Wealth Management
The Biden administration has put a number of new policies that are affecting annuities, and while some of them may be unintentional a number of companies may be moving to offshore havens to escape the pressure. Annuity issuers are being acquired by private companies and then becoming nomadic firms that are mainly housing themselves in Bermuda. The current Build Back Better act will affect annuity and insurance contracts with updates to the base erosion and anti-abuse tax. Additionally, many annuity issuers aren’t positive that the variety of retirement vehicles that are offering annuities might not be so great moving forward. Finally, low yields in are tricky for annuity issuers because they rely on traditionally high yield debt to finance the pseudo insurance contracts.
FINSUM: Annuities are one of the oldest financial contracts, it’s bizarre how much new regulation is being sprung on them in 2021.
Biden’s latest $2 trillion stimulus/economic reform bill is stuck in congressional limbo, and that's because not even all Dems are on board. Speaking on behalf of moderates Joe Manchin, Democratic Senator of West Virginia listed an array of suggestions to Biden in order for there to be bi-partisan support. Some of Manchin’s suggestions included means testing and work requirements for expanded child tax credits in order to stop wealthier individuals from taking advantage of the program. Other democratic senator’s ae calling for a smaller corporate tax hike and lower income taxes on weather individuals. Manchin accused staff of adding in provisions that are limiting bi-partisan support, and even having a hard time garnering support in their own party.
FINSUM: The lofty aims of Biden’s original economic reform were a pipe dream, major changes will have to come if they want to have a chance of passing the bill.
Think Advisor has put out a piece outlining pending changes to IRAs that are making their way through the legislative process. Importantly, some of these have bipartisan support and seem likely to make it into law. The biggest changes in the cards have to do with Roth IRA conversions. A lot has been made in the press about the mega rich doing massive IRA to Roth IRA conversions and thus congress is set to take action. Conversion between the two would be banned for those with incomes over $400,000.
FINSUM: Advisors should start helping clients plan for this change. However, there is a massive caveat here: the current congressional plan calls for this loophole to close, but only starting ten years from now!
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Crypto went on a wild ride this year as regulators from the globe sent the price in terms of dollars on a rollercoaster. However, some individuals might need to minimize their tax burden and crypto could provide some outs. If not all of your coins took off or better yet if you jumped in on Doge coin at the wrong time now is the time to sell off some coin and realize the gain for some optimal tax loss harvesting. Investors can also take advantage of the fact that wash rules don’t apply to Crypto until 2023, which means you can buy and sell your coins within a 30 day period to help minimize your tax contribution. Finally, investors can utilize a donation of cryptos above their fair market value to write off a charitable donation from your final tax bill.
FINSUM: Cryptos up and down roller coaster ride gives investors holding it an advantage in tax loss harvesting, and particularly when it comes to capitalizing on the Wash rules applicability.
Inflation is a concern for retirees, but they should be more concerned than ever becauseSocial Security is tracking the wrong index. Currently Social Security bases its cost of living adjustments on the consumer price index for Urban Wage Earners and Clerical Workers (CPI-W). However, the CPI-W doesn’t fully account for the costs of healthcare and housing that burden retirees more than other groups. Instead social security should track the Consumer Price Index for Elderly (CPI-E) because this is the demographic they are targeting. Research shows that the average social security account since 1983 is in a 0.2% compounded deficit. The rate of inflation for healthcare is slowing which could end up benefiting retirees moving forward but that's just a prediction.
FINSUM: Social security won’t be keeping up with your healthcare costs and investors should augment their portfolios to compensate.
Given their widespread popularity lawmakers have scrambled to put together a series of changes to a popular retirement product in the last year and it looks like more are coming. There appears to be bi-partisan support for the additions building on the 2019 Secure act which tried to increase retirement security. The House and Senate bills both include changes that would remove the maximum amount on the Qualified Longevity Annuity Contract. Previously it was capped at the minimum of $135,000 or 25% of your retirement accounts. The Senate provision also bumps the minimum up to $200,000. The new provisions also include auto enrollment in 401(k) plans and a student loan exchange in existing 401(k) plans. The final piece to the provisions is an increase in catch-up contributions for existing 401(k) plans that could further bolster retirement savings.
FINSUM: One of the underappreciated aspects of the Biden administration is the expansion of savings vehicles for retirees across many income earners.