Preparing for retirement just got a little more financial wiggle room. In November, the Internal Revenue Service (IRS) announced new contribution limits for 2022.
Staying put for 2022 are traditional Individual Retirement Accounts (IRAs), with the limit remaining at $6,000. The catch-up contribution for traditional IRAs remains $1,000 as well. 1
For workplace retirement accounts (i.e. 401(k), 403(b), amongst others), the contribution limit rises $1,000 to $20,500. Catch-up contributions remain at $6,500. 1
Eligibility for Roth IRA contributions has increased, as well. These have bumped up to $129,000 to $144,000 for single filers and heads of households, and $204,000 to $214,000 for those filing jointly as married couples. 1
Another increase was for SIMPLE IRA Plans (SIMPLE is an acronym for Savings Incentive Match Plan for Employees), which increases from $13,500 to $14,000. 1
If these increases apply to your retirement strategy, give us a call today – we may be able to help make some adjustments to your contributions.
Contact us – Office or text line: 215-766-7002 Info@aewmria.com
Once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA) or Savings Incentive Match Plan for Employees IRA in most circumstances. Withdrawals from Traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
Once you reach age 72, you must begin taking required minimum distributions from your 401(k), 403(b), or other defined-contribution plans in most circumstances. Withdrawals from your 401(k) or other defined-contribution plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal can also be taken under certain other circumstances, such as the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.
This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Things you can do for your future as the year unfolds.
What financial, business, or life priorities do you need to address for the coming year? Now is an excellent time to think about the investing, saving, or budgeting methods you could employ toward specific objectives, from building your retirement fund to managing your taxes. You have plenty of choices. Here are a few ideas to consider:
Can you contribute more to your retirement plans this year? In 2022, the contribution limit for a Roth or traditional individual retirement account (IRA) is expected to remain at $6,000 ($7,000 for those making “catch-up” contributions). Your modified adjusted gross income (MAGI) may affect how much you can put into a Roth IRA. With a traditional IRA, you can contribute if you (or your spouse if filing jointly) have taxable compensation, but income limits are one factor in determining whether the contribution is tax-deductible.1
Keep in mind, this article is for informational purposes only and not a replacement for real-life advice. Also, tax rules are constantly changing, and there is no guarantee that the tax landscape will remain the same in years ahead.
Once you reach age 72, you must begin taking required minimum distributions from a traditional Individual Retirement Account in most circumstances. Withdrawals from Traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
To qualify for the tax-free and penalty-free withdrawal of earnings, Roth 401(k) distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal can also be taken under certain other circumstances, such as the owner’s death. Employer match is pretax and not distributed tax-free during retirement.
Make a charitable gift. You can claim the deduction on your tax return, provided you follow the Internal Review Service guidelines and itemize your deductions with Schedule A. The paper trail can be important here. If you give cash, you should consider documenting it. Some contributions can be demonstrated by a bank record, payroll deduction record, credit card statement, or written communication from the charity with the date and amount. Incidentally, the IRS does not equate a pledge with a donation. If you pledge $2,000 to a charity this year but only end up gifting $500, you can only deduct $500.2
Make certain to consult your tax, legal, or accounting professional before modifying your record-keeping approach or your strategy for making charitable gifts.
See if you can take a home office deduction for your small business. If you are a small-business owner, you may want to investigate this. You may be able to write off expenses linked to the portion of your home used to conduct your business. Using your home office as a business expense involves a complex set of tax rules and regulations. Before moving forward, consider working with a professional who is familiar with the tax rules as they relate to home-based businesses.3
Open an HSA. A Health Savings Account (HSA) works a bit like your workplace retirement account. There are also some HSA rules and limitations to consider. You are limited to a $3,650 contribution for 2022 if you are single; $7,300 if you have a spouse or family. Those limits jump by a $1,000 “catch-up” limit for each person in the household over age 55.4
If you spend your HSA funds for non-medical expenses before age 65, you may be required to pay ordinary income tax as well as a 20% penalty. After age 65, you may be required to pay ordinary income taxes on HSA funds used for nonmedical expenses. HSA contributions are exempt from federal income tax; however, they are not exempt from state taxes in certain states.
Pay attention to asset location. Tax-efficient asset location is one factor that can be considered when creating an investment strategy.
Review your withholding status. Should it be adjusted due to any of the following factors?
