Name That Beneficiary!
Quote of the Week “If the world were perfect, it wouldn’t be.” – Yogi Berra Technical Corner Last week the markets were headed for a negative return until the jobs report came in much higher than expected and pulled the return for the week up to slightly positive. The report was up 266 thousand jobs. Of that 266 thousand jobs, about 50 thousand were the result of the General Motors strike being settled and its workers going back to work. We also got a positive revision of 41 thousand jobs collectively for the months of September and October. On a rate of change basis, you usually see the anomalous rise during periods of fiscal stimulus. When the rate of change in job growth peaks it’s a one-way road of deceleration lower until you see a recession. We did have an unprecedented late cycle stimulus via the tax cut and the cut in the Fed’s interest rate which has pushed business and consumer consumption forward. We are reaching a level in which job growth and subsequent rising incomes will start to affect corporate profits. With the projected GDP growth for the fourth quarter to be only a positive 0.49%, revenue for businesses will decline. With employee costs rising, profits will have to come down. I believe once Wall Street sees the declining corporate profits results, which will be reported in January and February of next year, growth stocks will be in peril. At some point, all of the above will come to a realization. Because I can’t tell you when it will happen, we are maintaining a conservative position. Larry’s Thoughts I came across this article a while ago and I fully agree with the author’s message. No beneficiary designation for an IRA? Here’s what can happen If you have an individual retirement account, do you recall filling out a beneficiary designation form? That’s the document that allows you to direct the IRA custodian to transfer your IRA to people you name in the form. The custodian is the institution that holds your IRA assets for you. Do you recall reading the custodian’s IRA agreement? If you have a copy in your file (you should), you might want to dust it off and look it over. Here’s why: In that document, you will find provisions that take over in certain instances, such as if you fail to designate a beneficiary. As I give you two examples, think about how these provisions might affect you. A major institution that has custody of about 10 million IRAs has the following provision: “If the [IRA owner] had not by the date of his or her death properly designated a Beneficiary . . . or if no designated primary or contingent Beneficiary survives the [IRA owner], the [IRA owner]’s Beneficiary shall be his or her surviving spouse, but if he or she has no surviving spouse, his or her estate.” This type of provision is not uncommon. It gives the institution the authority to transfer the IRA when the owner dies if there is no beneficiary designation on file. A married IRA owner’s IRA would pass to his or her spouse, which would allow for continued tax deferral. Unlike non-spouse beneficiaries, a surviving spouse has the option of transferring the IRA into his or her own IRA. What would happen to an IRA owner who is single? An unmarried IRA owner’s IRA would pass to his or her estate under this custodian agreement’s default provision. The result may not be what you want if you would like the IRA to be inherited by a niece, nephew, child or grandchild. If an IRA transfers to an estate, the IRA loses its connection to a person for “stretch” purposes (keep in mind that an IRA is an “individual” retirement account). That is, tax deferral can be lost quickly, a topic for a later column. Other agreements are more flexible. Check out this one, for example: “If there is no Beneficiary designation on file with the Custodian, or if no primary or contingent Beneficiaries survive the Participant, the Custodian shall distribute the Account in the following order of preference: “(i) The Participant’s surviving spouse, if any “(ii) The Participant’s children, if any, in equal shares per stirpes “(iii) The Participant’s estate” I like this provision much more than the first one. It works better for both married and single people who have children or grandchildren. “Per stirpes” comes into play when a child predeceases the IRA owner; the grandchildren (the deceased child’s children) inherit the share the deceased child would have received had he or she been alive when the IRA owner died. Again, these provisions come into play if your custodian does not have your beneficiary designation on file. I would strongly suggest that you double-check by calling your IRA custodian for a copy of what they have on hand. Or you can fill out a new beneficiary designation —just make sure your custodian places the designation on file. Otherwise, the default provision of the custodian agreement will apply. Also, be sure your beneficiary designations are kept in a safe place. Julie Jason, JD, LLM, a personal portfolio manager (Jackson, Grant of Stamford, Conn.) and author, welcomes your questions/comments (readers@juliejason.com). “No beneficiary designation for an IRA? Here’s what can happen.” Mercury News, 12 Aug 2019, https://www.mercurynews.com/2019/08/12/no-beneficiary-designation-for-an-ira-heres-what-can-happen/. Accessed 10 December
RMDs
