Higher Highs and Taxes

This week's post covers two different topics. First, a quick update on the stock market and its recent "clusters" of higher highs. Second, there's a tax update with important dates and other facts to remember.

With numerous reports lately about the Dow Jones Industrial Average making new highs and knocking on the door of 21,000, it's natural to wonder about the inevitable pullback. After all, the index was below 17,000 only a year ago following the nasty start to 2016. That's a sizeable gain in a short period of time. Other stock indexes are up as well, but the Dow garners the most media attention. 

While there are many reasons to explain and support this, it's wise to proceed with a healthy dose of caution. The following update yesterday from Dr. David Kelly, Chief Global Strategist for J.P. Morgan Asset Management, summed it up nicely:

Frequent reports of equity market highs make some investors nervous about frothy markets. However, clustered all-time highs for equities are a normal part of bull markets. With valuations above long-term averages, it is increasingly important to evaluate the drivers of this equity market rally with a critical eye.

Both sentiment and improving fundamentals have contributed to the recent run-up in equities. First, the expectation of business-friendly policies coming from the new administration sparked animal spirits in the market last November. Second, Federal Reserve policy remains accommodative, and the market gauges a rate increase at the next meeting in March as rather unlikely.

Finally, the fourth quarter earnings season is coming to an end, and data shows that the earnings recession is well behind us. New policy specifics remain uncertain, so the timing and detail of policy implementation could cause market volatility if political expectations exceed reality. However, strong earnings and sales growth suggest that the fundamentals underpinning the equity market remain intact.

New highs in the market tend to cluster together in a bull market and we expect to see more record highs throughout the year if the economy continues to expand.

With tax season heating up, many of you are thinking about different tax deadlines and limits. Thanks to Morningstar, here are some of the more important ones to remember:

2017: Important Tax Dates

Jan. 1, 2017: New IRA, retirement plan, and HSA contribution and income limits went into effect for 2017 tax year, as listed below.

Jan. 17, 2017: Estimated tax payments were due for fourth quarter of 2016.

April 18, 2017:
• Individual tax returns (or extension request forms) due for 2016 tax year.
• Estimated tax payments due for first quarter of 2017.
• Last day to contribute to IRA for 2016 tax year (contribution limits: $5,500 under age 55; $6,500 for age 55 and above).
• Last day to contribute to health savings account for 2016 tax year (2016 and 2017 contribution limits listed below)

June 15, 2017: Estimated tax payments due for second quarter of 2017.
Sept. 15, 2017: Estimated tax payments due for third quarter of 2017.
Oct. 16, 2017: Individual tax returns due for taxpayers who received a six-month extension.

Dec. 31, 2017:
• Retirees age 70 1/2 and above must take required minimum distributions from traditional IRAs and 401(k)s.
• Last date to make contributions to company retirement plans (401(k), 403(b), 457) for 2017 tax year.

2017: Important Limits

IRA contribution limits (Roth or traditional): $5,500 under age 50/$6,500 over age 50.
Income limits for deductible IRA contribution, single filers or married couples filing jointly who aren't covered by a retirement plan at work: None; fully deductible contribution.

Income limits for deductible IRA contribution, single filers covered by a retirement plan at work: Modified adjusted gross income under $62,000--fully deductible contribution; between $62,000 and $72,000--partially deductible contribution; more than $72,000--contribution not deductible.

Income limits for deductible IRA contribution, married couples filing jointly who are covered by a retirement plan at work: Modified adjusted gross income under $99,000--fully deductible contribution; between $99,000 and $119,000--partially deductible contribution; more than $119,000--contribution not deductible.

Income limits for nondeductible IRA contributions: None.
Income limits for IRA conversions: None.

Income limits for Roth IRA contribution, single filers: Modified adjusted gross income under $118,000--full Roth contribution; between $118,000 and $133,000--partial Roth contribution; more than $133,000--no Roth contribution.

Income limits for Roth IRA contribution, married couples filing jointly: Modified adjusted gross income under $186,000--full Roth contribution; between $186,000 and $196,000--partial Roth contribution; more than $196,000--no Roth contribution.

Contribution limits for 401(k), 403(b), 457 plan, or self-employed 401(k) (traditional or Roth): $18,000 under age 50; $24,000 for age 50 and above.

SEP IRA contribution limit: The lesser of 25% of compensation or $54,000.

Health savings account contribution limit, single contributor under age 55: $3,400.
Health savings account contribution limit, single contributor age 55 and above: $4,400.
Health savings account contribution limit, family coverage, contributor under age 55: $6,750.
Health savings account contribution limit, family coverage, contributor age 55 and above: $7,750.
High-deductible health plan out-of-pocket maximum, single coverage: $6,550.
High-deductible health plan out-of-pocket maximum, family coverage: $13,100.

Section 529 college-savings account contribution limit: Per IRS guidelines, contributions cannot exceed amount necessary to provide education for beneficiary. Deduction amounts vary by state, and gift tax may apply to very high contribution amounts.
Section 529 college-savings account income limit: None.

Coverdell Education Savings Account contribution limit: $2,000 per year per beneficiary.
Coverdell Education Savings Account income limit, single filers: Modified adjusted gross income under $95,000--full contribution; between $95,000 and $110,000--partial contribution; more than $110,000--no contribution.
Coverdell Education Savings Account income limit, married couples filing jointly: Modified adjusted gross income under $190,000--full contribution; between $190,000 and $220,000--partial contribution; more than $220,000--no contribution.

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