You tend to pay the federal or state government at the end of each year.
You tend to get a federal tax refund each year.
You recently married or divorced.
You have a new job, and your earnings have been adjusted.
Consider consulting your tax, human resources, or accounting professional before modifying your withholding status.
Did you get married in 2021? If so, it may be an excellent time to review the beneficiaries of your retirement accounts and other assets. The same goes for your insurance coverage. If you are preparing to have a new last name in 2022, you may want to get a new Social Security card. Additionally, retirement accounts may need to be revised or adjusted?
Are you coming home from active duty? If so, go ahead and check on the status of your credit and any tax and legal proceedings that might have been preempted by your orders.
Consider the tax impact of any upcoming transactions. Are you preparing to sell any real estate this year? Are you starting a business? Might any commissions or bonuses come your way in 2022? Do you anticipate selling an investment that is held outside of a tax-deferred account?
If you are retired and in your seventies, remember your RMDs. In other words, Required Minimum Distributions (RMDs) from retirement accounts. In most circumstances, once you reach age 72, you must begin taking RMDs from most types of these accounts.5
Vow to focus on your overall health and practice sound financial habits in 2022. And don’t be afraid to ask for help from professionals who understand your individual situation.
Citations 1. thefinancebuff.com, August 11, 2021 2. irs.gov, January 22, 2021 3. nerdwallet.com, July 31, 2020 4. irs.gov, September 8, 2021 5. irs.gov, May 3, 2021
Traditional
Individual Retirement Accounts (IRA), which were created in 1974, are owned by
roughly 33.2 million U.S. households. Roth IRAs, however, were created as part
of the Taxpayer Relief Act in 1997, are owned by nearly 22.5 million
households.1
Both are IRAs.
And yet, each is quite different.
Know
the limits. Up to certain limits, traditional IRAs allow
individuals to make tax-deductible contributions into the account.
Distributions from traditional IRAs are taxed as ordinary income, and if taken
before age 59½, may be subject to a 10-percent federal income tax penalty.
Remember, under the SECURE Act, in most circumstances, once you reach age 72,
you must begin taking required minimum distributions from a Traditional
Individual Retirement Account (IRA). Additionally, you may continue to
contribute to a Traditional IRA past age 70½, under the SECURE Act, as long as
you meet the earned-income requirement.
Filing
single. For singles, the maximum tax-deductible
contribution starts shrinking once your modified adjusted gross income (MAGI)
reaches $65,000. Singles with adjusted incomes of $75,000 and above are not eligible
for a tax deduction.2
Filing
jointly. For those who are married and filing jointly,
things are a bit more complicated. If you or your spouse makes an IRA
contribution that is covered by a workplace retirement plan, the deduction
begins phasing out when your adjusted gross income is at $104,000, and it disappears
at $124,000. However, if you do not have a workplace plan, but your spouse does
(or vice versa), the 2020 limit starts at $196,000, and no tax deduction is
allowed once the contributor’s income reaches $206,000.
Also, within
certain limits, individuals can make contributions to a Roth IRA with after-tax
dollars. To qualify for a tax-free and penalty-free withdrawal of earnings,
Roth IRA distributions must meet a five-year holding requirement and occur
after age 59½.3
Income
impacts total contributions. Like a traditional
IRA, contributions to a Roth IRA are limited based on income. For 2019,
contributions to a Roth IRA are phased out between $193,000 and $203,000 for
married couples filing jointly and between $122,000 and $137,000 for single
filers.
Contribution
limits. In addition to distribution rules, there are
limits on how much can be contributed each year to either IRA. In fact, these
limits apply to any combination of IRAs; that is, workers cannot put more than
$6,000 per year into their Roth and traditional IRAs, combined. So, if a worker
contributed $3,500 in a given year into a traditional IRA, their contributions
to a Roth IRA would be limited to $2,500 during that same year.4
Catch-up
contributions. Individuals who reach age 50 or older by the end
of the tax year can qualify for “catch-up” contributions. The combined limit
for these is $7,000.5
Let’s chat. When it comes to picking an IRA, both traditional and Roth IRAs may play an important role in your retirement strategy. If you have any questions, let’s chat soon about how these products may be a good fit for your goals.
No need to come to the office – you can set an online initial consultation with us!
