Friday Financial Five –December 7th, 2012
Friday, December 07, 2012
We kick off Larry Bird’s 56th birthday looking at anticipated unemployment numbers, where job creation for the last month is estimated at less than 100,000. For conspiracy theorists, it isn’t a surprise that unemployment might again creep over the magical 8% barrier after the election. While the employment situation is still slow, some businesses are also sitting on the sideline until Congress provides more concrete details about how they plan to tackle the “fiscal cliff”.
Keep an eye out for possible 401(k) changes
As part of Congress’ ongoing debt and tax discussions, there are proposals that would change the tax treatment of 401(k) accounts. One possibility, the 20/20 cap proposal, would limit 401(k) contributions to the lower of $20,000 or 20% of an employee’s income. Another proposal would subject retirement plan contributions to current taxation, greatly reducing their benefit. As one of the biggest tax expenditures to the government, 401(k) plans are an obvious target for revenue generation. They might get a slight overhaul but drastic changes would completely upend retirement planning. We may see some limitations imposed (along with home mortgage interest deductions), but completely changing how they operate would be hugely unpopular.
Another of the tax breaks set to expire is the benefit afforded by short-sales. A short sale occurs when a property is sold for less than the amount of the outstanding mortgage. Currently, the homeowner is not taxed on the forgiven principal, but that will end December 31st. Hence, there’s been an acceleration of short sales, including huge increases last quarter over the same time period in 2011, according to Bloomberg. Unless there’s a last minute change as part of the Congressional talks, you can expect short sales to decrease and foreclosures to go up significantly in 2013.
A shift to Health Savings Accounts
In an effort to reduce health expenses, companies are gravitating toward high deductible health plans and the use of Health Savings Accounts (HSAs). HSAs allow for pre-tax contributions to an account to pay for various health-related expenses, and the premiums for these plans tend to be lower than traditional full coverage health plans. They also indirectly encourage employees to stay healthy, because HSA money that isn’t spent during working years can supplement retirement income.
You arrive at the cash register with little Johnny’s electronic gift. Now comes the hard part – figuring out if you should buy the extended warranty. Calculate the cost of the warranty as a percentage of replacing the item. If the cost is 15% of the replacement price or less, it’s something you should consider doing. If you tend to upgrade electronics frequently, you can probably pass. And if you have young children and returns or repairs are no questions asked, extended warranties are a must. That comes from personal experience.
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