January 2020

The Setting Every Community Up for Retirement Enhancement (SECURE) Act is now law. With it, comes some of the biggest changes to retirement savings law in recent years. While the new rules don’t appear to amount to a massive upheaval, the SECURE Act will require a change in strategy for many Americans. For others, it may reveal new opportunities.

Limits on Stretch IRAs.The legislation “modifies” the required minimum distribution rules in regard to defined contribution plans and Individual Retirement Account (IRA) balances upon the death of the account owner. Under the new rules, distributions to non-spouse beneficiaries are generally required to be distributed by the end of the 10th calendar year following the year of the account owner’s death.¹

It’s important to highlight that the new rule does not require the non-spouse beneficiary to take withdrawals during the 10-year period. But all the money must be withdrawn by the end of the 10th calendar year following the inheritance.

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. 

Let’s say that a person has a hypothetical $1 million IRA. Under the new law, your non-spouse beneficiary may want to consider taking at least $100,000 a year for 10 years regardless of their age. For example, say you are leaving your IRA to a 50-year-old child. They must take all the money from the IRA by the time they reach age 61. Prior to the rule change, a 50-year-old child could “stretch” the money over their expected lifetime, or roughly 30 more years.

IRA Contributions and Distributions. Another major change is the removal of the age limit for traditional IRA contributions. Before the SECURE Act, you were required to stop making contributions at age 70½. Now, you can continue to make contributions as long as you meet the earned-income requirement.²

Also, as part of the Act, you are mandated to begin taking required minimum distributions (RMDs) from a traditional IRA at age 72, an increase from the prior 70½. Allowing money to remain in a tax-deferred account for an additional 18 months (before needing to take an RMD) may alter some previous projections of your retirement income.²

The SECURE Act’s rule change for RMDs only affects Americans turning 70½ in 2020. For these taxpayers, RMDs will become mandatory at age 72. If you meet this criterion, your first RMD won’t be necessary until April 1 of the year after you reach 72.²

Multiple Employer Retirement Plans for Small Business.In terms of wide-ranging potential, the SECURE Act may offer its biggest change in the realm of multi-employer retirement plans. Previously, multiple employer plans were only open to employers within the same field or sharing some other “common characteristics.” Now, small businesses have the opportunity to buy into larger plans alongside other small businesses, without the prior limitations. This opens small businesses to a much wider field of options.¹

Another big change for small business employer plans comes for part-time employees. Before the SECURE Act, these retirement plans were not offered to employees who worked fewer than 1,000 hours in a year. Now, the door is open for employees who have either worked 1,000 hours in the space of one full year or to those who have worked at least 500 hours per year for three consecutive years.²

While the SECURE Act represents some of the most significant changes we have seen to the laws governing financial saving for retirement, it’s important to remember that these changes have been anticipated for a while now. If you have questions or concerns, reach out to your trusted financial professional.

Sincerely,

Edward J. Kohlhepp, Jr., CFP®, MBA
President 

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA

Founder & CEO

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.

Citations.

1 - waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/SECURE%20Act%20section%20by%20section.pdf  [12/25/19]
2 - marketwatch.com/story/with-president-trumps-signature-the-secure-act-is-passed-here-are-the-most-important-things-to-know-2019-12-21 [12/25/19]

July 23, 2019

You’ve probably heard, either through tweets from a certain President or in the press, that the U.S. economy is humming along at a healthy pace.  Stock indices are breaching record highs, unemployment statistics are near record lows and the economy is growing at nearly a 3% annualized pace. 

So American workers should be happy with their newfound prosperity, right?

The problem is not the economy, per se, but the unequal distribution of its recent largesse.  A recent Gallup poll found that a remarkable 40% of Americans say that amid one of the greatest—and now one of the longest—economic booms in U.S. history, they are either running into debt or barely making ends meet.  Only 25% of employed households report that they are saving enough for retirement; 18% admit that they have saved nothing at all.

Gallup’s survey is conducted each April, and the news this year is not all bad.  The percentage of Americans rating the economy “only fair” or “poor” has dropped significantly since the 2016 version of the survey.  Digging deeper into the data, the Gallup researchers found that 49% of respondents have at least one immediate worry—such as, for example, paying their rent or mortgage, or being able to make minimum payments on their credit cards.  Another 14% have no immediate financial concerns, but worry about whether they will be able to pay for normal healthcare or afford the medical costs due to a major illness or accident.

