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                    [post_date] => 2022-04-25 12:16:15
                    [post_date_gmt] => 2022-04-25 17:16:15
                    [post_content] => By Craig Lemoine, Director of Consumer Investment Research


Stocks, bonds and mutual funds have had a rocky start to the year. The S&P 500, a broad measure of the United States stock market, was down 4.6% over the first quarter. Mutual funds holding stocks and bonds have also lost value. These losses are jarring following an outstanding 2021, where the S&P 500 gained just under 30%. Why the exhale? The balloon was blown up too quickly. Understanding why your IRA or 401(k) has suddenly lost value requires taking a step into the past.
  • Persistent Inflation – A combination of COVID-caused supply chain issues, low unemployment, wage increases and global political uncertainty is clobbering inflation. Rising prices for food (6.3% the last 12 months ending December 2021), energy (29.3%) and all other items (5.5%) have taken their toll on budgets. Recent unemployment numbers are 3.6%, lower than pre-COVID levels. Fewer Americans searching for jobs, coupled with pandemic driven child-care hurdles, have pushed wages higher. Higher wages couple with higher input prices (lumber, steel, commodities, energy), pressuring producers to raise prices. These prices ripple down the supply chain to stores nearby. Inflation has caused the market to pause and raised questions about sustainability and fundamental assumptions around growth.
  • Are We Back to Work Yet? – The COVID-19 omicron variant threw a meaningful hurdle into America’s return to work. Plans to phase back in in-person workforces, employees finding a groove working from home, commuting and traveling were all affected. Sudden economic shifts for any reason add to volatility and, in this case, challenge recovery estimates from last year. Equities have stumbled as future revenue, business model and sales projections have been challenged.
  • The Federal Reserve is Raising Interest Rates to Help Combat Inflation – The Federal Reserve is a governing body for the United States banking system. It has three primary goals: maximize employment, stabilize prices and moderate long-term interest rates. Prices have been anything but stable. The Federal Reserve is raising rates on money it lends to member banks, which will in turn raise rates companies and retail investors are charged when they borrow. Ratcheting up rates will slow down the economy and result in additional adjustments to profitability, revenue and business model expectations. These adjustments have pushed stock prices lower. 
  • Bond Prices Fall When Interest Rates Rise – An economic concept called duration explains the relationship between interest rates and bond prices. Duration can be tricky – take an example of a car company borrowing money. The company plans on using the money to build a new manufacturing facility, and plans on paying it back over 10 years. The company could sell bonds, borrowing money from consumers and paying them back some type of interest every year. At the end of 10 years, the company would pay back the initial loans.
Presume the car company issued debt in 2020 in the form of bonds with a 4% interest rate. The car company will pay 4% on the debt and bondholders will receive a 4% yield.  Fast-forward a year to 2022. The car company needs to borrow additional money. Only in 2022, assume interest rates have risen across the economy and the car company must now pay a 5% interest rate on debt. Rising rates will push the price of the older bonds down. Investors may have accepted a 4% yield in 2020, but now demand a 5% return. Bond prices will adjust accordingly and drop. In this example, a $1,000 4% bond with 10 years to maturity will drop in price to $920 as interests rise by 1%. Duration will cause bond portfolios to continue dropping as interest rates increase.
  • Uncertainty Feeds Volatility – Stock and bond markets thrive on knowing what will come next. Predictable stability helps companies forecast, make strategic decisions and execute business plans. Stability helps predict future revenue and income, which provides a framework for equity prices. Uncertainty constantly challenges this framework and casts a deeper shadow on assets with risk. More volatile assets, such as bitcoin and tech stocks, have been subject to steeper losses than their more predictable contemporaries.
What do we do from here? Do not panic. Whether you are young or approaching retirement, continue saving for the future. You will be able to buy slightly more stocks, bonds or mutual fund shares with each contribution to your retirement plan than you did when prices were higher. And when you check your retirement balance, remember that historically, stock and bond markets ebb and flow over time. If you are in retirement, revisit your expenses. Begin the journey of discerning expenses that are fixed, such as rent or insurance premiums, and those you have more control over, such as going out to eat or travel. Inflation hits retirees and those living on fixed incomes the hardest. Now is a great time to meet with a financial adviser to talk about your portfolio, goals, asset allocation and spending pressure. Financial advisers can provide objective, customized advice to ensure your portfolio is built to fit your goals. No one has a crystal ball, but meeting with a skilled and prudent financial professional can help you create and reevaluate a financial plan in a volatile time.    Return References:  S&P 500 December 31st 2021 4,766 January 27, 2022 4,349 The views stated are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein.  Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.  Past performance does not guarantee future results. Investing in mutual funds is subject to risk and loss of principal.  There is no assurance or certainty that any investment strategy will be successful in meeting its objectives. Exchange-traded funds and mutual funds are sold only by prospectus.  Investors should consider the investment objectives, risks and charges and expenses of the funds carefully before investing. The prospectus contains this and other information about the funds. Contact your Registered Representative to obtain a prospectus, which should be read carefully before investing or sending money. CWM, LLC home office address 14600 Branch St. Omaha, NE 68154, phone: 888-321-0808. These examples are hypothetical only, and do not represent the actual performance of any particular investments.  Investments in securities do not offer a fixed rate of return.  Principal, yield and/or share price will fluctuate with changes in market conditions and when sold or redeemed, you may receive more or less than originally invested.  Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. Cetera does not offer any direct investments, endorsement, or advice as it relates to Bitcoin or any crypto currency. This Is for Information purposes only. [post_title] => Five Reasons Your IRA is Deflating, and What to Do About It [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => five-reasons-your-ira-is-deflating-and-what-to-do-about-it [to_ping] => [pinged] => [post_modified] => 2022-04-25 12:26:09 [post_modified_gmt] => 2022-04-25 17:26:09 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/blog/five-reasons-your-ira-is-deflating-and-what-to-do-about-it/ [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [1] => WP_Post Object ( [ID] => 64769 [post_author] => 181805 [post_date] => 2022-03-03 12:17:58 [post_date_gmt] => 2022-03-03 18:17:58 [post_content] => Kevin Oleszewski, Senior Wealth Planner For many parents, childcare can be their biggest monthly expense, and rising inflation hasn’t helped matters. Add in the cost of caring for aging parents? You’re likely spending a fortune on care. Fortune reports that the cost of childcare has risen 41% for center-based options during the pandemic with families spending approximately 20% of their salaries on the expense. Prior to the pandemic, parents were paying an average of $9,977 for center-based childcare providers, but are now paying $14,144 annually. And if you’re one of the 12% of U.S. adults   who are part of the “sandwich generation” – caring for both children and aging parents – you might also be contending with the high costs of adult day care or other care options. AARP reports that annually it costs family caregivers an average of $7,242 to care for aging family members. If you are somebody who is facing care expenses on both sides, you might need some help navigating those costs. There are a few ways to manage those costs, including dependent care flex spending accounts and the Child and Dependent Care Tax Credit. We’ll dive into both of those in this article and give you some valuable takeaways to discuss with your financial professional.

