Broker Check

Things that we pay attention to so you don’t need to

| February 21, 2018
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Health Savings Accounts in Maryland not IRS approved:

UPDATE:

On April 30, 2018. The IRS indicated that it would accept $6,900 as the 2018 HSA Family contribution maximum. This is a reverse decision from what was released in March indicating that the limit would be reduced to $6,850. The limit was $6,750 in 2017.

On March 5, 2018. The IRS provided transitional relief for periods before 2020, during which individuals won't be treated as failing to qualify as eligible individuals merely because they are covered by plans that fail to qualify as HDHPs. Individuals covered by such plans remain eligible to make and receive tax free contributions to an HSA, so long as all other requirements are met, for all periods prior to January 1, 2020.

Health Savings Accounts (HSAs) for Maryland residents may not meet IRS approval for 2018 due to Maryland provisions; we are recommending delaying making contributions to your 2018 HSA until this has been resolved to avoid IRS disqualification of your contributions.

https://www.npr.org/sections/health-shots/2018/02/14/585443421/marylands-no-cost-vasectomy-law-may-leave-some-patients-behind

For clients for whom we make your HSA contributions, we have not made these for 2018. Making a 2017 HSA contribution before your filing deadline of April 17th is still a great idea for tax deductible, tax free growth.

Interest rates are increasing at banks, but mostly only at online banks such as our favorites Capital One 360 and Ally Bank. We really like the Capital One 360 regular savings rate of 1%, the 1.4% available for money market savings (with $10,000 minimum) and the 5-year CD just went to 2.65%. Even their shorter term rates are finally worth looking at.

As a new service that we are rolling out in March, we’ll invest in short term CDs at TD Ameritrade for client accounts that we manage. In addition, for “do it yourselfers”, see Bankrate.com for an array of interest rates across a number of national banks.

How we are approaching the investment markets:

Relating to the investment markets, we remain cautiously optimistic that 2018 will have positive returns in the stock market (though not the fabulous returns we saw in 2017). We are favoring the international market, particularly emerging markets, for stocks. 

In the fall, we pulled back from our favorite real estate investment tool (REITs) as the expectation of rising interest rates brought those values down as they did with bond funds.  REITS are starting to look slightly more attractive again and we’ll slowly begin to increase our allocation to them over the next year.

For bonds, we are looking at the short-term corporates for most of our allocation toward bonds. We prefer CDs to bond funds overall right now where it’s cost effective to implement. To reduce state and Federal taxable income, we are exploring individual municipal bond funds for our clients at TD Ameritrade. If held to maturity (and the time frame could range from 5 to 30 years), the ending value of your bond will not go down and it will continue to pay dividends during that time frame (though there is a small risk of default.)

We are rebalancing to keep client accounts within an appropriate stock to bond to cash allocation appropriate for your time frames, cash needs, and comfort levels with investing. We are investing in several software tools to monitor client accounts and to provide us with research analytics and allocation reports.

As always, please alert us if anything changes in your life that impacts how we are making investment recommendations for you.

Expanded rules for college savings plans:

With the new tax law, the IRS will allow state college savings plans (529s) to be used for K-12 expenses for tuition. Maryland will allow up to $10,000 per year to be used for pre-college tuition.  It’s not clear to us that Maryland’s rules for K-12 are as expansive as those for college, where you can use your 529 money for tuition, books, fees, room and board, and school’s supplies including a computer and printer.

Either way, the Maryland 529 plan remains one of our favorite ways to save for college in a tax-free way (and it’s tax deductible on your Maryland return).

To reduce concerns about stock market risk to your college savings, consider buying pre-paid tuition credits from Maryland’s college savings trust. These credits will keep up with college inflation and are guaranteed by the state. While they cover only tuition, they can be used at any school in the US.

Consider also signing up for additional credit card rewards on Upromise website for drip funding to the Maryland 529, Vanguard’s 529 college savings plans, or even Sallie Mae student loans.

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