How would this play out in the next electoral cycle?  The researchers note that most of the financially anxious people report voting primarily Democratic, while those who have few worries are largely Republican voters.  But people who are worried about healthcare costs are split evenly down the middle, which means healthcare issues will be front and center in next year’s elections.

Sincerely,

Edward J. Kohlhepp, Jr., CFP®, MBA

President 

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA

Founder & CEO

Source:

https://news.gallup.com/opinion/polling-matters/260570/despite-economic-success-financial-anxiety-remains.aspx

This material was prepared by BobVeres.com., 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.

May 14, 2019

Global stock markets have been spooked by the escalating trade disputes between the world’s two largest economies: China and the United States.  And there is no evidence that the dispute is about to be resolved.  On Friday, U.S. President Donald Trump raised tariffs on $200 billion worth of Chinese goods, and began taking steps to tax nearly all of China’s imports.  The new tariff levels are an unprecedented 25% of the value of the Chinese goods coming into the U.S., raising the costs of seafood, luggage and electronics.  China, meanwhile, has placed tariffs on nearly all of America’s exports into the Middle Kingdom, including agricultural products.

This is not the first trade dispute the U.S. has engaged in since the Trump Presidency; steel and aluminum products coming from abroad were hit with tariffs and import duties early in the presidency, followed by various other measures.  The stated idea was to reduce the U.S.’s trade deficit with the rest of the world; however, the overall United States trade deficit with the world increased 1.5% in March to $50 billion.

But many taxpayers seem to be confused about how tariffs work.  The President has said that American tariffs on Chinese products are bringing in unspecified “billions” to the U.S. government.  That may be true, but the source of those “billions” is not China or Chinese companies.  Importers pay the import taxes when the items they’ve purchased overseas cross the U.S. border.  With import taxes as high as 25%, it is all-but-guaranteed that the price of these items will be higher when sold to American consumers. 

If the importer—which might be a manufacturer who has components manufactured abroad or a retail company like Wal Mart—decides to absorb some of the tariff cost, then that shows up in lower profits for the American company.  So when an American consumer buys an iPhone, the cost might go up $160—which is the additional amount that would be paid to the U.S. government.  Or Apple Computer could eat the cost and reduce its overall earnings by 24%.  The same is true with goods like vacuum cleaners, electronics, computer monitors and power adapters.

There are arrangements where the importer and exporter negotiate for the exporter to pay the tariff—the term for such an agreement is DDP, or “Delivery Duty Paid.”  But once again, the tariff raises the cost of the item, and the ultimate bill comes due to the consumer who buys the product. 

So ultimately, U.S. tariffs on imported items, shipped from China or any other country, represent an additional tax directly on the wallets and purses of American consumers—or on the earnings of American companies that decide to absorb some of these costs. 

There may be additional economic impacts, such as what American farmers—particularly those who grow soybeans—are now experiencing.  When the cost of American products go up due to retaliatory tariffs imposed by China, Chinese consumers and importers can go to different markets, where they can buy items that are not burdened by the costs of import duties.  Chinese importers have shifted their purchases of American crops to South America, which has long sought a foothold in the world’s largest consumer market.

Wouldn’t that work the other way around?  One issue is that many Chinese companies are government-owned or government-supported, so during an escalation of trade war conflict, the government of the most populous nation on earth will do what the American government will not: stabilize sales by subsidizing prices or making up for losses while the negotiations continue.

Most economists believe that tariffs impede global trade and the health of the global economy.  And tariffs create uncertainty about whether companies can rely on existing supply chains or sources of manufactured items that go into their final products, like mobile phone devices and automobiles.  This is why the imposition of additional tariffs, and the threat that they will continue into the future, is spooking the investment markets.  The U.S. Treasury is definitely getting fatter as a result of American tariffs on Chinese goods.  The question that stock market analysts and traders are asking is whether this is good for the American consumer and the U.S. economy as a whole.

Sincerely,

Edward J. Kohlhepp, Jr., CFP®, MBA
President 

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA

Founder & CEO

Sources:

https://www.msn.com/en-in/money/news/trump-increases-china-tariffs-as-trade-deal-hangs-in-the-balance/ar-AABaJJF

https://www.usatoday.com/story/news/politics/2019/05/09/donald-trump-white-house-continues-trade-talks-china-past-deadline/1150788001/

https://uktradeforum.net/2017/09/28/who-pays-tariffs-anyway/

https://www.yahoo.com/finance/news/3-reasons-why-china-apos-111113176.html

This material was prepared by BobVeres.com., 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.

