October 15 is the Deadline to Recharacterize 2017 IRA Contributions and Conversions
IRA recharacterization is a tax-free transfer of funds from one kind of IRA to another. If you converted a traditional IRA to a Roth IRA and now are reconsidering, recharacterization allows you to undo the transaction and move the funds back to a traditional IRA. You can also recharacterize a tax-year traditional IRA contribution from a traditional IRA to a Roth IRA or vice versa. The Tax Cuts and Jobs Act does away with recharacterization for conversions done in 2018 and later, but the IRS has made it clear that 2017 conversions can still be recharacterized. Don’t miss out on this last chance to take advantage of one of the rare opportunities for a “do-over” in the tax code.
You may consider recharacterizing your 2017 conversion for many reasons. You might be having second thoughts about the tax bill. Tax reform has resulted in lower tax rates in 2018 for many taxpayers. Maybe you converted in 2017 when your rates were higher and now you would like a “do-over” at lower 2018 rates. You have the option of recharacterizing your 2017 conversion.
During the Olympics, the United States showed the world its dominance in sport, earning a total of 121 medals (46 Gold, 37 Silver, & 38 Bronze). Great Britain finished second with 27 Gold medals and China finished third with 26 gold medals. It was special to watch Usain Bolt and Michael Phelps continue their dominance and cement their legacies. For global financial markets, the winner is gold! Gold prices are up 25.94%, handily outperforming domestic, international, & emerging equity markets.
Gold’s out performance this year comes after a very challenging three-year performance stretch, where gold was down 28.33%, 2.19%, & 10.67% in 2013, 2014, & 2015, respectively. It’s not hard to fathom why gold is performing well considering the quantity of debt in the world that is paying negligible interest rates.
Retirement planning is complicated. It’s a personal and situational endeavor with plenty of possible pitfalls in the way of success. Inherited IRA rules vary depending on the beneficiary type: Non-Spouse Beneficiaries, Spouse, and a Trust Beneﬁciary.
As a beneﬁciary of an IRA, you may ﬁnd yourself with many questions and concerns. The rules are different for a non-spouse beneﬁciary than they are for a spouse or trust beneﬁciary. Arm yourself with working knowledge of some of the Do’s and Don’ts, and work with a competent, educated ﬁnancial advisor to keep more of your assets and lose less to taxes and unnecessary fees.
Only move the inherited funds as a direct transfer. Inherited IRA funds must be moved via a trustee-to-trustee transfer; NOT a 60-day rollover. In a direct transfer, the beneﬁciary does not have use or control of the IRA funds during the transfer.
Scott Smith, CIMA®
The popularity of Donald Trump and Bernie Sanders reflects an underlying distrust of the establishment candidates from both Democrats and Republicans. If there is a lesson to be learned from the popularity of these candidates, perhaps it’s that political correctness and status quo policy from both sides is not resonating with voters.
While the economy has certainly come a long way since the beginning of the Obama administration (and the financial crisis), it’s hard to argue that the economy is reaching its full potential. There is a lot more that can be done to improve the growth of the economy and the answer does not rest with the Federal Reserve, but in the White House and in the halls of Congress. Effective policymaking isn’t just needed here in the United States, but across the entire developed world that is struggling to revive growth despite zero (and negative) bound interest rates. Now more than ever, we need leadership in politics that unites and brings results.
2015 Performance Summary
by Scott Smith, CIMA®
Currently, the U.S. economy is in its 79th month of expansion, as of January 31, 2016, a duration exceeded in history by just four other economic expansions according to the National Bureau of Economic Research. As much as the financial markets have relied upon Federal Reserve monetary policy to help smooth the bumps of the business cycle in recent years, it’s important to remember that the Fed cannot eliminate the business cycle, even with interest rates near zero. Bull markets that accompany economic expansions don’t die of old age, they die from excesses. It’s difficult to see much excess in the economy given the relatively tame 2.3% growth in 2015 vs. 2014. From an asset allocation perspective, an important question clients must answer with their advisor is to what degree they want to participate in the opportunities and risks of the business cycle given their goals and expectations. The goal of strategic asset allocation isn’t to avoid or time the business cycle, but to determine a mutually agreed upon allocation that will allow clients to invest through the business cycle. As volatility has moved higher in January, asset allocation will increasingly be in focus during client conversations in 2016.