Dependent Care FSAs

Offered through many employers, dependent care FSAs allow you to make pre-tax contributions to pay for qualified childcare expenses, which include daycare, preschool and summer day camps. If you choose this route, your contribution amount isn’t subject to federal or state income taxes, nor is it subject to withholdings for Social Security and Medicare. You have to choose whether you’ll have a dependent care FSA during open enrollment or within 30 days of a dependent care event, such as the birth of a baby or adopting a child. One thing to note with these is that you must use the funds by the end of the year, or you’ll lose them. With the astronomical costs of childcare right now, that shouldn’t be a problem. However, you should check with your employer to see if they allow any rollover from the previous year. While the American Rescue Plan Act, passed in March 2021, raised the contribution limits to dependent care FSAs for the 2021 plan year, the limits are back to $5,000 for individuals or married couples filing jointly and $2,500 for those married filing separately. One way to plan for how much you’ll elect to contribute is to look at what you paid on care costs last year and ensure you contribute enough to cover that. If you find that you didn’t elect enough, you might have the option to change the amount mid-year. You might also able to carry over more from last year’s dependent care FSA and you may have a longer grace period to use those funds from 2021. Check with your employer on both of those points.

Reactive Planning with the Child and Dependent Care Credit

The Child Tax Credit advanced payments went to nearly 61 million families in 2021. ​​But it is not to be confused with the Child and Dependent Care Credit. The Child and Dependent Care Credit provides a tax credit for taxpayers to help pay for the cost of care for children and dependents that is calculated based on your income and a percentage of care costs that you pay so that you can work or go to school. The American Rescue Plan increased the Child and Dependent Care Credit expense cap to $4,000 for one child or dependent, and $8,000 for two or more children or dependents. The American Rescue Plan Act upped income threshold and the maximum percentage of eligible child care expenses for the 2021 tax filing year. The maximum percentage of eligible child care expenses has increased to 50%, up from 35%, even for taxpayers with an adjusted gross income of up to $125,000. According to the IRS, for 2021 only, you can use expenses up to $8,000 for one qualifying individual and $16,000 for two or more qualifying individuals to calculate the credit. The new thresholds and the percentage of qualifying expenses:
  • If AGI is less than $125,000, you get 50% of the qualifying expense up to a cap ($8,000 for one qualifying individual and $16,000 for two qualifying individuals).
  • If AGI is between $125,000 and $185,000, you get between 20% and 50% of the qualifying expense.
  • If AGI is between $185,000 and $200,000, you get 20% of the qualifying expense.
  • Taxpayers with an AGI over $438,000 aren’t eligible for this credit.
Another change brought on by the American Rescue Plan is that these tax credits are now refundable, whereas they didn’t used to be. This means that if your tax credit is more than your tax bill, you’ll get the difference in your tax refund. The IRS also notes that if you’ve received dependent care benefits that are deducted from your income, you have to subtract that amount from the dollar limit that you use to calculate this credit. For example: Randall is married and both he and his wife are employed. Each has earned income in excess of $16,000. They have two children, Anne and Andy, ages 2 and 4, who attend a daycare facility licensed and regulated by the state. Randall's work-related expenses are $16,000 for the year. Randall's employer has a dependent care assistance program as part of its cafeteria plan, which allows employees to make pre-tax contributions to a dependent care flexible spending arrangement. Randall has elected to take the maximum $10,500 exclusion from his salary to cover dependent care expenses through this program. Although the dollar limit for his work-related expenses is $16,000 (two or more qualifying persons), Randall figures his credit on only $5,500 of the $16,000 work-related expense paid. This is because the $10,500 dependent care FSA benefit he selected reduced his dollar limit. The IRS notes that you qualify for the child and dependent care credit if:
  • Your dependent was a child under age 13
  • Your spouse was physically or mentally unable to care for themselves and lived with you for more than half of the year
  • An individual who was physically or mentally unable to care for themselves and lived with you for more than half the year and was either your dependent or could have been your dependent, but received a gross income of $4,300 or more or filed a joint return
One thing to note is if you’re married filing separately, you don’t qualify for the Child and Dependent Care Credit. And if you received your Child Tax Credit, it doesn’t affect your eligibility to claim the Child and Dependent Care Credit. The Child and Dependent Care Credit also doesn’t impact your ability to claim the Earned Income Tax Credit. It’s possible you can claim all three credits and get an even bigger refund.

Connect with Your Professional

You cannot use the dependent care FSA and the Child and Dependent Care Credit at the same time. You have to pick a lane. And the lane you pick is dependent on your unique situation and circumstances. Call your financial professional today to see which one might be more beneficial to you. [post_title] => Planning for the Rising Cost of Dependent and Child Care [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => planning-for-the-rising-cost-of-dependent-and-child-care [to_ping] => [pinged] => [post_modified] => 2022-03-04 09:08:41 [post_modified_gmt] => 2022-03-04 15:08:41 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/blog/planning-for-the-rising-cost-of-care/ [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [2] => WP_Post Object ( [ID] => 64654 [post_author] => 180930 [post_date] => 2021-03-24 10:58:12 [post_date_gmt] => 2021-03-24 16:58:12 [post_content] => Many of us all but ignore our retirement accounts for much of our working lives. We look at a pay stub and have a vague sense of the “minuses:” Social Security, insurance, taxes. But the IRA is one of the most powerful retirement savings tools available to us, and so it warrants our attention.  Its variant, the Roth, also offers dynamic savings opportunities, and which one of these works for you depends on your financial plan and a variety of other factors.  Let’s look at the basics of the traditional versus Roth IRA to see which one might work best for your wealth journey. The differences range from glaring to subtle, and the more intentional you are about the choice, the more you can end up saving in the long run. 

The Basics 

First, let’s define terms. The IRA, or individual retirement account, was created by the U.S. government to encourage saving for retirement and curb financial distress among retired individuals. Because they are intended for retirement, you’ll get penalized in most cases for accessing the funds before age 59.5.  Both the Roth and traditional IRA have a contribution limit of $6,000 per year, with a $1,000 catch-up contribution if you are over age 50 (in 2020-21). The contribution deadline to any kind of IRA typically mirrors the deadline to file your tax return. In most years, you can contribute to your IRA until April 15, for example.  Traditional IRAs were introduced during the Employee Retirement Income Security Act of 1974 (ERISA) and first gained widespread popularity in the 1980s. Roth IRAs were introduced in 1997, named for Senator William Roth. Let’s look at the basic differences between these two versions of the IRA. 

How do the Taxes Work? 

The most noticeable difference between a traditional versus Roth IRA is the way the taxes work. Contributions to traditional IRAs are made with pre-tax dollars, and growth is tax-deferred. That means the gains are taxed upon withdrawal. So, the taxman knocks, but he knocks later.  If you have a Roth IRA, you pay the taxman upfront, and he essentially never comes knocking. The growth is tax-free and withdrawals in retirement are almost always tax-free. You’ve basically done your tax work upfront, so the IRS doesn’t care how much it grows – it’s your money at that point. Generally, those who are in a high tax bracket today typically benefit more from a traditional IRA than those in a lower tax bracket. And those who are in a low tax bracket today typically benefit more from a Roth IRA than those in a higher tax bracket. 

Two Plans, Two Scenarios

Let’s look at two scenarios in which both plans are advantageous for certain reasons. Each financial journey is unique, so a blanket answer – ”always this, never this” – won’t work for IRAs or other financial choices. 

