell Savings Accounts be converted into 529 plans. A 529 plan allows for much higher contribution limits, and earnings are not subject to federal tax when used for the qualified education expenses of the designated beneficiary. Contributions, however, are not deductible.
You might also consider a donor-advised fund. Once the donation is made, you can realize immediate tax benefits, but it is up to the donor when the distribution to a qualified charity may be made.
I hope you’ve found this review to be educational and helpful, but keep in mind that it is not all-encompassing. Once again, before making any decisions that may impact your taxes, please consult with your tax advisor.
Let me emphasize again that it is our job to assist you! If you have any questions or would like to discuss any matters, please feel free to give us a call.
As always, we’re honored and humbled that you have given us the opportunity to serve as your financial advisor.
Provided by Palmer Nunn Wealth Management
Securities offered through KMS Investments, Inc. Member FINRA & SIPC. Investment advisory services offered through KMS Advisors, LP. This material was prepared by Horsesmouth LLC and does not necessarily represent the views of the KMS Financial or their affiliates. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
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