Quote of the Week “In the stock, a bargain is not a bargain if it remains a bargain.” – Marty Whitman Technical Corner Last week the markets hit a new all-time high on Thursday but sold off Friday with the Dow down 112 points. Today (Monday) the markets are selling off again with the Dow down 267 points which is the worst down day since October 8th. Stocks are being pulled lower by a disappointing U.S. Manufacturing Survey (ISM) data report that pointed to a fourth straight month of contraction for the sector. The ISM index unexpectedly declined to 48.1 in November. Readings below 50 reflect business conditions worsening. The report wasn’t encouraging, especially if you look at the new orders component. Construction also came in on the downside. Adding to the jitters in the last few days are higher U.S. stock valuation levels, which can make the market prone to sudden and fast corrections. The economy has been in what we call Quadrant III, which is characterized by growth slowing and inflation rising. If history is any guide, stock markets have always topped out in Quadrant III. With the economy slowing as reflected by the declining GDP, trade tensions, and with stock market valuations stretched, I wouldn’t be surprised if we are either at a top or nearing a top in the stock market. Now is not the time to take on risk chasing the markets. As a result of the changing conditions of rising inflation and slowing, we have made some changes to the portfolio. We are still maintaining our high dividend positions in REITs, and Utilities plus we are still holding a position in precious metals. Due to inflation increasing we have shortened the duration of our bond exposure. With inflation increasing we have probably seen the lows in long-term interest rates for a while, so we are now invested in short-term U.S. Treasuries and TIPs which are inflation protected U.S. bonds whose interest rates rises with inflation. Continuing on the rising inflation theme, we have taken a new position in Energy and Canada. Energy has been down for quite a while, but is now rallying off its lows. The position in Canada is also inflation themed due to the large energy exposure in Canada. The last change we made was taking a small position in Cocoa. The Cocoa market is rising due to disease in the Cocoa trees in Africa where we get most of our Cocoa. It doesn’t appear that there is going to be a decline in the demand for chocolate in the future, especially during the Holiday Season. The one thing I consider most in portfolio designs is not to take risk when the economy is declining. I do not under any circumstances want to ruin anyone’s retirement. There will be a time when the economy starts to expand. Then we will consider growth investing in the stock market like we did in 2017 and the first three quarters of 2018. Lisa’s Thoughts Required Minimum Distributions What are required minimum distributions (RMDs)? Required minimum distributions, often referred to as RMDs or minimum required distributions, are amounts that the federal government requires you to withdraw annually from traditional IRAs and employer-sponsored retirement plans after you reach age 70½ (or, in some cases, after you retire). You can always withdraw more than the minimum amount from your IRA or plan in any year, but if you withdraw less than the required minimum, you will be subject to a federal penalty. The RMD rules are designed to spread out the distribution of your entire interest in an IRA or plan account over your lifetime. The purpose of the RMD rules is to ensure that people don’t just accumulate retirement accounts, defer taxation, and leave these retirement funds as an inheritance. Instead, required minimum distributions generally have the effect of producing taxable income during your lifetime. Which retirement savings vehicles are subject to the RMD rules? In addition to traditional IRAs, simplified employee pension (SEP) IRAs and SIMPLE IRAs are subject to the RMD rules. Roth IRAs, however, are not subject to these rules while you are alive. Although you are not required to take any distributions from your Roth IRAs during your lifetime, your beneficiary will generally be required to take distributions from the Roth IRA after your death. Employer-sponsored retirement plans that are subject to the RMD rules include qualified pension plans, qualified stock bonus plans, qualified profit-sharing plans, including 401(k) plans. Section 457(b) plans and Section 403(b) plans are also subject to these rules. If you are uncertain whether the RMD rules apply to your employer-sponsored plan, you should consult your plan administrator or a tax professional. When must RMDs be taken? Your first required distribution from an IRA or retirement plan is for the year you reach age 70½. However, you have some flexibility as to when you actually have to take this first-year distribution. You can take it during the year you reach age 70½, or you can delay it until April 1 of the following year. Since this first distribution generally must be taken no later than April 1 following the year you reach age 70½, this April 1 date is known as your required beginning date. Required distributions for subsequent years must be taken no later than December 31 of each calendar year until you die or your balance is reduced to zero. This means that if you opt to delay your first distribution until April 1 of the following year, you will be required to take two distributions during that year — your first year’s required distribution and your second year’s required distribution. Example(s): You have a traditional IRA. Your 70th birthday was December 2, 2018, so you will reach age 70½ in 2019. You can take your first RMD during 2019, or you can delay it until April 1, 2020. If you choose to delay your first distribution until 2020, you will have to take two required distributions during
What in the World is Going On?