Traditional IRA Scenario 

In the first scenario, we have an investor in the wealth-building phase who is in the 24% tax bracket and not participating in an employer-sponsored plan. She determines she can put $6,000 into her traditional IRA and reduces her current income from $105,000 to $99,000 saving her $1,440 in taxes.  When she reaches retirement, her taxable income reduces greatly to $30,000 and places her in the lower tax bracket of 12%. At this time she needs additional income and decides to pull it from her traditional IRA. If she were to take a $6,000 distribution, she would pay $720 in taxes. That's half of what she would have paid on the $6,000 if she decided not to contribute to her traditional IRA.

Roth IRA Scenario

In the second scenario, we have an investor early on in his career. He’s single and on the high end of the 12% tax bracket earning $35,000 a year. He starts a Roth IRA, and contributes the max $6,000, paying $720 in taxes right away.  After a long successful career, he retires and has a fixed income of $75,000 a year, placing him firmly in the 22% tax bracket. In the event he needed additional income, he could take a distribution from his Roth IRA and pay $0 in taxes since he already prepaid his tax bill when he made his contribution. These are simplified scenarios. Everyone's situation is unique, and there may be factors other than your tax bracket that could influence which account is right for you. Learn more: Use our 401(k) calculator to determine how your account compares to what you may need in retirement.

How do I Get Access to the Money?

As with any financial instrument, there are parameters on access to the funds. Remember, the IRS is trying to encourage saving for retirement, so they don’t want you to take the money early. 

Traditional IRA 

We’ve already discussed the magical age of 59.5, which applies to all IRAs. If you take your money out before then from a traditional IRA, not only will you pay taxes on the contributions and the growth, but you’ll also pay a 10% early withdrawal penalty tax. That’s essentially akin to jumping a few tax brackets on that money – not a situation you want to be in! 

Exceptions 

There are exceptions to these penalties. You can possibly take an early withdrawal if you qualify for a hardship distribution. You can also take $10,000 out the first time you build or buy a home, and your spouse can take that distribution as well. These distributions and a handful of others can help you avoid the early withdrawal penalties.

Roth IRA 

One of the perks of a Roth is the money is considered yours because it’s after-tax (as long as you take it at the correct age). The IRS has already taken their part of it, so they leave it alone. There are a few catches of course. 

5-Year Rule

Although contributions to a Roth are always accessible, you have to wait five years after opening a Roth before you can withdraw your earnings without fees. Keep in mind that this is five years from when you start your first Roth account. You could start an account, wait the five years, start another one and take from those earnings as soon as they arrive.

59.5 

Age 59.5 is the magical no-penalty withdrawal age for traditional and Roth IRAs. With a Roth, your earnings on your contributions will be taxed if you withdraw them before this age. So if you deposited $6,000 and it grew to $10,000 and you withdrew that full amount, you’d pay taxes on the $4,000. After age 59.5 there’s no penalty. 

Restrictions and Parameters 

When the IRS gives you breaks or privileges with a financial vehicle, you can be sure there are restrictions on it as well. We’ve already discussed the contribution limit for both IRA types – $6,000, or $7,000 if you’re over age 50 (for 2020 and 2021). 

Restrictions for a Traditional IRA 

There are no income limits to be able to contribute to a traditional IRA, but your tax deductions run into limits if you or your spouse are covered by a 401(k) at work. For 2020-21, if you make over $66,000 a year (MAGI), you start to reach the phaseout and will only receive a partial deduction for contributions. After your income reaches $76,000, you will no longer receive any tax deduction. For married filing jointly, phaseout starts at $105,000 and the deduction disappears altogether at $125,000 in income. 

Restrictions for a Roth IRA 

The incredible financial planning opportunity available with a Roth comes with income restrictions. Essentially, if you make too much money, you can’t start a Roth account. For 2021, you hit the phaseout threshold at $125,000 and the ceiling is $140,000 for a single person. For married filing jointly, the phaseout starts at $198,000 and ends at $208,000.  There are strategies such as the Roth conversion and the backdoor Roth conversion to work creatively with Roth limitations. 

Powerful Tools in the Right Hands 

As you can see, the IRA is a powerful savings vehicle for retirement and can put your money to work for you rather than gathering only dust in the bank. Whether you go with traditional versus a Roth IRA is a matter of weighing the details against your life.  Talk with your financial advisor about what works for your place in the wealth journey and your particular dreams for retirement – there’s no generic answer to that question. The important thing is to get started!  Get in touch today, and let’s see what works for you!  Make an Appointment! Distributions from traditional IRA’s and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reach age 59 ½, may be subject to an additional 10% IRA tax penalty. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for tax-free and penalty free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes. [post_title] => Traditional or Roth – Which IRA Works for You? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => traditional-or-roth-which-ira-works-for-you [to_ping] => [pinged] => [post_modified] => 2021-12-14 14:39:07 [post_modified_gmt] => 2021-12-14 20:39:07 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/blog/traditional-or-roth-which-ira-works-for-you/ [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [3] => WP_Post Object ( [ID] => 64183 [post_author] => 12175 [post_date] => 2020-12-23 15:13:33 [post_date_gmt] => 2020-12-23 20:13:33 [post_content] => [et_pb_section fb_built="1" _builder_version="3.22"][et_pb_row _builder_version="3.25" background_size="initial" background_position="top_left" background_repeat="repeat"][et_pb_column type="4_4" _builder_version="3.25" custom_padding="|||" custom_padding__hover="|||"][et_pb_text _builder_version="3.27.4" background_size="initial" background_position="top_left" background_repeat="repeat"]

[vc_row][vc_column][vc_column_text]By Jamie Hopkins, Director of Retirement Research at Carson

President Trump has signed the new $900 billion economic relief and spending bill passed by Congress. While most of the focus has been on a second round of relief payments to most Americans, there is plenty more in the 5,000-plus pages of the stimulus package.

The goal of this bill is to continue to offer assistance to businesses struggling during the COVID-19 pandemic, provide extra unemployment benefits to those unable to find work, and to stimulate an economy that has persevered through much volatility over the past 10 months.

Here are 17 takeaways from the new legislation that you should know:

Individuals

1. Relief Payments

Most of the focus of the bill has been on the $600 relief payments that will be given to most Americans. The $600 is half of the amount allocated to adults by the CARES Act in March. The payment is $600 per individual, so $1,200 for married couples and $600 for each dependent child. Under the CARES Act, it was $500 for each dependent child. Dependent adults were not included in the new bill.

Not every American is eligible to receive the full $600, however. You are eligible if you make less than $75,000 as a single tax filer or less than $150,000 as a married couple filing jointly. If you earned more than the threshold in the 2019 tax year, then you can receive a smaller payment, however the phaseout thresholds are capped at $87,000 and $174,000, respectively.

These payouts are not taxable, and if you qualify in 2020 despite not qualifying in 2019, it will become a tax credit for 2020 and you will receive it when you file.

