Avoiding the Early Withdrawal Penalty

Posted by: Ryan Kimes, CFP®

Educational Update – March 20, 2019

An IRA, or Individual Retirement Account, is a tax-advantaged account that is subject to special rules regarding contributions and withdrawals. One of the central rules of IRAs is that withdrawals prior to age 59½ are generally subject to a tax penalty.

Yet, policymakers acknowledged that extenuating circumstances might require access to these savings. In appreciation of this, the list of exceptions for waiving this penalty has grown over the years.


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Penalty-Free Withdrawals

Outlined below are the circumstances under which individuals may withdraw from an IRA prior to age 59½, without a tax penalty. Ordinary income tax, however, is generally due on such distributions.[i]

Death – If you die prior to age 59½, the beneficiary(ies) of your IRA may withdraw the assets without penalty. However, if your beneficiary decides to roll it over into their IRA, they will forfeit this exception.[ii]

Disability – Disability is defined as being unable to engage in any gainful employment because of a mental or physical disability, as determined by a physician.[iii]

Substantially Equal Periodic Payments – You are permitted to take a series of substantially equal periodic payments and avoid the tax penalty, provided they continue until you turn 59½ or for five years, whichever is later. The calculation of such payments is complicated, and individuals should consider speaking with a qualified tax professional.[iv]

Home Purchase – You may withdraw up to $10,000 toward the purchase of your first home ($20,000 for a married couple). You cannot have owned a home within the last two years.

Unreimbursed Medical Expenses – This exception covers medical expenses in excess of 10% of your adjusted gross income.

Health Insurance – After a job loss, there are rules in place that allow the purchasing of health insurance, without penalty.3

Higher-Education Expenses – Funds may be used to cover higher-education expenses, such as tuition, student fees, textbooks, supplies, and equipment. Only certain institutions and associated expenses are permitted.3

Active Duty Call-Up – Reservists who make an IRA withdrawal during a period of active duty of 180 days or longer do not have to pay a 10% early withdrawal penalty.3

As always, be sure to speak with a tax professional about your specific situation.


[i] https://www.marketwatch.com/story/gearing-up-for-retirement-make-sure-you-understand-your-tax-obligations-2018-06-14

[ii] https://www.investopedia.com/articles/personal-finance/102815/rules-rmds-ira-beneficiaries.asp

[iii] https://money.usnews.com/money/retirement/slideshows/ways-to-avoid-the-ira-early-withdrawal-penalty

[iv] https://www.investopedia.com/articles/retirement/02/112602.asp

 

Dow, S&P, NASDAQ All Rise

Posted by: Ryan Kimes, CFP®

The Week on Wall Street

The big story last week was the sudden grounding of Boeing 737 Max 8 and 9 passenger jets in dozens of countries. The financial effects of this ban could potentially impact the airline industry and segments of the economy for months.[i]

While the news created a headwind for the Dow Industrials, stocks managed to post solid gains for the week. The Nasdaq Composite rose 3.12%; the S&P 500, 2.46%; the Dow, 2.25%.[ii],[iii],[iv]

Bullish sentiment was also evident overseas. Looking at the MSCI EAFE index, international stocks advanced 1.93%.[v]

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Trade Meeting Delayed

Wall Street expected President Trump and Chinese President Xi to discuss trade issues this month. Thursday, Bloomberg reported that their talk had been postponed, with no firm date ahead.[vi]

Muted Inflation

The latest Consumer Price Index showed just a 1.5% rise in overall consumer costs in the year ending in February.

 

This number does not suggest an overheating economy. During a 60 Minutes interview last week, Federal Reserve Chairman Jerome Powell said the central bank did “not feel any hurry” to make a rate move.[vii]

 

Tax Tip

If you turned 70½ last year, April 1 is your final deadline to receive your initial Required Minimum Distribution (RMD) from a traditional IRA, SEP-IRA, SIMPLE IRA, or employer-sponsored retirement plan. If you take your initial RMD from these retirement accounts this year, you must receive your second RMD from them by December 31, 2019.[viii]

 

THE WEEK AHEAD: KEY ECONOMIC DATA

Wednesday: The Federal Reserve wraps up its two-day policy meeting.

Friday: February existing home sales.

 

Source: Econoday / MarketWatch Calendar, March 15, 2019

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. The release of data may be delayed without notice for a variety of reasons, including the shutdown of the government agency or change at the private institution that handles the material.

