ProVise Bullets

· On average, how much taxable income must you have to pay six figures of income taxes? In order to pay exactly $100,000 in federal income taxes, your 2013 taxable income must equal $376,047 on a married filing jointly basis. Twenty years ago, it took $312,363 to pay that much in taxes. In 2011, the top 10% of US taxpayers paid 68.3% of all federal income tax while in 1980 the top 10% paid 49.3%. It is estimated that for the tax year 2013 the government will receive approximately $3 trillion. (Sources: Tax Foundation; White House; Internal Revenue Service)

· Generally, whenever taxes are discussed only the federal rate is discussed. Fortunately, here in Florida, as in several other states, there is no income tax, and thus, no capital gains tax. But that’s not true everywhere. As an example, New Jersey adds another 9% in capital gains taxes, while Minnesota is the fourth most expensive state with a 9.9% rate. If you live in Oregon, you’ll also pay 9.9%; New York charges 8.8%; and #1 is California at 13.3%. (Source: Tax Foundation)

· It was five years ago, on March 9, 2009, that the Great Bull Market began, following one of the most horrific bear markets in American stock market history. The S&P 500 bottomed at 676.53 and as of March 7, 2014 it closed at 1878.04 which is a total increase of 177% or an average annualized return of 22.6%. Last year, the S&P 500 set 42 record highs. This year, despite all of the ups and downs that could have occurred as a result of the Russian entrenchment into Ukraine, the Federal Reserve tapering tepid earnings and continued gridlock in Washington, the market has remained remarkably stable. From the high to the low, we have only experienced a pullback of 5.8% so far. It remains to be seen how we finish the year, but as long as investors stay grounded in reality we should have a good but not great year.

· How would your ego feel if you were at the bottom of 1,645 worldwide billionaires which Forbes claimed are on its 2014 list? Perhaps poor? There were lots of notable parts to the Forbes list, not the least of which was Bill Gates recapturing the #1 spot with $76 billion over Carlos Slim Helu who had $4 billion less. Helu has a stranglehold on the telecom industry in Mexico. Rounding out the top five was Amancio Ortega from the clothing industry with $64 billion, followed by Warren Buffet ($58.2 billion), and Larry Ellison ($48 billion). But being a billionaire isn’t as exclusive as it once was because 268 new members joined the club this year while 100 members from last year fell upon hard times and dropped off the famous list. For those who remember the days of black and white TV, we were all fascinated by a show called The Millionaire where each week a very stately gentleman showed up at someone’s door and handed out a million dollars tax free. Oh well, we’ve come a long way baby.

· So what do we make of the February jobs number with 175,000 non-farm jobs created during a time of bitter winter weather? The good news is that it was the best month in the last three months, but well below the average of 225,000 that occurred in the three previous months. In addition, the 6.6% unemployment rate rose to 6.7%. Is the economy slow because of the harsh winter, or is it simply masking an underlying, more systemic problem?

The rise in the unemployment rate actually came about for a good reason, not a bad reason: more people started looking for a job but hadn’t found one just yet. It means they think there’s hope. The jobs number was a good 20,000-25,000 higher than predicted. Additionally, the jobs numbers for December and January were revised upward by a total of 25,000. While the construction industry added 15,000 new jobs, we’re most encouraged by the continued gain in manufacturing which reflected 6,000 new jobs created. While construction jobs can sometimes be temporary, manufacturing jobs have a tendency to last for a longer time. In short, it’s hard to not be optimistic about these numbers, especially coming off of poor economic numbers the past two months.

· The President is back to wanting to make changes to laws around retirement plans and these are not all inconsequential. In his 2015 budget plan, which requires Congressional action, is a brand new provision regarding Roth IRAs. Currently, there are no required minimum distributions rules from a Roth IRA during the owner’s lifetime. Distributions must begin no later than the year following the year of death, which means that beneficiaries could have a significant tax-free cash flow stream for many years to come. The President has proposed that distributions be required in the year following the year the Roth IRA owner turns 70½; the same as with other IRAs. The fact that required minimum distributions (RMDs) do not apply to Roth IRAs is a major reason why people put money into them and/or convert their traditional IRA to a Roth IRA where it makes sense. This provision is clearly aimed at those who are in higher tax brackets. What the President and his staff haven’t come to understand is that it will affect many more than those who are in high tax brackets.

