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2017 Retirement Planning Key Numbers

Certain retirement plan and IRA limits are indexed for inflation each year, but only a few of the limits eligible for a cost-of-living adjustment (COLA) have increased for 2017. Some of the key numbers for 2017 are listed below, with the corresponding limit for 2016. (The source for these 2017 numbers is IRS Information Release IR-2016-141.)

Elective deferral limits 2016 2017
401(k) plans, 403(b) plans, 457(b) plans, and SAR-SEPs* (includes Roth contributions) Lesser of $18,000 or 100% of participant's compensation ($24,000 if age 50 or older)** Lesser of $18,000 or 100% of participant's compensation ($24,000 if age 50 or older)**
SIMPLE 401(k) plans and SIMPLE IRA plans* Lesser of $12,500 or 100% of participant's compensation ($15,500 if age 50 or older) Lesser of $12,500 or 100% of participant's compensation ($15,500 if age 50 or older)
IRA contribution limits 2016 2017
Traditional and Roth IRAs Lesser of $5,500 or 100% of earned income ($6,500 if age 50 or older) Lesser of $5,500 or 100% of earned income ($6,500 if age 50 or older)
Defined benefit plan annual benefit limits 2016 2017
Annual benefit limit per participant Lesser of $210,000 or 100% of average compensation for highest three consecutive years Lesser of $215,000 or 100% of average compensation for highest three consecutive years
Defined contribution plan limits (qualified plans, 403(b) plans, and SEP plans) 2016 2017
Annual addition limit per participant (employer contributions; employee pretax, after-tax, and Roth contributions; and forfeitures) Lesser of $53,000 or 100% (25% for SEP) of participant's compensation Lesser of $54,000 or 100% (25% for SEP) of participant's compensation
Retirement plan compensation limits 2016 2017
Maximum compensation per participant that can be used to calculate tax-deductible employer contribution (qualified plans/SEPs) $265,000 $270,000
Compensation threshold used to determine a highly compensated employee $120,000 (when 2016 is the look-back year) $120,000 (when 2017 is the look-back year)
Compensation threshold used to determine a key employee in a top-heavy plan $1 for more-than-5% owners
$170,000 for officers
$150,000 for more-than-1% owners		 $1 for more-than-5% owners
$175,000 for officers
$150,000 for more-than-1% owners
Compensation threshold used to determine a qualifying employee under a SIMPLE plan $5,000 $5,000
Compensation threshold used to determine a qualifying employee under a SEP plan $600 $600
Income phaseout range for determining deductibility of traditional IRA contributions for taxpayers: 2016 2017
1. Covered by an employer-sponsored plan and filing as:
Single/Head of household $98,000 - $118,000 $99,000 - $119,000
Married filing separately $0 - $10,000 $0 - $10,000
2. Not covered by an employer-sponsored retirement plan, but filing joint return with a spouse who is covered by a plan $184,000 - $194,000 $186,000 - $196,000
Income phaseout range for determining ability to fund a Roth IRA for taxpayers filing as: 2016 2017
Single/Head of household $117,000 - $132,000 $118,000 - $133,000
Married filing jointly $184,000 - $194,000 $186,000 - $196,000
Married filing separately $0 - $10,000 $0 - $10,000

* Must aggregate employee deferrals to all 401(k), 403(b), SAR-SEP, and SIMPLE plans of all employers; 457(b) contributions are not aggregated. For SAR-SEPs, the percentage limit is 25% of compensation reduced by elective deferrals (effectively a 20% maximum contribution).

**Special catch-up limits may also apply to 403(b) and 457(b) plan participants.

 

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Job Change Checklist

With the new year comes new opportunities. Are you changing jobs? If so, here’s a checklist to help you for a smooth transition!

