January 2019
The Biggest Danger to Your Long-Term Investment Results
Your 2019 Tax Fact Sheet and Calendar
IRS Announces Higher Estate and Gift Tax Limits for 2019

The Biggest Danger to Your Long-Term Investment Results

What is the Biggest Danger?

Here’s a trick question: what is the biggest danger to your long-term investment results? If you answered something like “market downturns” or “downside volatility,” you’re not only missing a bigger danger, you may be missing the way investment markets work.

As you can see from the chart below, there have been a lot of market setbacks since 1896, and yet the overall trajectory of the market (as you undoubtedly already knew) has been a fairly steady rise. The longest recovery times in modern history—25 years during the Great Depression, 16 years during the stagflation period of the 1970s—are also the only times when someone with a time horizon of more than 10 years would have seen a loss after hanging tight for the full decade. The recovery time from the severe downturn in the Great Recession was just 6 years.

Source: Chris Kacher

So what’s a bigger danger than something awful like the Great Recession? Investment experts talk about a human failing called “policy abandonment,” which is a fancy way of saying that the investor bailed on the markets, generally at the wrong time. Suffering a significant decline in the Great Recession was temporarily painful, but what about the people who abandoned their portfolio allocations and retreated to cash at or near the bottom, because they just got too nervous about what the market would do the next day or the day after? They locked in those losses, moved to the sidelines and found themselves with permanent—rather than temporary—portfolio losses.

The Lesson

The lesson of the chart as its author, Chris Kacher, points out, is that the stock market is long-term driven by the intelligence, creativity, innovation and hard work that people working in various companies put into their jobs every day. The value of companies tends to rise, but fear sometimes makes people sell their stock at lower prices which, up to now, have always recovered to reflect that growing value.

The recent turmoil in the markets is certainly unsettling, but it’s nothing compared with the Great Recession, the Great Depression—or, probably, the next significant bear market, whenever it comes. That next downturn will present us with the illusion of danger (a temporary market decline) and some will take the opportunity to embrace real danger—the danger of “policy abandonment” that makes temporary losses permanent.

Source: Bob Veres

Your 2019 Tax Fact Sheet and Calendar

The year 2018 ushered in seismic tax-code changes that you’re likely to see reflected on your 2018 return: notably, the end of personal exemptions as well as higher standard deduction amounts that mean many fewer taxpayers are apt to benefit from itemizing their deductions than in the past.

As 2019 dawns, the changes to the tax code are far less remarkable–more evolutionary than revolutionary. Most of the changes amount to tweaks that reflect the effects of inflation in various provisions within the tax code.

Here are key tax-related dates and data points to have on your radar for the year ahead.

2019 Important Tax Facts for All Taxpayers

Income Tax Brackets: Seven tax brackets remain, but the specific parameters have changed, as follows:

  • 10%: Single taxpayers with incomes between under $9,700; married couples filing jointly with incomes of less than $19,400.
  • 12%: Single taxpayers with incomes between $9,700 and $39,475; married couples filing jointly with incomes between $19,400 and $78,950.
  • 22%: Single taxpayers with incomes between $39,475 and $84,200; married couples filing jointly with incomes between $78,950 and $168,400.
  • 24%: Single taxpayers with incomes between $84,200 and $160,725; married couples filing jointly with incomes between $168,400 and $321,450.
  • 32%: Single taxpayers with incomes between $160,725 and $204,100; married couples filing jointly with incomes between $321,450 and $408,200.
  • 35%: Single taxpayers with incomes between $204,100 and $510,300; married couples filing jointly with incomes between $408,200 and $612,350.
  • 37%: Single taxpayers with incomes of $510,300 or more; married couples filing jointly with incomes of $612,350 or more.

Standard Deduction: Standard deduction amounts are increasing slightly in 2019 to $12,200 for individuals and $24,400 for married couples filing jointly.

AMT-Exempt Amounts: The exemption amounts for the alternative minimum tax are increasing slightly in 2019 to $71,700 for single filers and $111,700 for married couples filing jointly. The full exemptions are available to taxpayers with alternative minimum taxable incomes of less than $510,300 (single filers)/$1,020,600 (married couples filing jointly).

