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 Good morning, and happy fall!
There's a lot to share in the financial planning world. As you may have heard, last week's budget bill significantly changed the social security filing options available to retirees. There are also important updates on the Medicare Part B premium for high income retirees and those who are not yet taking social security. We have articles on both topics in this newsletter.
The last several months have also been eventful in the markets. Shortly after the last newsletter in August, we had our first correction in the US stock market since 2011. Performance stayed mostly negative through the end of September followed by a really nice recovery in October. As of yesterday, the S&P 500 closed back above 2,100 -- a level that it first surpassed earlier this year. Year-to-date, the S&P 500 is up just under 4%. International developed stock markets are up 1.65%. Emerging markets stock are down 9%. The US aggregate bond index is up a little over 1% so far this year.*
As always, please let us know of any suggestions for newsletter topics or questions in your financial world. Thanks for reading, and live well! |
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Medicare Part B Fix
How premium increases for 2016 have been moderated Learn more. |
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2016 Retirement LimitsRefresher on retirement plan limits with only minimal changes for next year Get the details.
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Social Security Changes |
 As a result of the budget bill passed last week, two social security strategies that we've recommended to many clients over the years are no longer available or significantly limited.
File and Suspend The strategy involves one spouse filing an application for retirement benefits when he or she reaches full retirement age and immediately requesting that benefits be suspended, allowing his or her eligible spouse to file for spousal benefits. The file-and-suspend strategy has been most commonly used when one spouse has much lower lifetime earnings, and thus will receive a higher retirement benefit based on his or her spouse's earnings record rather than on his or her own earnings record. In a provision labeled "closure of unintended loopholes," the legislation effectively eliminates this strategy--if an individual chooses to suspend retirement benefits, neither the individual nor his or her spouse can receive spousal benefits during the suspension period. This provision will be effective in six months and applies to new file-and-suspend claims. Those who are both eligible and have implemented the file-and-suspend strategy before the six-month period ends will not be affected by the change. What do you need to do: If you are already 66 or will be turning 66 in the next 6 months and your plan includes a file-and-suspend strategy, you need to apply for benefits and suspend them before the six-month window closes. If you are younger than 55 1/2 and file-and-suspend was previously a part of your plan, you'll want to update your plan. You should expect that elimination of the strategy will reduce your plan's probability of success or require a reduction in planned spending to maintain the same probability of success. Restricted Application Another strategy that has been used to potentially increase retirement income involves one spouse filing for spousal benefits first, then switching to his or her own higher retirement benefit later. If a spouse reaches full retirement age and is eligible for both a spousal benefit based on his or her spouse's earnings record and a retirement benefit based on his or her own earnings record, he or she could choose to file a restricted application for spousal benefits only, then delay applying for retirement benefits on his or her own earnings record (up until age 70) in order to earn delayed retirement credits.
The legislation eliminates this strategy. Anyone applying for either a spousal or retirement benefit is deemed to have filed an application for the other type of benefit as well. This change affects individuals who attain age 62 after calendar year 2015. Individuals who reach age 62 on or before December 31, 2015, will continue to be able to file restricted applications for spousal benefits once they reach full retirement age.
It's important to note that those individuals with a restricted application for survivor benefits appear not to be affected by this change. What you need to do: If your plan included use of a restricted application and you won't be 62 or older by the end of 2015, you'll also want to update your plan. As with the elimination of the file-and-suspend strategy, you should expect that elimination of the restricted application strategy will reduce your plan's probability of success or require a reduction in planned spending to maintain the same probability of success.
For a more in-depth review of these issues, Michael Kitces offers an excellent article on his blog.
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Medicare Fix-It |
 Congressional leaders and the Obama Administration have fixed the potentially alarming increase in Medicare Part B premiums under the recently-passed government budget deal.
Medicare Part B covers most health care services outside of hospitals, and thus represents one of the biggest expense items in the government-run health system. The program is voluntary, but 91% of all Medicare beneficiaries are enrolled in Part B.
The problem that had to be fixed arose because, under Social Security and Medicare rules, the government is required to collect 25% of all expected Part B costs from recipients each year-in the form of premiums. The total Part B cost was anticipated to reach $171.2 billion 2016.
However, another provision says that in years where there is no increase in Social Security benefits-such as next year-Medicare premiums must be held steady for current Social Security recipients. As a result, the entire increase would have had to be borne by enrollees who either don't yet collect Social Security checks; enrollees with incomes above $85,000 (single) or $170,000 (married); or are dual Medicare-Medicaid beneficiaries. In all, these three categories represent 30% of 2016 Medicare beneficiaries-roughly 7 million Americans.
The new budget deal creates a $12 billion loan from the U.S. Treasury to the Medicare trust fund to reduce the impact on those Medicare participants. Instead of seeing their monthly premiums go up from $104.90 to $159.30, they will experience a more modest 14% premium increase, to $120 a month next year, plus a monthly surcharge of $3. This will allow premiums to rise more gradually, and spread the cost over a longer period of time.
Article used with permission of financial columnist Bob Veres.
