IRS Boosts 2021 Income Limits for Deductible IRA Contributions

The Internal Revenue Service announced Monday income range increases in 2021 for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements, to contribute to Roth IRAs and to claim the Saver’s Credit.

However, 401(k) contribution limits for 2021 are unchanged at $19,500.

Catch-up contribution limits for employees age 50 and over remain unchanged at $6,500.

The limitation regarding SIMPLE retirement accounts remains unchanged at $13,500.  The limit on annual contributions to an IRA remains unchanged at $6,000.

As the IRS explains in Notice 2020-79, taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.)

Here are the phase-out ranges for 2021:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $66,000 to $76,000, up from $65,000 to $75,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $105,000 to $125,000, up from $104,000 to $124,000.
  • 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 $198,000 and $208,000, up from $196,000 and $206,000.
  • 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 income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $66,000 for married couples filing jointly, up from $65,000; $49,500 for heads of household, up from $48,750; and $33,000 for singles and married individuals filing separately, up from $32,500.
  • The income phase-out range for taxpayers making contributions to a Roth IRA is $125,000 to $140,000 for singles and heads of household, up from $124,000 to $139,000. For married couples filing jointly, the income phase-out range is $198,000 to $208,000, up from $196,000 to $206,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The SIMPLE catch-up limit stays unchanged at $13,500. Catch-up contributions do not apply to SEPs.

The 2020 Roth IRA contribution eligibility phase-out limits based on income have increased slightly to $198,000 to $208,000 for married-joint and $125,000 to $140,000 for singles and heads of household.

 

Client Note September 2020

Client Note                                                                                                                                                      

October 8, 2020

September saw the S&P500 slip approximately 3.8%, ending a streak of 5 positive months in a row.  While equity markets and precious metals (oddly) are moving together, our cash and bond holdings kept average portfolio declines to approximately 1.5% on the month. Year to date through September 30, the S&P 500 is up 5.6%, while our average Moderate Portfolio is up almost 10% year to date.  The fact that financial markets are up this year, despite 2020 being on track for the worst GDP contraction since 1946, is remarkable.

Estimates for 2020 GDP growth will come in around -4%, while the 2007/2008 era saw only a 2.7% contraction.  But this time markets are faring far better.  The key difference between today and 2008 is the emergency actions of the Fed.  The Fed acted far faster and far more substantially than it did in 2008.  The labor market bottomed out in February 2010 with total losses of 8.8 million jobs.  Not until May 2014 did the US recover all the jobs lost.  Currently, we have recovered half of the 22 million jobs lost.  IF, the now-slowing recovery is similar to post 2008, it could be 5 years before all jobs are recovered.  Fortunately, the S&P500 mirrors the Fed’s balance sheet growth more than the economic data.   

History shows us that markets recover more quickly than jobs or the economy.  As such, it appears equity markets have priced in a full profit recovery in the coming year.   In 2008, corporate profits bottomed almost the same time markets did.   Profits and markets grew alongside each other for several years. This time, markets have already recovered and are waiting on profits to back fill the massive valuation gap that now exists.  Because of this mis-match in timing, we could see a few more bouts of 20% gains and declines, as data/news shows economic activity slowing or increasing; as governments decide to add fiscal support or skip it; and as hot spots of the Covid virus spike and recede over the next year or longer.

Some analysts see rising inflation and higher rates coming because of economic growth.  In order to create the ‘good’ inflation (demand-pull), consumers need to spend.  They spend wages, new credit (loans/credit cards) and transfer payments (social security/welfare/stimulus checks).  Banks’ lending standards are increasing; lending is decreasing.  Aggregate wages have declined each month since May. Finally, in August the Cares Act $600/week stimulus ran out while 10 million remain unemployed, keeping pressure on consumer spending.  The Chairman of the Federal Reserve has asked Congress for fiscal stimulus to lift the economy.  As it stands now, there is no real impetus for market rates to rise, and may bode well for bond prices, as rates stay low or perhaps decline again.

My outlook for markets and rates remains the same as during the Summer.  Rates remain low and there is a good likelihood of large swings in market prices.  That outlook will remain until either a large stimulus package with money going right to consumers or control of the spread of the virus occur, maybe both.  I am expecting a post-election rally that may start mid to late October, simply because regardless of the winner, markets like certainty.  Precious metals appear to have completed their correction and a nascent rally may have started.

