To Convert or NOT To Convert – Roth IRA Conversion

What is a Roth IRA conversion?

Roth IRA ConversionA Roth IRA conversion is the process of moving IRA or employer plan assets to a Roth IRA.

1.  When will you need the money? If you have an immediate need for the funds or need them to continue your current standard of living, then a Roth IRA conversion is probably not for you. However, if you have no immediate need for the funds, a Roth IRA conversion is potentially a great way for the funds to grow tax-free over your lifetime.

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Good Companies Don’t Always Make Good Stocks

by Vitaliy Katsenelson, CFA

I was recently going through a new client’s portfolio and found it full of the likes of Coca-Cola, Kimberly-Clark and Campbell Soup — what I call (pseudo) bond Good stockssubstitutes. Each one is a stable and mature company. Your mother-in-law would be proud if you worked for any one of them. They have had a fabulous past; they’ve grown revenues and earnings for decades. They were in their glory days when most baby boomers were coming of age. But the days of growth are in the rearview mirror for these companies — their markets are mature, and the market share of competitors is high. They can innovate all day long, but consumers will not be drinking more fizzy liquids, wearing more diapers or eating more canned soup.

If you were to look at these companies’ financial statements, you’d be seriously under impressed. They paint a stereotypical picture of corporate old age. Their revenues haven’t grown in years and in many cases have declined. Some of them were able to squeeze slightly higher earnings from stagnating revenue through cost-cutting, but that strategy has its limits — you can only squeeze so much water out of rocks (unless someone like 3G Capital takes the company, sells its fleet of corporate jets and starts mercilessly slashing expenses like the private equity firm did at Budweiser and Heinz). These businesses will be around ten years from now, but their profitability probably won’t be very different from its current level (not much higher, but probably not much lower either).

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2016 Tax Planning for Investment Income

What Will Be Considered Investment Income?

Investment IncomeInvestment Income

  • Interest, Dividends, Capital Gains (long and short) including the gain on the sale of investment real estate and second homes)
  • Annuities (but not annuities in IRAs or company plans)
  • Royalty Income
  • Passive Rental Income and Other Passive Activity Income
  • Above items from a child’s tax return that are reported on a parent’s return (the “Kiddie Tax”)

NOT Investment Income

  • Wages and Self-Employment Income
  • Active Trade or Business Income (including interest, dividends capital gains)
  • Distributions from IRAs, Roth IRAs, and Company Plans
  • Including Net Unrealized Appreciation
  • Excluded Gain from the Sale of a Principal Residence
  • Municipal Bond Interest
  • Proceeds of Life Insurance Policies
  • Social Security and Veterans’ Benefits
  • Gains on the Sale of an Active Interest in a Partnership or S Corporation
  • Taxable income from items that are NOT investment income can push taxpayers over the income threshold and cause investment income to be subject to the 3.8% surtax.

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Inherited IRAs: Tips You Need to Know

Inherited IRAsRetirement 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.

Non-Spouse Beneficiaries

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.

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Market Perspectives

 Scott Smith, CIMA®

Elephant Donkey PoliticsThe 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.

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Thoughts on Recent Market Volatility

Market VolatilityWhen 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.

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Finding the Best Financial Firm to Manage Your Assets

Are you apprehensive about finding the best financial firm to help manage your assets?

This is a valid concern when looking for a financial firm. I’d like to share some tips and precautions to help you make wise choices.

View our video for helpful tips

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C&J Roundtable Recaps First Quarter 2015 Market Trends

by Scott Smith, CIMA®

C&J Wealth AdvisorsThank 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.

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Recap of the 50th Annual Berkshire Hathaway Shareholders Meeting

50 Years of Profitable Partnership

By Scott Smith, CIMA®

Berkshire Hathaway

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.

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Our Gambling Culture

The craving for immediate gratification has spread well beyond Wall Street.

April 2015 | by Laurence Fink, chairman and CEO of BlackRock

Retirement gambling CultureWe 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.

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