How quickly emotions have
changed since August. Worry? Angst? It’s already priced into the markets,
according to some experts.
Last week, Barron’s published the results of its
Big Money Poll, a biannual survey of professional investors and money managers.
A majority of those surveyed (55 percent) were bullish about U.S. markets’
prospects through June 2016, 29 percent were neutral, and 16 percent were
bearish. That’s a big shift. Last spring, just 45 percent of those polled were
bullish and nearly one-half were neutral. This time around, things are
different:
“After a wild and crazy
summer for U.S. stocks, marked by an 11 percent correction in August, Wall
Street’s bulls are showing conviction again…the pros expect stocks to rise by
as much as 7 percent through the middle of 2016, propelled by a growing economy
and gains in corporate profit. The Big Money investors see fresh value in
beaten-up energy stocks and financials, as well as dividend-paying blue chips.
And, they don’t expect a likely interest-rate hike – when it comes – to break
the bull’s stride for long.”
Investors who participated
in the American Association of Individual
Investors’ October 14 Sentiment Survey weren’t quite so optimistic. The survey
showed just 34 percent of investors were bullish, 39 percent were neutral, and
27 percent were bearish. The bulls were down 3 percent from the previous week,
and the bears gained a percent. Uncertainty seemed to be the name of the game,
though, as the number of investors who held neutral opinions increased by 4
percent.
As an interesting side
note, the professionals surveyed by Barron’s
estimated the number of investors who weren’t sure where markets are headed was
much larger – 76 percent!
If you’re a contrarian – an
investor who does not subscribe to popular opinion – there are a lot of
opinions to consider.
it’s not
always a good idea to rollover company stock from a 401(k) plan to an IRA. In fact,
doing so might mean you pay more in taxes to Uncle Sam than necessary.
If company stock held in an employer-sponsored
401(k) plan has appreciated, the difference between the amount paid for shares
(the cost basis) and the current value of those shares is known as net
unrealized appreciation (NUA). For instance, if an investor paid $10 a share
for 1000 shares ($10,000) for stock that is now worth $15 a share, then the
investment is worth $15,000, and the NUA is $5,000.
If the shareholder completes a rollover from a
401(k) plan to an IRA, those shares of company stock will be liquidated, along
with the other assets in the account, and moved to an IRA where the assets will
have an opportunity to continue growing tax-deferred. When the assets are
distributed from the IRA, they may be taxed as ordinary income. If the investor
is in the 28 percent tax bracket, the taxes owed would be about $4,200.
There is an alternative that could be a better
choice tax-wise. An investor can request company stock be distributed in-kind and
sent to a taxable account. The stock is not liquidated. The shares are moved to
the new account. The investor may owe ordinary income taxes (and penalties if
he or she is not yet age 59½) on the cost basis ($10,000). However, the net
unrealized appreciation ($5,000) will not be taxed until the shares are sold.
Taxes on the cost basis would be about $2,800.
If the investor takes a distribution right away,
and the shares have been held for more than one year, the proceeds may be taxed
at the long-term capital gains tax rate, which is currently lower than the
ordinary income tax rate. If the investor is in the 15 percent capital gains
tax bracket, another $750 would be owed in taxes. In this example, the investor
could save about $650 in taxes overall.
Please keep in mind this is a hypothetical example
and is not representative of any specific situation. Each investor is unique and your results may
vary. Executing an NUA strategy seems
pretty straightforward, but it can be tricky and not everyone is eligible. If
you would like to learn more, please give your tax professional a call.
Weekly Focus – Think About It
“If you wish
to forget anything on the spot, make a note that this thing is to be
remembered.”
--Edgar Allan Poe, American poet
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