We’ve moved!

October 24, 2013

As of late October 2013, our commentary and insights will be posted in the content area of the freshly redesigned Wealth Enhancement Group site.

Please visit us at http://www.wealthenhancement.com/insights.


Tax Implications of the Affordable Care Act

October 18, 2013

The insurance exchanges associated with the Affordable Care Act opened up October 1, and while the impact of the new marketplace remains to be seen, one thing is certain. Many people aren’t aware of the tax implications of the Affordable Care Act.

We’ve listed a few frequently asked questions about taxes and the Affordable Care Act to help clear some things up:

Q: I’m a 56 year-old retiree (lucky me!), and I’m planning to sign up for coverage through one of the new exchanges that just opened up. Is there an opportunity for me to receive tax credits to help with my premiums?

A: Maybe. If you exceed the income limits below, you can still receive coverage through the new health care exchanges, but you will not be eligible for premium assistance via federal tax credits. If you fall within these ranges, the insurance exchange websites provide tools to help you calculate your total premium assistance tax credit.

ACA income table

Q: What is considered income in the equation to see if I qualify for premium assistance tax credits?

A: Income is considered:

  • Adjusted Gross Income, plus:
  • Non-taxable Social Security benefits
  • Excluded foreign earned income
  • Tax-exempt interest

Income is not

  • Certain Roth IRA distributions
  • Withdrawals from savings or basis (Cost basis of an investment is the initial amount deposited, plus any additional capital gains or dividends that have been reinvested into the investment, which have already been included on your tax return.)
  • Life insurance loan proceeds
  • Line of credit proceeds

Q: What if I’m close to the income thresholds, but I’m not sure exactly where I land?

A: Come and see a financial advisor who can help you both determine your income AND develop a tax-efficient income distribution strategy to help you qualify for premium assistance tax credits.

Q: What else do I need to know about tax implications of the Affordable Care Act?

A: If you have a high household income (>$250k for those married, filing jointly), you should be aware of a Net Investment Income tax of 3.8% that went into effect 1/1/2013, as well as an additional Medicare surtax of 0.9%.

Government Shutdown: Our View

October 7, 2013

The failure in Washington is disappointing, if not a surprise. However, history tells us it is not necessarily a bad thing for investors. The 16 government shutdowns over the past 37 years, which have ranged from one to 21 days, have not been particularly negative for stock market investors, averaging only a 2% decline for the S&P 500. More importantly, from a longer-term perspective, they preceded above-average returns. The S&P 500 Index has risen 11% on average in the 12 months following the shutdowns, compared with 9% for all periods. Notably, in the last government shutdown 17 years ago in late 1995, the S&P 500 rose 21% in the subsequent 12 months.

As the government shutdown began on the morning of October 1, stocks actually rose after falling modestly in the preceding days. That reaction makes sense, since selling stocks into short-term political uncertainty has been costly for investors in recent years.

Of course, the shutdown is not the only issue facing investors from Washington. We are also approaching a breach of the debt ceiling on October 17, leading to the remote-but-heightened threat of default on some U.S. obligations if lawmakers fail to increase the limit on total U.S. federal government debt. Fear over the threat posed by the debt ceiling seems well contained at this point. For example, the VIX, often called the “fear gauge,” is currently around 16 and not at the 48 level seen in August 2011, when the debt ceiling was last the subject of a battle in Washington and stocks fell 17%. Also, default concerns currently seem minimal with the discount on the one-month T-bill at just six basis points versus 17 basis points at the peak of fear in early August 2011. Perhaps this is because the economic and fiscal backdrop in the United States, and especially Europe, is much improved relative to the 2011 episode.

While it is good news that the markets have been relatively steady, without a negative market reaction there is less pressure on politicians to compromise. Furthermore, the longer the shutdown goes on and the closer we get to the debt ceiling deadline, the more the market is forced to make politicians act. We continue to monitor events closely and believe this is not a time for indiscriminate selling but rather a time to look for opportunities to buy on weakness.