Is a New Social Security Fix at Hand?

March 21, 2019

We’ve been hearing for years that the Social Security trust fund will run out of money in 2034, and a close reading of the Social Security Administration’s Trustee Report projections (https://www.ssa.gov/oact/TRSUM/) show what this would mean.  By that time, based on estimates of the number of people earning an income in the workforce, the numbers of Social Security benefits recipients still alive, and the amount of income, overall, that the workers will be earning, payroll taxes will account for about 77% of the existing benefits—indexed for projected inflation.  In other words, if we don’t fix the system between now and then, by 2034 the government will be taking payroll taxes and turning around and paying this money back to the Social Security beneficiaries, and that money is projected to equal about 77% of today’s benefits.  As more people retire and live longer, the ratio of workers to beneficiaries is expected to gradually decrease, meaning that 77% will become 76%, then 75% and gradually shift downward barring an influx of new workers or unexpected mortality among the elderly.

Chances are, there will be a fix of some sort between now and 2034.  But what will it look like?  200 Democratic co-sponsors in the U.S. House of Representatives have recently signed on to an expansion of Social Security that would keep the trust fund solvent—and the payments coming—for at least the next 75 years.  

What are they proposing?  The new bill, which is unlikely to pass Congress until/unless the Democrats take control of the Senate, would address one of the anomalies of the payroll tax, that it stops at $132,900 of annual income (currently).  That means a person earning $132,900 pays 6.2% of her income, while a person earning $266,000 pays 3.1%, and a person earning over $1 million pays just .77% of total income in payroll taxes.  The legislation would, just like today, stop collecting payroll taxes temporarily at $132,900 (adjusted each year for inflation), but resume those taxes on all income over $400,000.  It would also gradually raise the 6.2% tax rate to 7.4% by 2042.

In return, all Social Security beneficiaries would receive a 2% increase in benefits, and the benefits would go up a bit faster each year, using the CPI-E index for inflation, rather than chained CPI.  (Much of the difference is that the CPI-E calculation is more sensitive to medical inflation and other costs that disproportionately affect seniors.)  Higher-income seniors would also get a bit of a tax cut; that is, less of their Social Security benefits would be taxed, using a complex change in an already-complex formula.

Not in this proposal, but worth considering, is allowing the Social Security trust fund to invest at least some of its assets in equities, which normally appreciate much faster in value than the current “assets:” promissory notes backed by Treasury bills.  Look for a healthy debate on the solvency of Social Security in the next election cycle.

Sincerely,

Edward J. Kohlhepp, Jr., CFP®, MBA
President 

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA

Founder & CEO

Source:

https://www.morningstar.com/articles/918591/will-the-big-social-security-fix-include-expansion.html

This material was prepared by BobVeres.com., 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.

January 2019

Chances are, you’ve already heard or read endless predictions about… everything.  The direction of interest rates.  Market returns and whether the markets will go down or up.  When the next recession will hit.  The movements of the cryptocurrency markets.

If the market gurus were being honest, they wouldn’t give us definitive answers to any of the questions that are posed to them.  Does anybody really have a working crystal ball?  If they did, would they share what they’ve seen in it?

A recent article in the financial services press offered up some realistic answers to the questions that financial journalists and cable tv hosts typically ask.  Here are some examples:

Are stocks overvalued?

We don’t know.  All we know is markets go up over time.

What are the signs I should look for that predict a market correction?

There are none.

What’s your view of [this headline] on Bloomberg or CNBC?

It justified my view that not watching Bloomberg or CNBC should have been one of my resolutions this year.

What do you think of what the technical analysts are saying about the near future?

The only thing I know for certain about technical analysis is that it’s possible to make a living publishing a newsletter on the topic.

What do you think of Jim Cramer’s opinions about the market?

About the same (actually slightly worse) than the flip of a coin, without the attitude.

Wells Fargo is now positive on gold.  Should I buy gold?

Gold might take off or tank.  The opinion of Wells Fargo about some event in the future is no better than yours.  Personally, I would like to see Wells Fargo “turn positive” on ethical behavior toward its employees and clients.

Are stocks vulnerable to another pullback?

Yes.  They always are.  The problem is that no one has the expertise to tell you when market corrections will occur, although many love to imply that they do.

Do you have an investing goal for 2019?

Make your investing about as exciting as watching paint dry.  Leave the excitement to others.

Source:

https://danielsolin.com/investing-answers-you-wont-see-in-the-financial-media/

This material was prepared by BobVeres.com., 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.