Citations 1 – irs.gov/retirement-plans/individual-retirement-arrangements-iras, [01/09/2020] 2 – irs.gov/retirement-plans/ira-deduction-limits, [12/20/2019] 3 – irs.gov/retirement-plans/are-you-covered-by-an-employers-retirement-plan [01/08/2020] 4 – irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits [02/07/2020] 5 – Internal Revenue Service, 2019. The Tax Cuts and Jobs Act of 2017 eliminated the ability to “undo” a Roth conversion.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
A retirement investment vehicle designed for small business.
Do you work for yourself? Then you may want to consider the solo 401(k), which marries a traditional employee retirement savings account to a small-business, profit-sharing plan. To have a solo 401(k), you must either be the lone worker at your business or its only full-time employee.1
Boost your retirement savings strategy. With a solo 401(k), you may be able to ramp up your retirement savings and manage your tax bill at the same time. Remember, distributions from 401(k) plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 72, you must begin taking distributions.
As an employee, you can defer up to $19,500 of your compensation into a solo 401(k) in 2020. Since catch-up contributions are allowed for the Solo 401(k), the yearly limit is $26,000 if you are 50 or older.2
As an employer, the maximum amount a self-employed individual can contribute to a solo 401(k) for 2020 is $57,000, if they are younger than age 50. Individuals 50 and older can add an extra $6,500 per year in “catch-up” contributions, bringing the total to $63,500. Whether you’re permitted to contribute the maximum, though, is based on a variety of factors, including your self-employment income.3
Are you married? If your spouse earns income from the business, then they can potentially make an employee contribution to the plan.4
You can “go Roth” with your solo 401(k). The annual employee contribution limits for a Roth solo 401(k) are the same as those for a traditional 401(k): $19,500 for individuals under 50, and $26,000 for individuals 50 or older. Only employee contributions can be Roth contributions, however.
The administration duties for a solo 401(k) plan may be relatively light. There are no compliance testing requirements. You need to file an annual Form 5500 with the I.R.S. when the assets in your solo 401(k) exceed $250,000.5 Solo 401(k)s give the small-business owner increased retirement savings potential. These plans are relatively easy to create, and you are free to have one whether your business is a sole proprietorship, S corporation, C corporation, or limited liability company (LLC).
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Should You Care What the Financial Markets Do Each Day?
Focusing on Your Strategy During Turbulent Times.
Investors are people, and people are often impatient. No one likes to wait in line or wait longer than they have to for something, especially today when so much is just a click or two away.
This impatience also manifests itself in the financial markets. When stocks slip, for example, some investors grow uneasy. Their impulse is to sell, get out, and get back in later. If they give in to that impulse, they may effectively pay a price.
Across the 30 years ended December 31, 2018, the Standard & Poor’s 500 posted averaged annual return of 10.0%. During the same period, the average mutual fund stock investor realized a yearly return of just 4.1%. Why the difference? It could partly stem from impatience.1
It’s important to remember that past performance does not guarantee future results. The return and principal value of stock prices will fluctuate over time as market conditions change. And shares, when sold, may be worth more or less than their original cost.
Investors can worry too much. In the long run, an investor who glances at a portfolio once per quarter may end up making more progress toward his or her goals than one who anxiously pores over financial websites each day.
Too many investors make quick, emotional moves when the market dips. Logic may go out the window when this happens, in addition to perspective.
Some long-term investors keep focus. Warren Buffett does. He has famously said that an investor should, “buy into a company because you want to own it, not because you want the stock to go up.2
Buffett often tries to invest in companies whose shares may perform well in both up and down markets. He also has famously stated, “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”2
In contrast with Buffett’s patient long-term approach, investors who care too much about day-to-day market behavior may practice market timing, which is as much hope as strategy.
To make market timing work,an investor has to be right twice. The goal is to sell high, take profits, and buy back in just as the market begins to rally off a bottom. But there is volatility in financial markets and the sale at any point could result in a gain or loss.
Even Wall Street professionals have a hard time predicting market tops and bottoms. Retail investors are notorious for buying high and selling low.
Investors who alter their strategy in response to the headlines may end up changing it again after further headlines. While they may expect to be on top of things by doing this, their returns may suffer from their emotional and impatient responses.
Nobel Laureate economist Gene Fama once commented: “Your money is like soap. The more you handle it, the less you’ll have.” Wisdom that may benefit your strategy, especially during periods of market volatililty.3
How have your investments performed through these turbulent times?
