Lantern Wealth Advisors, LLC
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Melville, NY 11747
(631) 454-2000

Major Indexes For Week Ended 7/5/2019

Index Close Net Change % Change YTD YTD %
DJIA 26,922.12 +322.16 1.21 +3,594.66 15.41
NASDAQ 8,161.79 +155.55 1.94 +1,526.51 23.01
S&P500 2,990.41 +48.65 1.65 +483.56 19.29
Russell 2000 1,575.62 +9.05 0.58 +227.06 16.84
International 1,932.13 +9.83 0.51 +212.25 12.34
10-year bond 2.05% +0.05% -0.64%
30-year T-bond 2.55% +0.02% -0.47%
International index is MSCI EAFE index. Bond data reflect net change in yield, not price. Indices are unmanaged and you cannot directly invest in an index.

Amid Record Stock Prices, Fed Policy Is A Risk

Stocks closed at an all-time high again on Friday and the latest economic data— though it shows growth is slowing— indicates no recession is on the horizon. The Federal Reserve Board's inflation policy is perhaps the biggest risk to the 10-year old expansion.

Today's jobs report was much stronger than expected. Unemployment remained at a low in June last seen a half century ago. The latest monthly survey of 60 economists polled by The Wall Street Journal showed that the professionals are not expecting a recession. The monthly surveys of purchasing managers at manufacturing as well as non-manufacturing companies reported less robust business conditions but continued growth.

However, the Federal Reserve Board's June 19th economic forecast was unrelenting in its forecast for inflation of 2%. This chart compiled by independent economist Fritz Meyer, which we license, shows a 2% compound annual growth rate of inflation trendline in blue, which is what the Fed has been calling for nine years. The Fed's forecast for 2% inflation was correct in 2011 and 2012 but has been off year after year since 2013. The actual inflation rate has been much closer to 1.5% for five years and the Fed's June 19th policy statement continued to insist that this is transitory. On December 19th, 2018, when the Fed raised rates and tightened credit based on its inflation model, it caused a flash bear market in stocks, chilled holiday retail sales, and caused jitters about the future of the expansion. Since all recessions since 1954 were caused by a Fed mistake, the Fed's inflation policy will be key to a continued expansion.

After breaking its record all-time closing high on Wednesday of 2,995.82, the Standard & Poor's 500 stock index closed fractionally lower on Friday at 2,990.41.

This article was written by a veteran financial journalist based on data compiled and analyzed by independent economist, Fritz Meyer. While these are sources we believe to be reliable, the information is not intended to be used as financial or tax advice without consulting a professional about your personal situation. Tax laws are subject to change. Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss. No one can predict the future of the stock market or any investment, and past performance is never a guarantee of your future results.

Reduce Your Widow's Tax Bill Materially Annually

This is a good time to consider converting a traditional individual retirement account into a Roth IRA. Tax rates are low but unlikely to stay that way. Here's a long-term strategy that takes advantage of the current tax policy and economic fundamentals - a tax-efficient retirement investment and avoids a new twist in the Tax Cut And Jobs Act that penalizes widows.

The Rules. With a traditional individual retirement account (IRA), taxes on gains reinvested are deferred. An IRA grows with no taxes owed. When you retire, withdrawals are taxed as income. A Roth IRA is different. You pay income tax upfront and Uncle Sam promises tax-free withdrawals when you're retired.

The Math. According to data from the non-partisan Congressional Budget Office, math will drive a surge in the $21 trillion U.S. debt starting in 2023, when interest owed on the debt accelerates, as does the risk of default. As 2023 nears, running trillion-dollar budget deficits annually becomes an increasingly untenable policy and tax rates are likely to rise.

Inflation, too. Inflation has been low for many years. While it is not expected to rise sharply, the real cost of the federal debt would be reduced if inflation rises. Inflation is unlikely to work against those converting to a Roth IRA in 2018.

Widow Penalty. Many surviving spouses will face a tax penalty after losing a mate under the new tax brackets enacted by the Tax Cuts And Jobs Act. For example, a couple with $170,000 of adjusted gross income is in the 24% top bracket, but after one spouse dies, the survivor would fall into the 32% bracket.

Avoiding The Widow Penalty. Retired married couples converting from a traditional IRA to a Roth account can avert the widow penalty with proper planning. Since Roth accounts generate tax-free income, converting to a Roth places a surviving spouse in a lower tax bracket. For example, a couple with $170,000 of adjusted gross income (AGI) would convert from a traditional IRA to a Roth IRA, lowering their AGI to less than $157,500. If one spouse dies, the survivor would be in the 24% bracket applied to singles with up to $157,500 of adjusted gross income.

Not For Everyone. Converting makes no sense unless you have cash on hand to pay the income tax on withdrawals from your traditional IRA. Paying taxes owed on a conversion by withdrawing larger amounts from a traditional IRA usually limits a nest egg's growth potential and is unwise.

Tax-sensitive investing is complicated, and this simplified version of the rules and examples are only intended to encourage to plan properly because a move like this can reduce a tax bill materially and annually for a widow.

We evaluate tax planning opportunities for clients. Please contact our office to talk about your personal situation or if you have any questions about this strategy.

The above referenced information was obtained from reliable sources, however Lantern Investments, Inc. and Lantern Wealth Advisors, LLC cannot guarantee its accuracy. Opinions expressed herein are subject to change. Past performance is no guarantee of future results. Asset allocation and diversification do not assure a profit or protect against losses in declining markets. Any information given on the site is informational and illustrative but does not recommend actions as the information may not be appropriate to all situations. It is important that you consider your tolerance for risk and investment goals when making investment decisions. Investing in securities does involve risk and the potential of losing money. Links to other sites are provided for your convenience. Lantern Wealth Advisors, LLC and Lantern Investments, Inc. do not endorse, verify or attest to the accuracy of the content of the web sites that are linked and accept no responsibility for their use or content. Lantern Wealth Advisors, LLC and Lantern Investments, Inc. do not provide tax, accounting or legal advice.