This podcast was recorded on November 8, 2016.
Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick and I'm joined, as always, by Robert Brokamp, personal finance expert here at The Motley Fool. He's also the advisor on Motley Fool's Rule Your Retirement newsletter. Hi, Bro.
Robert Brokamp: Hello, Alison.
Southwick: We have someone sitting to the right of you today, and his name is Matt Trogdon. And he is...what would you say it is you do here, Matt?
Matt Trogdon: That's a great question, Alison. I am the head of marketing for our mutual fund subsidiary, Motley Fool Asset Management, a sister company of The Motley Fool...
Southwick: A sister company of The Motley Fool...
Trogdon: I know you like to say that.
Southwick: I do. I don't like to -- I have to. But you are not here to talk about marketing. You are here because you are actually an avid history buff -- in fact, a history major -- and so you are here today because it's Election Day! And regardless of who you voted for, there is plenty of room under the big tent of Motley Fooldom in the pursuit of personal fiscal responsibility.
Brokamp: I'll vote for that.
Southwick: Yeah. So today we're going to talk about elections past and whether or not presidents impacted the markets the way political pundits assumed they would. Also, I think we can all agree this has been a harrowing election, and as it comes to a close, we could all use a trip to Disney World. All that, and more, on this week's episode of Motley Fool Answers.
Southwick: It's time for Answers, Answers, and today's question comes from Jeremy in Washington, D.C. Just down the road.
Brokamp: Hi, Jeremy.
Southwick: Jeremy writes: "I have a question about Roth IRAs and income limits. I understand that at certain income levels, you are no longer allowed to contribute to a Roth IRA. How does this work, exactly? Is it based on your previous year's income? What happens if I contribute to a Roth IRA at the start of the new year, before I've calculated my taxes, and find out later that I'm over the income limit? Will the IRS come and steal my dog? Thanks for the clarification you can give."
Brokamp: Well, Jeremy, your dog is safe. That's the good news. Your contributions are based on how much you make in the year that you make the contribution, so that is a little complicated, because there are income limits based on your eligibility for the Roth IRA. Remember, if you have the option of a Roth 401(k) at work, there is no income limit. You can always contribute to that. But for the Roth IRA, here are the limits for 2016.
So, if you're single, it is your modified adjusted gross income (and I'll get to that in a second).
Southwick: Can't wait.
Brokamp: You can't wait! So, below $117,000, and then it gradually reduces your eligibility up to the point of $132,000. So, what that means is, the contribution limit for 2016 (and it's going to stay the same in 2017, by the way) is $5,500 -- $6,500 if you're 50 or older.
Let's say you're 30 years old. You make under $117,000. You're single. You can do the whole $5,500. Once you start creeping over that $117,000, that $5,500 limit starts creeping down until you get to $132,000, and that's it. You can't contribute anything. If you're married, those limits, that range is $184,000 to $194,000.
So, what is modified adjusted gross income? Well, it's your adjusted gross income, which is all the money you made in a certain year minus certain deductions like the amount that you contributed to deductible IRAs or your 401(k). It's at the bottom of the front page of the standard 1040 form. And then you take that and then you have to add back a few things to get to your modified adjusted gross income. I'm not going to go into all of that, because even in the worksheet on Form 590 or Publication 590 which explains all this...
Southwick: My favorite form...
Brokamp: Your favorite one. It's like a 13-step worksheet to figure out your modified adjusted gross income.
Southwick: Oh!
Brokamp: So, just know that if you're pretty far away from those limits, you're OK. If you get close, then you do have to figure it out. So, what happens if you contribute to your Roth IRA for a year and then it turns out you earned too much? You should call the financial services provider that has your IRA and ask them about your options.
It will come down to a couple of things. First of all, you can just get the money back, or you can have it recharacterized as a traditional IRA. Anyone can contribute to a traditional IRA as long as you have earned income -- whether it's deductible or not is another question. But if you contribute the $5,500 and find out you weren't eligible for a Roth, you can just have it recharacterized as a traditional IRA. Even if you don't get the deduction, it will grow tax-deferred, which is still a nice thing.