2. Additional Unemployment Benefits

Originally, the CARES Act provided added unemployment benefits through four main provisions, which increased unemployment payments, extended benefits to those who lost them and helped part-time workers who may not have qualified for state unemployment insurance benefits. Here’s a look at those three programs and what the new bill does to continue them:

  • Federal Pandemic Unemployment Compensation: The CARES Act provided $600 per week in added unemployment benefits, but that provision expired at the end of July despite continued high unemployment. In response, President Trump signed an executive order to extend the program by offering $300 per week instead of $600, along with $100 from states. As funding for that program ended, the new legislation takes over by providing $300 a week in unemployment benefits.
  • Pandemic Unemployment Assistance: The Pandemic Unemployment Assistance program was created to help part-time, freelance and self-employed workers who may not have qualified for state unemployment insurance benefits. Under the new bill, this program is extended for 11 weeks, with a stipulation that the applicants provide proof of previous employment or self-employment within three weeks of applying. The maximum number of weeks is now set at 50. Generally speaking, the PUA program has been extended to March 14, 2021. Those approved for PUA by March 14 will be able to continue for another four weeks.
  • Pandemic Emergency Unemployment Compensation: The Pandemic Emergency Unemployment Compensation provides 13 additional weeks of benefits if a worker exhausts state benefits. However, the program expired on December 26, 2020. The new bill will continue this program through March 14, 2021. The PEUC program has also been extended to provide a total of 24 weeks of benefits. Again, those approved before March 14 can continue receiving benefits under the program for four additional weeks.
  • Mixed Earner Unemployment Compensation: Under the new legislation, some seeking unemployment benefits who had mixed income between self-employed and traditional W-2 employment income could be eligible for an additional $100 on top of the FPUC $300 if they had at least $5,000 of qualifying annual self-employment income, 1099, that they lost. This extra benefit would last until March 14, 2021.

3. Vaccine Distribution

The bill sets aside $20 billion for individual coronavirus vaccinations and $8 billion for vaccine distribution. The CARES Act addressed the cost of COVID-19 testing, and this seeks to provide similar aid for those getting vaccinated.

4. Flexibility with FSAs

Typically, a flexible spending account can be used as a tax-advantaged vehicle to meet certain health care expenditures each year. However, FSAs are generally a “use it or lose it” account, which means expenses and distributions need to occur by the end of the year. The new bill would allow for any unused FSA funds to be rolled over from 2020 to 2021 and allow 2021 funds to be rolled over to 2022.

These rules apply to both health- and dependent-care FSAs. The age threshold for dependent-care FSAs was temporarily extended to under 14, up from 13 to account for the extension.

Lastly, the new bill allows for FSA plans to permit a prospective change in election amounts for both health- and dependent-care FSAs mid-year in 2021. This means some companies will have to decide if they will hold a mini open-enrollment period in 2021.

5. Deductible Medical Expenses

Additionally, the deductibility of medical expenses as an itemized expense is normally set at expenses above 10% of adjusted gross income but was lowered to 7.5% as part of the CARES Act for 2020 and was extended for 2021. As such, individuals can deduct unreimbursed medical expenditures that exceed 7.5% of AGI in 2021. This is an important note as you prepare your 2020 taxes.

6. Eviction Memorandum Continued

The original Eviction Memorandum from the Centers for Disease Control and Prevention came in September, ordering a stoppage on evictions for failure-to-pay cases if the tenant made less than $99,000 annually as a single person or $198,000 as a couple. This memorandum, which left it up to the evicted tenant to file a motion with a judge, was set to expire on December 31, 2020. That date has been extended to January 31, 2021.

Businesses

7. Continuation of the Paycheck Protection Program

Of the $900 billion bill, $284 billion is pegged for the Paycheck Protection Program, the forgivable loan program created under the CARES Act to help small businesses. Many businesses were shut out of the original funding window, which prompted Congress to open a second round of loans, which expired in August.

The new bill also clarifies much of the PPP process – which small business owners (and tax professionals) desperately needed – and set a quick timeframe for the Small Business Administration to create new regulations. Additionally, the bill expanded covered expenses for PPP loans, including some language allowing for disaster relief, which could open up the programs more broadly for remaining funds in the future.

8. PPP Deduction Clarity

There was a debate brewing over whether small businesses could deduct expenses paid with the Paycheck Protection Program funds received. In a big win for business owners, Congress declared that those expenses are deductible and the loan is not included in gross income.

In addition, the Economic Injury Disaster Loans are also tax-free and expenses can be deducted.

9. PPP Loan Simplification

For businesses that may need a smaller loan, the process just got a lot easier. For loan applications under $150,000, a business will now need to submit a certification to the lender with just three things: the number of employees you are able to keep due to the loan, how much of the loan will be used to cover payroll costs, and an attestation that you’re going to do what you say you will with the money (and that you’ll keep records to prove it).

This simplification is designed specifically to help small businesses with the hope that they continue to retain employees despite pandemic-related struggles. Full information on loan forgiveness eligibility and required costs allocated to employee payroll is available on the U.S. Small Business Administration website.

In addition, the SBA has been charged with creating a one-page forgiveness document and also restricted the lender from asking for any more information than is required on the one-page document for forgiveness for these $150,000 and under loans. This document must be public within 24 days of the passage of the bill.

The easier forgiveness option could encourage most businesses that took out PPP loans to wait to file until the SBA delivers this one-page document.

10. Expansion of PPP Loan Program

Under the new bill, PPP loans can be used to cover additional eligible expenses, which include business operational expenses; property damage costs from public disturbances; costs related to protecting employees in alignment with national or local health mandates; supplier costs that were essential to business operation; and group life, disability, dental and vision insurance.

The CARES Act provided coverage for only payroll, mortgage or rent, and utilities. These are still covered under the new bill.

In addition, some businesses will be eligible for a second PPP loan. While Congress expanded the application timeline and allocated more money to the program after the CARES Act, the new bill allows for businesses with fewer than 300 employees to apply for a second PPP loan. The business must have suffered a 25% drop in at least one quarter’s revenue from 2019 to 2020.

The maximum for a second loan is $2 million, whereas the first round of loans allowed up to $10 million. Certain companies, like hotels and restaurants, might be eligible for higher loan amounts than before as there was a cap on the PPP loan at 2.5 times average monthly payroll. Under the new bill, these companies can take up to 3.5 times but are still subject to the $2 million cap. Other provisions do apply, so if you’re interested in a second PPP Loan, check with your financial advisor.

11. Employee Retention Tax Credit Expanded

Under the CARES Act, the Employee Retention Tax Credit (ERTC) could not be used if you received a PPP Loan. However, under the new bill, businesses can receive this credit as long as the funds are used for wages not paid with PPP funds. With this new rule and the expansion of the credit’s coverage, it becomes an attractive option for small businesses.

The ERTC covers 70% of qualified wages each quarter, a bump from the original 50% coverage, and the end date was pushed to July 1, 2021, from January 1, 2021. While the CARES Act capped coverage at $10,000, the new bill increases the credit to $10,000 per quarter. In essence, this changes the tax credit from $5,000 to $14,000 per employee, which is a significant tax benefit for 2021. However, you must still see a drop in gross receipts from 2020 by 20% and have fewer than 500 employees to qualify, which is up from the 100 employee limit in the 2020 version.

12. Economic Injury and Disaster Loan Funding

While most business owners elected to take the PPP loan under the CARES Act, the previous legislation also created the Economic Injury and Disaster Loan program through the SBA. This program did not limit the use of funding to payroll, mortgage and utilities like the PPP program did. The EIDL program will receive $20 billion for targeted grants under the new bill.

13. Extension of Repayment Period for Deferred Payroll Taxes

The CARES Act allowed certain companies to defer their side of the payroll tax. Certain employers could defer payroll taxes on their side from March 27, 2020, to December 31, 2020. By the end of December 31, 2021, 50% was due, and the remaining 50% was due by the end of December 31, 2022.