Quote of the Week “Always go to other people’s funerals, otherwise they won’t come to yours.” – Yogi Berra Technical Corner U.S. stocks reached another record high, rising for the sixth straight week, the longest streak in two years. While trade negotiations remain fluid, the prospect of a limited trade deal between the U.S. and China has been the key driver of the market rally over the past month. Global economic data remains mixed, with softer October retail sales and industrial production in China, but firmer than expected eurozone GDP decline that is starting to slow in its descent. As I have said before, it would surprise me if there will be a limited trade deal with China. As I read the issues, the hang-up still is the issue of China requiring U.S. companies doing business in China to share their technology with China. Plus, China still wants to steal our technology, subsidize Chinese companies to compete against our companies, and at any time manipulate their currency. U.S. stock market valuations are stretched, and economic indicators are still going in the wrong direction. Hedgeye, the company we use to allocate your portfolios, is now projecting 0.31% growth in the GDP for the fourth quarter, down substantially from the third quarter. Larry’s Thoughts What in the World Is Going On? The yield curve inverted recently. The definition of an inverted yield curve reflects a scenario in which short term debt instruments have higher yields than long term instruments. Typically, long term bonds have higher yields than short term bonds. An inverted yield curve is often seen as an indicator of an impending recession. In real terms, the interest rate on the 2-year U.S. Treasury note has exceeded the interest on the 10-year U.S. Treasury bond. The inverted yield curve has preceded six out of the last six recessions. The lead time from when the yield curve inverts and a recession starts is between nine to 22 months. Certainly, this indicator is a warning of falling growth. But there are some other fundamental leading indicators that are also meaningful. The following are some indicators that I find pertinent. The financial and retail sectors started underperforming the S&P 500 before the 2007 market top, and they are doing it again. Financials peaked in February 2018 and have largely underperformed ever since. The retail sector peaked in July 2018 and has underperformed even more so since. Retail Sales Control Group is down again in October by 0.40%. Amazon has underperformed the S&P 500 since June 2018 and is down 5.7% over the last six months. RV sales peaked in 2017 and have accelerated down 20% year over year into 2019. RV sales also led the October 2007 top and January 2008 recession by almost two years, which should put the recession starting in 2020. The Consumer Discretionary sector has also been underperforming the Consumer Staples sector since June 2018, meaning consumers are increasingly buying what they need, not what they want. Consumer confidence has continued to rise since 2014, while GDP growth peaked and has been steadily declining. Those two have rarely diverged that long. Yet, consumer sentiment from the Michigan Survey has dropped from over 100 to 95 in the last few months. Elsewhere, there are other reports of high-end consumer spending falling, including real estate in the hottest areas from London to Manhattan to San Francisco. High end auto purchases are getting record discounts. There are many other indicators such as Industrial Production, Manufacturing Production, Corporate Earnings, on and on that are falling. Obviously, no one can predict the future, but the indicators are trending down while the stock market is going up. As an old friend told me once, “what can’t go on forever, won’t.” Please Note: There will not be an edition of Your Money / Our Thoughts next week. We wish you and yours a very pleasant Thanksgiving.
Are You Curious?
