Roth IRAs have long been a great way for investors to put away money for retirement that can grow tax-free. Unlike regular IRAs - in which pretax money is put into the account, and then considered ordinary income when it's withdrawn - Roths allow savers to put away taxable income, which can then be withdrawn without being taxed.
There's been one serious drawback to these plans: Roth IRAs haven't been available to high-net-worth individuals. Taxpaying couples with adjusted gross income above $191,000 (or singles with income above $129,000) have been barred from contributing directly to an IRA.
But a recent IRS ruling has changed all that. The IRS recently announced it would allow taxpayers of any income level to shift money from a 401(k) to a Roth IRA. The ruling officially goes into effect next year, although the IRS says taxpayers can start shifting that money right now.
Tuesday, November 11, 2014
Monday, November 10, 2014
On the Cusp of Double Digits
The S&P 500 Index now stands with an increase of 9.9 percent for 2014, with a little less than two months to go. It seems likely that we will see a double-digit rise in the index for this year, especially since the most common down months of the midsummer are in the rearview mirror.
That's not the only reason to think we might be headed for another double-digit annual gain. Last year, the S&P 500 finished up by 26.9 percent - just the fourth time it has increased that much in the past forty years. In each of the prior three instances, the index followed up that performance by rising by at least 10 percent the following year.
If that does happen, 2014 would mark the third straight year in which the S&P has had double-digit gains. That is a rarer occurrence than it might seem. We haven't had three straight years of double-digit gains since 1997-1999.
That's not the only reason to think we might be headed for another double-digit annual gain. Last year, the S&P 500 finished up by 26.9 percent - just the fourth time it has increased that much in the past forty years. In each of the prior three instances, the index followed up that performance by rising by at least 10 percent the following year.
If that does happen, 2014 would mark the third straight year in which the S&P has had double-digit gains. That is a rarer occurrence than it might seem. We haven't had three straight years of double-digit gains since 1997-1999.
Friday, November 7, 2014
The October Jobs Report
October's unemployment figures, out this morning from the Bureau of Labor Statistics, are right on track with the recent history. The economy added 214,000 new jobs for the month, and the unemployment rate ticked down a tenth of a percentage point, to 5.8 percent. The average monthly job gain for the past 12 months has been 222,000.
One downside: Many of the jobs are being created in relatively low-paying areas, such as food and drinking establishments (which added 41,000 jobs) and retail (which added 27,000 jobs). Temp services added 15,000 jobs. Meanwhile, the information sector lost 4,000 jobs on the month.
The past two months' jobs figures were also revised: September went up from 248,000 to 256,000, and August's from 180,000 to 203,000. The new August figure means that we've now had nine months in a row where the economy added at least 200,000 jobs, stretching back to January.
One downside: Many of the jobs are being created in relatively low-paying areas, such as food and drinking establishments (which added 41,000 jobs) and retail (which added 27,000 jobs). Temp services added 15,000 jobs. Meanwhile, the information sector lost 4,000 jobs on the month.
The past two months' jobs figures were also revised: September went up from 248,000 to 256,000, and August's from 180,000 to 203,000. The new August figure means that we've now had nine months in a row where the economy added at least 200,000 jobs, stretching back to January.
Thursday, November 6, 2014
Economic Fears Drive the Electorate
One of the reasons for the stunning reversals we saw all over the country on Election Day is that Americans still perceive this economy as weak. Despite the fact that the unemployment rate has been dropping, and the GDP numbers have been strong, the country remains very uncertain about the future of the economy.
According to the Wall Street Journal, roughly the same percentage of voters - 32 percent - see this economy getting worse as those who see it getting better (33 percent). When asked the top issue that concerned them this election, 45 percent of voters said the economy, far ahead of the second place issue, health care, at 25 percent.
Four out of five voters said they were either “very worried” or “somewhat worried” about the direction of the economy in the coming year. Roughly 70 percent said the economy was “not so good” or “poor"; just 1 percent said it was "excellent."
