They say that Congress has its own dating service just like E-Harmony and Annuity Harmony except that no one in either party wants to pay. That certainly was validated with the recent Cliff deal which to use the now proverbial “kick the can down the road” to next Fiscal Cliff II, otherwise known as the ‘Debt Ceiling” We are all much better versed though on this one since we have had more practice. In the spirit of New Year cheer and good tidings, however, there were some big victories for annuity savers and investors despite the continued spending like a drunken sailor. In fact, fiscal cliff is one of the terms most hated in 2012, so debt ceiling deucing of the fiscal cliff with the American Taxpayer Relief Act of 2012 is timely. By the time the end of February rolls around, the debt ceiling deal will be just like the terrific book on anti-gravity and Congress will not be able to put it down. It will be like an old sick dying dog that the owner can’t decide what to do with.
- First, Congress finally agreed to index the Alternative Minimum Tax to inflation sparing 30 million Americans, including this writer, the joy of another round of double taxation. I believe the AMT is another example of giving Congress the power of the purse string with a small dose back in 1969 ,when a couple of hundred investors were first taxed, and watching it grow into a lethal toxic dose of taxes by 2012. When it comes to the word” temporary tax”, run and seek cover. It does not happen. The AMT patch will impact the annuity industry slightly and help the municipal bond industry where private purpose bond income is taxed. Prior to the deal, 35% of affluent investors with $100,000-plus in investable assets have purchased annuities and the number is growing according to Cogent Research. With a doubling down of the debt deal, the Age of Safety continues to include more well- heeled investors. Most of the $450,000 annual income taxpayers or 2% do not own annuities although the number is growing as savers and investors seek safe retirement income avenues and buy income riders. Most income recipients will continue to receive income at the same or lower rates they did in 2012.
- A Permanent Estate Tax exemption and Capital Gains Rates-Again the word permanent. They say that someone In Washington who is honest, caring and well -read is a tourist. The Credit Shelter Trust drawers will be disappointed as Washington continued to allow portability of a remaining spouse’s marital deduction at death of the other spouse. The tax will continue to be indexed for inflation so the individual exemption for 2013 will be $5.2 million. The rate remains the same unless you are at the $ 450 million dollar level where your rate will bump up from 35% to 45% as a family.
3. Washington needs the revenue now so an in-plan Roth conversion provision change enables Congress to capture more of your hard-earned dollars now with the perception that Roth Income will never be taxed. Ask Tax guru, Ed Slot what his firm’s number one question is and the question is: What happens if Congress taxes my Roth? The Publics approval rating and confidence in Congress remains intact Permanent once again defies the law of certainty of Life, Death and Taxes. In addition, Congress will allow you to deduct again up to $100,000 of your IRA if donated to charity which allows for a charitable deduction and a not having to include this amount in Required Minimum Distributions. This is a Qualified Charitable deduction or QCD.
There is plenty of good news for annuity savers and investors in the Taxpayer Relief Act who with the exception of a decrease in their paychecks this month due to the expiration of the payroll tax(increase from 4.2% to 6.2% or an increase in their social security check due to inflation, are seeing income taxes at the same rate. That means with market uncertainty and volatility, a continued flight to safety as investors trade the roller coaster in for the serenity and peace of a carousel where they can pick the color and type of pony, get some preservation of principal when the 9market) ponies rise but know that they will not see their pony goes down when the market does. All in all, we have rung in the New Year with cheer, a deferred crisis, and a big stock market rally. It still feels like last year’s Halloween party though when three was a big tub of water and we bobbed for I.O.U.s