In August 2020, President Trump signed a memorandum allowing employee deferral of the payroll tax for Social Security as long as that employee’s bi-weekly pay period, pre-tax wages were less than $4,000. Some employers set this up and others did not, in part because it was still a deferral of the tax, and it was expected to be due by the end of April 2021.

The new bill extends the repayment period for the employee payroll tax deferral to December 31, 2021. Penalties and interest on the deferred tax liability would not begin to accrue until January 1, 2022.

14. Allocated Funds to Businesses in Underserved Communities

The new bill provides $9 billion to Community Development Financial Institutions and Minority Depository Institutions. There was a problem in the first round of PPP loans as many smaller businesses were shut out of the first round of funding. This provision is meant to allocate money to business owners of color who may not have the same access to resources.

15. Business Meal Expense

The Tax Cuts and Jobs Act reduced the ability to deduct certain business expenses. One of these expenses was business meals. In light of the COVID-19 impact on restaurants, the deduction restriction was lifted, allowing for business meals with clients to be 100% deductible in 2021 and 2022, as opposed to the current 50% deductibility.

16. Transportation Aid

The new bill allocates $45 billion to the transportation industry, which has been hit extremely hard by the pandemic. It expands CARES Act programs put in place that will help airline employees, transit workers, bus companies and more.

17. Aid for Entertainment Venues

The new bill also provides $15 billion in assistance for live entertainment venues, independent movie theaters, and other cultural organizations as many in-person entertainment activities took a major hit during the pandemic.

What’s Next

As businesses, individuals, local governments and more adjust to the new provisions, the main takeaway for most Americans is that you’ll likely be receiving another relief check, and there are added benefits if you are or become unemployed.

Meanwhile, much of the new bill is meant to help struggling small businesses stay afloat until the pandemic is under control.

The Biden Administration is set to take office in January with a focus on its first 100 days, which means we could see additional legislation start moving through Congress. How much of that legislation includes support or expansion of programs currently in place is yet to be seen.

The views stated in this piece are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

This communication is designed to provide accurate and authoritative information on the subjects covered. It is not however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.

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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section] [post_title] => 17 Things You Need to Know About the New Stimulus Package [post_excerpt] => Congress passed the new $900 billion economic relief and spending bill on Monday. While most of the focus has been on a second round of relief payments to most Americans, there is plenty more in the 5,000-plus pages of the stimulus package. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 17-things-you-need-to-know-about-the-new-stimulus-package [to_ping] => [pinged] => [post_modified] => 2021-06-17 15:37:59 [post_modified_gmt] => 2021-06-17 20:37:59 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/blog/17-things-you-need-to-know-about-the-new-stimulus-package/ [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [4] => WP_Post Object ( [ID] => 62378 [post_author] => 158135 [post_date] => 2020-09-30 08:36:45 [post_date_gmt] => 2020-09-30 13:36:45 [post_content] => As a CPA, one of the questions that I have been getting more frequently is, “What is a donor-advised fund?” This is not surprising as the number of individual donor-advised fund accounts has grown by over 50% for the second year in a row, according to the National Philanthropic Trust’s 2019 DAF Report. Let’s explore how they work, why they are beneficial from a tax perspective, and some special charitable deduction rules that are new for 2020.

How a Donor-Advised Fund Works

A donor-advised fund is a fund that you can make tax-deductible donations to, the donations can grow tax-free, and you can support your favorite charities now and in the future. You receive the tax deduction when you place the assets in the donor-advised fund, not when the funds are distributed out to the charity of your choice. You can place many types of assets into a donor-advised fund including cash, stocks and real estate. Most people donate appreciated stocks into the fund because of the added tax benefit. You can take a deduction for the fair market value of the stock (as opposed to your purchase price) if you’ve held the stock for a year and never recognize the gain on the stock. (You would have to recognize the gain on the stock if you sold it outright.) You can donate appreciated stock directly to a qualifying charity. Keep in mind some small charities don’t have the resources or experience to know how to handle a stock gift.

How to Take Advantage of a Donor-Advised Fund’s Tax Benefits

Taking a tax deduction when you place your assets in the donor-advised fund is a powerful tax benefit. It’s strategic to time the deduction to coincide with a year that you receive a large bonus, sell a company, or have another extraordinary income event. You can take the deduction in the year you are in a higher tax bracket to help reduce your tax liability and front-load your donor-advised fund. The assets in the fund can fuel donations now and/or in the future. Even if you do not have a big income event, you may want to consider “bunching” your donations every couple of years. Many people who previously itemized their deductions are now using the increased standard deduction. For example, if you don’t think you will be over the standard deduction with your normal yearly gifting, you may want to donate 3-5 years’ worth of donations into the donor-advised fund in the current year. You can then take advantage of the itemized deduction in the high-donation year, take the standard deduction in the subsequent years, and disburse the funds to charities over the next three to five years ratably as you typically would on a yearly basis. Tax Picture with a Yearly Charitable Donation Tax Picture with a Front-loaded Donor-Advised Fund

3 Things to Know When Considering a Donor-Advised Fund

1. Do Not Let the “Tax Tail” Wag the Dog. You should not let the tax benefits be the deciding factor in donating to a donor-advised fund. Once you make the donation, you cannot get the assets back out of the fund for personal use. 2. You Control the Fund. You decide the timing of the donations into the donor-advised fund and out of the fund to the charities of your choice. Donor-advised funds have been receiving some negative press as a black-hole that people use to receive a tax deduction, and then do not distribute the assets out to charity. The choice of when to distribute funds to charities is strictly up to you, the donor. You control your donor-advised fund, the investments inside the fund, and the distribution of the assets. 3. Know The Minimum Requirements. There are minimum donations required to establish a donor-advised fund, minimum subsequent donations, and minimum gifts to charity set in place by the major institutions that run donor-advised funds. There are also annual administrative fees charged to maintain the fund at the institution. Be sure to compare minimums and fees.

Donor-Advised Funds and Special Deductions For 2020

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law in March 2020 and includes several modifications to the charitable giving laws for 2020. Donors who itemize their deductions can now give more to charity before reaching their adjusted gross income (AGI) limitation. Formerly set at 60%, the limitation for cash contributions to certain public charities has now been raised to 100% of an individual’s AGI for 2020. Any giving beyond this 100% limitation may be carried over and used in the next five years. This provision excludes giving to private foundations and donor-advised funds. This means that donors who exhaust the 60% limit with cash contributions to their DAFs in 2020 could make any additional donations outside their DAF and have those donations qualify for a deduction (up until reaching the 100% limit). Donors who take the standard deduction will be able to take a $300 above-the-line deduction for cash donated to a qualified nonprofit. Only people who don’t itemize can use this charitable deduction and only cash donations qualify. Donated stock, furniture, clothes and canned goods do not. Neither does giving to donor-advised funds or foundations. Reach out to your advisor today and have them help you with 2020 tax planning to maximize your tax deductions and the impact that you can have on the world around you. -- The opinions are those of the writer, and not the recommendations or responsibility of Cetera Advisor Networks LLC or its representatives. [post_title] => How to Take Advantage of Donor-Advised Funds and Special 2020 Tax Deductions for Donations [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => how-to-take-advantage-of-donor-advised-funds-and-special-2020-tax-deductions-for-donations [to_ping] => [pinged] => [post_modified] => 2020-09-30 08:36:45 [post_modified_gmt] => 2020-09-30 13:36:45 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.carsonwealth.com/insights/blog/how-to-take-advantage-of-donor-advised-funds-and-special-2020-tax-deductions-for-donations/ [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) ) [post_count] => 5 [current_post] => -1 [in_the_loop] => [post] => WP_Post Object ( [ID] => 64865 [post_author] => 182131 [post_date] => 2022-04-25 12:16:15 [post_date_gmt] => 2022-04-25 17:16:15 [post_content] => By Craig Lemoine, Director of Consumer Investment Research

