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Friday Financial Five –December 14th, 2012

Friday, December 14, 2012


Forbes Magazine has RI at #49

Another day, another horrible rating for Rhode Island’s business climate. This time the slap in the face comes from Forbes Magazine (no relation). The study placed RI last in regulatory environment, citing the “Freedom in the 50 States” report from George Mason. According to that report, RI suffers from above average retirement and unemployment compensation, as well as high cigarette and property taxes. The state rated slightly better in its economic climate, coming in at 49th due to continued high unemployment. The state’s highest rank was “Quality of Life”, where it placed 18th in the nation.

Another health care fee is identified

Insurance companies are now raising the issue of a fee detailed in the Affordable Care Act that they say will cost $8 billion in 2014 and rise substantially in the future. The cost won’t be passed along to those insured on company health insurance plans. There are nine million people expected to buy coverage on the new exchanges, and eight million of them will receive a subsidy. So who is going to pay the increased fee, as passed along by the health insurance companies? It appears the projected one million people that don’t have employer coverage and don’t qualify for a subsidy.

Look at your retirement plan contributions

As time runs out on 2012, we have a rising tax environment and possible revisions to the 401(k) system. Assuming any changes are not drastic, now’s a good time to look at your retirement contributions for 2012. Maximum employee contributions to a 401(k) or 403(b) are $17,000, not including catch-up provisions. For SIMPLE IRAs, that maximum amount is $11,500, again not including catch-up. If you can change your payroll deduction and haven’t reached your max, consider doing so. For 2013, maximums for 401(k)s and 403(b)s increase to $17,500 and SIMPLE IRAs bump up to $12,000. Catch up provisions will remain capped at $5,500. You may be required to notify HR if you want to increase to the new maximum.

Tapping into life insurance

Wages have stagnated and unemployment is high, so people may be looking for alternate sources of income. One asset that workers sometimes forget about is cash value life insurance policy. A benefit of permanent life insurance is the ability to tap into cash value either as a stop-gap solution or years down the line as a retirement supplement. You might take a withdrawal or a loan, depending on the tax ramifications, to help supplement social security and pensions in retirement. If you’d like to maintain a death benefit, the trick is to forecast dispersals that won’t cause the policy to lapse.

IBM’s 401(k) changes the start of a trend?

IBM made news recently by changing the frequency of their 401(k) contributions to employee accounts to once per year. Only employees working on December 15th each year will receive the company match. This move will certainly save IBM money on contributions, but it also has an added wrinkle. Employees will no longer dollar cost average contributions into their retirement allocation, unless they pro-actively do so after the one time match. IBM has hailed this move as a necessary change to improve their competitiveness, but the actual results might prove the opposite. There is also fear that this will prove a trend in company benefits.

Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in Providence, RI and can be reached at [email protected].


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