Estate/Gift Tax Exemption: This amount is increasing slightly to $11.4 million per individual. The annual gift-tax exclusion amount stays the same at $15,000. (Note that annual gifts in excess of this amount do not automatically trigger any sort of gift tax, as discussed here. Most people won’t owe estate or gift taxes in their lifetimes under current tax laws.)

2019 Important Tax Facts for Investors

Qualified Dividend and Long-Term Capital Gains Rates: Three rates are still in place for dividends and long-term capital gains–0%, 15% and 20%–but they don’t map perfectly by tax bracket as they did in the past. Here are the parameters for each of the rates.

  • 0%: Single taxpayers with incomes between $0 and $39,375; married couples filing jointly with incomes between $0 and $78,750.
  • 15%: Single taxpayers with incomes between $39,375 and $434,550; married couples filing jointly with incomes between $78,750 and $488,850.
  • 20%: Single taxpayers with incomes over $434,550; married couples filing jointly with incomes over $488,850. 

Medicare Surtax: As in years past, an additional 3.8% Medicare surtax will apply to the lesser of net investment income or the excess of modified adjusted gross income over $200,000 for single taxpayers and $250,000 for married couples filing jointly.

IRA contribution limits (Roth or traditional): $6,000 under age 50/$7,000 over age 50.
Income limits for deductible IRA contribution, single filers or married couples filing jointly who aren’t covered by a retirement plan at work: None; fully deductible contribution.

Income limits for deductible IRA contribution, single filers covered by a retirement plan at work: Modified adjusted gross income under $64,000–fully deductible contribution; between $64,000 and $74,000–partially deductible contribution; more than $74,000–contribution not deductible. 

Income limits for deductible IRA contribution, married couples filing jointly, if the spouse making the contribution is covered by a retirement plan at work: Modified adjusted gross income under $103,000–fully deductible contribution; between $103,000 and $123,000–partially deductible contribution; more than $123,000–contribution not deductible.

Income limits for deductible IRA contributions, married couples filing jointly, if the spouse making the contribution isn’t covered by a retirement plan at work but his/her spouse is: Modified adjusted gross income under $193,000–fully deductible contribution; between $193,000 and $203,000–partially deductible contribution; more than $203,000–contribution not deductible.

Income limits for nondeductible IRA contributions: None.

Income limits for IRA conversions: None, but note that the tax legislation that went into effect in 2018 eliminated the opportunity to recharacterize a Roth IRA as a traditional IRA, or vice versa.

Income limits for Roth IRA contribution, single filers: Modified adjusted gross income under $122,000–full Roth contribution; between $122,000 and $137,000–partial Roth contribution; more than $137,000–no Roth contribution.

Income limits for Roth IRA contribution, married couples filing jointly: Modified adjusted gross income under $193,000–full Roth contribution; between $193,000 and $203,000–partial Roth contribution; more than $203,000–no Roth contribution.

Contribution limits for 401(k), 403(b), 457 plan, or self-employed 401(k) (traditional or Roth): $19,000 under age 50; $25,000 for age 50 and older.

Total 401(k) contribution limits, including employer (pretax, Roth, after-tax) and employee contributions and forfeitures: $56,000 if under age 50; $62,000 if 50-plus.

Income limits for 401(k), 403(b), 457 plans: None, though annual compensation limits can come into play in certain situations.

SEP IRA contribution limit: The lesser of 25% of compensation or $56,000 ($62,000 for those 50-plus).

Saver’s Tax Credit, income limit, single filers: $32,000.

Saver’s Tax Credit, income limit, married couples filing jointly: $64,000.

Health savings account contribution limit, single contributor: $3,500 (under 55); $4,500 (over 55).

Health savings account contribution limit, family coverage: $7,000 (contributor under 55); $8,000 (contributor 55-plus).

High-deductible health plan minimum deductible, self-only coverage: $1,350.

High-deductible health plan minimum deductible, family coverage: $2,700.