Quote of the Week “What do you plan to do with the rest of your wild and precious life? It is never a waste spending time with someone you love.” – Unknown Technical Corner Stocks extended their recent gains, finishing higher for the fifth straight week. Treasury yields climbed to their highest level in three months. This rise in yields has hurt our portfolios since our great month in August, where yields hit their low. Remember yields often times trend higher when the stock market is trending higher. I will say that a portfolio manager we use and I respect says that yields should drop substantially next year which would be good for the way we are positioned. The make up of our portfolios is mostly bonds, so we have been giving back some of the August gains. When yields decline, bond prices rise, and when yields increase bond prices decline. We have moved from Quadrant 4 to Quadrant 3 for the economy recently. Quadrant 4 is when growth is slowing and inflation is declining. This is the worst quadrant for the stock market and the best for bonds. Quadrant 3 is growth declining and inflation increasing or in other words, Stagflation. History has shown that the stock market usually tops during Quadrant 3. We have gotten a buy signal on the Energy sector due to increasing inflation, so we will be lightening up somewhat on bonds and adding Energy this week to the portfolios. Hedgeye, our main source of investment information, is predicting a 1% growth rate for the GDP in the fourth quarter of this year, which is down from 1.9% growth for the third quarter of this year. The prediction is that we will remain in Quadrant 3 for the final quarter of this year and the first quarter in 2020. Then according to their data driven algorithms we will slip back into Quadrant 4 in the second quarter of 2020 and possibly move to a negative GDP. A lot can happen between now and then, but we are remaining conservative as stock market valuations are stretched to the upside. I don’t want to chase the stock market and put your assets at risk of a sell-off. There are just too many things that could go wrong over the next year or so. When we get a green light that the economy is starting to bottom and expand, we will move back into the stock market. Larry’s Thoughts Recently I read an article in the Arizona Daily Star by Bill Nordbrock, who is the vice president of community relations or SCORE Southern Arizona, a nonprofit that offers free small business counseling and mentoring by appointment. I have always felt that successful people have a strong sense of curiosity. I hope you enjoy his opinions. I think he is “right on” with his thoughts. The following appeared in the October 28, 2019 edition of the Arizona Daily Star as the Biz Tip of the week. BY SPECIAL TO THE ARIZONA DAILY STAR Most children are inquisitive and they ask a lot of questions. For some reason, as people mature they begin to accept things. They neglect the sense of wonder they once had. Maintaining a sense of curiosity as an adult can be beneficial in many ways. The most brilliant minds in history had one thing in common. They were curious people with an insatiable appetite to know more. Certainly the quest for knowledge will make you smarter. In addition, curious people are always thinking and their minds are active. The more you use your brain, the stronger it becomes. Over time, curious people tend to be better problem solvers. They see solutions that most people do not. Curious people do not accept how things appear on the surface. They are always looking for better ways. Sometimes this quest for improvement leads to improved productivity. Sometimes it exposes amazing new opportunities and innovations. Curious people tend to be better listeners, too. They have a genuine interest in learning from the people around them. This interest is noticeable and it is appreciated. They also ask interesting questions, which spark engaging discussions. As a result, curious people tend to have stronger relationships. What physiological effects does curiosity have on the human body? Several studies have shown small amounts of dopamine are released in the brain when curios people solve a problem or discover something new. Dopamine has been shown to reduce the risk of Alzheimer’s, Parkinson’s and depression. Healthy levels of dopamine are vital for concentration, motivation, productivity and confidence. As a result, curious people tend to be happier and healthier. How do you increase your curiosity level? Become interested in people around you. Ask questions, listen and learn from them. Make a conscious effort to explore things you are not interested in. Find something you take for granted and ask yourself ‘why?’
