If, like so many people, you made your IRA contribution for 2017 only recently in 2018, just before the 2017 tax return filing deadline, you missed earning up to 15 months of pre-tax investment returns on your contribution.
Don’t repeat that mistake. Make your IRA contribution for 2018 now. This will provide an additional year’s worth of pre-tax investment returns compared to making the contribution at the last moment in April 2019. You will also get pre-tax compounding on these extra returns for potentially decades to come, until they are finally distributed. And you’ll get these extra returns for every year that you make your contribution early, rather than late.
Don’t worry about making a mistake. If it later turns out that you are ineligible to make the contribution, you can fix the error without penalty up to October 15th of the year after the year for which the contribution was made. Excess contributions can be withdrawn, and eligible IRA or Roth IRA contributions can be recharacterized as being made to a traditional IRA, and vice versa.
A 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.
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 substitutes. 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).
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.
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.
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.
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.
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.