Southwick: But the dog is safe.
Brokamp: But the dog is safe. Right.
Trogdon: I was going to say. I actually had a similar issue yesterday. A similar question.
Brokamp: Someone took your dog?
Trogdon: No. I just moved from Virginia into D.C., and so I was filling out my new tax forms, and there is the deduction worksheet. If you're going to itemize, and I always itemize, you're going to calculate what you think your itemized deduction is going to be. And it was just...I...my eyes glazed over...
Brokamp: It's very difficult to do.
Trogdon: Yeah.
Brokamp: Like if you wanted to factor in how much you should have withheld from your paycheck, it can be pretty tricky. Even the IRS form for that is a little difficult. The one thing about the IRA versus the 401(k) is, with your IRA, remember [that] you have until the tax-filing deadline of the following year to contribute.
Southwick: Oh, OK.
Brokamp: So, if you're thinking about making a contribution for 2016, you can wait until you're about to do your taxes, figure out your modified adjusted gross income, and then make that contribution. Which, by the way, for 2017, the tax-filing deadline is April 18, because...
Southwick: Circle your calendar.
Brokamp: ...April 15 falls on a weekend, so you've got a few extra days. So, that's another way to do that. Just wait until you absolutely know what your modified adjusted gross income is, and then make the decision.
Southwick: Leading up to the election, there was no end to the stories about what would happen in the markets, and where you should invest if Trump versus Clinton wins the White House. The Fool is actually as guilty of this as any other website, I'm embarrassed to say. I saw an article the other day, and I'm like, "Oh, man! Come on!"
Brokamp: We do it. We do it, too.
Trogdon: It's a good headline.
Brokamp: It is.
Southwick: Yeah. Well, we're going to do that, so...
Brokamp: If you people didn't like it, you wouldn't read it, so that's all I'm saying.
Southwick: So, it's on you.
Brokamp: That's right.
Southwick: Your fault for taking us into the muck. Okay. So joining us today in-studio is Matt Trogdon. He's here to talk about the history of presidential predictions, and thanks for joining us today.
Trogdon: Sure. Thank you for having me.
Southwick: You're here, like I said at the top of the show, because you are a bit of a history buff.
Trogdon: Yeah, you could say that.
Brokamp: Weren't you in the process of getting, like, a Ph.D. in history, and then you woke up and realized maybe not?
Trogdon: Yeah, that's how it happened. Yeah, I majored in history. I graduated with a bachelor's in history, and I thought I wanted to be a history professor.
Southwick: Oh!
Trogdon: So, I went to grad school and started a master's and Ph.D. track, and probably by the time I came home for Thanksgiving that first semester, I was pretty sure I wasn't going to be a history professor. It was just tight, man. Grad school in the humanities is just lonely. It's just lonely living. It's just you, and the books, and the research, and I like to talk way too much to do that. So, I stuck around for two years. I got my master's. And yeah, so.
But I still love it. I still read history. I still listen to history podcasts. I still watch history stuff on TV. If I ever want to be alone and have my girlfriend in the other room, I'll just thrown on a Ken Burns documentary, and we're good to go.
Brokamp: Everyone scatters.
Trogdon: Yup.
Brokamp: And Matt, what was your first job here at The Motley Fool?
Trogdon: My first job I was the product manager for Motley Fool Rule Your Retirement.
Brokamp: Oh, yeah.
Southwick: I didn't know that.
Brokamp: It's true.
Trogdon: That's right.
Brokamp: We were buds back then.
Trogdon: We were.
Southwick: Aw!
Trogdon: Yeah.
Brokamp: Although you were an intern before, I would guess.
Trogdon: I was. I was an intern. I came straight out of graduate school for an internship.
Brokamp: That's right.
Southwick: So you two -- you two have history.
Trogdon: We do.
Brokamp: [laughs] Yes.
Southwick: Yeah. That's funny. Okay. So Matt, thank you for joining us today to talk about the history of presidential predictions. So, why do you think the Fool, as well as other outlets, love to predict about what's going to happen after so-and-so, or whoever gets elected?
