Wealth Management Blog

Posts published in April 2012

What Will Europe’s Debt Crisis Mean for America?

By JJ Burns

April 17, 2012

The European continent is an ocean away from the United States, but Europe’s debt crisis may hit close to home for U.S. investors.

Your investment portfolio almost certainly contains some exposure to Europe. You could own European companies through investments in international funds, or you may be invested indirectly through multinational corporations that do business in Europe. Moreover, if the European debt crisis worsens, that could lead to increased volatility in U.S. and global investment markets.

You’re also affected because Europe’s economy directly affects the U.S. economy through bank lending, trade, and other economic connections. Europe is the largest U.S. trading partner, accounting for 20% of U.S. exports. At the same time, U.S. banks hold a lot of European debt, and worries about Europe’s economic health have already dampened business investment and hiring in America.

Some analysts believe the credit crisis in Europe has been contained and that further impact on world markets should be minimal. Others continue to warn that Europe’s problems are likely to send the global economy into another recession this year.

Either way, it’s vital for investors to take into account events in Europe and position their portfolios accordingly. We are watching the debt crisis very closely and we can help you take a proactive stance.

What Are the 401(k) Limits in 2012?

By JJ Burns

April 17, 2012

The 401(k) plan continues to be, by far, the most popular company-sponsored retirement plan in the land. And it’s no wonder. This unique retirement-saving vehicle offers tax advantages to employees and can also be a valuable tool for employers looking to recruit and retain top talent.

The basic premise is simple: You arrange to have a portion of your pre-tax salary deposited in a separate account. Frequently, an employer will agree to match each dollar that plan participants contribute, up to a specified percentage of compensation. For example, if you earn $100,000 and put $10,000 a year into your 401(k), your company, providing a 3% match, would kick in another $3,000 annually.

There’s no current tax on investment earnings within the account, though you also don’t get to claim a deduction for losses. Distributions from the account, usually during retirement, are taxed at ordinary income rates. If you change jobs or retire, you normally can choose among keeping the money in your old company’s plan, shifting it to a new 401(k), or rolling over some or all of the account to an IRA.

That’s the short story. But there are numerous other legal limits and restrictions to contend with. One of the biggest is the annual limit on how much salary you can defer, a number that rises based on an inflation index. Furthermore, the plan must satisfy strict, complex nondiscrimination requirements.

How well do you know the current rules? See how you fare on this brief quiz.

1) The maximum amount an employed 45-year-old can contribute to a 401(k) in 2012 is:

  1. Zero.
  2. $17,000.
  3. $21,500.
  4. $22,500.

2) The maximum amount an employed 55-year-old can contribute to a 401(k) in 2012 is:

  1. Zero.
  2. $17,000.
  3. $21,500.
  4. $22,500.

3) The maximum amount a retired 65-year-old can contribute to a 401(k) in 2012 is:

  1. Zero.
  2. $17,000.
  3. $21,500.
  4. $22,500.

4) The minimum number of employees required to establish a 401(k) plan is:

  1. 1.
  2. 10.
  3. 25.
  4. 100.

5) If you aren’t a company’s owner, you must begin taking distributions from its 401(k) plan:

  1. At age 59½.
  2. At age 70½.
  3. When you retire.
  4. At age 70½ or your retirement date, whichever comes later.

6) A rollover from a 401(k) plan to an IRA is subject to a 20% withholding tax unless:

  1. You complete the rollover within 60 days.
  2. You arrange a trustee-to-trustee transfer.
  3. You retire before the end of the tax year.
  4. You are under age 59½.

7) If you receive a $10,000 “hardship distribution” from a 401(k) in 2012 and you’re in the 25% tax bracket, your income tax liability is:

  1. Zero.
  2. $1,000.
  3. $2,500.
  4. $3,500.

Answers: 1-b; 2-d; 3-a; 4-a; 5-d; 6-b; 7-c

The New JOBS Act: Where Main Street Meets Wall Street

By JJ Burns

April 11, 2012

The new JOBS Act—the Jumpstart Our Business Startups Act of 2012—is designed to promote growth among small businesses. Under the law, entrepreneurs will be able to raise cash without jumping through the usual hoops for the Securities & Exchange Commission (SEC). Here are the key provisions.

  • A privately owned company with revenue of less than $1 billion can sell up to $50 million in shares through an initial public offering (IPO) without registering with the SEC. Also, companies in this category are exempt from having to commission independent audits of their internal controls for up to five years.
  • Small companies may have as many as 2,000 shareholders (up from 500) or 500 unaccredited investors without registering with the SEC. An accredited investor is defined as someone who has a net worth of more than $1 million (not counting a primary residence), earnings of at least $300,000 ($200,000 for single filers) for the past two years, or is a general partner, director, or executive officer of the company issuing the IPO.
  • The new law allows “crowdfunding” to attract cash from large pools of small investors. Investments are limited to the lesser of $10,000 or 10% of the income of an investor.

Consult with a professional if you’re interested in issuing an IPO or acquiring shares of one.

Wait for November for Clarity on 2013 Tax Policy

By JJ Burns

April 11, 2012

Now that the “payroll tax holiday” has been extended through the rest of 2012, can we expect other significant tax legislation from Congress? Not before the national elections.

Although our nation’s lawmakers may still act to keep several other expiring tax provisions, it seems unlikely Republicans and Democrats will reach consensus on the best tax policy for the country before November. Once voters have been heard, Congress will probably get down to business.

Their task is daunting. Several key tax law breaks are scheduled to be scaled back in 2013 if there’s no congressional action.

  • The two top tax brackets for ordinary income in 2012 are 33% and 35%. Absent new legislation, the two top rates in 2013 will rise to 36% and 39.6%, respectively.  
  • Currently, the maximum tax rate on long-term capital gains and qualified dividends is 15%. These “Bush tax cuts” are set to expire after 2012 when the capital gains rate will jump to 20% and dividends will be taxed at ordinary income rates.
  • For 2012, the maximum estate tax exclusion is $5.12 million, and a surviving spouse may take advantage of any leftover exclusion of the spouse who died. But that “portability” is scheduled to end next year, and the exclusion will revert to $1 million.

We still could see wholesale changes in these tax rules...but not until later in the year.

U.S. Households Cheer Stronger Employment Data

By JJ Burns

April 11, 2012

An improving jobs picture sent consumer confidence up for six straight months through February, as Americans gained hope the economy is improving. Even people who said their own finances remained in poor shape felt more hopeful about the overall economy.

The University of Michigan’s Consumer Sentiment Index rose to 75.3 in February, up from a 31-year low of 54.9 in August 2011. That followed news that America’s unemployment rate had fallen to 8.3% in January. It had been at 9.1% in August, down from a 2009 high of 10%.

Consumer sentiment rose despite the fact that more households said their income had dropped from the previous month, and a majority said they did not think their income would grow during the next year.

Most economists are backing up this consumer optimism. A survey by the National Association for Business Economics in late February showed economists expect unemployment to remain at 8.3% this year. That’s a significant improvement from their November forecast of 8.9%.

The economists also predict job growth will accelerate next year and the jobless rate will fall to 7.8%. They forecast the U.S. economy will grow 2.4% this year, up from 2011, when economists believe the economy grew 1.6%.

The improving outlook among consumers and economists bodes well for 2012, as stock markets tend to rise on positive sentiment.