When global equity markets enter periods of elevated volatility like we’ve experienced recently, it’s wise to take a breath and gain some perspective. If equity markets were perfectly rational and priced new information efficiently, we would not see such periods of heightened volatility. In reality, equity markets can be quite inefficient and irrational over short-term time horizons as stock price volatility exacerbates intrinsic business value volatility. As investors, we focus more on intrinsic business value volatility, which is the present value of cash that a business is expected to generate in the future. Although market participants emphasize company earnings over the next quarter or year, we estimate that a years’ worth of company earnings represent about 5-7% of a company’s intrinsic business value. Short-term equity market volatility and inefficiencies exist because investors over-react to news that has little correlation to long-term intrinsic business value.
by Scott Smith, CIMA®
Thank you to those who attended our quarterly client roundtable last month recapping first quarter 2015 market trends. We appreciate the opportunity to engage and educate clients on topics important to them. For those who were unable to attend the client roundtable, a brief summary of our discussion is shown below.
• Monetary policy from the Federal Reserve has been a major driver of equity market returns in recent years and is the reason why equity markets have gained disproportionately to the overall economy and corporate earnings.
50 Years of Profitable Partnership
By Scott Smith, CIMA®
I recently had the privilege of attending the 50th annual Berkshire Hathaway shareholders meeting in Omaha, Nebraska. A friend and I arrived about 20 minutes after the CenturyLink Center door’s opened at 7:00 in the morning. By the time we found a seat, we were in the second to last row of the upper deck. Needless to say, there was a buzz and excitement in the air.
By Scott Smith, CIMA®
Tennessee Hall income tax includes mutual fund capital gain distributions
It’s that time of the year to welcome spring, but with it comes tax time. Hopefully by now you have already completed your taxes. I have been doing my personal taxes on my own since I filed my first tax return years ago. This year was the first year I filed electronically via Intuit’s Turbo Tax software and I would highly recommend it for its ease of use, low cost, and time savings. Since all the information is saved, filing next year’s return should save even more time. This month’s letter will focus first on the Tennessee Hall Tax and then proceed into a discussion on tax efficient investing.
Overall, Tennessee is a tax-friendly state, with no state income tax and an inheritance tax that has a $5,000,000 exemption for 2015 and is scheduled to go away in 2016. There is one tax that bothers some of our clients around this time of year and that is the Tennessee Hall income tax. Established in 1929, the Hall income tax was named after Frank S. Hall, who was the state senator who sponsored the legislation. The intent of the bill was to apply a tax that state and local governments could use to raise money on intangible forms of property, like stocks and bonds. This was meant to supplement tangible property tax that residents were paying on the local level of government. For every dollar of Hall Income Tax that is paid, 37.5 cents comes back to the local level.
The craving for immediate gratification has spread well beyond Wall Street.
April 2015 | by Laurence Fink, chairman and CEO of BlackRock
We tend to speak of short-termism as though it’s a problem that only afflicts investors or corporate leaders, but that’s not the case. Short-term thinking pervades our most important institutions, from government to households. We’ve created a gambling culture in which we tune out everything except the most immediate outcomes. If we’re going to meet our commitments to our children and grandchildren, and to society as a whole, we need to open up the lens and start taking a more responsible, longer-term view of the challenges we face.
There’s a host of reasons short-termism has taken hold in our culture, both in the United States and more broadly. Greed and the media’s reliance on daily bombardments of bad news certainly play a part, but more important, we’ve lost sight of our actual goals. It’s in everyone’s interest to provide opportunities for education, a reasonable level of healthcare, and a secure retirement for the most people possible, just as we should all be working to conserve our natural resources to assure that clean air, clean water, and renewable fuel sources are available to our children.