Adam Waszkowski, CFA

 This commentary is not intended as investment advice or an investment recommendation. Past performance is not a guarantee of future results. Price and yield are subject to daily change and as of the specified date. Information provided is solely the opinion or our investment managers at the time of writing. Nothing in the commentary should be construed as a solicitation to buy or sell securities. Information provided has been prepared from sources deemed to be reliable but is not guaranteed by NAMCO and may not be a complete summary or statement of all available data necessary for making an investment decision. Liquid securities, such as those held within managed portfolios, can fall in value. Naples Asset Management Company, LLC is an SEC Registered Investment Adviser. For more information, please contact us at awaszkowski@namcoa.com.

Client Note June 2020

As we close June and the first half of 2020, financial markets continue their rebound from the first quarter’s corona-crash.  In very volatile markets there will be many “best/worst X since Y”.  The close at 3100 on the SP500 reflects the best quarter in the sp500 since 1987, with a gain of 19.9%.  After a 36% decline off the all-time high and subsequent 40% gain, puts the SP500 at -4% year to date and -9% below the all-time highs.  Our average moderate portfolio gained almost 15% for the quarter and is up 4% on the year.  While further upside is possible but in the short term, US equity markets are in a downtrend since June 23.  On a larger time, frame, we have downtrends since June 8 and off the highs on February 19thGetting over 3200 should open the door towards 3400+, but if we lose the 3000 level, my medium-term outlook will change.  Our individual stocks continue to do very well.

International equities continue to sorely lag US equities.  European shares gained 2.5% on the month, and currently sit at -14% year to date.  Japan gained 1% and China ebbed 1.6% on the month and both fall well short of the SP500 at -7% and -9%, respectively, year to date.  Emerging markets were the winner on the month at +6% but also have made far less progress recovering post-crash, coming in at     -11% year to date. We sold the last bits of emerging and international equities towards the end of the month.

In credit markets, treasuries have dominated over all other areas of the bond markets.  The long bond/20-yr treasury ebbed by 2.25% during the month, is flat for the quarter and up a massive 20% for 2020.  Even with equivalent maturities, treasuries are outpacing investment grade and junk bonds by 5% and 17%(!) respectively.  The investment grade corporate bond etf, LQD is up 5.1% ytd, while junk bond etf, JNK is -7.7% ytd.   This disparity is due to the rapid credit deterioration seen during this severe recession.  Given this, and spike in covid19 cases, its unlikely rates will rise appreciably in the near term.  Our long treasury position was reduced late March at slightly higher prices.

Economic data released in June continue to show improvement over the April/May shutdown (naturally).    The pace at which the economy would rebound after reopening is a hot topic.  We are seeing rapid improvement in some areas but the estimates versus data are showing extremely poor forecasting ability by economists in the short term.  I am watching year over year data to see how much rebound we are getting.  If July and August data show similar growth as May and June, we could see 90% of more of the economy back by Labor Day.  The trend of economic recovery is far more important than the level.  Ideally, we will trend higher and higher until full recovery.   At the end of July, we will get the first read on GDP for the second quarter.  The Atlanta Fed current estimate has risen to   -36%. 

Looking forward, the recent spike in virus cases has opened the door to the risk that the re-opening of the economy will be slowed, as we are more likely to see county or regional shutdowns.  Continued support from the Fed and continuation of stimulus programs are critical.  A bit higher in equities may provide some momentum to get to 3400 and Fed intervention can keep rates low.

Adam Waszkowski, CFA

Honoring Sacrifice

Brendan 1941.JPG

Since the earliest ceremonies in small American towns following the Civil War, we have gathered on Memorial Day to honor and remember those who made the ultimate sacrifice in service to our nation. As in those early days of laying wreaths and placing flags, our national day of remembrance is often felt most deeply among the families and communities who have personally lost friends and loved ones.

Uncle Hubert 1943Since World War I, more than 645,000 men and women have given their lives in defense of our freedom here at home and around the world. 

This national holiday may also be the unofficial start of the summer season, but all Americans must take a moment to remember the sacrifice of our valiant military service members, first responders and their families. Memorial Day is a day of both celebration and grief, accounting for the honor of our heroes and reflecting on their tragic loss.

