New Law Means New IRA Rules
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BI-WEEKLY UPDATE - JANUARY 6, 2020
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SECURE Act: What You Need to Know
Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act before Christmas, and President Trump signed it into law a few days later.
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This new law alters a key rule pertaining to traditional retirement accounts. It raises the age for Required Minimum Distributions (RMDs) from these accounts, from 70½ to 72. (If you are now 70½ or older, this change does not affect your scheduled RMDs. Only those who turn 70½ in 2020 or later are subject to the new rule.)
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Also, the Secure Act ends the age restriction on contributions to traditional IRAs. So, beginning this year (2020), you can make contributions after reaching age 70½.
The third key provision is stricter rules for stretch IRAs. The new law requires non-spouse IRA beneficiaries to empty inherited accounts within 10 years of the owner's death. This only applies to IRAs whose account owners pass away in 2020 and beyond. Any inherited IRAs currently being "stretched" are not affected.
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For our clients who are turning 70.5 this year, we are currently reviewing your situation and strategies to ascertain how this new law will directly affect your plan. Please expect communications from us if any immediate actions are deemed necessary.
As we meet with clients throughout the year, we will be reviewing their situations regarding the SECURE act and how it may change withdrawal, contribution, and/or estate strategies. We will also keep you informed as we learn more about all the provisions of the new law and their real-world consequences.
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What Drove the Markets?
Four factors influenced investment performance in 2019: a shift in U.S. monetary policy, the ongoing trade dispute between the U.S. and China, earnings, and the economy.
The Federal Reserve Eased
The central bank made three quarter-point cuts to the benchmark short-term interest rate in 2019. That was a change from 2018, when the Fed worked on normalizing monetary policy with interest rate increases, while thinning its large bond portfolio.
By and large, investors welcomed the policy shift. At the end of 2018, there were concerns that the Fed's effort to tighten the money supply had backfired, with higher U.S. interest rates impeding both the domestic and global economy.
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The U.S. and China Trade Quarrel Cooled Down Slightly
In December, representatives from both nations agreed on a "phase-one" trade deal after a year-and-a-half of imposing tariffs on each other's products. This pact, which is expected to be signed in 2020, is characterized as an initial step toward a larger deal.
In May, the U.S. put 25% tariffs on $200 billion of Chinese imports; a month later, China imposed a 25% import tax on $60 billion of U.S.-made goods reaching its shores. These tariffs may be reduced or removed as part of the phase-one deal. (Another $120 billion worth of Chinese goods are currently under a 7.5% tariff, reduced from 15% by the new agreement.)
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Earnings Beat (Low) Expectations
Stock market analysts were pessimistic about corporate profits as the year began. With economies worldwide slowing down in 2018, year-over-year earnings growth for S&P 500 firms seemed poised to decelerate.
Deceleration was evident, but later in the year, many firms managed to exceed reduced estimates. According to stock market analytics firm FactSet, 75% of S&P 500 components beat earnings-per-share estimates in Q3, compared to a 5-year historical average of 72%.
[5]
The Economy Maintained Momentum
Gross domestic product came in at 3.1% in Q1, 2.0% in Q2, and 2.1% in Q3. Through November, nonfarm payrolls growth had averaged 180,000 per month during 2019. Manufacturing output varied, as CEOs were less certain about expansion and capital investments in the first half of the year; it declined in Q1 and Q2 before improving again in Q3.
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The Conference Board's consumer confidence index was at 125.5 in November, above its (revised) January mark of 121.7. Inflation stayed under 2% for most of the year before reaching a 12-month high of 2.1% in November.
[8][9]
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The Week on Wall Street
Stocks descended from record highs Friday, as traders reacted to a U.S. drone strike that killed Iran's top military officer. Oil prices rose more than 3% following the breaking news.
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Wall Street benchmarks ended up having a sideways week, shortened by the New Year's Day holiday.
Oil Takes Center Stage
WTI crude oil settled at $63.07 a barrel on the New York Mercantile Exchange Friday, down from an intraday peak of $64.09 (which was its highest price since April).
The commodity rallied Friday, as energy traders considered the possibility of supply disruptions in the Middle East in retaliation for last week's U.S. air strike.
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Manufacturing Activity Declines
At the start of each month, economists watch the Institute for Supply Management's Purchasing Managers Index for the factory sector, which is considered a key barometer of U.S. manufacturing health.
Last week, ISM announced a December reading of 47.2 for this index, the poorest in more than ten years. A reading below 50 indicates manufacturing activity is contracting rather than expanding.
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THE WEEK AHEAD: KEY ECONOMIC DATA
Tuesday: The Institute for Supply Management presents its December Non-Manufacturing Purchasing Managers Index, gauging the pace of activity in the U.S. service sector.
