Shorter Settlement For Stocks & Bonds – Financial Planning

Commencing September 5, 2017, the settlement period for most security transac-tions will be shorten to two days, from three days. The two-day settlement date ap-plies to most security transactions, including stocks, bonds, municipal securities, mutual funds traded through a brokerage firm, and limited partnerships that trade on an exchange. Government securities and stock options will continue to settle on the next business day following the trade date.

The effort to shorten the settlement period has taken three years and involved some 600 people from 10 regulatory agencies. The change is the first since 1995, when the settlement period was shorten from five days to three.

Improvements in technology and the speed of communication has allowed security transactions to be transmitted more quickly and accurately over the past few dec-ades. Industry jargon for settlement periods are known as “T+2” and “T+3” meaning transaction date plus 2 and 3 days to settle.

Source: SEC

More People Paying Too Little On Quarterly Payments – Tax Planning

Individuals that pay taxes quarterly, including retirees and business owners, may not be paying enough. According to Internal Revenue Service data, the number of filers penalized for underpaying estimated taxes rose nearly 40% between 2010 and 2015, to 10 million from 7.2 million. In 2015, the total number of filers owing penal-ties may have exceeded the number filing estimated taxes. This is possible since those who paid quarterly taxes may have made mistakes, and others who didn’t pay them should have.

“The data suggest that millions of people don’t understand they need to pay quar-terly taxes, or at least increase their withholding to avoid penalties,” per an IRS spokesman.

Estimated tax payments are Congress’s way of keeping non-wage earners from hav-ing an advantage over wage earners. More than 80% of taxpayers have wages that are typically subject to withholding, and most people pay their income tax this way. Thus the law requires people with other types of income to make quarterly pay-ments based on amounts received during each period.

Taxpayers with both wage (W2) and non-wage (1099) income must either pay taxes quarterly or raise their withholding to cover the non-wage income. If total payments don’t meet certain thresholds, then taxpayers may owe a penalty on the underpay-ment based on interest charged by the IRS, which is currently at a 4% rate.

In addition, more baby boomers are retiring from full-time work or are taking re-quired distributions (RMDs) from retirement plans after age 70.5. In either case, taxpayers may be unaware they’ll owe quarterly payments on some or all income.

Sources: IRS