High-deductible health plan out-of-pocket maximum, self-only coverage: $6,750.

High-deductible health plan out-of-pocket maximum, family coverage: $13,500.

2019: Important Tax Dates to Remember

Jan. 1: New IRA, retirement plan, and HSA contribution and income limits went into effect for 2019 tax year, as listed above.

 Jan. 15: Estimated tax payments due for fourth quarter of 2018.

 April 15:

  • Individual tax returns (or extension request forms) due for 2018 tax year.
  • Estimated tax payments due for first quarter of 2019.
  • Last day to contribute to IRA for 2018 tax year (2018 contribution limits: $5,500 under age 55; $6,500 for age 55 and above).
  • Last day to contribute to health savings account for 2018 tax year (2018 contribution limits: $3,400 for single coverage, contributor under age 55; $4,400 for single coverage, contributor age 55 and above; $6,750 for family coverage, contributor under age 55; $7,750 for family coverage, contributor age 55 and above).

June 15: Estimated tax payments due for second quarter of 2019.

Sept. 15: Estimated tax payments due for third quarter of 2019.

Oct. 15: Individual tax returns due for taxpayers who received a six-month extension.

Dec. 31:

  • Retirees age 70 1/2 and older must take required minimum distributions from traditional IRAs and 401(k)s; those RMDs are based on their balances at the end of 2018.
  • Last date to make contributions to company retirement plans (401(k), 403(b), 457) for 2018 tax year.

Source: Christine Benz, 1/8/2019

IRS Announces Higher Estate and Gift Tax Limits for 2019

The Internal Revenue Service recently announced the official estate and gift tax limits for 2019: The estate and gift tax exemption is $11.4 million per individual, up from $11.18 million in 2018. That means an individual can leave $11.4 million to heirs and pay no federal estate or gift tax, while a married couple will be able to shield $22.8 million. The annual gift exclusion amount remains the same at $15,000.

For the ultra-rich, these numbers represent planning opportunities. For everybody else, they serve as a reminder: Even if you don’t have a taxable estate, you still need an estate plan.

Higher Estate Tax Limit

The Trump tax cuts slashed the number of estates subject to the federal estate tax, by doubling the exemption amount from a base level of $5 million per person. So, there were only an estimated 1,890 taxable estates in 2018 (according to the Tax Policy Center). That compares with 4,687 taxable estates in 2013 reflecting a base $5 million exemption, and 52,000 taxable estates in 2000 when the exemption was $675,000.

For now, death tax foes are trying to make the new doubled exemption amounts permanent; the Trump tax cuts are scheduled to expire at year-end 2025. “Permanence [of the doubled exemption] would make the score of repeal much cheaper and provide predictability,” says Palmer Schoening of the anti-death tax Family Business Coalition, noting that the ultimate goal is still to repeal the estate tax. The mid-term elections, however, put a damper on the viability of Tax Reform 2.0, the Republicans’ latest push to make that doubled exemption permanent.

Higher Gift Tax Limit

What about the $15,000 annual exclusion amount? You can give away $15,000 to as many individuals as you’d like. A husband and wife can each make $15,000 gifts. So, a couple could make $15,000 gifts to each of their four grandchildren, for a total of $120,000. Lifetime gifts beyond the annual exclusion amount count towards the $11.4 million combined estate/gift tax exemption.

Warning: The $22.8 million number per couple isn’t automatic. An unlimited marital deduction allows you to leave all or part of your assets to your surviving spouse free of federal estate tax. But to use your late spouse’s unused exemption – a move called “portability”—you must elect it on the estate tax return of the first spouse to die, even when no tax is due. The problem is if you don’t know what portability is and how to elect it, you could be hit with a surprise federal estate tax bill.

And note, if you live in one of the 17 states or the District of Columbia that levy separate estate and/or inheritance taxes, there’s even more at stake, with death taxes sometimes starting at the first dollar of an estate. (Note: California does not levy separate inheritance taxes.) Several states were in line to match the federal exemption amount for 2018, but state legislators determined the new doubled exemption was just too high.

Source: Ashlea Ebeling, 11/15/2108