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Friday Financial Five – March 13th, 2015

Friday, March 13, 2015


Banks Struggle With Capital Requirements

According to The Wall Street Journal, four of the biggest banks had trouble passing the stress test for 2015, Bank of America was given conditional approval to either buy back stock or increase dividends due to weakness in loss reporting. The other companies forced to revise their plans were Goldman Sachs, J.P. Morgan Chase, and Morgan Stanley. For another perspective on the amazing level of oversight financial companies now face, here’s an interesting chart from the SEC.

Looking at State Migration and Taxation

Last year, the NY Times compiled a chart of migration in the United States using 2012 numbers. It’s interesting to compare this map to Kiplinger’s state evaluations for tax friendliness, in this case for retirees. Kiplinger’s most friendly states tax-wise include Florida, Nevada, and Arizona. For Florida, almost two thirds of their inhabitants come from outside the state, including 23% from outside the country. Nevada has 75% of its people from outside, including 19% from California. For Arizona, over 60% were born outside the state. Taxes, along with other factors, may play a role in the high level of migration these states have experienced.

Another Mortgage Debt Relief Extension Possible

There is again legislation to provide relief to homeowners who are underwater on mortgages. When a borrower works with the bank to sell a home for less than the mortgage balance, the difference between sale price and outstanding mortgage is taxable to the borrower as earned income. The original Mortgage Debt Forgiveness Relief Act was signed in 2007 and has been extended various times, including most recently in December of 2014. Legislation in the House and the Senate aims to extend relief through the end of 2016.

Consider the Roth Conversion Option

The April 15th deadline to contribute to IRAs for 2014 is roughly a month away. There are income limitations for both single filers and those who file jointly. For those that surpassed the MAGI limit last year, it may make sense to contribute to a nondeductible IRA and convert that money to a Roth. It’s a few steps, but in the end, the Roth benefits might be worth it. The absence of income limitations on conversion is something that Congress may eventually remedy.

Senator Rubio’s Proposed Tax Plan

Simplifying a complex tax code would seem to be a good way for presidential hopefuls to ingratiate themselves to many voters at once. Senator Marco Rubio, along with Senator Mike Lee, has presented a new plan involving two tax rates. Income up to $75,000 would be taxed at 15% and income above that level would be taxed at 35%. All tax deductions, except for mortgage interest and charitable contributions, would be eliminated. Business income would be taxed at 25%. The plan would end estate, capital gain, and dividend taxation. Republicans are going to balk at the $75,000 threshold and removal of tax breaks, while Democrats won’t like the end of estate taxes. In the end, the plan as currently constructed would be a huge tax decrease and most in congress would like to see changes be revenue neutral.

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


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