Equity Research Analyst Michael Pachter Speaks at Harvard Business School
Earlier this year Harvard Business School professors Aiyesha Dey and Joseph Pacelli published their case study, “Bear to Bull: An Analyst’s Journey with Netflix” on Equity Research Analyst, Michael Pachter’s journey covering streaming giant, Netflix and its logic-defying rise and eventual pull back. The case study focuses on Pachter’s consistently wrong negative call on Netflix from 2011 to 2021, as the stock price rose 2500%. During that time Pachter raised numerous red flags, as outlined by the case study, about the streaming giant predicting that competition and the reliance on being a content distributor versus a content creator would eventually catch up with Netflix. Those red flags did eventually come to fruition, but significantly later than Pachter predicted. The publication of “Bear to Bull” was part of the course of study in Financial Reporting & Control at Harvard Business School, a course that recently had Michael as a guest speaker to illustrate how some companies report items differently from others. The full case study with in-depth analysis and more from Michael on his Netflix journey is available from the Harvard Business School at store.hbr.org. “This publication may not be digitized, photocopied, or otherwise reproduced, posted or transmitted, without the permission of Harvard Business School.”
Fixed and Indexed Annuities
Annuities offer a tax-deferred retirement savings vehicle that can include a stream of guaranteed lifetime income. There are a number of annuity types and they differ as to the underlying investments, the way interest is paid and other factors. Annuities can be an option for investors looking for a guaranteed source of lifetime income. Two popular types of annuities are fixed annuities and indexed annuities. Fixed annuities Fixed annuities offer a fixed rate of return on the premium dollars invested in the contract. They also offer a fixed interest rate on the premium dollars invested and principal guarantee. Fixed annuities can be annuitized on an immediate basis or deferred to some commencement date in the future. Fixed annuities are fairly straightforward and easy to understand. Their predictability can make them a good alternative for investors who feel they need to supplement their retirement income with a lifetime stream of income that is guaranteed. Advantages of fixed annuities include: Guaranteed rate of return Simple, straightforward contract terms Improved ability to budget Death benefit options Disadvantage of fixed annuities can include: Limited upside potential Inflation risks Limited term fixed rate guarantee Indexed annuities An indexed annuity pays an interest rate that is tied to a market index such as the S&P 500. Index annuities usually have a cap on the portion of the index’s returns that are paid. They are sometimes also called fixed indexed annuities. Indexed annuities generally have a participation rate in the gains of the index being tracked, as well as a cap on the maximum amount of interest that can be received for the period. For example, if the annuity tracks the S&P 500 with an 80% participation rate, if the index increases by 10% you would earn an 8% interest rate. If the annuity has a cap of 7% on the participation rate, your interest rate would be capped at 7%. Indexed annuities typically offer a guaranteed minimum rate of interest or a floor with a maximum level of loss regardless of how the index performs. There are a number of annuitization options for indexed annuities as well. Advantages of indexed annuities include: Potential for higher returns Minimum guaranteed rate offers stability Security of principal Some disadvantages can include: Limited upside due to the participation rate and any rate caps Fluctuations in the participation rate and rate cap can occur depending upon the contract Best time to consider annuities This will vary from person to person, but many investors look at annuities as they near or enter retirement. Annuities can offer a guaranteed stream of lifetime income which can take the place of pension plans, which are disappearing from the landscape, and supplement income from other retirement assets. Annuity tax issues Annuities offer tax-deferred growth of the premiums contributed to the contract. However, if you need to withdraw money from the contract, the money withdrawn will be taxed on a last in, first out basis. This means that withdrawals are first assumed to be from gains in the contract. This money will be taxed as ordinary income until the gains in the contract are fully withdrawn. If you take a distribution prior to age 59 ½, there will generally be a 10% penalty in addition to any taxes. Once annuitized, the annuity payments are taxed based on the exclusion ratio. The distribution is assumed to be part gain and part return of basis in the contract. If the annuity is a qualified annuity held in an annuity or qualified retirement plan, distributions are taxed in accordance with the rules for that type of retirement plan account. Annuities will impact your taxes for a given year based on any withdrawal activity or to the extent that annuity payments are taxed via the exclusion ratio. Annuity surrender charges Annuities of all types may be subject to surrender charges if you attempt to take a distribution from the contract or to move the contract to another annuity carrier. Surrender charges are typically for a set period of time. They are a percentage of the amount distributed from the contract; the percent may be fixed for the entire surrender period or may decline at certain points during this period. For example, if the contract is worth $100,000 with a 10% surrender charge, you would pay a $10,000 surrender charge if you wanted to cash out the entire contract or move it to another carrier. You would also be subject to any taxes or penalties that might apply. Annuity death benefits There are generally death benefit options for both types of annuities. This may be a lump-sum or an annuity payment if the contract has already been annuitized. In the latter case, this will depend upon the annuitization option chosen. Both fixed and indexed annuities can be a viable option for a guaranteed lifetime stream of income in retirement. These types of contracts might be used to supplement other retirement savings. Contact your Wedbush financial advisor to discuss whether annuities are a good fit for your retirement income needs. They can help you decide if an annuity is the right choice for you and, if so, what type of annuity is best for your situation. Disclosure These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.