Questions? Please do not hesitate to contact us: info@aeinvestmentsgroup.com, (215) 766-7002
Mutual funds are sold only by prospectus. Please consider the charges, risks, expenses and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Why do so many people choose them over traditional IRAs?
The
IRA that changed the whole retirement savings perspective.
Since the Roth IRA was introduced in 1998, its popularity has soared. It has
become a fixture in many retirement planning strategies because it offers
savers so many potential advantages.
The key argument
for going Roth can be summed up in a sentence: Paying taxes on your retirement
contributions today is better than paying taxes on your retirement savings
tomorrow.1
Think about it.
Would you rather pay taxes today or wait 10 years and see where the tax rates
end up? With that in question in mind, here are some of the potential benefits
associated with opening and contributing to a Roth IRA.
What
you see is what you get. Roth IRA contributions are made with
after-tax dollars, and any potential earnings on investments within a Roth IRA
are not subject to income tax or included in the account owner’s income.
Instead, they accumulate on a tax-deferred basis and are tax-free when
withdrawn from the Roth if the distribution is qualified.2
You
can arrange tax-free retirement income. Roth IRA earnings can
be withdrawn tax-free as long as you are 59½ or older. The IRS calls such
tax-free withdrawals qualified distributions.3
Withdrawals
don’t affect taxation of Social Security benefits.
If your provisional income is between $25,000 and $34,000 — or $32,000 and
$44,000 for joint filers — then your Social Security benefits may be taxed if
you take withdrawals before your full retirement age. Luckily, a qualified
distribution from a Roth IRA doesn’t count as taxable income, which may be a
means of avoiding taxation on your social security benefit.4,5
You
have until your tax-filing deadline to make a Roth IRA contribution for a given
tax year. For example, IRA contributions for the 2019 tax
year may be made up until April 15, 2020. While April 15 is the annual
deadline, many IRA owners who make lump sum contributions for a given tax year
make them as soon as that year begins, not in the following year. Making your
Roth IRA contributions earlier gives the funds in the account more time to grow.
Remember, though that Roth IRA contributions cannot be made by taxpayers with
high incomes. In 2019, the income phaseout limit was $137,000 for single filers
and $203,000 for married couples who file jointly.6
Who
can open a Roth IRA? Anyone with earned income (and that
includes a minor).
How much can you contribute to a Roth IRA annually? The most you can contribute to all of your traditional and Roth IRAs is the smaller of $6,000 or $7,000 for 2019 and 2020 if you’re age 50 or older by the end of the year. To sweeten the deal even further, you can keep making annual Roth IRA contributions all your life.7
All this may have you thinking about opening up a Roth IRA. A chat with the financial professional you know and trust may help you evaluate whether a Roth IRA is right for you, given your particular tax situation and retirement horizon.
Contact us today to see if converting to a Roth IRA is right for you. info@aeinvestmentsgroup.com, (215) 766-7002
Citations 1 – Roth IRA contributions cannot be made by taxpayers with high incomes. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal also can be taken under certain other circumstances, such as a result of the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals. 2 – https://www.irs.gov/retirement-plans/traditional-and-roth-iras [1/28/20] 3 – https://www.irs.gov/retirement-plans/traditional-and-roth-iras [1/28/20] 4 – https://www.kiplinger.com/slideshow/retirement/T055-S001-how-retirement-income-is-taxed/index.html [1/27/20] 5 – https://www.irs.gov/retirement-plans/traditional-and-roth-iras [1/28/20] 6 – https://www.morningstar.com/articles/852560/20-ira-mistakes-to-avoid [2/10/20] 7 – https://www.irs.gov/retirement-plans/traditional-and-roth-iras [1/28/20]
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Socially responsible investment strategies and you.
SRI (Socially
Responsible Investing), Impact Investing, and ESG (Environmental, Social, and
Governance) Investing belong to a growing category of investment choices that
use traditional investing practices to responsibly impact society.