According to the Wall Street Journal, roughly the same percentage of voters - 32 percent - see this economy getting worse as those who see it getting better (33 percent). When asked the top issue that concerned them this election, 45 percent of voters said the economy, far ahead of the second place issue, health care, at 25 percent.
Four out of five voters said they were either “very worried” or “somewhat worried” about the direction of the economy in the coming year. Roughly 70 percent said the economy was “not so good” or “poor"; just 1 percent said it was "excellent."
Wednesday, November 5, 2014
GDP: Not So Fast...
Last week the Commerce Department reported its first estimate of third quarter GDP growth at 3.5 percent, but there are already rumblings that that figure will be downsized in the next estimate. The big issue is exports.
At the time of the initial estimate, Commerce thought that the export deficit had narrowed over the summer, and estimated that September's trade deficit would be little changed from August's. But now they think the trade deficit widened in that month, by a sizable $3 billion. Because of the slowing economy worldwide, U.S. exports fell by 1.5 percent.
The biggest chunk of that trade gap comes from China. We imported a record $44.9 billion from the Chinese in September, up 13 percent - but exported a mere $9.3 billion to China, down 3 percent.
At the time of the initial estimate, Commerce thought that the export deficit had narrowed over the summer, and estimated that September's trade deficit would be little changed from August's. But now they think the trade deficit widened in that month, by a sizable $3 billion. Because of the slowing economy worldwide, U.S. exports fell by 1.5 percent.
The biggest chunk of that trade gap comes from China. We imported a record $44.9 billion from the Chinese in September, up 13 percent - but exported a mere $9.3 billion to China, down 3 percent.
Tuesday, November 4, 2014
October Keeps the Streak Alive
October came to a close last Friday, and the S&P 500 surged on that day, rising by 23 points. That allowed the index to set a new closing high that day, at 2018. That marked the first time it had closed at a new record in the month of October.
Why is that significant? Because October was the 16th consecutive month in which the S&P 500 set a new closing high. That streak, which started in July 2013, is the longest in the history of the index. So far this year, we've had 35 separate record-high closes.
It should go without saying that this kind of thing is not very common. The S&P 500 set a closing high in October 2007, for instance - and then didn't reach that high again until March of 2013.
Why is that significant? Because October was the 16th consecutive month in which the S&P 500 set a new closing high. That streak, which started in July 2013, is the longest in the history of the index. So far this year, we've had 35 separate record-high closes.
It should go without saying that this kind of thing is not very common. The S&P 500 set a closing high in October 2007, for instance - and then didn't reach that high again until March of 2013.
Monday, November 3, 2014
What Made the Economy Grow?
There was some very good news for the economy last week, when the Bureau of Economic Analysis announced that GDP had grown at 3.5 percent in the third quarter. While that's down from the 4.6 percent we had in the second quarter, it's still an above-average figure for the post-Recession economy.
Many of the indicators dropped somewhat from the strong second quarter, but most of them remained strong. Personal consumption fell from a 2.5 percent increase in the second quarter to a 1.8 percent increase in the third. Exports fell from an increase of 11.1 percent to 7.8 percent. Durable goods fell from 14.1 percent to 7.2 percent. Remember, those second quarter numbers were starting from a much lower floor after a miserable first quarter, in which the economy actually shrank.
The one area in which growth increased over the second quarter was in federal spending. After defense spending increased by just 0.9 percent in the second quarter, it jumped up by 16.0 percent in the third.
Many of the indicators dropped somewhat from the strong second quarter, but most of them remained strong. Personal consumption fell from a 2.5 percent increase in the second quarter to a 1.8 percent increase in the third. Exports fell from an increase of 11.1 percent to 7.8 percent. Durable goods fell from 14.1 percent to 7.2 percent. Remember, those second quarter numbers were starting from a much lower floor after a miserable first quarter, in which the economy actually shrank.
The one area in which growth increased over the second quarter was in federal spending. After defense spending increased by just 0.9 percent in the second quarter, it jumped up by 16.0 percent in the third.
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