Stocks, bonds and mutual funds have had a rocky start to the year. The S&P 500, a broad measure of the United States stock market, was down 4.6% over the first quarter. Mutual funds holding stocks and bonds have also lost value. These losses are jarring following an outstanding 2021, where the S&P 500 gained just under 30%. Why the exhale? The balloon was blown up too quickly. Understanding why your IRA or 401(k) has suddenly lost value requires taking a step into the past.
  • Persistent Inflation – A combination of COVID-caused supply chain issues, low unemployment, wage increases and global political uncertainty is clobbering inflation. Rising prices for food (6.3% the last 12 months ending December 2021), energy (29.3%) and all other items (5.5%) have taken their toll on budgets. Recent unemployment numbers are 3.6%, lower than pre-COVID levels. Fewer Americans searching for jobs, coupled with pandemic driven child-care hurdles, have pushed wages higher. Higher wages couple with higher input prices (lumber, steel, commodities, energy), pressuring producers to raise prices. These prices ripple down the supply chain to stores nearby. Inflation has caused the market to pause and raised questions about sustainability and fundamental assumptions around growth.
  • Are We Back to Work Yet? – The COVID-19 omicron variant threw a meaningful hurdle into America’s return to work. Plans to phase back in in-person workforces, employees finding a groove working from home, commuting and traveling were all affected. Sudden economic shifts for any reason add to volatility and, in this case, challenge recovery estimates from last year. Equities have stumbled as future revenue, business model and sales projections have been challenged.
  • The Federal Reserve is Raising Interest Rates to Help Combat Inflation – The Federal Reserve is a governing body for the United States banking system. It has three primary goals: maximize employment, stabilize prices and moderate long-term interest rates. Prices have been anything but stable. The Federal Reserve is raising rates on money it lends to member banks, which will in turn raise rates companies and retail investors are charged when they borrow. Ratcheting up rates will slow down the economy and result in additional adjustments to profitability, revenue and business model expectations. These adjustments have pushed stock prices lower. 
  • Bond Prices Fall When Interest Rates Rise – An economic concept called duration explains the relationship between interest rates and bond prices. Duration can be tricky – take an example of a car company borrowing money. The company plans on using the money to build a new manufacturing facility, and plans on paying it back over 10 years. The company could sell bonds, borrowing money from consumers and paying them back some type of interest every year. At the end of 10 years, the company would pay back the initial loans.
Presume the car company issued debt in 2020 in the form of bonds with a 4% interest rate. The car company will pay 4% on the debt and bondholders will receive a 4% yield.  Fast-forward a year to 2022. The car company needs to borrow additional money. Only in 2022, assume interest rates have risen across the economy and the car company must now pay a 5% interest rate on debt. Rising rates will push the price of the older bonds down. Investors may have accepted a 4% yield in 2020, but now demand a 5% return. Bond prices will adjust accordingly and drop. In this example, a $1,000 4% bond with 10 years to maturity will drop in price to $920 as interests rise by 1%. Duration will cause bond portfolios to continue dropping as interest rates increase.
  • Uncertainty Feeds Volatility – Stock and bond markets thrive on knowing what will come next. Predictable stability helps companies forecast, make strategic decisions and execute business plans. Stability helps predict future revenue and income, which provides a framework for equity prices. Uncertainty constantly challenges this framework and casts a deeper shadow on assets with risk. More volatile assets, such as bitcoin and tech stocks, have been subject to steeper losses than their more predictable contemporaries.
What do we do from here? Do not panic. Whether you are young or approaching retirement, continue saving for the future. You will be able to buy slightly more stocks, bonds or mutual fund shares with each contribution to your retirement plan than you did when prices were higher. And when you check your retirement balance, remember that historically, stock and bond markets ebb and flow over time. If you are in retirement, revisit your expenses. Begin the journey of discerning expenses that are fixed, such as rent or insurance premiums, and those you have more control over, such as going out to eat or travel. Inflation hits retirees and those living on fixed incomes the hardest. Now is a great time to meet with a financial adviser to talk about your portfolio, goals, asset allocation and spending pressure. Financial advisers can provide objective, customized advice to ensure your portfolio is built to fit your goals. No one has a crystal ball, but meeting with a skilled and prudent financial professional can help you create and reevaluate a financial plan in a volatile time.    Return References:  S&P 500 December 31st 2021 4,766 January 27, 2022 4,349 The views stated are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein.  Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.  Past performance does not guarantee future results. Investing in mutual funds is subject to risk and loss of principal.  There is no assurance or certainty that any investment strategy will be successful in meeting its objectives. Exchange-traded funds and mutual funds are sold only by prospectus.  Investors should consider the investment objectives, risks and charges and expenses of the funds carefully before investing. The prospectus contains this and other information about the funds. Contact your Registered Representative to obtain a prospectus, which should be read carefully before investing or sending money. CWM, LLC home office address 14600 Branch St. Omaha, NE 68154, phone: 888-321-0808. These examples are hypothetical only, and do not represent the actual performance of any particular investments.  Investments in securities do not offer a fixed rate of return.  Principal, yield and/or share price will fluctuate with changes in market conditions and when sold or redeemed, you may receive more or less than originally invested.  Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. Cetera does not offer any direct investments, endorsement, or advice as it relates to Bitcoin or any crypto currency. This Is for Information purposes only. [post_title] => Five Reasons Your IRA is Deflating, and What to Do About It [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => five-reasons-your-ira-is-deflating-and-what-to-do-about-it [to_ping] => [pinged] => [post_modified] => 2022-04-25 12:26:09 [post_modified_gmt] => 2022-04-25 17:26:09 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/blog/five-reasons-your-ira-is-deflating-and-what-to-do-about-it/ [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [comment_count] => 0 [current_comment] => -1 [found_posts] => 276 [max_num_pages] => 56 [max_num_comment_pages] => 0 [is_single] => [is_preview] => [is_page] => [is_archive] => [is_date] => [is_year] => [is_month] => [is_day] => [is_time] => [is_author] => [is_category] => [is_tag] => [is_tax] => [is_search] => [is_feed] => [is_comment_feed] => [is_trackback] => [is_home] => 1 [is_privacy_policy] => [is_404] => [is_embed] => [is_paged] => [is_admin] => [is_attachment] => [is_singular] => [is_robots] => [is_favicon] => [is_posts_page] => [is_post_type_archive] => [query_vars_hash:WP_Query:private] => 6b5c18c1252b6c6a9f5f8613c74e0017 [query_vars_changed:WP_Query:private] => [thumbnails_cached] => [stopwords:WP_Query:private] => [compat_fields:WP_Query:private] => Array ( [0] => query_vars_hash [1] => query_vars_changed ) [compat_methods:WP_Query:private] => Array ( [0] => init_query_flags [1] => parse_tax_query ) [tribe_is_event] => [tribe_is_multi_posttype] => [tribe_is_event_category] => [tribe_is_event_venue] => [tribe_is_event_organizer] => [tribe_is_event_query] => [tribe_is_past] => )

Five Reasons Your IRA is Deflating, and What to Do About It

By Craig Lemoine, Director of Consumer Investment Research Stocks, bonds and mutual funds have had a rocky start to the year. The S&P 500, a broad measure of the United States stock market, was down 4.6% over the first quarter. Mutual funds holding stocks and bonds have also lost value. …
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                    [post_date] => 2020-01-28 11:38:21
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                    [post_content] => By Jamie Hopkins

Roth conversions can be a powerful tax and retirement planning technique. The idea behind most Roth conversions is to take money from an IRA and convert it to a Roth IRA. Essentially, you’re paying taxes today instead of paying taxes in the future.