Trogdon: It's great headlines, right? I mean, everybody wants to read it. Everybody wants to know. I think now, especially with the 24-hour media cycle, and with social media, and with all of the addictive tendencies that comes with that, it just creates this craving to know what the next thing is going to be.
Southwick: And do you click on those headlines when you see them?
Trogdon: Not really. I do so little investing as far as just buying and selling stocks that I don't click on them, but I check my election forecast...
Brokamp: All the time.
Southwick: All the time.
Trogdon: Fifteen times a day.
Brokamp: We should clarify what you mean. You don't trade a lot.
Trogdon: I don't trade a lot.
Brokamp: You're a big investor, and you've been an investor from a very young age.
Trogdon: I have.
Brokamp: You're just not an active trader.
Trogdon: Yeah. I have been an investor from a very young age, but the last time I bought a stock was 18 months ago, so, yeah.
Southwick: So, what have you seen so far this year as far as predictions for what's going to happen should Trump versus Clinton win?
Trogdon: Yes. So, I think anybody who works here long enough at The Motley Fool, you kind of get an appreciation for the fact that you should never look at a certain event as being this major thing that's going to cause a shake-up in your investing plan. You should always invest for the long term. So, I look at these articles just sort of with kind of an amused eye.
And what you see is mixed. So, Kiplinger, for example, who's actually here in D.C., so if Donald Trump wins, one of the companies that they say folks should invest in is Smith & Wesson, the gun maker. And the argument there is that Trump will come in, and he will curb gun control laws, and then everybody will be able to get guns...
Southwick: Whoo!
Brokamp: Guns for everybody!
Southwick: Buy them in bulk at Costco.
Trogdon: So, on the other side, Quartz.com had an analyst that came in and was looking at companies you should sell in case Donald Trump wins, and of course, one of the companies they have that you should sell would be Smith & Wesson.
Brokamp: Why?
Trogdon: Because voters would be less nervous about gun laws if Trump won.
Brokamp: Well, they've seen that, right? When there are fears of more laws, people go out and buy their guns. They stockpile them.
Trogdon: So, then we wouldn't see a continued surge in gun sales. Similarly, Kiplinger Magazine says if Trump wins, ExxonMobil would be a good company to own because a Trump victory is likely to give the fossil fuel industries in the U.S. a boost. Coal has gotten more play, there, but oil is another one. According to Quartz.com, you should sell oil companies if Trump is elected because the increase in energy production could actually hurt energy prices...
Southwick: Oh!
Brokamp: Yeah.
Southwick: Yeah, sure, yeah, OK.
Brokamp: Too much. Too much of it.
Southwick: Supply and demand. Yeah.
Trogdon: Kiplinger Magazine says that if Hillary wins, you should buy Lockheed Martin, the defense company, because Hillary is more hawkish than President Obama, and so the likelihood we're going to need more defense spending is going to increase. Quartz actually says either way, you should buy defense companies...
Southwick: Really!
Trogdon: ...because both Trump and Hillary are more hawkish than President Obama. So, yeah, I think big picture it's really hard to parse out some of these arguments and make sense of them, and make them into a useful investing thesis. Kiplinger says if Hillary wins, Marriott might be a good company to own stock in...
Southwick: Marriott?
Trogdon: ...because they employ a lot of undocumented immigrants, and it's just going to make it easier for them to continue to employ them.
Southwick: What? What? Does Marriott know that? Marriott, did you know that you employ a lot of undocumented immigrants?
Trogdon: Apparently so.
Southwick: I don't know about that.
Trogdon: Kiplinger says that if Hillary wins, Wal-Mart could be a good company to own because of the tax cuts she's going to give to low and middle-income earners, whereas Kiplinger says if Trump wins, Coach would be a better company to own because top earners are going to get tax cuts. So, either people are shopping Wal-Mart, or they're going for the expensive Coach handbag.
Brokamp: The problem with all that, of course, is the president is one person and one branch of the government, and they generally aren't allowed to just come in and make new rules.
Trogdon: Sure.
Brokamp: I mean, that's one of the fallacies of thinking any of the things that they promise are just going to happen, because th