When a Loved One Dies
Quote of the Week “If you want to grow old as a pilot, you’ve got to knowwhen to push it and when to back off.” – Chuck Yeager Technical Corner U.S. stocks climbed to fresh record highs after the October jobs report showed that the economy added more jobs than expected despite the negative impact from the GM worker strike and the loss of temporary U.S. Census jobs. On the surface, this report tends to look good. But if you look under the hood, most of the jobs created were in the service sector and especially in the hospitality area, which are generally lower paying jobs. Manufacturing jobs that are higher paying continued to decline. The Federal Reserve cut interest rates for the third time this year and signaled a pause in lowering rates to assess economic conditions. While economic growth has slowed, as the third quarter GDP estimate showed last week (from 2.0% to 1%), the forward looking GDP growth rate as estimated from the software we use is growth slowing to 1% growth in the fourth quarter. This is not good. We will know more in January of next year. Our software has the economy moving into a period of stagflation in this quarter. This is signaled by growth continuing to slow and inflation increasing. This is a time to be cautious. Because inflation is increasing, we will be taking a position in energy soon. We will maintain our other positions as they tend to do well in this type of environment. As the jobs report hinted that the economy is expanding, the economic picture was not all rosy. In fact, consumers looked like the only highlight, with business investments and exports subtracting from third quarter growth. In contrast to consumers, business sentiment has been notably downbeat, reflecting weakness in manufacturing. Also released last week was the IHS Purchasing Managers’ index, a measure of sentiment in the manufacturing sector. It was softer than expected and continued to show signs of contraction in goods production. We see manufacturing as a key pocket of weakness with the tariffs being the primary cause. Just think about it; if you were a manufacturer, would you be planning on expanding production with the uncertainty of what Mr. Trump will do next? The “China Deal” isn’t going to solve the underlying problems of China stealing our technology or China hacking our corporations. All it will represent is China buying more soybeans and pork from U.S. farmers. The damage has already been done to world commerce. Tom’s Thoughts Death of a Family Member Checklist This is not one of the cheeriest of subjects. Realistically, however, it is one that will confront all of us at some time. Accordingly, the following checklist (prepared by Broadridge Investor Communications Solutions, Inc.) may be helpful in attending to those matters that must be addressed when the time arises. Some of the following tasks may have to be completed by the estate’s executor. Initial tasks Within 3 to 9 months after death Within 9 to 12 months after death If your loved one was a veteran, you may be eligible for burial and memorial benefits. Call 1-800-827-1000 to find the nearest VA regional office. Duplicate copies of marriage and birth certificates are available at the county clerk’s office where the marriage and births occurred. Veterans and the next of kin of deceased veterans can submit an online request for separation documents and other service personnel records via eVetRecs, a service available through the National Archives at archives.gov. If there is no one authorized to open your loved one’s safe-deposit box, petition the probate court for an order to open. Do not be hasty when settling your loved one’s estate. Important decisions need to be made regarding distributions, which must be made in compliance with the will and applicable laws. Seek an experienced estate planning attorney for advice. If your family member didn’t already make final arrangements or leave final instructions, go to www.funerals.org for some helpful information about funerals, burials, and memorial services. How Lof Advisors can help Many of the tasks on this checklist involve accessing important documents. Lof Advisors has implemented an electronic document vault service that is complimentary to clients and their families. The service allows us to securely store important client documents and to retrieve them when needed. To find out more give us a call at 520-881-2523.