General information Yes No N/A
1. Has relevant personal information been gathered?
• Names, ages
• Children and other dependents		 ▢ ▢ ▢
2. Has financial situation been assessed?
• Income
• Expenses
• Assets
• Liabilities		 ▢ ▢ ▢
Employee benefits Yes No N/A
1. Has a benefits package been discussed with the new employer? ▢ ▢ ▢
2. If yes, are there restrictions or a waiting period for all benefits? ▢ ▢ ▢
3. Is health insurance offered? ▢ ▢ ▢
4. Are short- and long-term disability offered? ▢ ▢ ▢
5. Is a Section 125 or flexible spending account offered? ▢ ▢ ▢
6. Is dental insurance offered? ▢ ▢ ▢
7. Is vision insurance offered? ▢ ▢ ▢
8. Is life insurance offered? ▢ ▢ ▢
9. Is a retirement plan offered? ▢ ▢ ▢
10. Is adoption assistance offered? ▢ ▢ ▢
11. Is long-term care insurance offered? ▢ ▢ ▢
12. Other insurance? ▢ ▢ ▢
13. Has vacation/time off been reviewed? ▢ ▢ ▢
Financial picture Yes No N/A
1. Has annual compensation been determined? ▢ ▢ ▢
2. If married, will spouse work outside the home? ▢ ▢ ▢
3. If there are children, will day care be necessary? ▢ ▢ ▢
4. Will living expenses be affected? ▢ ▢ ▢
Money management Yes No N/A
1. Has budget been updated to reflect changes in income and expenses?
• Housing costs
• Transportation costs
• Food, clothing, and other household expenses
• Health-care expenses
• Life and disability insurance premiums
• Child-care costs		 ▢ ▢ ▢
2. Has an emergency fund been established? ▢ ▢ ▢
Housing situation Yes No N/A
1. Is relocation an issue? ▢ ▢ ▢
2. Is there a home that needs to be sold? ▢ ▢ ▢
3. Is a home purchase planned? ▢ ▢ ▢
4. Have the advantages and disadvantages of buying a home versus renting a home been discussed? ▢ ▢ ▢
5. Have other expenses been reviewed?
• Mortgage origination fees
• Real estate agent fees
• Attorney fees
• Moving expenses
• Potential increase in real estate taxes
• Cost of living in new location		 ▢ ▢ ▢
6. Will the new employer pay all relocation expenses? ▢ ▢ ▢
Insurance planning Yes No N/A
1. Is a current health insurance plan in place? ▢ ▢ ▢
2. Has spouse's coverage been evaluated? ▢ ▢ ▢
3. Will COBRA be needed during the job transition period? ▢ ▢ ▢
4. Is an individual (non-employer-sponsored) life insurance policy in place? ▢ ▢ ▢
5. Does life insurance need to be upgraded? ▢ ▢ ▢
6. Does automobile insurance need to be purchased/upgraded? ▢ ▢ ▢
7. Does homeowners/renters insurance need to be purchased/upgraded? ▢ ▢ ▢
8. Does disability income insurance need to be purchased/upgraded? ▢ ▢ ▢
9. Does personal liability insurance need to be purchased/upgraded? ▢ ▢ ▢
10. Does long-term care insurance need to be purchased/upgraded? ▢ ▢ ▢
11. Are beneficiary designations up-to-date? ▢ ▢ ▢
Investment planning Yes No N/A
1. Has liquidity need changed? ▢ ▢ ▢
2. Has risk tolerance been determined? ▢ ▢ ▢
3. Have investment goals been considered/prioritized? ▢ ▢ ▢
4. Has size/frequency of investments been determined? ▢ ▢ ▢
5. Has current asset allocation been reviewed?
• Stocks
• Bonds
• Mutual funds
• Annuities
• Real estate
• Art/collectibles		 ▢ ▢ ▢
6. Will job change affect existing employee stock options? ▢ ▢ ▢
Retirement planning Yes No N/A
1. Is a retirement plan available?
• Employer-sponsored retirement plan
• Beneficiary designation updated		 ▢ ▢ ▢
2. If a 401(k) is offered, will the employer match employee contributions? ▢ ▢ ▢
3. Are IRAs being effectively utilized? ▢ ▢ ▢
4. Will all available plans be funded? ▢ ▢ ▢
Tax planning Yes No N/A
1. Will withholding change? ▢ ▢ ▢
2. Is the maximum tax advantage of employee benefits realized? ▢ ▢ ▢
3. Will child care be needed? ▢ ▢ ▢
4. Will there be a home office? ▢ ▢ ▢
5. Have home office deductions been discussed? ▢ ▢ ▢
6. Is there self-employment income? ▢ ▢ ▢
Important Disclosure
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Investors are Human, Too

In 1981, the Nobel Prize-winning economist Robert Shiller published a groundbreaking study that contradicted a prevailing theory that markets are always efficient. If they were, stock prices would generally mirror the growth in earnings and dividends. Shiller’s research showed that stock prices fluctuate more often than changes in companies’ intrinsic valuations (such as dividend yield) would suggest.1

Shiller concluded that asset prices sometimes move erratically in the short term simply because investor behavior can be influenced by emotions such as greed and fear. Many investors would agree that it’s sometimes difficult to stay calm and act rationally, especially when unexpected events upset the financial markets.