 

THE WEEK AHEAD: COMPANIES REPORTING EARNINGS

Tuesday: FedEx (FDX), Michaels Companies (MIK)

Wednesday: General Mills (GIS), Micron Technology (MU)

Thursday: ConAgra Brands (CAG), Darden Restaurants (DRI), Nike (NKE)

 

Source: Morningstar.com, March 15, 2019

Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.

[i] https://www.cnbc.com/2019/03/13/boeing-shares-fall-after-report-says-us-expected-to-ground-737-max-fleet.html

[ii] https://quotes.wsj.com/index/SPX

[iii] https://quotes.wsj.com/index/DJIA

[iv] https://quotes.wsj.com/index/NASDAQ

[v] https://quotes.wsj.com/index/XX/990300/historical-prices

[vi] https://www.bloomberg.com/news/articles/2019-03-14/china-u-s-said-to-push-back-trump-xi-meeting-to-at-least-april

[vii] https://www.reuters.com/article/us-usa-economy-inflation-idUSKBN1QT1MF

[viii] https://www.irs.gov/newsroom/tax-time-guide-seniors-who-turned-70-and-a-half-last-year-must-start-receiving-retirement-plan-payments-by-april-1

Stocks Drop on Growth Concerns

Posted by: Ryan Kimes, CFP®

The Week on Wall Street

As in February, investors spent most of the first full trading week of March hoping for new details in U.S.-China trade negotiations. While they waited, stock benchmarks drifted downward. From Monday’s open to Friday’s close, the S&P 500 lost 2.55%, while the Dow Industrials took a 2.66% fall, and the Nasdaq Composite weakened 3.12%. The MSCI EAFE index tracking developed markets outside the U.S. and Canada fell 1.09%.[i],[ii],[iii],[iv]

 

Why did stocks lose momentum? In a hint that global economic growth might be slowing, the European Central Bank abruptly reduced its 2019 Gross Domestic Product forecast for the eurozone from 1.7% to 1.1%. A disappointing reading on U.S. hiring also raised questions.[v]

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Perplexing Jobs Data

According to the Department of Labor, the economy generated only 20,000 net new jobs in February. This was the smallest monthly gain since September 2017. Nevertheless, the unemployment rate fell to 3.8%, while underemployment declined sharply to 7.3%. (These decreases could reflect furloughed federal employees returning to work.) The average wage rose 3.4% in 12 months, the largest year-over-year increase in a decade.

 

Harsh winter weather may have impeded hiring last month, and February’s payroll growth could be revised in the Department of Labor’s next report.[vi]  

      

Earnings Season Recap

The fourth-quarter reporting season is all but over. FactSet notes that the S&P 500 has seen earnings growth of 13.4% in Q4, marking the fifth straight quarter with a double-digit rise.[vii]

 

Final Thought

Stocks lost ground last week, breaking a long string of weekly advances. The extended rally partly reflected optimism that the U.S.-China trade dispute would soon be resolved, but a deal may or may not happen. The week offered a reminder that Wall Street sees both ups and downs. Day-to-day market fluctuations should not cause you to alter your long-term approach.   

 

THE WEEK AHEAD: KEY ECONOMIC DATA

Monday: January retail sales.

Tuesday: The Consumer Price Index, tracking monthly and yearly inflation.

Thursday: January new home sales and February retail sales.

Friday: The University of Michigan’s initial March consumer sentiment index, measuring consumer confidence.

 

Source: Econoday / MarketWatch Calendar, March 8, 2019

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. The release of data may be delayed without notice for a variety of reasons.

 

THE WEEK AHEAD: COMPANIES REPORTING EARNINGS

Tuesday: Dick’s Sporting Goods (DKS)

Wednesday: Smart & Final (SFS)

Thursday: Adobe Systems (ADBE), Broadcom (AVGO), Dollar General (DG)

 

Source: Morningstar.com, March 8, 2019

Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.


[i] https://quotes.wsj.com/index/SPX

[ii] https://quotes.wsj.com/index/DJIA

[iii] https://quotes.wsj.com/index/NASDAQ

[iv] https://quotes.wsj.com/index/XX/990300/historical-prices

[v] https://www.cnbc.com/2019/03/07/stock-market-us-china-trade-jobless-claims-in-focus.html

[vi] https://www.usatoday.com/story/money/2019/03/08/jobs-report-just-20-000-added-february-economists-expected-181-000/3098383002/

[vii] https://insight.factset.com/earnings-insight-q418-by-the-numbers-infographic

Markets Remain Mostly Unchanged

Posted by: Ryan Kimes, CFP®

The Week on Wall Street

Stocks lost a little ground as February gave way to March. While domestic and overseas political developments made headlines, the market stayed relatively calm: from Monday’s open through Friday’s close, the S&P 500 ceded just 0.17%, finishing the week at 2,803.69. [i],[ii],[iii]

The Dow declined 0.65% in five trading sessions to 26,026.32, while the Nasdaq finished the week 0.06% higher at 7,595.35. The MSCI EAFE index of international stocks rose 0.24% for the week. , ,

Volatility has dropped in the past few weeks. Wall Street has grown less anxious about the possibility of new tariffs and higher interest rates this year.