Wednesday: Payroll processor ADP releases its December national private-sector employment report.
Friday: The December jobs report from the Department of Labor.
Source: MarketWatch, January 3, 2020
The MarketWatch economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.
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- Report your QCD. Some of our clients took a Qualified Charitable Distribution (QCD) in 2019. For those of you that did, we will be emailing out a reminder about your QCD as it applies to your tax return. Please note that you are responsible for telling the IRS about your QCD transaction(s) on your federal income tax return. Therefore, make sure to give your tax preparer your 2019 QCD amount, whether or not they specifically ask for it. Please contact our office if you have any questions.
- Contributions to IRAS & Roth IRAs. In 2019, you can contribute a maximum of $6,000, or $7,000 if you are age 50 or over. You must make your contributions before April 15 and note clearly that they are for the 2019 tax year. Remember, you have to have taxable income to contribute to an IRA, but if you are married and filing jointly, you can each make contributions even if only one of you is working. Speak to a tax advisor to learn about how your deductions will be affected by an employer-sponsored retirement plan.
- Tax Time. For the 2019 tax year, most custodians appear to be mailing out 1099-Rs on January 31 and 1099-Bs during the second half of February. We will be providing you a list of mail dates next newsletter. If you or your tax preparer need us to help gather any information, please give us sufficient notice to fulfill your request.
Blattel & Associates does not provide tax advice. Please consult with your tax advisor with regard to your personal situation.
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January 20: Office Closed
Our office will be closed for MLK Day. Markets are also closed.
February 17: Office Closed
Our office will be closed for President's Day. Markets are also closed.
March 28: Client Event
Save the date for our semi-annual client breakfast seminar. More information to follow.
April 10: Office Closed
Our office will be closed for Good Friday. Markets are also closed.
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"Knowing what must be done does away with fear."
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Rosa Parks
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Serves 4
Ingredients:
- One whole cauliflower
- One egg
- ½ cup Parmesan and/or Mozzarella cheese, grated.
- 1½ tsp. seasoning mix of basil, oregano, salt, and pepper (to taste)
- Extra virgin olive oil, misted (or cooking spray)
Directions:
- Preheat oven to 375˚F and add parchment paper.
- After you rinse and chop cauliflower, rice in food processor, and then microwave for 8 minutes (or bake in oven for 15 minutes on a baking sheet).
- Once cooked, move rice to layered cheesecloth and let cool for five minutes. Compress the liquid out of the cheesecloth until it no longer produces water.
- Raise oven temperature to 450˚F.
- Mix egg, seasoning mixture. Add grated cheese and fully drained cauliflower rice. Mix well into pizza dough.
- Add new parchment paper to baking sheet, mist with olive oil or cooking spray. Move dough to center of sheet and flatten into a thin pizza crust.
- Bake for 20 minutes on each side, turning with spatula. Once baked, add favorite toppings and cheese and bake until evenly melted.
Recipe adapted from ifoodreal.com[13]
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Start the New Year Off S.M.A.R.T.
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While around 60% of us make New Year's Resolutions, only 8% of us achieve them. But don't let that discourage you! Transform your New Year's Resolution into a "S.M.A.R.T." goal, following these criteria.
- Specificity - How could you reach this goal? Consider the who, what, when, where, which, and why of the process.
- Measurability - Set some metrics.
- Achievability - Define small, attainable subtasks.
- Relevance - Will the steps yield the desired result?
- Timeliness - Assign realistic deadlines for each step.
So, instead of resolving to "add money to my rainy day fund," plan to "add $50 to my rainy day fund per month for home repairs." You can reassess and adjust your plan with time.
Start S.M.A.R.T. and make it easier to realize your 2020 goals.
Tip adapted from Inc.com
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and SmartSheet.com
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Share the Wealth of Knowledge!
Please share this market update with family, friends, or colleagues. If you would like us to add them to our list, simply click on the "Forward email" link below. We love being introduced!
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Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Diversification does not guarantee profit nor is it guaranteed to protect assets.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
You cannot invest directly in an index.
Consult your financial professional before making any investment decision.
Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
These are the views of Platinum Advisor Strategies, LLC, and not necessarily those of the named representative,
Broker dealer or Investment Advisor and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.
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[3] www.washingtonpost.com/business/2019/12/11/year-federal-reserve-admitted-it-was-wrong/
[4] www.bbc.com/news/business-45899310
[5] insight.factset.com/earnings-insight-q319-by-the-numbers-infographic
[6] www.marketwatch.com/tools/calendars/economic
[7] www.bls.gov/iag/tgs/iag31-33.htm
[8] www.investing.com/economic-calendar/cb-consumer-confidence-48
[9] tradingeconomics.com/united-states/inflation-cpi
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