Researchers in the field of behavioral finance have studied how cognitive biases in human thinking can affect investor behavior. Understanding the influence of human nature might help you overcome these common psychological traps.

Herd mentality

Individuals may be convinced by their peers to follow trends, even if it’s not in their own best interests. Shiller proposed that human psychology is the reason that “bubbles” form in asset markets. Investor enthusiasm (“irrational exuberance”) and a herd mentality can create excessive demand for “hot” investments. Investors often chase returns and drive up prices until they become very expensive relative to long-term values.

Past performance, however, does not guarantee future results, and bubbles eventually burst. Investors who follow the crowd can harm long-term portfolio returns by fleeing the stock market after it falls and/or waiting too long (until prices have already risen) to reinvest.

Availability bias

This mental shortcut leads people to base judgments on examples that immediately come to mind, rather than examining alternatives. It may cause you to misperceive the likelihood or frequency of events, in the same way that watching a movie about sharks can make it seem more dangerous to swim in the ocean.

Confirmation bias

People also have a tendency to search out and remember information that confirms, rather than challenges, their current beliefs. If you have a good feeling about a certain investment, you may be likely to ignore critical facts and focus on data that supports your opinion.

Overconfidence

Individuals often overestimate their skills, knowledge, and ability to predict probable outcomes. When it comes to investing, overconfidence may cause you to trade excessively and/or downplay potential risks.

Loss aversion

Research shows that investors tend to dislike losses much more than they enjoy gains, so it can actually be painful to deal with financial losses.2Consequently, you might avoid selling an investment that would realize a loss even though the sale may be an appropriate course of action. The intense fear of losing money may even be paralyzing.

It’s important to slow down the process and try to consider all relevant factors and possible outcomes when making financial decisions. Having a long-term perspective and sticking with a thoughtfully crafted investing strategy may also help you avoid expensive, emotion-driven mistakes.

All investments are subject to market fluctuation, risk, and loss of principal. When sold, investments may be worth more or less than their original cost.

1The Economist,“What’s Wrong with Finance?” May 1, 2015

2The Wall Street Journal,“Why an Economist Plays Powerball,” January 12, 2016

Important Disclosure

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[Financial Friday] Six Potential 401(k) Rollover Pitfalls

You’re about to receive a distribution from your 401(k) plan, and you’re considering a rollover to a traditional IRA. While these transactions are normally straightforward and trouble free, there are some pitfalls you’ll want to avoid.
Six Potential 401(k) Rollover Pitfalls

1. Consider the pros and cons of a rollover. The first mistake some people make is failing to consider the pros and cons of a rollover to an IRA in the first place. You can leave your money in the 401(k) plan if your balance is over $5,000. And if you’re changing jobs, you may also be able to roll your distribution over to your new employer’s 401(k) plan.

  • Though IRAs typically offer significantly more investment opportunities and withdrawal flexibility, your 401(k) plan may offer investments that can’t be replicated in an IRA (or can’t be replicated at an equivalent cost).
  • 401(k) plans offer virtually unlimited protection from your creditors under federal law (assuming the plan is covered by ERISA; solo 401(k)s are not), whereas federal law protects your IRAs from creditors only if you declare bankruptcy. Any IRA creditor protection outside of bankruptcy depends on your particular state’s law.
  • 401(k) plans may allow employee loans.
  • And most 401(k) plans don’t provide an annuity payout option, while some IRAs do.

2. Not every distribution can be rolled over to an IRA. For example, required minimum distributions can’t be rolled over. Neither can hardship withdrawals or certain periodic payments. Do so and you may have an excess contribution to deal with.

3. Use direct rollovers and avoid 60-day rollovers. While it may be tempting to give yourself a free 60-day loan, it’s generally a mistake to use 60-day rollovers rather than direct (trustee to trustee) rollovers. If the plan sends the money to you, it’s required to withhold 20% of the taxable amount. If you later want to roll the entire amount of the original distribution over to an IRA, you’ll need to use other sources to make up the 20% the plan withheld. In addition, there’s no need to taunt the rollover gods by risking inadvertent violation of the 60-day limit.