HSAs Underappreciated Value
Quote of the Week “Love what you do. Get good at it. Competence is a rare commodity in this day and age.” – Jon Stewart, Comedian/TV Show Host Technical Corner U.S. stocks rose for the third straight week, closing near record highs. Earnings continued to drive market action with third-quarter results so far coming in better than feared. I do want to point out that tech earnings are coming in a negative 31% over twelve months prior. We shall see what happens after all the earnings are in. Reports that the U. S. and China are close to finalizing sections of the trade deal also boosted investor sentiment as the trade rhetoric has softened. I will say again, “show me the money.” I think the “boosted sentiment” is more hope than reality. We shall see. Interest rates trending up slightly last week, which caused bonds to drop somewhat in value. Larry’s Thoughts The Underappreciated Value of Health Savings Accounts. When we meet with new clients, one of the questions we always ask is: Do you have the opportunity to invest in a Health Savings Account? These accounts are an exceptional value to clients’ long-term retirement planning if utilized properly. Not all of the best tax breaks require a deep dive into the federal tax code by a sophisticated and pricey tax attorney. One of the simplest is often overlooked: the health savings account, known as an HSA. These accounts, around since 2003, offer three tax breaks wrapped up into one, but their value is widely underestimated by even wealthy families. The HSA is a powerful tool to save for health care needs; with careful accounting, even wealthy folks can leave HSA assets untouched for years, growing tax-deferred. Later, they can be used either for health care or other costs in retirement. Taxpayers are eligible to open an HSA if their health insurance policy has a high deductible; a deductible must be at least $1,350 for a single policy and $2,700 for a family policy. These accounts work much like 401(k)s or IRAs to accumulate assets. Employees can make contributions to an HSA with pretax dollars. For those who invest in an HSA independently of an employer, the contributions are tax-deductible even for those who claim the standard deduction and don’t itemize deductions. Assets grow tax-deferred in the underlying investments. Contribution limits usually rise each year to adjust for inflation. This year the maximum investments are $3,500 for singles and $7.000 for couples. Those over age 55 can contribute an extra annual $1,000. Contributions for the calendar year can be made until the tax filing deadline of the following year. So, a 2019 contribution can be made any time until April 15, 2020. Assets can be taken out tax-free as long as they are used to cover health care expenses. This is a wonderful tool for paying medical expenses on a tax-free basis during your lifetime. Assuming the $7,000 maximum contribution rise $100 annually for inflation and is invested for a 5% average annual return, a 40-year-old couple getting started with an HSA now would have $428,000 by age 65. That’s about $100,000 more than if they had put the money into a taxable account, assuming the couple is in the 35% tax bracket, plus the contribution is tax-deductible which saves even more. Just about all states mimic the federal tax code when it comes to HSA’s. Arizona does mimic the federal tax code. The exceptions are California and New Jersey. When the account holder dies, the HSA can be passed on to the surviving spouse and retain its tax-free status for withdrawals for health care expenses. If inherited by a non-spouse beneficiary, assets in the account are subject to income taxes, but the growth is still tax-deferred. Money taken out prior to age 65 and used for anything but health care expenses are subjected not only to income taxes but a 20% penalty. But after age 65, these accounts can be used more broadly. At this stage, there is no penalty for using assets for expenses besides health care, but they will be counted as income and subject to income taxes, just as with a 401(k) or an IRA. To maximize these accounts, it is best to let them grow untouched and pay for health care expenses with out-of-pocket funds. Years later, the tax-deferred account can be used to reimburse these expenses in retirement tax-free. The caveat: It is important to keep excellent records over the years. Compile receipts for healthcare expenses, and bank or credit card statements showing how non-HSA funds were used to cover expenses. You can use those expenses to reimburse yourself for expenses incurred in prior years. The expenses don’t have to be incurred in the same year as they are withdrawn, just sometime after the account was opened. Cumbersome as that may seem, those records will come in handy in the future for drawing on a potentially six-figure account, tax-free.
Employer Plans Can Offer the Foundation of a Comfortable Retirement