The Tax Cut and Jobs Act lowered taxes for many Americans and with the SECURE Act Roth IRAs became even more powerful as an estate planning vehicle to minimize taxes, so it’s a convenient time to take advantage of Roth conversions. However, Roth conversions can come with some issues. Before you engage in one, be aware of these common problems as it can be hard to undo the transaction.

Conversions After 72

IRAs and Roth IRAs are both retirement accounts. It’s easy to assume Roth Conversions are best suited for retirement, too. However, waiting too long to do conversions can actually make the entire process more challenging. If you own an IRA, it’s subject to required minimum distribution rules once you turn 72, as long as you had not already reached age 70.5 by the end of 2019. The government wants you to start withdrawing money from your IRA each year and pay taxes on the tax-deferred money. However, Roth IRAs aren’t subject to RMDs at age 72. If you don’t need the money from your RMD to support your retirement spending, you might think, “I should convert this to a Roth IRA so it can stay in a tax-deferred account longer.” Unfortunately, that won’t work. You can’t roll over or convert RMDs for a given year. So, if you owe a RMD in 2020, you need to take it and you cannot convert it to a Roth IRA. Despite the fact you can’t convert an RMD, it doesn’t mean you can’t do Roth conversions after age 72. However, you need to make sure you get your RMD out before you do a conversion. Your first distributions from an IRA after 72 will be treated as RMD money first. This means, if you want to convert $10,000 from your IRA, but you also owe an $8,000 RMD for the year, you need to take the full $8,000 out before you do a conversion. Full article on Forbes   [post_title] => 3 Roth Conversion Traps To Avoid After The SECURE Act [post_excerpt] => Roth conversions can be a powerful tax and retirement planning technique. The idea behind most Roth conversions is to take money from an IRA and convert it to a Roth IRA. Essentially, you’re paying taxes today instead of paying taxes in the future. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 3-roth-conversion-traps-to-avoid-2 [to_ping] => [pinged] => [post_modified] => 2020-02-28 17:01:10 [post_modified_gmt] => 2020-02-28 22:01:10 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/news/3-roth-conversion-traps-to-avoid-2/ [menu_order] => 0 [post_type] => news [post_mime_type] => [comment_count] => 0 [filter] => raw ) [1] => WP_Post Object ( [ID] => 53316 [post_author] => 55227 [post_date] => 2020-01-28 10:38:21 [post_date_gmt] => 2020-01-28 16:38:21 [post_content] => By Jamie Hopkins

Roth conversions can be a powerful tax and retirement planning technique. The idea behind most Roth conversions is to take money from an IRA and convert it to a Roth IRA. Essentially, you’re paying taxes today instead of paying taxes in the future.

The Tax Cut and Jobs Act lowered taxes for many Americans and with the SECURE Act Roth IRAs became even more powerful as an estate planning vehicle to minimize taxes, so it’s a convenient time to take advantage of Roth conversions. However, Roth conversions can come with some issues. Before you engage in one, be aware of these common problems as it can be hard to undo the transaction.

Conversions After 72

IRAs and Roth IRAs are both retirement accounts. It’s easy to assume Roth Conversions are best suited for retirement, too. However, waiting too long to do conversions can actually make the entire process more challenging. If you own an IRA, it’s subject to required minimum distribution rules once you turn 72, as long as you had not already reached age 70.5 by the end of 2019. The government wants you to start withdrawing money from your IRA each year and pay taxes on the tax-deferred money. However, Roth IRAs aren’t subject to RMDs at age 72. If you don’t need the money from your RMD to support your retirement spending, you might think, “I should convert this to a Roth IRA so it can stay in a tax-deferred account longer.” Unfortunately, that won’t work. You can’t roll over or convert RMDs for a given year. So, if you owe a RMD in 2020, you need to take it and you cannot convert it to a Roth IRA. Despite the fact you can’t convert an RMD, it doesn’t mean you can’t do Roth conversions after age 72. However, you need to make sure you get your RMD out before you do a conversion. Your first distributions from an IRA after 72 will be treated as RMD money first. This means, if you want to convert $10,000 from your IRA, but you also owe an $8,000 RMD for the year, you need to take the full $8,000 out before you do a conversion. Full article on Forbes   [post_title] => 3 Roth Conversion Traps To Avoid After The SECURE Act [post_excerpt] => Roth conversions can be a powerful tax and retirement planning technique. The idea behind most Roth conversions is to take money from an IRA and convert it to a Roth IRA. Essentially, you’re paying taxes today instead of paying taxes in the future. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 3-roth-conversion-traps-to-avoid [to_ping] => [pinged] => [post_modified] => 2020-02-28 16:01:10 [post_modified_gmt] => 2020-02-28 22:01:10 [post_content_filtered] => [post_parent] => 0 [guid] => https://divi-partner-template.carsonwealth.com/?post_type=news&p=53316 [menu_order] => 0 [post_type] => news [post_mime_type] => [comment_count] => 0 [filter] => raw ) [2] => WP_Post Object ( [ID] => 62693 [post_author] => 6008 [post_date] => 2019-12-06 11:26:33 [post_date_gmt] => 2019-12-06 16:26:33 [post_content] => By Jamie Hopkins People plan on having a good day, a good year, a good retirement and a good life. But why stop there? Why not plan for a good end of life, too? End of life or estate planning is about getting plans in place to manage risks at the end of your life and beyond. And while it might be uncomfortable to discuss or plan for the end, everyone knows that no one will live forever. Estate planning and end of life planning are about taking control of your situation. Death and long-term care later in life might be hard to fathom right now, but we can’t put off planning out of fear of the unknown or because it’s unpleasant. Sometimes it takes a significant event like a health scare to shake us from our procrastination. Don’t wait for life to happen to you, though. Full article on Kiplinger [post_title] => 10 Common Estate Planning Mistakes (and How to Avoid Them) [post_excerpt] => Estate planning and end of life planning are about taking control of your situation. Death and long-term care later in life might be hard to fathom right now, but we can’t put off planning out of fear of the unknown or because it’s unpleasant. Don’t wait for life to happen to you, though. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 10-common-estate-planning-mistakes-and-how-to-avoid-them-2 [to_ping] => [pinged] => [post_modified] => 2020-02-28 17:02:24 [post_modified_gmt] => 2020-02-28 22:02:24 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/news/10-common-estate-planning-mistakes-and-how-to-avoid-them-2/ [menu_order] => 0 [post_type] => news [post_mime_type] => [comment_count] => 0 [filter] => raw ) [3] => WP_Post Object ( [ID] => 51325 [post_author] => 6008 [post_date] => 2019-12-06 10:26:33 [post_date_gmt] => 2019-12-06 16:26:33 [post_content] => By Jamie Hopkins People plan on having a good day, a good year, a good retirement and a good life. But why stop there? Why not plan for a good end of life, too? End of life or estate planning is about getting plans in place to manage risks at the end of your life and beyond. And while it might be uncomfortable to discuss or plan for the end, everyone knows that no one will live forever. Estate planning and end of life planning are about taking control of your situation. Death and long-term care later in life might be hard to fathom right now, but we can’t put off planning out of fear of the unknown or because it’s unpleasant. Sometimes it takes a significant event like a health scare to shake us from our procrastination. Don’t wait for life to happen to you, though. Full article on Kiplinger [post_title] => 10 Common Estate Planning Mistakes (and How to Avoid Them) [post_excerpt] => Estate planning and end of life planning are about taking control of your situation. Death and long-term care later in life might be hard to fathom right now, but we can’t put off planning out of fear of the unknown or because it’s unpleasant. Don’t wait for life to happen to you, though. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 10-common-estate-planning-mistakes-and-how-to-avoid-them [to_ping] => [pinged] => [post_modified] => 2020-02-28 16:02:24 [post_modified_gmt] => 2020-02-28 22:02:24 [post_content_filtered] => [post_parent] => 0 [guid] => https://divi-partner-template.carsonwealth.com/?post_type=news&p=51325 [menu_order] => 0 [post_type] => news [post_mime_type] => [comment_count] => 0 [filter] => raw ) [4] => WP_Post Object ( [ID] => 62692 [post_author] => 273 [post_date] => 2019-11-11 16:27:38 [post_date_gmt] => 2019-11-11 21:27:38 [post_content] => By Jamie Hopkins

