Quote of the Week

“The best thing one can do when it’s raining is to let it rain.” – Henry Wadsworth Longfellow

Tech Corner

I don’t know if you have been following the war in Ukraine. If this issue and other global issues are important to you, I have found two excellent sources of unbiased information. First is a geopolitical strategist named Peter Zeihan. To find him, just Google his name. If you scroll down to the bottom of the website, you can subscribe to his “free” newsletter. Second, I have found another source of Putin/Ukraine and other global information at CaspianReport. Google it. You will find a treasure trove of informative videos. These two sites give you straight information.

Last week was a stunning week for the equity markets with all the major indexes up over +5%, with the Nasdaq topping out at +8.20%. This is not unusual for the equity markets to have an explosive rally in a Bear Market. The equity markets sold off yesterday (Monday) but rallied back some of the losses today (Tuesday).

Don’t be fooled by this Bear Market rally. The economy is definitely in a slow down mode. As I said before, we expect the Gross Domestic Product (GDP) to slow to zero in the first quarter of this year. It has to because the consumer is getting squeezed by high prices at the pump and the cost of rents.

Just think about it; most people can’t just decide to drive less. Their jobs or businesses require them to be on the road. This higher cost for fuel will filter down into less money to spend on what drives our economy, consumer spending. Consumer spending makes up about 70% of our economy. The retail sales number for February just came out, and sales at U.S. retailers slowed sharply in February, rising a scant +0.3% which was a significant drop from January’s +4.9% rise. Add to that, February sales benefited from a +5.3% month-over-month rise in gasoline station sales.

We are currently positioned Gold, Silver, Utilities, Gold Miners, and our largest position is in U.S. Treasury Bonds. We now see a high correlation between equity prices and long-term interest rates. Thus, our bond positions did not fare well last week. Remember, bond prices go down if interest rates go up, and vice versa. If Quad IV plays out as expected and equity prices fall, our bond positions will do well as interest rates will fall due to the positive correlation. If the data changes, we will change, but I don’t see how the data will change going forward for the next few months. I expect the economy to get worse.

Larry’s Thoughts

There’s Still Time to Contribute to an IRA for 2021

Even though tax filing season is well under way, there’s still time to make a regular IRA contribution for 2021. You have until your tax return due date (not including extensions) to contribute up to $6,000 for 2021 ($7,000 if you were age 50 or older on  or before December 31, 2021). For most taxpayers, the contribution deadline for 2021 is Monday, April 18, 2022.

You can contribute to a traditional IRA, a Roth IRA, or both, as long as your total contributions don’t exceed the annual limit (or, if less, 100% of your earned income). You may also be able to contribute to an IRA for your spouse for 2021, even if your spouse didn’t have any 2021 income.

Traditional IRA

You can contribute to a traditional IRA for 2021 if you had taxable compensation.   However, if you or your spouse were covered by an employer-sponsored retirement plan in 2021, then your ability to deduct your contributions may be limited or eliminated, depending on your filing status and  modified adjusted gross income (MAGI). (See table below.) Even if you can’t make a deductible contribution to a  traditional IRA, you can always make a nondeductible (after-tax) contribution, regardless of your income level. However,  if you’re eligible to contribute to a Roth IRA, in most cases you’ll be better off making nondeductible contributions to a Roth, rather than making them to a traditional IRA.

2021 income phaseout ranges for determining deductibility of traditional IRA contributions:
1. Covered by an employer-sponsored plan and filing as: Your IRA deduction is reduced if your MAGI is between: Your IRA deduction is eliminated if your MAGI is:
Single/Head of household $66,000 and $76,000 $76,000 or more
Married filing jointly $105,000 and $125,000 $125,000 or more
Married filing separately $0 and $10,000 $10,000 or more
2. Not covered by an employer-sponsored retirement plan, but filing joint return with a spouse who is covered by a plan $198,000 and $208,000 $208,000 or more

Roth IRA

 You can contribute to a Roth IRA if your MAGI is within certain limits. For 2021, if you file your federal tax return as single or head of household, you can make a full Roth contribution if your income is $125,000 or less. Your maximum contribution is phased out if your income is between $125,000 and $140,000, and you can’t contribute at all if your income is $140,000 or more. Similarly, if you’re married and file a joint federal tax return, you can make a full Roth contribution if your income is $198,000 or less. Your contribution is phased out if your income is between $198,000 and $208,000, and you can’t contribute at all if your income is $208,000 or more. If you’re married filing separately, your contribution phases out with any income over $0, and you can’t contribute at all if your income is $10,000 or more.

2021 income phaseout ranges for determining eligibility to contribute to a Roth IRA:
Your ability to contribute to a Roth IRA is reduced if your MAGI is between: Your ability to contribute to a Roth IRA is eliminated if your MAGI is:
Single/Head of household $125,000 and $140,000 $140,000 or more
Married filing jointly $198,000 and $208,000 $208,000 or more
Married filing separately $0 and $10,000 $10,000 or more

Even if you can’t make an annual contribution to a Roth IRA because of the income limits, there’s an easy workaround. You can  make a nondeductible contribution to a traditional IRA and then immediately convert that traditional IRA to a Roth IRA. Keep in mind, however, that you’ll need to aggregate all traditional IRAs and SEP/SIMPLE IRAs you own — other than IRAs you’ve inherited — when you calculate the taxable portion of your conversion. (This is sometimes called a “back-door” Roth IRA.)

If you make a contribution  — no matter how small — to a Roth IRA for 2021 by your tax return due date and it is your first Roth IRA contribution, your five-year holding period for taking qualified tax-free distributions from all your Roth IRAs (other than inherited accounts) will start on January 1, 2021.

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These are Larry Lof’s opinions and not necessarily those of Cambridge, are for informational purposes only and should not be construed or acted upon as individualized investment advice. Past performance is not indicative of future results. Due to our compliance review process, delayed dissemination of this commentary occurs.

The S&P 500 index of stocks compiled by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. The Index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Indices mentioned are unmanaged and cannot be invested into directly.

Technical analysis represents an observation of past performance and trend, and past performance and trend are no guarantee of future performance, price, or trend. The price movements within capital markets cannot be guaranteed and always remain uncertain. The allocation discussed herein is not designed based on the individual needs of any one specific client or investor. In other words, it is not a customized strategy designed on the specific financial circumstances of the client. Please consult an advisor to discuss your individual situation before making any investments decision. Investing in securities involves risk of loss. Further, depending on the different types of investments, there may be varying degrees of risk including loss of original principal.

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