Quote of the Week “Never attribute to malice that which is adequately explained by stupidity.” – Robert J. Hanlon Technical Corner U.S. stocks ended modestly higher as better than expected earnings and optimism around Brexit were offset by ongoing global growth concerns. The third quarter U.S. earnings season kicked off last week with major banks reporting solid earnings except for Goldman Sachs, against depressed investor expectations. Also helping investor sentiment was the news that the EU and UK agreed on a Brexit deal after days of negotiations. However, the deal was not approved by Parliament over the weekend. This sounds just like the U.S., except we don’t yell and jeer during our congressional sessions. On the negative side of the ledger, U.S. retail sales disappointed, and the International Monetary Fund (IMF) once again lowered its projections for global growth this year from 3.5% to 3%. Healthy household spending has been the linchpin of economic growth over the 10-year expansion, contributing to 70% of GDP. Last week new data showed that a key indicator of consumer health, retail sales, slumped for the first time in seven months, dropping 0.3% in September. It prompted market concerns that the consumers’ resilience to tariffs and slowing growth was starting to falter. If a new round of tariffs announced by the White House goes into effect later this year, the consumer may be more negatively affected by trade concerns or the prospect of rising prices on consumer goods. We are still allocated to a safe investment profile just in case the economy falls into recession. I don’t see any catalyst to cause the economy to suddenly reverse its course to the upside. Remember, we allocate with the trend, not against the trend. Stephanie’s Thoughts Last week Larry provided information on 401 (k) plans. The following article offers more food for thought. Employer Plans Can Offer the Foundation of a Comfortable Retirement October 20 to 26, 2019, is National Retirement Security Week, a nationwide effort to raise awareness about the importance of saving for retirement. Established by Congress in 2006, National Retirement Security Week is designed to elevate public knowledge about retirement savings and to encourage employees to save and participate in their employer-sponsored retirement plans. What better time to review the benefits of your retirement plan and determine if you’re making the most of them? Tax advantages Whether you have a 401(k), 403(b), or governmental 457(b) plan, contributing helps benefit your tax situation. If you make traditional (i.e., non-Roth) contributions to your plan, they are deducted from your pay before federal (and most state) income taxes are calculated. This reduces the amount of income tax you pay now. Moreover, you don’t pay income taxes on those contributions — or any returns you earn on them — until you withdraw money from the plan, ideally when you are retired and possibly in a lower tax bracket. If your plan offers a Roth account and you take advantage of this opportunity, you don’t receive an immediate tax benefit for participation, but you could receive a significant tax advantage down the road. That’s because qualified withdrawals from a Roth account are tax-free at the federal and, in many cases, state level. A withdrawal from a Roth account is qualified if it’s made after a five-year holding period (which starts on January 1 of the year you make your first contribution) and one of the following conditions applies: So should you contribute to a traditional account, a Roth account, or both? The answer depends on your personal situation. If you think you’ll be in a similar or higher tax bracket when you retire, you may find a Roth account appealing for its tax-free retirement income advantages. On the other hand, if you think you’ll be in a lower tax bracket in retirement, then a traditional account may be more appropriate to help reduce your tax bill now. Of course, you could also divide your contributions between the two types of accounts to strive for both benefits, provided you don’t exceed the annual maximum contribution amount allowed ($19,000 in 2019; $25,000 if you’re age 50 or older).1 Keep in mind that employer plans were created specifically to help Americans save for retirement. For that reason, rules were also established to discourage participants from taking money out early. With certain exceptions, withdrawals from traditional (non-Roth) accounts and nonqualified withdrawals from Roth accounts prior to reaching age 59½ are subject to regular income taxes and a 10% penalty tax. Employer contributions Employers are not required to contribute to employee accounts, but many do through matching or discretionary contributions. With a matching contribution, your employer can match your traditional pre-tax contributions, your after-tax Roth contributions, or both (however, all matching contributions will go into your traditional, tax-deferred account). Most match programs are based on a certain formula — for example, 50% of the first 6% of your salary that you contribute. If your plan offers a matching program, be sure to contribute enough to take maximum advantage of it. Neglecting to contribute the required amount is essentially turning down free money. Your employer may also offer discretionary contributions, which often take the form of profit-sharing contributions. These amounts generally go into your traditional account once per year, and typically vary from year to year. Employer contributions are often subject to a vesting schedule. That means you earn the right to those contributions (and the earnings on them) over a period of time. Keep in mind that you are always fully vested in your own contributions and the earnings on them. Review your strategy now While most people understand that their employer-sponsored retirement plan is a key to preparing adequately for the day when the regular paychecks stop, they may not take the time to review their plan’s benefits and ensure they’re taking maximum advantage of them. National Retirement Security Week provides a perfect opportunity to review your plan materials, understand its features, and determine if any changes may be warranted. 1Special catch-up rules may apply to certain participants in
Attention All Travelers!