This Memorial Day, join us in remembering those who bravely sacrificed their lives for our country, including the many first responders of COVID. 

At NAMCOA we pay tribute to Honor, Duty and Sacrifice.  

Happy Fathers Day!

Wishing a Happy Father’s Day to the extraordinary dads who provide support, sacrifice and love every day for their families. 

We’re thankful for these incredible men who truly make a house a home, filling our spaces with fond memories and laughter day in and day out. We celebrate dads everywhere today from all of us at NAMCOA. 

Blame the Fed! (for following through on previously telegraphed guidance)

The Federal Reserve today reiterated it plans to continue what it has been doing and said it would continue to do, much to the chagrin of market participants.

While the last Fed minutes showed more dovishness, actual actions that are indeed ‘dovish’ have yet to occur.  Reducing expected rate increases from 3 to 2 in 2019 was widely interpreted as, ‘the Fed might stop raising rates’, for some reason.  History shows us that the Fed telegraphs well in advance what it intends to do.  Thanks to Alan Greenspan, this has been the case for more than 20 years now.

What has the Fed said it will do in 2019?  Raise rates two more times and continue to drain liquidity from the system via its bond roll-off program.  It is also expected that other nations’ central banks will also cease adding liquidity this year. China may not have gotten the memo though, as they just lower their Reserve Requirement Ratio by 1%, freeing up approximately $100 billion in bank liquidity.  This was announced on Friday, January 4, but was not even mentioned in the Saturday Wall Street Journal!

Here is a picture of global liquidity for 2019.  From adding more than any given year in 2017, to net withdrawal in 2019.   Adjust your expectations accordingly.

qt central bank 10 2018

 

Winter Solstice

They say its always darkest before the dawn, which seems appropriate as we meet the Winter Solstice today, at the lows of 2018.

There is a lot of commentary out there right now about hos investors are ‘worried’ about certain things like Brexit, slowing economies in China and Europe and if that slowing will seep into the U.S.  All these areas of concern have been with us for most of the year.  I have pointed out the Chinese credit impulse (slowing) more than a few times.  Housing and auto sales have been slowing for months.  The only difference is now there is a market decline and all these issues are being discussed.   If the market had not been declining these issues would still be with us, only accompanied by the tag line: “Investors shrug at concerns in Europe”.

In past posts I have described the coming year over year comparisons, 2018 v 2019, regarding earnings and GDP growth.  Every time I have mentioned that 2019 will look much worse than the stellar numbers put up in 2018, thanks largely in part to the one time cut in taxes.   That gave markets a boost and it was hoped that business investment, and wages would go up as a result.  Well it’s the end of 2018 and were still waiting.

The Federal Reserve gave a modest tip of the hat towards global economic concerns by reducing its estimate of rate increases in 2019 from 3 to 2.   There were even rumors that the Fed would skip raising its rate on December 19th and guide to 0 rate increases in 2019.   The Fed NEVER overtly bows to market or political pressures outside of an official recession or panic.   The Fed is in the process (as usual) of raising rates into the beginning of a recession.   Besides the yield curve, there are several other indicators that make recession in 2019 likely.  These indicators have been leaning this way for several months, and finally have tipped far enough that the markets are now concerned and discounting this likelihood.

As this is likely the beginning of a bear market (average -33% post WW2 era), we should expect large rapid moves, both down AND up in the markets.  During the bull market, a 2-4% pullback was common and quickly bought.  Today we see 2-4% intraday moves that continue to fall to hold support.  I expect several more percentage points south before a significant rally in stocks in the first few months of the year.   This will be an opportune time to reassess one’s risk tolerance and goals over the next 1-3 years, as well as make sure that one’s portfolio is properly diversified across asset classes. When stocks go down there are often other asset classes that are performing better, the core idea behind diversification.

Happy Thanksgiving !

Please note our office will be closed on Thursday, November 22 and Friday, November 23, 2018 in observance of the Thanksgiving holiday.  Normal operating hours will resume on Monday, November 26, 2018.

Feel free to contact me should you have any questions or if you have specific needs that require special attention.  You can reach me at 239-287-3789 or via email at pmcintyre@namcoa.com.

Have a safe and happy holiday!