In the past, these investment strategies were viewed as too restrictive for most investors. But over time, improved evaluative data and competitive returns have pushed these strategies into the mainstream. Even though SRI, ESG investing, and impact investing share many similarities, they differ in some fundamental ways. Read on to learn more.1
ESG
Investing assesses how specific criteria of an investment,
such as its environmental, social, and governance practices, may impact its
performance. These factors are used in an evaluative capacity. In the United
States alone, there are more than 350 ESG mutual funds and ETFs available.2,3,4
SRI
(Socially Responsible Investing) uses criteria from ESG
investing to actively eliminate or select investments according to ethical
guidelines. SRI investors may use ESG factors to apply negative or positive
screens when choosing how to build their portfolio. For example, an investor
may wish to allocate a portion of their portfolio to companies that contribute
to charitable causes. In the U.S., more than 12 trillion dollars are currently
invested according to SRI strategies.4,5
Impact
Investing or thematic investing differs from the two above.
The main goal of impact investing is to secure a positive outcome regardless of
profit. For example, an impact investor may use ESG criteria to find and invest
in a company dedicated to the development of a cure for cancer despite whether
success is guaranteed.6
The biggest take away? There have never been more choices for keeping your investments aligned with your personal beliefs. But no matter how you decide to structure your investments, don’t forget it’s always a smart move to speak with your financial professional before making a major change.
Citations 1 – https://investor.vanguard.com/investing/esg/ [01/01/2020] 2 – Investing in mutual funds is subject to risk and potential loss of principal. There is no assurance or certainty that any investment or strategy will be successful in meeting its objectives. Investors should consider the investment objectives, risks, charges, and expenses of the fund carefully before investing. The prospectus contains this and other information about the funds. Contact the fund company directly or your financial professional to obtain a prospectus, which should be read carefully before investing or sending money. 3 – Exchange Traded Funds (ETFs) are subject to market and the risks of their underlying securities. Some ETFs may involve international risks, which include differences in financial reporting standards, currency exchange rates, political risk unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility. ETFs that focus on a small universe of securities may be subject to more market volatility as well as the specific risks that accompany the sector, region or group. An ETFs trading price may be at a premium or discount to the net asset value of the underlying securities. 4 – https://www.morningstar.com/content/dam/marketing/shared/pdfs/sustainability/Sustainable_Funds_Landscape_2018.pdf?cid=EMQ_ [02/04/2019] 5 – Asset allocation is an approach to help manage investment risk. Asset allocation does not guarantee against investment loss. 6 – https://www.ussif.org/sribasics [08/02/2019]
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
The SECURE Act passed
into law in late 2019 and changed several aspects of retirement investing.
These modifications included modifying the ability to stretch an Individual
Retirement Account (IRA) and changing the age when IRA holders must start
taking requirement minimum distributions to 72-years-old.1,2
While those provisions
grabbed the headlines, several other smaller parts of the SECURE Act have
caught the attention of individuals who are raising families and paying off
student loan debt. Here’s a look at a few.
Changes for college students. For those who have graduate funding, the
SECURE Act allows students to use a portion of their income to start investing
in retirement savings. The SECURE Act also contains a clause to include “aid in
the pursuit of graduate or postdoctoral study.” A grant or fellowship would be
considered income that the student could invest in a retirement vehicle.3
One other provision of
The SECURE Act: you can use your 529
Savings Plan to pay for up to $10,000 of student debt. Money in a 529 Plan can
also be used to pay for costs associated with an apprenticeship.4
Funds for a growing family. Are you having a baby or adopting? Under the
SECURE Act, you can withdraw up to $5,000 per individual, tax-free from your
IRA to help cover costs associated with a birth or adoption. However, there are
stipulations. The money must be withdrawn within the first year of this life
change; otherwise, you may be open to the tax penalty.5
Annuities and your retirement plan. This might be the most complicated part of the
SECURE Act. It’s now easier for your employer-sponsored retirement plans to
have annuities added to their investment portfolio. This was accomplished by
reducing the fiduciary responsibilities that a company may incur in the event
the annuity provider goes bankrupt. The benefit is that annuities may provide
retirees with guaranteed lifetime income. The downside, however, is that
annuities are often the incorrect vehicle for investors just starting out or
far from retirement age.6
The best course is to make sure that you review any investment decisions or potential early retirement withdrawals with your adviser.