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2016 Retirement Plan Limits |
 Retirement plan limits are indexed to inflation. So in years like 2015 where the consumer price index doesn't change much, the limits stay mostly the same, although a few items did shift (like the Roth IRA income limit). Even though there's not much change, it's still a good idea to refresh yourself on them and consider ways you might maximize your savings rate tax-efficiently. IRA contribution limits
The maximum amount you can contribute to a traditional IRA or Roth IRA in 2016 is $5,500 (or 100% of your earned income, if less), unchanged from 2015. The maximum catch-up contribution for those age 50 or older remains at $1,000. (You can contribute to both a traditional and Roth IRA in 2016, but your total contributions can't exceed these annual limits.)
Traditional IRA deduction limits for 2016
The income limits for determining the deductibility of traditional IRA contributions in 2016 are unchanged, except for one instance: if you're not covered by an employer plan but your spouse is, and you file a joint return, you can fully deduct your IRA contribution in 2016 if your MAGI is $184,000 or less (up from $183,000 in 2015).
| If your 2016 federal income tax filing status is: | Your IRA deduction is reduced if your MAGI is between: | Your deduction is eliminated if your MAGI is: |
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| Single or head of household | $61,000 and $71,000 | $71,000 or more |
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| Married filing jointly or qualifying widow(er)* | $98,000 and $118,000 (combined) | $118,000 or more (combined) |
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| Married filing separately | $0 and $10,000 | $10,000 or more |
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*If you're not covered by an employer plan but your spouse is, your deduction is limited if your MAGI is $184,000 to $194,000, and eliminated if your MAGI exceeds $194,000. Roth IRA contribution limits for 2016
The income limits for determining how much you can contribute to a Roth IRA have increased for 2016. If your filing status is single or head of household, you can contribute the full $5,500 to a Roth IRA in 2016 if your MAGI is $117,000 or less (up from $116,000 in 2015). And if you're married and filing a joint return, you can make a full contribution in 2016 if your MAGI is $184,000 or less (up from $183,000 in 2015). (Again, contributions can't exceed 100% of your earned income.)
| If your 2016 federal income tax filing status is: | Your Roth IRA contribution is reduced if your MAGI is: | You cannot contribute to a Roth IRA if your MAGI is: |
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| Single or head of household | More than $117,000 but less than $132,000 | $132,000 or more |
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| Married filing jointly or qualifying widow(er) | More than $184,000 but less than $194,000 (combined) | $194,000 or more (combined) |
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| Married filing separately | More than $0 but less than $10,000 | $10,000 or more |
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Employer retirement plans
All of the significant employer retirement plan limits for 2016 remain unchanged from 2015. The maximum amount you can contribute (your "elective deferrals") to a 401(k) plan in 2016 is $18,000. This limit also applies to 403(b), 457(b), and SAR-SEP plans, as well as the Federal Thrift Plan. If you're age 50 or older, you can also make catch-up contributions of up to $6,000 to these plans in 2016. (Special catch-up limits apply to certain participants in 403(b) and 457(b) plans.)
If you participate in more than one retirement plan, your total elective deferrals can't exceed the annual limit ($18,000 in 2016 plus any applicable catch-up contribution). Deferrals to 401(k) plans, 403(b) plans, SIMPLE plans, and SAR-SEPs are included in this aggregate limit, but deferrals to Section 457(b) plans are not. For example, if you participate in both a 403(b) plan and a 457(b) plan, you can defer the full dollar limit to each plan--a total of $36,000 in 2016 (plus any catch-up contributions).
The amount you can contribute to a SIMPLE IRA or SIMPLE 401(k) plan in 2016 is $12,500, and the catch-up limit for those age 50 or older remains at $3,000.
| Plan type: | Annual dollar limit: | Catch-up limit: |
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| 401(k), 403(b), governmental 457(b), SAR-SEP, Federal Thrift Plan | $18,000 | $6,000 |
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| SIMPLE plans | $12,500 | $3,000 |
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Note: Contributions can't exceed 100% of your income.
The maximum amount that can be allocated to your account in a defined contribution plan (for example, a 401(k) plan or profit-sharing plan) in 2016 is $53,000, plus age-50 catch-up contributions. (This includes both your contributions and your employer's contributions. Special rules apply if your employer sponsors more than one retirement plan.)
Finally, the maximum amount of compensation that can be taken into account in determining benefits for most plans in 2016 is $265,000, and the dollar threshold for determining highly compensated employees (when 2016 is the look-back year) is $120,000, both unchanged from 2015.
Article adapted with permission of Broadridge Forefield Investor Communications.
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I hope you found this newsletter informative. KFP offers a free, no-obligation initial consultation to start the financial planning process for new clients. To learn more or schedule a time, call 817-993-0401 or e-mail [email protected]. Sincerely,
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Jean Keener, CFP�, CRPC�
Keener Financial Planning
Keener Financial Planning provides as-needed, fee-only financial planning and investment management services.
*Source for investment returns is Morningstar as of November 2, 2015. S&P 500 TR USD for the S&P 500. MSCI EAFE NR USD for developed international markets. MSCI EM NR USD for emerging markets stock. Barclays US Agg Bond TR USD for the US Aggregate bond index. |
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