4. Remember the 10% penalty tax. Taxable distributions you receive from a 401(k) plan before age 59½ are normally subject to a 10% early distribution penalty, but a special rule lets you avoid the tax if you receive your distribution as a result of leaving your job during or after the year you turn age 55 (age 50 for qualified public safety employees). But this special rule doesn’t carry over to IRAs. If you roll your distribution over to an IRA, you’ll need to wait until age 59½ before you can withdraw those dollars from the IRA without the 10% penalty (unless another exception applies). So if you think you may need to use the funds before age 59½, a rollover to an IRA could be a costly mistake.

5. Learn about net unrealized appreciation (NUA). If your 401(k) plan distribution includes employer stock that’s appreciated over the years, rolling that stock over into an IRA could be a serious mistake. Normally, distributions from 401(k) plans are subject to ordinary income taxes. But a special rule applies when you receive a distribution of employer stock from your plan: You pay ordinary income tax only on the cost of the stock at the time it was purchased for you by the plan. Any appreciation in the stock generally receives more favorable long-term capital gains treatment, regardless of how long you’ve owned the stock. (Any additional appreciation after the stock is distributed to you is either long-term or short-term capital gains, depending on your holding period.) These special NUA rules don’t apply if you roll the stock over to an IRA.

6. And if you’re rolling over Roth 401(k) dollars to a Roth IRA… If your Roth 401(k) distribution isn’t qualified (tax-free) because you haven’t yet satisfied the five-year holding period, be aware that when you roll those dollars into your Roth IRA, they’ll now be subject to the Roth IRA’s five-year holding period, no matter how long those dollars were in the 401(k) plan. So, for example, if you establish your first Roth IRA to accept your rollover, you’ll have to wait five more years until your distribution from the Roth IRA will be qualified and tax-free.

Important Disclosure
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[Financial Friday] Quiz: Which Birthdays Are Financial Milestones?

When it comes to your finances, some birthdays are more important than others. Take this quiz to see if you can identify the ages that might trigger financial changes.

Which Birthdays Are Financial Milestones

Questions

1. Eligibility for Medicare coverage begins at what age?

a. 62
b. 65
c. 66

2. A child can stay on a parent’s health insurance plan until what age?

a. 18
b. 21
c. 26

3. At this age, individuals who are making contributions to a traditional or Roth IRA or an employer-sponsored retirement plan can begin making “catch-up” contributions.

a. 50
b. 55
c. 60
d. 66

4. This age is most often associated with drops in auto insurance premiums.

a. 18
b. 25
c. 40
d. 50

5. Individuals who have contributed enough to Social Security to qualify for retirement benefits become eligible to begin collecting reduced benefits starting at what age?

a. 62
b. 65
c. 66
d. 70

6. To obtain a credit card, applicants under this age must demonstrate an independent ability to make account payments or have a cosigner.

a. 16
b. 18
c. 21

Answers

1. b. 65. Medicare eligibility begins at age 65, although people with certain conditions or disabilities may be able to enroll at a younger age. You’ll be automatically enrolled in Medicare when you turn 65 if you’re already receiving Social Security benefits, or you can sign up on your own if you meet eligibility requirements.

2. c. 26. Under the Affordable Care Act, a child may retain his or her status as a dependent on a parent’s health insurance plan until age 26. If your child is covered by your employer-based plan, coverage will typically end during the month of your child’s 26th birthday. Check with the plan or your employer to find out exactly when coverage ends.

3. a. 50. If you’re 50 or older, you may be able to make contributions to your IRA or employer-sponsored retirement plan above the normal contribution limit. These “catch-up” contributions are designed to help you make up a retirement savings shortfall by bumping up the amount you can save in the years leading up to retirement. If you participate in an employer-sponsored retirement plan, check plan rules–not all plans allow catch-up contributions.

4. b. 25. By age 25, drivers generally see their premiums decrease because, statistically, drivers younger than this age have higher accident rates. Gaining experience and maintaining a clean driving record should lead to lower premiums over time. However, there’s no age when auto insurance rates automatically drop because rates are based on many factors, including type of vehicle and claims history, and vary by state and insurer; each individual’s situation is unique.

5. a. 62. You can begin receiving Social Security retirement benefits as early as age 62. However, your benefits will be reduced by as much as 30% below what you would have received if you had waited until your full retirement age (66 to 67, depending on your year of birth).

6. c. 21. As a result of the Credit Card Act of 2009, credit card companies cannot issue cards to those under age 21 unless they can show proof that they can repay the debt themselves or unless someone age 21 or older with the ability to make payments cosigns the credit card agreement.

Important Disclosure