2015 401k Plan and IRA limits

IRS Announces 2015 Pension Plan Limitations; Taxpayers May Contribute up to $18,000 to their 401(k) plans in 2015

WASHINGTON — The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2015.  Many of the pension plan limitations will change for 2015 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment.  However, other limitations will remain unchanged because the increase in the index did not meet the statutory thresholds that trigger their adjustment.  Highlights include the following:

• The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $17,500 to $18,000.
• The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $5,500 to $6,000.
• The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500.  The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
• The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000, up from $60,000 and $70,000 in 2014.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $98,000 to $118,000, up from $96,000 to $116,000.  For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $183,000 and $193,000, up from $181,000 and $191,000.  For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
• The AGI phase-out range for taxpayers making contributions to a Roth IRA is $183,000 to $193,000 for married couples filing jointly, up from $181,000 to $191,000 in 2014.  For singles and heads of household, the income phase-out range is $116,000 to $131,000, up from $114,000 to $129,000.  For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
• The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $61,000 for married couples filing jointly, up from $60,000 in 2014; $45,750 for heads of household, up from $45,000; and $30,500 for married individuals filing separately and for singles, up from $30,000.

Market returns as of September 30, 2014

Not a good quarter for most parts of the market.  Geopolitical unrest and continued fears of when the Fed will start raising rates plaqued both stock and bond markets.  In reality, the market was due for some kind of correction.  Of course, we never know how far down it will go.  We haven’t seen a correction of 10% since this bull  market began and even now, we are not close.  We continue to maintain diversified, low cost portfolios and add any cash that needs investing on down days.  You can see from the table below, the biggest losers this year are small cap stock and international stocks.

Returns as of 9/30/14	Total Ret MTD Sept	Total Ret 3 Mo (Qtr-End)	Total Ret YTD	Total Ret 1 Yr	Total Ret Annlzd 3 Yr	Total Ret Annlzd 5 Yr	Total Ret Annlzd 10 Yr
S&P 500 Index	(3.29)	1.13	8.34	19.73	22.99	15.70	8.11
SPDR® S&P 500 FUND	(3.28)	1.10	8.23	19.56	22.82	15.57	8.01
Barclays US Agg Bond INDEX	1.00	0.17	4.10	3.96	2.43	4.12	4.62
Vanguard Total Bond Market Index FUND	1.10	0.14	4.00	3.77	2.20	3.91	4.50
Vanguard Total Stock Mkt Idx FUND	(3.57)	(0.06)	6.86	17.60	22.91	15.70	8.50
Barclays US Interm Credit INDEX	0.85	(0.11)	3.34	4.04	4.09	5.17	4.88
DJ Moderately Conservative INDEX	(0.73)	(1.76)	3.44	6.05	7.94	7.09	5.95
Barclays US Corporate High Yield INDEX	(0.23)	(1.87)	3.49	7.20	11.09	10.57	8.33
DJ Moderate INDEX	(1.79)	(2.13)	3.52	7.93	11.62	9.11	7.08
DJ Moderately Aggressive INDEX	(2.84)	(2.47)	3.57	9.67	15.20	10.94	8.01
S&P MidCap 400 INDEX	(4.81)	(3.98)	3.22	11.82	22.43	16.37	10.29
Vanguard Total Intl Stock Index FUND	(4.83)	(5.56)	(0.06)	4.77	12.28	5.88	6.78
MSCI EAFE INDEX	(5.26)	(6.39)	(3.63)	1.53	10.36	3.52	3.43
S&P SmallCap 600 INDEX	(3.77)	(6.73)	(3.72)	5.74	22.86	16.24	9.33
CUSTOM 45% US+15% INTL+40%Bonds		(1.99)	(0.77)	4.84

Federal Trade Commission website

I usually find good information on the FTC website and monthly newsletter.  I would suggest signing up and checking the website periodically.  The Commission uncovers many of the various scams that are going on both on the internet and via phone so that consumers can be better protected.  With all the news about data breaches and online security issues, this is one way to make ourselves more aware of all that is going on to better protect ourselves.  Here is the link to the website: http//:www.ftc.gov/news-events

Market Returns as of June 30, 2014

Market still going higher though we are seeing a bit of a hiccup here in July with worries over corporate earnings. Just as a point of reference, I like to post various index and fund returns so you have an idea of what is happening:

 