The main events that captured investors’ attention were the spike in oil prices and the Federal Reserve…
Benefit of Dogs
The main events that captured investors’ attention were the spike in oil prices and the Federal Reserve…
Financial Records
The main events that captured investors’ attention were the spike in oil prices and the Federal Reserve…
China and More
Last week the markets were up again primarily due to supportive global central bank policies…
Data Breaches: The Baggage That Comes With Our Digital World
Quote of the Week “Expectations are a setup for disappointment.” -Sandy Vilas, our business coach. Technical Corner Stocks finished higher last week for a second week in a row. News that the U.S. and China agreed to hold trade talks in Washington in October was the main catalyst for the rally. Economic data was mixed as the manufacturing activity contracted, falling to a three year low, while non-manufacturing activity expanded and accelerated versus the pace of activity in July. August’s jobs report showed that hiring slowed, but to a level strong enough to hold the unemployment steady at a near 50-year low with solid wage growth. The big test for the market will come in October when the corporate earnings will start to be reported. I anticipate that corporate earnings will be disappointing to the extent that the market could potentially experience a “black hole”. With so many investors owning stock ETFs such as the S&P 500 etc., which they think are safe, but if they start falling, they can sell with the click of a mouse, plus the potential of the trading algorithms in a downward market kicking in, we could be in for a volatile ride. September to remember? Over the past 30 years, September has had the third worst average monthly return behind August and June. September is also, on average, the second most volatile month of the year. I think this September will live up to its reputation in terms of volatility given the delicate and fluid trade situation between the U.S. and China, along with the upcoming Fed rate meeting, where consensus expectations have set a high bar for lower rates. Tom’s Thoughts Data Breach de Jour What will be the next data breach that on the newspaper front pages? Who knows. Following is an article that will help you deal with it. Enjoy!! Data Breaches: Tips for Protecting Your Identity and Your Money Large-scale data breaches are in the news again, but that’s hardly surprising. Breaches have become more frequent — a byproduct of living in an increasingly digital world. During the first six months of 2019, the Identity Theft Resource Center (ITRC), a nonprofit organization whose mission includes broadening public awareness of data breaches and identity theft, had already tracked 713 data breaches, with more than 39 million records exposed.1 Once a breach has occurred, the “aftershocks” can last for years as cyberthieves exploit stolen information. Here are some ways to help protect yourself. Get the facts Most states have enacted legislation requiring notification of data breaches involving personal information. However, requirements vary. If you are notified that your personal information has been compromised as the result of a data breach, read through the notification carefully. Make sure you understand what information was exposed or stolen. Basic information like your name or address being exposed is troubling enough, but extremely sensitive data such as financial account numbers and Social Security numbers is significantly more concerning. Also, understand what the company is doing to deal with the issue and how you can take advantage of any assistance being offered (for example, free credit monitoring). Even if you don’t receive a notification that your data has been compromised, take precautions. Be vigilant Although you can’t stop wide-scale data breaches, you can take steps to protect yourself. If there’s even a chance that some of your personal information may have been exposed, make these precautions a priority. Fraud alerts and credit freezes If you suspect that you’re a victim of identity theft or fraud, consider a fraud alert or credit freeze. A fraud alert requires creditors to take extra steps to verify your identity before extending any existing credit or issuing new credit in your name. To request a fraud alert, you have to contact one of the three major credit reporting bureaus. Once you have placed a fraud alert on your credit report with one of the bureaus, your fraud alert request will be passed along to the two remaining bureaus. A credit freeze prevents new credit and accounts from being opened in your name. Once you obtain a credit freeze, creditors won’t be allowed to access your credit report and therefore cannot offer new credit. This helps prevent identity thieves from applying for credit or opening fraudulent accounts in your name. To place a credit freeze on your credit report, you must contact each credit reporting bureau separately. Keep in mind that a credit freeze is permanent and stays on your credit report until you unfreeze it. If you want to apply for credit with a new financial institution in the future, open a new bank account, apply for a job, or rent an apartment, you’ll need to “unlock” or “thaw” the credit freeze with all three credit reporting bureaus. Each credit bureau has its own authentication process for unlocking the freeze. Recovery plans The Federal Trade Commission has an online tool that enables you to report identity theft and to actually generate a personal recovery plan. Once your personal recovery plan is prepared, you’ll be able to implement the plan using forms and letters that are created just for you. You’ll also be able to track your progress. For more information, visit identitytheft.gov.
What Is A Currency War?
A currency war refers to a situation where a number of nations seek to deliberately depreciate the value…