Questions? Please don’t hesitate to contact us. (215) 766-7002, info@aeinvestmentsgroup.com
Citations 1 – Under the SECURE Act, your required minimum distribution (RMD) must be distributed by the end of the 10th calendar year following the year of the Individual Retirement Account (IRA) owner’s death. A surviving spouse of the IRA owner, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the IRA owner, and child of the IRA owner who has not reached the age of majority may have other minimum distribution requirements. 2 – Under the SECURE Act, in most circumstances, once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA). Withdrawals from Traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. You may continue to contribute to a Traditional IRA past age 70½ under the SECURE Act as long as you meet the earned-income requirement. 3 – forbes.com/sites/simonmoore/2019/12/23/if-youre-a-graduate-student-the-secure-act-makes-easier-to-save-for-retirementheres-how/#207d85d322ef [12/23/2019]. A 529 plan is a college savings play that allows individuals to save for college on a tax-advantages basis. State tax treatment of 529 plans is only one factor to consider prior to committing to a savings plan. Also consider the fees and expenses associated with the particular plan. Whether a state tax deduction is available will depend on your state of residence. State tax laws and treatment may vary. State tax laws may be different than federal tax laws. Earnings on non-qualified distributions will be subject to income tax and a 10% federal penalty tax. 4 – forbes.com/sites/simonmoore/2019/12/21/who-benefit-from-the-recent-changes-to-us-savings-programs/#4b86e86f6432 [12/21/2019] 5 – congress.gov/bill/116th-congress/house-bill/1994/text#toc-HCF4CC8DCF6E14B28968474EB935AB36D [05/23/2019] 6 – marketwatch.com/story/will-the-secure-act-make-your-retirement-more-secure-2020-01-16 [01/16/2020]. The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxes as ordinary income. If a withdrawals is made prior to age 59 ½, a 10% federal income tax penalty may apply (unless an exception applies).
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
When you are in your seventies, Internal Revenue Service rules say that you must start making withdrawals from your traditional IRA(s). In I.R.S. terminology, these withdrawals are called Required Minimum Distributions (RMDs).1
Generally, these distributions from
traditional IRAs must begin once you reach age 72. The money distributed to you
is taxed as ordinary income. (When such distributions are taken before age 59½,
they may be subject to a 10% federal income tax penalty.)1
If you fail to make these withdrawals or
take out less than the required amount, the I.R.S. will notice. In addition to
owing income taxes on the undistributed amount, you will owe 50% more. (This
50% penalty can be waived if you can show the I.R.S. that the shortfall
resulted from a “reasonable error”
instead of negligence.)1
Many owners of traditional IRAs have
questions about these IRA distributions and the rules related to them, so let’s
answer a few.
When is the deadline for your initial IRA
distribution? It must be taken by
April 1 of the year after the year in which you turn 72. So, if you turn 72 in 2020,
your first distribution from your traditional IRA has to occur by April 1, 2021.All the distributions
you take in subsequent years must be taken by December 31 of each year.1
The starting age for these distributions has
changed from 70½ to 72 due to a new federal law,
the Setting Up Every Community for Retirement Enhancement (SECURE) Act. IRA
owners born on or after July 1, 1949 are now scheduled to take initial IRA distributions
after they turn 72.2
Is waiting
until April 1, 2021 a bad idea? Maybe. While the I.R.S. allows you three extra
months to take that initial IRA distribution, putting off the withdrawal could
bring on a tax issue. These distributions
are taxable in the year that they are taken. If you postpone the initial
distribution slated for 2020 into 2021, then the taxable portions of both your first
mandatory IRA distribution (deadline: April 1, 2021) and your second mandatory IRA distribution (deadline:
December 31, 2021) must be reported as income on your 1040 form for 2021.1
A hypothetical example: James and his wife Stephanie file jointly, and together
they earn $168,400 in 2020 (the upper limit of the 22% federal tax bracket).
James turns 72 in 2020, but he decides to put off his first IRA distribution
until April 1, 2021, so that means he must take two IRA distributions before 2021
ends. His 2021 taxable income jumps as a result, and it pushes the pair into a
higher tax bracket. The lesson: if you will be 72 by the time 2020 ends, take
your initial distribution by the end of 2020 – or risk potentially higher taxes.1,3
How do I calculate my first IRA withdrawal?
If your IRA is held at one of the big investment firms, it may calculate the withdrawal amount for you and offer to
route the amount into another account of your choice. It will give you and the
I.R.S. a 1099-R form recording the distribution, and the amount of it that is
taxable.5
Otherwise, I.R.S.