Name	Month End Price Date	Total Ret YTD	Total Ret 1 Yr	Total Ret Annlzd 3 Yr	Total Ret Annlzd 5 Yr	Total Ret Annlzd 10 Yr
S&P 500 INDEX	6/30/2014	7.14	24.61	16.58	18.83	7.78
Vanguard Total Stock Mkt Idex FUND	6/30/2014	6.93	25.04	16.33	19.29	8.31
SPDR S&P 500 ETF	6/30/2014	7.05	24.41	16.43	18.69	7.69
S&P SmallCap 600 INDEX	6/30/2014	3.22	25.54	16.81	21.98	9.95
S&P MidCap 400 INDEX	6/30/2014	7.50	25.24	15.26	21.67	10.50
Vanguard Total Intl Stock Index FUND	6/30/2014	5.82	22.34	5.83	11.01	7.42
MSCI EAFE INDEX	6/30/2014	2.95	20.33	4.91	8.57	4.03
DJ Moderately Aggressive INDEX	6/30/2014	6.18	20.02	10.69	14.83	8.27
DJ Moderate INDEX	6/30/2014	5.76	16.21	8.96	12.21	7.39
DJ Moderately Conservative INDEX	6/30/2014	5.29	12.20	6.90	9.45	6.30
Barclays US Corporate High Yield INDEX	6/30/2014	5.46	11.73	9.48	13.98	9.05
Barclays US Interm Credit INDEX	6/30/2014	3.45	5.21	4.45	6.44	5.23
Barclays US Agg Bond IDEX	6/30/2014	3.93	4.37	3.66	4.85	4.93
Vanguard Total Bond Market Index FUND	6/30/2014	3.85	4.15	3.49	4.63	4.80
40% US stock/15% International Stock/		5.57	15.44	9.15	11.68	6.84
50% US bond FUNDS

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Market Returns as of May 31, 2014

Just a quick post on market returns through May 31, 2014.  I always like my readers to see how various parts of the market are doing rather than listening to the business networks that create sound bites that are mostly irrelevant to anyone’s actual portfolio.

The market does continue to churn higher though without much conviction.  So far this year, returns look good despite the many ups and downs.  I think the rest of the year will be choppy, particularly as we approach mid term elections in the Fall.

The most important thing to remember is unless you have your entire portfolio invested in the S&P 500, your returns will vary significantly from that benchmark.  If you look at the last row in this chart, that is the hypothetical return for a blended portfolio of index funds.  

Name	Month End Price Date	Total Ret YTD	Total Ret 1 Yr	Total Ret Annlzd 3 Yr	Total Ret Annlzd 5 Yr	Total Ret Annlzd 10 Yr
S&P 500 INDEX	5/31/2014	4.97	20.45	15.15	18.40	7.77
Vanguard Total Stock Mkt Idex FUND	5/31/2014	4.28	20.39	14.67	18.78	8.26
SPDR S&P 500 ETF	5/31/2014	4.90	20.29	15.01	18.26	7.67
S&P SmallCap 600 INDEX	5/31/2014	-1.43	19.71	14.33	21.20	10.03
S&P MidCap 400 INDEX	5/31/2014	3.23	18.04	12.94	20.84	10.31
Vanguard Total Intl Stock Index FUND	5/31/2014	4.01	15.74	4.69	10.33	7.49
MSCI EAFE INDEX	5/31/2014	2.14	14.94	4.13	8.23	4.16
DJ Moderately Aggressive INDEX	5/31/2014	3.63	14.75	9.31	14.31	8.24
DJ Moderate INDEX	5/31/2014	3.77	11.93	7.91	11.86	7.37
DJ Moderately Conservative INDEX	5/31/2014	3.88	8.91	6.18	9.26	6.29
Barclays US Corporate High Yield INDEX	5/31/2014	4.59	7.90	8.83	14.43	9.11
Barclays US Interm Credit INDEX	5/31/2014	3.43	3.18	4.32	6.82	5.27
Barclays US Agg Bond INDEX	5/31/2014	3.87	2.71	3.55	4.96	4.99
Vanguard Total Bond Market Index FUND	5/31/2014	3.74	2.32	3.32	4.72	4.85
40% US + 15% INTL + 45% bonds FUNDS			11.56	8.06	11.19	6.61

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All data from Morningstar Office.