Year-End Tax Planning Tips
As we enter December, the time to make moves to potentially reduce our taxes for 2022 is growing short. There still are a number of things you can do in this last month of the year to lower your tax bill. Note that the deadline for most of these moves is December 31st. Maximize retirement plan contributions For those with a 401(k) plan or a similar company-sponsored retirement plan, you can contribute up to $20,500, with an extra catch-up contribution of $6,500 if you are 50 or over. Try to maximize pre-tax contributions into a traditional 401(k) or similar account before year-end if possible. For those who can make pre-tax contributions to an IRA, the maximum contribution for the 2022 tax year is $6,000, with an additional $1,000 catch-up contribution for those who are 50 or over. The deadline for 2022 contributions is April 17, 2023. Charitable contributions Charitable contributions offer the benefit of doing good for others and, in many cases, also provide a tax benefit. There are a number of ways to make charitable contributions. ● Cash contributions made to a qualifying charitable organization can be used as a deduction up to 60% of your adjusted gross income (AGI) for those who can itemize. Unused deductions can be carried forward to subsequent tax years. ● Appreciated securities can be used to make donations to organizations that will accept this form of contribution. The market value of the securities can be used as a tax deduction. Additionally, there are no capital gains taxes due since the securities are not being sold. ● For those who are at least 70 ½ years of age, you can give up to $100,000 from a traditional IRA as a donation to a qualified charity. These contributions are called qualified charitable donations, or QCDs. For those who are subject to required minimum distributions (RMDs), QCDs can be used to make some or all of their RMD for the year. QCDs do not qualify for a tax deduction, but the money comes out of the IRA tax-free. To the extent any of the QCDs are used as part of your RMD for the year, this is a way to reduce or eliminate your taxes on the RMD. ● Contribute to a donor advised fund or DAF. Contributions can be made with cash, securities or other assets such as artwork or real estate. Contributions to the DAF count towards the tax year in which they were made as a deduction, and contributions can be made to qualified charities over time. Bunch deductions into 2022 If you will not qualify to itemize your deductions for 2022, you can try to bunch deductions from future years into 2022. For example, if you would normally have a medical procedure done in 2023, move it to 2022 if possible if this procedure will bump your medical expenses over the 7.5% of AGI threshold. The same with charitable contributions. If you have the cash, consider making several years’ worth of contributions by the end of 2022. This can be a good tax strategy if it allows you to itemize where you otherwise would not be able to do so. Tax credits There are a number of tax credits, largely for middle- and lower-income Americans. Tax credits are superior to deductions in that they are direct reductions in your tax liability. Here are a few to keep in mind if you qualify. ● The premium tax credit is a credit available to taxpayers who purchase health insurance coverage through the Health Insurance Marketplace. The credit is subject to certain income restrictions. ● The child tax credit is available to parents of eligible dependents whose modified adjusted gross income is up to $400,000 for those filing married and joint, and up to $200,000 for single filers. The amount of the credit can be up to $2,000, of which up to $1,500 can be refundable. ● The child and dependent care tax credit provides a tax credit for parents who pay the cost of childcare for their children or other dependents. For 2022, the credit is up to 35% of up to $3,000 in expenses for one dependent or up to $6,000 in expenses for two or more children. Changes to tax brackets for 2022 There were several changes to tax brackets and related limits for 2022 that could impact your tax liability this year. The threshold for the standard deduction increased in 2022. ● For those filing as single or married filing separately, the standard deduction has increased to $12,950. ● For those filing as head of household, it has increased to $19,400. ● For taxpayers filing married and joint, the standard deduction has increased to $25,900. These increases mean that the threshold for being able itemize deductions on your return has increased for 2022, making it more difficult for some to itemize deductions. From 2021 to 2022, most tax brackets increased at the upper end for the year due to inflation. This includes the regular income tax brackets as well as those for long-term capital gains. While the tax rates did not change, this increase of the upper end of the brackets means that a taxpayer can earn a bit more income and not move up to the next bracket. For example, the top end of the 32% tax bracket for those filing married and joint increases to $431,950 for 2022 from $418,850 for 2021. This means that you could earn an extra $13,100 and not move up to the next tax bracket in 2022. December is a good time to discuss any year-end tax planning moves to help reduce your 2022 taxes with your Wedbush financial advisor, as well as with your tax professional. Disclosure These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for,
Year-End Retirement Account Limits