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Planned March Tariffs Delayed

Earlier in the week, President Trump opted to postpone the 15% increase in tariffs on many Chinese imports slated for the start of March. He did not announce a new deadline. Thursday, U.S. officials said the deadline had been suspended “until further notice.”

As we noted two weeks ago, the White House had indicated that it might postpone new tariffs if substantial progress was made with China on trade talks.[i]  

What’s Next

U.K. lawmakers will vote on a revised Brexit deal on March 12. If they reject it, they have two options left. They can either ask the European Union to push back the March 29 Brexit deadline or choose to leave the E.U. without a deal.[ii]

 

Tax Reminder

March 15 is the deadline for most partnerships and S corporations to send in their 2018 federal tax returns or extensions. (Some states that tax corporate income set different due dates.)[iii]


THE WEEK AHEAD: KEY ECONOMIC DATA

Tuesday: The latest new home sales numbers from the Census Bureau.

Wednesday: Payroll-processing giant ADP releases its February national employment

Friday: The Department of Labor releases its February job market snapshot.

Source: Econoday / MarketWatch Calendar, March 1, 2019

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. The release of data may be delayed without notice for a variety of reasons, including the shutdown of the government agency or change at the private institution that handles the material.

 

THE WEEK AHEAD: COMPANIES REPORTING EARNINGS

Monday: Salesforce (CRM)

Tuesday: Kohl’s (KSS), Target (TGT), Urban Outfitters (URBN)

Wednesday: Abercrombie (ANF), Dollar Tree (DLTR)

Thursday: Burlington Stores (BURL), Costco (COST), Tech Data (TECD)

Source: Source: Morningstar.com, March 1, 2019

Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.


Is Paying Off A Low-Interest Mortgage a Good Idea?

Posted by: Ryan Kimes, CFP®


For many families, a home loan constitutes a significant portion of their household debt. As a result, some people choose to reduce this debt as much as possible before entering retirement. In fact, nearly one in three retirees have mortgage debt, and 17% of those paying off debt say that their mortgage is a top financial priority.

But, not all debt is equal. Interest rates have been historically low in recent years, so depending on your rate, your mortgage may be the cheapest form of debt you hold. As such, using your extra money in different ways could make sense. Because everyone’s financial situation is different, many factors can affect choosing whether to pay off your mortgage.


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As you assess your own mortgage, here are 5 common questions to consider:

1. Have you maxed out contributions to tax-advantaged accounts?

Preparing to have the income you need in retirement is important yet, only 46% of retirees believe they have enough money.[i] If you and your financial representative feel comfortable with your retirement savings, you may be able to devote income to extra mortgage payments. However, the final years before retirement are your last opportunity to boost your contributions. If you still have room to save, you may want to bypass paying off your mortgage and put those additional funds into tax-advantaged accounts.

 

2. Will paying down the mortgage affect your taxes?

If you itemize your taxes, then your mortgage interest payments may be deductible. Once you stop making mortgage payments, you can no longer deduct that interest. Further, choosing to pay off your mortgage, either before or after you retire, also brings a different set of tax strategies to consider. If you can still benefit from deducting interest on your taxes, then you may want to continue doing so. Keep in mind that it’s important to view your financial situation from a complete perspective before making any tax decisions.[ii]

 

3. Do you have adequate cash reserves?

Emergency savings are critical for an effective, long-term financial strategy. Unexpected life events, like unemployment, a sudden illness, or home repair, can strain household finances. To adequately prepare, you should aim to have at least 3 to 6 months of cash reserves on hand.[iii] By doing so, you’ll be better able to cover major expenses without having to liquidate investments or go into debt. If you do not already have an emergency reserve or need to set aside more money consider boosting your savings before paying down your mortgage.

 

4. Do you have other debt?

People in the U.S. are carrying lots of debt, which can threaten their financial strategy. In fact, the average person with debt holds at least $38,000 (excluding mortgages), and 45% of retirees carry non-mortgage debt.[iv] If you find yourself in a similar financial situation, you may want to put extra money toward other debt. Further, if any of those liabilities have interest rates higher than your mortgage, then you’ll keep more money in the long run by paying down that debt today.