Further, under current rules, the non-spousal beneficiary of an IRA can withdraw the money over their lifetime. Under the President’s proposal, non-spousal beneficiaries would be required to take the money within five years. Not only does this eliminate the concept of the Stretch IRA, it also means that people would probably pay taxes at a higher rate on the IRA assets than they might have otherwise because of the larger sums that would be forced out over five years. Further, the President wants to limit the amount of money that any individual can have in an IRA before it becomes taxable. Under the formula proposed, the current limit would be a maximum of $3.2 million.

In what is really a strange provision, the President has suggested that anyone who has $100,000 or less in all of their retirement plans would not be required to make any distributions at age 70½. We’re not sure what he has in mind with this provision, as it is generally folks with smaller balances that need to draw on the money anyway.

So far, we’re not really excited with these provisions and it’s easy to figure out why. However, there are a few proposals that we think make sense. As an example, when an inherited IRA owner wants to transfer from one beneficiary IRA to another, they must do it on a custodian-to-custodian basis. The President has proposed that they would be able to roll it over within a 60-day period; which means they could withdraw the money and then redeposit it within the 60-days and not be taxed on the money. In another provision, small businesses as defined as those with 10 or more employees and who have been in business for at least two years would be able to set up auto enrollment IRAs on behalf of their employees. There is a small tax incentive for employers to set up these auto enrollment IRAs.

· We want to make a further clarification regarding our comments on Medicare in the last issue of the Bullets. We indicated that Part A would pay first if you were covered under both Medicare and your group plan through your insurer. This is true if there are fewer than 20 employees in the company. If there are 20 or more employees, then your health insurance plan will pay first and Medicare second.

· It is with great pleasure that Ray and Eric announce the promotion of Nancy Croy, MBA, CFP® to the position of Executive Vice President of ProVise Management Group. Having joined the company in 2000, Nancy has consistently exemplified the qualities espoused by ProVise since its beginning – superior service to our clients and great relationships with her follow coworkers. Please join us in congratulating Nancy on this well-deserved recognition.

· You can now follow us on twitter by going to and follow us at @pro_vise. We will use twitter to supplement the Bullets as the news warrants. We look forward to providing this valuable service.

As always, we encourage you to give us a call if you would like to discuss anything further. We will visit again soon. Proudly and successfully serving our clients for over 27 years.


© 3/14/14 ProVise Management Group, LLC

This material represents an assessment of the market and economic environment at a specific point in time. Due to various factors, including changing market conditions, the contents may no longer be reflective of current opinions or positions. It is not intended to be a forecast of future events, or a guarantee of future results. Forward looking statements are subject to certain risks and uncertainties. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by ProVise), or any non-investment related content, made reference to directly or indirectly in these Bullets, will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in these Bullets serves as the receipt of, or as a substitute for, personalized investment advice from ProVise. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Information is based on data gathered from what we believe are reliable sources. The information contained herein is not guaranteed by Provise Management Group, LLC as to accuracy does not purport to be complete and is not intended to be used as a primary basis for investment decisions. The indices mentioned are unmanaged and cannot be directly invested into. ProVise is neither a law firm nor a certified public accounting firm and no portion of these Bullets should be construed as legal or accounting advice. A copy of ProVise’s current written disclosure discussing our advisory services and fees is available for review upon request.

Dow Jones Industrial Average - The Dow Jones Industrial Average is a popular indicator of the stock market based on the average closing prices of 30 active U.S. stocks representative of the overall economy.

S&P 500 Index is an unmanaged group of securities considered to be representative of the stock market in general. You cannot directly invest in the index.

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