Publication 590 is your resource. You calculate the amount of the distribution using
Publication 590’s life expectancy tables, and your IRA balance on December 31
of the previous year. If you Google “how to calculate your required IRA
distribution,” you will see links to worksheets at irs.gov and a host of other free
online calculators.1,4
If your spouse
is more than 10 years younger than you and is designated as the sole
beneficiary for a traditional IRA that you own, you should use the I.R.S. IRA
Minimum Distribution Worksheet (downloadable as a PDF) to help calculate your distribution.6
Can I take my IRA distribution in increments?
Yes, if time permits. Your IRA custodian may be able to schedule these incremental withdrawals
for you, perhaps with taxes withheld.7
What if I
have more than one traditional IRA? You can figure out the total mandatory
distribution by separately calculating the distribution for each of your traditional
IRAs. You can take the total distribution amount from a single traditional IRA or multiple traditional IRAs.1
What if I
have a Roth IRA? You don’t need to make mandatory IRA withdrawals from a Roth IRA if
you are its original owner. Only inherited Roth IRAs require these withdrawals.1
Be proactive. Delaying your first IRA distribution until 2021 could mean higher income taxes in 2022.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Hello everyone. Brent Chavez, Aequitas Equitas Investment Group. I hope this video finds you well. It is Thursday afternoon, and we are in the midst of a market crash that is somewhat unprecedented in it being a draw down in such a short period of time. I just wanted to give you a follow up and tell you again, where we stand, a follow-up to the two videos I sent you this last month of what we’re doing to protect your portfolios, has been working tremendously. But, I want to go a little bit deeper as to what we saw, what we’re seeing that made us do something that is very rare for us as a practice to go so defensive. As many of you know, it’s not something we like to do, those that have been with us for a long period of time.
I’m going to share with you some things that we saw going on at the end of January that concerned us. As I mentioned in my video from January, we had had a big run up. We had stretch valuations in the markets. We were seeing a flight to bonds, globally, inflows to bonds were really up ticking. And as the yields were dropping, buyers would come in, grab those bonds. No matter how low those yields were, buyers were showing up. And at the same time seeing the deterioration of the many individual stocks in indexes in sectors globally that was a concern to us. We’re going to touch on again this is not going to be all encompassing of what we’re looking at for you on a daily, weekly, monthly basis, but just a little bit deeper than the last two videos have been.
So again, back here in January, the S&P had hit a short term target that we had around 3300. We had noticed as we looked around, there were some canaries in the mines and red flags, so to speak. We’re going to take a look at them.
We see here some sideways action in the S&P 500. We saw it ticking up for a few weeks after we went defensive with all your portfolios, but we felt that that was more or less a “sucker’s rally,” as I like to call people being taken in before the fall off the cliff, potentially was going to take place. We’re here today as we do this video around 3000, a little over 3000. So again, a pretty sizable pullback in a very short period of time, not something that we knew was going to happen, not something that we said was absolutely going to happen… we actually said we don’t know what tomorrow brings when it comes to the stock markets. The only thing we can do and we do do for all of you is to look at the data and make educated decisions based on the data that we see come in.
We’re going to move a little bit further into our next chart.
Here was something that got concerning here over a couple month period – this is the chart of the 10 year Treasury. We saw yields collapsing in that 10-year. It touched against 1.39 for the 10-year Treasury. But the problem was, buyers kept showing up, flows kept going that way, it was a little bit of what we thought to be a warning sign. In fact, a very important chart to look at as to why we want to be more neutral and defensive in our portfolios. It has collapsed through this resistance and I feel moving forward we’re going to see much lower yields, much lower interest rates, Federal Reserve it’s important for you to come into lower rates. We’re getting less and less ammo… as you see the scale, we’re getting to the fractions because there’s not much to zero from here. So again we’re concerned, though, that it may push lower for the foreseeable future. So we want to stay positioned as we are for now.
The next chart that we’re looking at is the financials.