Market returns

All areas of the market were doing very well through quarter end 3/31/14.  Since then, we have seen a lot of volatility and weakening markets.  The sectors that were performing the best, are now going down.  This is not a surprise.  If you are a trader and worried about the markets, you will sell what you have the most profits in if you think the market is turning.  But for long term investors, the downturn does not signal a time for panic selling but rather an opportunity to reallocate, buy what is getting beat up or put some cash to work.  Volatile markets create dislocations–which is what every long term investor wants.  It is nice to get that statement every month and see the values go up and up.  But that is not the way it goes–we must always expect down months–they are healthy and necessary for the markets to climb higher for the long term.  Here is the chart of returns for some important segments of the market–for both indexes and funds.

 

Name	Total Ret April	Total Ret YTD to 3/31/14	Total Ret 1 Yr to 3/31/14	Total Ret Annlzd 3 Yr to 3/31/14	Total Ret Annlzd 5 Yr to 3/31/14	Total Ret Annlzd 10 Yr to 3/31/14
S&P MidCap 400 Index	(4.32)	3.04	21.24	13.37	24.86	10.14
Barclays US Corporate High Yield Index	0.24	2.98	7.54	9.00	18.25	8.68
DJ Moderately Conservative Index	0.00	2.01	7.18	6.35	10.87	5.78
Vanguard Total Stock Mkt Idex FUND	(3.31)	2.00	22.54	14.50	21.93	7.93
DJ Moderate Index	(0.49)	1.90	11.05	8.00	14.38	6.86
Vanguard Total Bond Market Index FUND	0.75	1.88	(0.34)	3.59	4.60	4.34
Barclays US Agg Bond Index (all bonds)	0.78	1.84	(0.10)	3.75	4.80	4.46
S&P 500 Index	(2.95)	1.81	21.86	14.66	21.16	7.42
SPDR S&P 500 Exchange Traded Fund	(2.95)	1.77	21.70	14.52	21.02	7.32
DJ Moderately Aggressive Index	(0.95)	1.77	14.74	9.31	17.84	7.74
Barclays US Interm Credit Index (corporate bonds)	0.76	1.63	0.98	4.60	7.63	4.75
S&P SmallCap 600 Index	(4.20)	1.13	27.81	15.95	26.21	10.11
Vanguard Total Intl Stock Index FUND	(0.84)	0.77	12.71	4.35	15.36	6.86
MSCI EAFE Index (international stocks)	(1.02)	0.00	14.42	4.01	12.65	3.66

Heartbleed

Don’t panic….most financial websites were NOT affected by the encryption problem recently publicized in the media.  Here is a list of sites that were affected.  You should change your password after being notified that the company’s program has been updated.  If you change your password before that, you will not have accomplished anything.  See the link:

http://mashable.com/2014/04/09/heartbleed-bug-websites-affected/?cid=146326&ctst=1

 

 

Financial Education Day 2014 Westchester Community College

I will be presenting, “Choosing the Right Financial Planner” at this year’s FE Day.  This is a free event that has attracted hundreds of participants in years past.  Mark the date, Saturday March 22, 2014.  Click on the link for more information:

http://www.mysunywcc.org/page/2014FEDAY

The market doesn’t go up in a straight line

Great year for most stock markets in 2013–not so good for bonds as interest rates rose.  So far, 2014 has not started off well for stock markets, in particular, the international market.  I always like to look to see how investment returns vary from one time period to another.  As you can see in this chart, the stock market was due for a little correction given last year’s stellar returns and bonds have made back about half of what was lost last year.  So we can never decide to eliminate one asset class all together from portfolios–we need to have these various assets that are acting differently, depending on what the market is doing.  All data is from Morningstar Advisors.

Returns as of 1/29/14	Total Ret MTD	Annual Return 2013
S&P SmallCap 600 Index	4.44	41.31
S&P MidCap 400 Index	3.05	33.50
Vanguard Total Stock Mkt Index Fund	3.66	33.35
S&P 500 Index	3.92	32.39
MSCI EAFE (international stock)	3.57	19.43
Vanguard Total Intl Stock Index Fund	4.12	15.04
Barclays US Corporate High Yield Index	0.67	7.44
Barclays US Interm Credit Index	1.09	0.17
Barclays US Agg Bond Index	1.45	2.02
Vanguard Total Bond Market Index Fund	1.43	2.26

Managing Cash Flow

The foundation of financial planning is in really understanding where your money is going.  When you know how much is coming in and how much is going out every month, and WHERE it is going, you will then be able to determine what needs to be cut to increase savings.  The key ingredient to any financial plan is saving–how you invest that money is ancillary and not the point of financial planning.  So let’s stop making excuses and start using Mint.com, a notebook or even the good old check registry to track income and expenses and make some meaningful inroads in preparing for our financial future.