 

5. Will paying off your mortgage bring happiness?

Most financial decisions have emotional components, which is why understanding your long-term goals is important when making a strategy. For some people, knowing that they own their home, free and clear, outweighs other financial considerations. If being able to pay off your mortgage early aligns with your financial goals, it may be the best decision for you.

The Takeaway

Choosing to pay off a mortgage requires carefully looking at your financial life and prioritizing which strategies make sense. With careful attention to your unique needs, you can make sound decisions that support your long-term goals. If you have any questions or would like to discuss this topic further, I’m happy to help you clarify the opportunities available to you.

[i] https://www.transamericacenter.org/docs/default-source/retirees-survey/tcrs2018_sr_retirees_survey_financially_faring.pdf

[ii] https://www.thebalance.com/mortgage-interest-deduction-before-and-after-retirement-2388985

[iii] https://www.investopedia.com/terms/c/cash-reserves.asp

[iv] https://news.northwesternmutual.com/planning-and-progress-2018

https://www.transamericacenter.org/docs/default-source/retirees-survey/tcrs2018_sr_retirees_survey_financially_faring.pdf

Investor Optimism Drives Market Performance

Posted by: Ryan Kimes, CFP®

Weekly Market Review - February 25th, 2019

Stocks rallied last week as optimism about a potential U.S.-China trade deal grew. The S&P 500 advanced 0.80% during the 4-day trading week to 2,792.67. The Nasdaq Composite improved 0.86% to 7,527.54, and the Dow Jones Industrial Average gained 0.64% to 26,031.81.

The renewed prospects for a trade pact were not the only development investors found appealing last week. There were indications that the Federal Reserve might be a bit less committed to its plans to raise interest rates further this year.[i],[ii]

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A Look at the Fed Minutes

There were no surprises from the Federal Reserve's Board of Governors, who released the transcript from their January meeting on Tuesday. Investors pore over the meeting minutes looking for clues about the Fed’s next move on short-term interest rates.

 

Fed policymakers appeared split on what’s next. Some felt another rate hike was needed to help slow the strong economy, while others favored a “wait-and-see” approach.[i]

      

Home Sales Slump

In January, existing home sales were at their slowest pace since November 2015, and down 8.5% year-over-year. One factor: rising home values. Last month, the median single-family home sale price was $247,500, almost $7,000 higher than a year ago.

 

Mortgage rates have now fallen for three consecutive weeks, a development that may influence home buying decisions in coming months. Thursday, a Freddie Mac survey found the average interest rate on a 30-year, fixed-rate loan at just 4.35%.[ii],[iii]  

 

Final Thought

The Dow Jones and Nasdaq have posted gains for nine straight weeks and are now at levels unseen since early November. Concerns over volatility have decreased, but that does not mean it is off the table. Whatever the market does in the coming weeks and months, remember your investing strategy should be based on your goals, risk tolerance, and time horizon. [ii]


THE WEEK AHEAD: KEY ECONOMIC DATA

Tuesday: Fed chair Jerome Powell begins two days of testimony on monetary policy in the Senate.

Wednesday: The National Association of Realtors releases its latest pending home sales index.

Thursday: The federal government provides its first estimate of fourth-quarter economic growth.

Source: Econoday / MarketWatch Calendar, February 22, 2019

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. The release of data may be delayed without notice for a variety of reasons, including the shutdown of the government agency or change at the private institution that handles the material.

 

THE WEEK AHEAD: COMPANIES REPORTING EARNINGS

Tuesday: AutoZone (AZO), Home Depot (HD), Medpace (MEDP)

Wednesday: Apache (APA), Best Buy (BBY), Office Depot (ODP)

Thursday: Anheuser-Busch (BUD), Dell Technologies (DELL), Splunk (SPLK)

Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.


https://quotes.wsj.com/index/SPX

https://quotes.wsj.com/index/COMP

https://quotes.wsj.com/index/DJIA

https://www.marketwatch.com/story/dow-reclaims-26000-and-ends-at-3-12-month-peak-as-stock-market-levitates-on-tariff-hope-2019-02-22

https://www.bloomberg.com/news/articles/2019-02-20/fed-minutes-show-officials-unsure-on-need-for-rate-hikes-in-2019

https://tradingeconomics.com/united-states/existing-home-sales

https://www.washingtonpost.com/business/2019/02/21/mortgage-rates-fall-third-week-row

 

Dow, S&P, Nasdaq Climb Higher

Posted by: Ryan Kimes, CFP®

Weekly Market Review - February 20th, 2019

The Week on Wall Street

Stocks ended a good week on a high note, as hints of progress in U.S.-China trade talks encouraged investors.