I talk about being able to have confirmation besides the S&P and the Dow Jones. Looking at the charts we want to see some other charts that really give us confirmation that these moves are real, that there’s more than just a handful of stocks like the S&P 500 – basically you have 5 stocks pulling it up the last several weeks, the big mega cap stocks, where the rest of the stocks in that index were breaking down, deteriorating from a technical standpoint. Financials is an important part to any stock market rally that is sustainable or able to move forward. In the past I had talked about this resistance, all time highs in the XLF ETF representing financials in the S&P 500. All time high back in 2008, we hit it in ‘16, pull down before the next several years sideways, and than finally joined the rally of the S&P 500. But, again hit that resistance and the S&P 500 continued to move up and financials moved sideways… no confirmation that this rally had legs to move much higher.
We’re going to see that on a chart here.
Here’s where we see confirmation of the S&P, in purple, XLF moving, confirming these moves up. We started seeing issues and real big issues here (past few weeks), a canary in the mine.
Let’s look at our next chart and data we’re looking at.
The Dow Jones Industrial one of the indexes that every night you see or hear in the news, “record high” with the S&P 500, the NASDAQ. When the Dow Jones Industrial is making moves we want some confirmation that it is a real sustainable move. And we want to get that confirmation from the Dow Jones Transports, DJT. What is the difference?
Well, here’s the light blue line, this is the Dow Jones Industrial, again you see that on TV every night, the dark blue line is the Dow Jones Transports. So the Dow Jones Industrial, 30 industrial companies, making a lot of goods that Americans consume and the globe consumes. So with that being said, the companies that move the goods throughout the country throughout the world should be doing similarly good. And we saw something that happened, starting back at the end of last year, we started to see a separation of those charts. We started to see that we were not getting confirmation. When I sent out the video back in January, the Dow Jones Industrial had done about 13% in the last year and the Dow Jones Transports had done 3%.
So again we were seeing a divergence that was growing and growing – red flag or a canary in the mine. Again, a big divergence was taking place here in January, a sign that not all was well for the markets to continue much higher and uninterrupted with some form of a pullback.
Let’s look at our next piece of data we were looking at. Oil.
Because what happened was the markets were humming along, hitting all time highs, but oil was falling off the cliff, about $10 a barrel, in that very short period of time of about a month. If the economy’s rocking and rolling, the global economy is ready to take off and help support the S&P 500 and Dow Jones companies to really help their evaluations from a fundamental standpoint and help them grow into 2020, 2021… but, oil was telling a different story. Again, it was another thing that had us concerned that we might want to be more defensive in our posture.
Here’s another chart that we want to take a look at.
So, back to the positions we moved to, very defensive – treasuries, municipal bonds, 10 and 20-year treasuries, and utilities – all very defensive in nature in our portfolio build. Here’s why. Inflows represented by these three here, treasuries, municipal bonds, 10 and 20-year Treasury. We saw inflows starting back here (end of January, beginning of February) into bonds, very high. We had this continuation of a rally again that had no support, no confirmation from any of the other sectors that the yields from the treasuries on the 10, 20 or 30-year, were crashing. And ultimately, here’s what has happened. Look at those treasuries and municipal bond positions up and then your S&P 500 and Dow Jones down this past week.
So again, it was the correct move to make it that time. And again, this is just part of what we’re looking at. We also look at credit spreads and many other things that most of you would probably find boring – basically, you’d probably rather go to the dentist and have your teeth cleaned then hear about all of those other things. But this is what we eat, this is what we breathe, this is what we love to do.
I want to thank all of you for allowing me to be part of your life. If you have any questions, any concerns about what we’ve discussed and what you’re hearing, please feel free to give me a call. Because at this point, as I mentioned in the other videos, the Coronavirus was that outlier, the icing on the cake. All this data that we were looking at, that was really the thing that said hey, I don’t think it’s being factored in. I don’t think China is telling us the whole story. We don’t know where that’s going to play out at this point and that’s far from over and we don’t know how that is going to affect our projections moving forward. But, time will tell.
So, in the meantime, we will be defensive. We will be here to answer any questions – give us a call, and have a wonderful sunny Thursday afternoon.
*Charts are from Yahoo! Finance and JC Parets
The information contained herein has been derived from sources believed to be reliable, but is not guaranteed as to accuracy and does not purport to be a complete analysis of any security, company, industry, or index. This report is not to be construed as an offer to sell or a solicitation of an offer to buy or sell any security. It is not intended to provide advice tailored to your specific situation. Past performance is no guarantee of future success. The information in this report in no way attempts to provide accounting, legal or tax advice. Investment advisory services offered through Motiv8 Investments, an SEC Registered Investment Advisor.