For 2023, the IRS has raised the contribution limits for qualified retirement plans as well as for IRAs. Other limits have been changed as well. Here is a look at the changes that might impact your retirement savings strategies. 401(k) and other Tax Deferred Retirement plan contribution limits The contribution limit for 401(k) plans, 403(b)s, most 457 plans and the government Thrift Savings Plan has been increased to $22,500 from $20,500 for 2022. The catch-up contribution level for participants who are age 50 or over has also been increased from $6,500 in 2022 to $7,500 for 2023. This means that those who are 50 or older can contribute up to $30,000 to their tax-deferred retirement plan in 2023. To summarize the changes: 2022 contribution limits 2023 contribution limits Contribution limits $20,500 $22,500 Catch-up contributions $6,500 $7,500 Total contributions for those 50+ years old $27,000 $30,000 IRA Contribution Limits for 2022 and 2023 The contribution limit for all types of IRAs will increase from $6,000 in 2022 to $6,500 for the 2023 tax year. The catch-up contribution limit for those who are 50 or over remains at $1,000. These limits apply to all combined contributions to IRAs, whether they are pre-tax or after-tax, or whether they are to a traditional IRA or to a Roth IRA. The adjusted gross income(AGI) limits to be able to make pre-tax contributions to a traditional IRA if you are covered by a workplace retirement plan, as well as those governing the ability to contribute to a Roth IRA, will change in 2023. The AGI limits to qualify for the Saver’s Credit will also change in 2023. Adjusted Gross Income Requirements – Traditional IRAs For those who are covered by a workplace retirement plan, such as a 401(k), there are income restrictions based on adjusted gross income to the ability to make pre-tax contributions. Contributions can always be made on an after-tax basis with no income restrictions. This is similar if you are not covered by a 401(k) or other retirement plan. For 2022 and 2023, the AGI limits for pre-tax IRA contributions for those covered by a workplace retirement plan are: Filing status 2022 AGI Limit 2023 AGI Limit Pre-tax deduction Limits Single or head of household Less than $68,000 Less than $73,000 Full deduction up to contribution limit $68,000 – $78,000 $73,000 – $83,000 Phased out partial deduction More than $78,000 More than $83,000 No deduction Married filing jointly or qualified widow(er) Less than $109,000 Less than $116,000 Full deduction up to contribution limit $109,000 – $129,000 $116,000 – $136,000 Phased out partial deduction More than $129,000 More than $136,000 No deduction Married filing separately Less than $10,000 Less than $10,000 Partial deduction More than $10,000 More than $10,000 No deduction In the case of a someone who is not covered by a workplace retirement plan, but their spouse is, the AGI limits are higher: Filing status 2022 AGI Limit 2023 AGI Limit Pre-tax deduction Limits Married filing jointly or qualified widow(er) Less than $204,000 Less than $218,000 Full deduction up to contribution limit $204,000 – $214,000 $218,000 – $228,000 Phased out partial deduction More than $214,000 More than $228,000 No deduction Roth IRA contributions – AGI restrictions For those looking to contribute to a Roth IRA account, there are income limitations based on your AGI and filing status. For 2022 and 2023, these limits are: Filing status 2022 AGI Limit 2023 AGI Limit Pre-tax deduction Limits Single, head of household or married filing separately and did not live with spouse during the year Less than $129,000 Less than $138,000 Full contribution up to the limit $129,000 – $144,000 $138,000 – $153,000 Phased out contribution limit More than $144,000 More than $153,000 No contribution allowed Married filing jointly or qualified widow(er) Less than $204,000 Less than $218,000 Full contribution up to the limit $204,000 – $214,000 $218,000 – $228,000 Phased out contribution limit More than $214,000 More than $228,000 No contribution allowed Married filing separately if you lived with your spouse at any point during the year Less than $10,000 Less than $10,000 Contribution is reduced More than $10,000 More than $10,000 No contribution allowed Note that those who wish to contribute higher amounts to a Roth account can choose a Roth option in their 401(k) or other workplace retirement if they have one available to them. There are no income restrictions and they can generally contribute up to the annual contribution limit. Saver’s Credit 2022 and 2023 The retirement savings contribution credit is a credit worth up to $1,000, and up to $2,000 for those filing married and jointly, that is available to low- and middle-income taxpayers. In order to get the credit, your AGI cannot exceed: Filing status 2022 AGI 2023 AGI Married filing joint $68,000 $73,000 Head of household $51,000 $54,750 Any other filing status $34,000 $36,500 The amount of the credit you might be eligible for is based on the amount of new money contributed to an IRA (Roth or traditional), 401(k), SIMPLE IRA, ABLE account, SARSEP, 403(b) or 457 plan. Remember, a tax credit is a direct reduction in the amount of your tax you owe and is generally more valuable than a tax deduction. Be sure to reach out to your Wedbush financial advisor to review your retirement plan contributions for 2022 and to make a plan for 2023. IRAs and employer-sponsored retirement plans are an excellent way to save for retirement and to derive certain tax benefits. Disclosure These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and