When the closing bell rang Friday, the S&P 500 settled at 2,775.60, after rising 2.50% in five days. The Dow Industrials gained 3.09%, to close Friday at 25,883.25. The Nasdaq Composite improved 2.39% to 7,472.41.[i],[ii]

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Shutdown Averted

Wall Street breathed a sigh of relief late last week as Congress passed a bill to keep the federal government funded. President Trump signed the measure on Friday.  

The development is expected to have a positive effect on consumer sentiment, which may influence the financial markets. During the shutdown, consumer confidence hit an 18-month low.[iii],[iv]  

Retail Sales Unexpectedly Slip

Thursday, the Census Bureau announced that retail sales fell 1.2% in December. This was the largest monthly decline in more than nine years and fell short of expectations. Economists polled by Bloomberg anticipated a small gain.

Was the slow December mostly a reflection of consumer anxieties about the shutdown and the stock market? If so, it is possible that retail spending may see an uptick. (It should be noted that these monthly numbers are often revised later.)[v]

Inflation Holds Steady

The Consumer Price Index (CPI), the most widely followed measure of inflation, was flat in January for a third consecutive month. Year-over-year, overall inflation is running at just 1.6%.

The CPI is one of the key factors the Fed considers when assessing the economy and determining what lies ahead for interest rates.[vi]

What’s Ahead

U.S. and Chinese negotiators face a March 1 deadline to reach a deal to extend the current tariff truce. In March, tariffs on many Chinese imports could rise to 25% from 10%. President Trump said Friday that he is open to postponing the March deadline if it appears an agreement may be near.[vii]


THE WEEK AHEAD: KEY ECONOMIC DATA

Monday: Presidents’ Day holiday (U.S. financial markets closed).

Wednesday: Minutes of the January Federal Reserve policy meeting are released.

Thursday: January existing home sales.

Friday: Federal Reserve Vice Chairman Richard Clarida speaks in New York.

Source: Econoday / MarketWatch Calendar, February 15, 2019

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. The release of data may be delayed without notice for a variety of reasons, including the shutdown of the government agency or change at the private institution that handles the material.

 

THE WEEK AHEAD: COMPANIES REPORTING EARNINGS

Tuesday: Devon Energy (DVN), Walmart (WMT)

Wednesday: Analog Devices (ADI), CVS Health (CVS)

Thursday: Dominos (DPZ), Fluor (FLR), Intuit (INTU), Kraft Heinz (KHZ)

Source: Morningstar.com, February 15, 2019

Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.


Certain Uncertainties in Retirement

Posted by: Ryan Kimes, CFP®

Educational Update - February 14th, 2019

The financial uncertainties we face in retirement may risk reducing our sense of confidence, potentially undermining our outlook during those years.

Indeed, according to the 2018 Retirement Confidence Survey by the Employee Benefits Research Institute, only 17% of pre-retirees said they are “very confident” about having enough assets to live comfortably in retirement. In addition, just 32% of retirees were “very confident” in their prospects for doing so.[i]

Today, retirees face two overarching uncertainties. While each one can lead even the best-laid strategies awry, it is important to remember that remaining flexible and responsive to changes in the financial landscape may help you meet the challenges posed by uncertainty in the years ahead.

unnamed.jpg

An Uncertain Tax Structure

A mounting national debt and the growing liabilities of Social Security and Medicare are straining federal finances. How these challenges will be resolved remains unknown, but higher taxes – along with means-testing for Social Security and Medicare – are obvious possibilities for policymakers.

Whatever tax rates may be in the future, taxes can be a drag on your savings and may adversely impact your retirement security. Moreover, any reduction of Social Security or Medicare benefits has the potential to increase financial strain during your retirement.

Consequently, you will need to be ever mindful of a changing tax landscape and strategies to manage the impact of whatever changes occur.

Market Uncertainty

If you know someone who retired (or wanted to retire) in 2008, you know what market uncertainty can do to a retirement blueprint.

The uncertainties have not gone away. Are we at the cusp of a bond market bubble bursting? Will the eurozone find its footing? Will U.S. debt be a drag on our economic vitality?

Over a 30-year period, uncertainties may evaporate or resolve themselves, but new ones may also emerge. Solutions for one set of financial or economic circumstances may not be appropriate for a new set of circumstances.

[i] https://www.ebri.org/docs/default-source/rcs/1_2018rcs_report_v5mgachecked.pdf?sfvrsn=e2e9302f_2