Updates on 2018 Taxes

Comments on “Tax Guide Update: The Tax Cuts and Jobs Act and 2018 Taxes,” in the March 2018 AAII Journal:

Does the standard deduction for 2018 still include the additional standard deduction of $1,300 for those 65 years and older and the blind and $1,600 for single taxpayers?
—Hanh Whitman from Virginia

Charles Rotblut responds:
Yes, the additional deductions for the elderly and the blind still apply.

My understanding is that the repeal of the individual shared responsibility provision of the Affordable Care Act (aka the “individual mandate”), requiring adults and children to have minimum essential health coverage, takes effect in 2019, but not in 2018.
—KS from Arizona

Charles Rotblut responds:
You are correct, and we have updated the guide accordingly.

I’ve read that the IRA modified the maximum HSA contribution for a family from $6,900 to $6,850.
—Bruce from Pennsylvania

Charles Rotblut responds:
On March 5, 2018, the IRS issued a new bulletin changing the maximum HSA contribution for this calendar year to $6,850. The estate tax exemption was modified as well to $11.18 million per spouse, for a total effective exclusion of $22.36 million.

Updates to the tax code are being posted to the Tax Planning section of the AAII Blog as we become aware of them.

Navigating Your IRA or 401(k) Account

Comments on “Retirement Planning Strategies Following the 2017 Tax Act,” by William Reichenstein and William Meyer, in the March 2018 AAII Journal:

There is some good information here, but I caution against making investment decisions based on what you think future tax rates may be. Advisers have in some cases led investors down the Roth conversion path telling them over the last 15 years that: 1) the Bush tax cuts would not be extended, thus your taxes would increase; and 2) tax rates obviously have to go up in the future.

Neither of these two things happened, and those who converted huge sums of their IRA now have essentially wasted, in most cases, many thousands of dollars they can never get back. Multiply that by all the people using this tactic to drain their IRA and you begin to see the problem.

Don’t get me wrong, there are many reasons to like the Roth for tax diversification and other reasons, but having more spendable income in retirement is usually not one of them.
—Dave Gilmer from Washington

I thought the article made some good points. If you do not need 401(k) money for current income, you would be well to convert the 401(k) to a Roth IRA as long as you pay attention to how much you can transfer until you hit the next tax bracket. If you maintain your current investments and your taxes go up in the future, you will be ahead. If taxes remain the same, you will come out even. If taxes go down, you will be worse off. All who believe taxes will go down in the future, please raise your hand.

I do not see this as an investment decision as such, but changing where the investment is held. Bottom line, it isn’t really your money until you pay your taxes.
—D. Barry from Florida

Social Security & Taxes

Comments on “A Simple Way to Fund Retirement,” in the Briefly Noted section of the March 2018 AAII Journal:

Social Security is the perfect retirement income generator? Most middle-income and up people would have been far better off if they had been able to invest those FICA taxes (including the allegedly employer-paid portion—which is really also paid by the employee) in a low-cost stock index fund. They would have far more money for retirement and they would have a property right to that wealth and not merely a government promise to pay them in the future.
—Frank Martin from Tennessee

Complaining about Social Security because it does not yield what we imagine we might earn by investing the money is entirely off base. Social Security is not an investment program. It is supposed to be insurance. If you want to have a comfortable retirement, you need to save and invest as well as pay Social Security taxes. If you are fortunate, you will have sufficient income to choose to do this, and on your own head be it if you don’t. Many, for countless various reasons, are not so fortunate.
—Craig Butcher from Michigan