Everyone’s heard the stories of celebrities who died without a proper estate plan in place. It’s been a hot topic in the last few years with Prince and Aretha Franklin serving as unfortunate faces of the phenomenon. But it’s not just freewheeling entertainers. Abraham Lincoln – a lawyer by trade – didn’t have one either, which leads me to say something you’ve probably never heard anyone say: don’t be like Abraham Lincoln.

Most people want to plan for a good life and a good retirement, so why not plan for a good end of life, too? Let’s look at four ways you can refine your estate plan, protect your assets and create a level of control and certainty for your loved ones.

1. Review Beneficiary Designations

Many accounts can pass to heirs and loved ones without having to go through the sometimes costly and time-consuming process of probate. For instance, life insurance contracts, 401(k)s and IRAs can be transferred through beneficiary designations – meaning you determine who you want to inherit your accounts after you die by filing out a beneficiary form. You can often name successors or backup beneficiaries, and even split up accounts by dollar amount or percentages between beneficiaries with these forms. Full article on Forbes [post_title] => 4 Ways To Improve Your Estate Plan [post_excerpt] => Most people want to plan for a good life and a good retirement, so why not plan for a good end of life, too? Let’s look at four ways you can refine your estate plan, protect your assets and create a level of control and certainty for your loved ones. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 4-ways-to-improve-your-estate-plan-2 [to_ping] => [pinged] => [post_modified] => 2020-02-28 17:02:59 [post_modified_gmt] => 2020-02-28 22:02:59 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/news/4-ways-to-improve-your-estate-plan-2/ [menu_order] => 0 [post_type] => news [post_mime_type] => [comment_count] => 0 [filter] => raw ) ) [post_count] => 5 [current_post] => -1 [in_the_loop] => [post] => WP_Post Object ( [ID] => 62697 [post_author] => 55227 [post_date] => 2020-01-28 11:38:21 [post_date_gmt] => 2020-01-28 16:38:21 [post_content] => By Jamie Hopkins

Roth conversions can be a powerful tax and retirement planning technique. The idea behind most Roth conversions is to take money from an IRA and convert it to a Roth IRA. Essentially, you’re paying taxes today instead of paying taxes in the future.

The Tax Cut and Jobs Act lowered taxes for many Americans and with the SECURE Act Roth IRAs became even more powerful as an estate planning vehicle to minimize taxes, so it’s a convenient time to take advantage of Roth conversions. However, Roth conversions can come with some issues. Before you engage in one, be aware of these common problems as it can be hard to undo the transaction.

Conversions After 72

IRAs and Roth IRAs are both retirement accounts. It’s easy to assume Roth Conversions are best suited for retirement, too. However, waiting too long to do conversions can actually make the entire process more challenging. If you own an IRA, it’s subject to required minimum distribution rules once you turn 72, as long as you had not already reached age 70.5 by the end of 2019. The government wants you to start withdrawing money from your IRA each year and pay taxes on the tax-deferred money. However, Roth IRAs aren’t subject to RMDs at age 72. If you don’t need the money from your RMD to support your retirement spending, you might think, “I should convert this to a Roth IRA so it can stay in a tax-deferred account longer.” Unfortunately, that won’t work. You can’t roll over or convert RMDs for a given year. So, if you owe a RMD in 2020, you need to take it and you cannot convert it to a Roth IRA. Despite the fact you can’t convert an RMD, it doesn’t mean you can’t do Roth conversions after age 72. However, you need to make sure you get your RMD out before you do a conversion. Your first distributions from an IRA after 72 will be treated as RMD money first. This means, if you want to convert $10,000 from your IRA, but you also owe an $8,000 RMD for the year, you need to take the full $8,000 out before you do a conversion. Full article on Forbes   [post_title] => 3 Roth Conversion Traps To Avoid After The SECURE Act [post_excerpt] => Roth conversions can be a powerful tax and retirement planning technique. The idea behind most Roth conversions is to take money from an IRA and convert it to a Roth IRA. Essentially, you’re paying taxes today instead of paying taxes in the future. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => 3-roth-conversion-traps-to-avoid-2 [to_ping] => [pinged] => [post_modified] => 2020-02-28 17:01:10 [post_modified_gmt] => 2020-02-28 22:01:10 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/news/3-roth-conversion-traps-to-avoid-2/ [menu_order] => 0 [post_type] => news [post_mime_type] => [comment_count] => 0 [filter] => raw ) [comment_count] => 0 [current_comment] => -1 [found_posts] => 10 [max_num_pages] => 2 [max_num_comment_pages] => 0 [is_single] => [is_preview] => [is_page] => [is_archive] => [is_date] => [is_year] => [is_month] => [is_day] => [is_time] => [is_author] => [is_category] => [is_tag] => [is_tax] => [is_search] => [is_feed] => [is_comment_feed] => [is_trackback] => [is_home] => 1 [is_privacy_policy] => [is_404] => [is_embed] => [is_paged] => [is_admin] => [is_attachment] => [is_singular] => [is_robots] => [is_favicon] => [is_posts_page] => [is_post_type_archive] => [query_vars_hash:WP_Query:private] => 8bbea74eca9b0e937ac286f0d22d32a8 [query_vars_changed:WP_Query:private] => [thumbnails_cached] => [stopwords:WP_Query:private] => [compat_fields:WP_Query:private] => Array ( [0] => query_vars_hash [1] => query_vars_changed ) [compat_methods:WP_Query:private] => Array ( [0] => init_query_flags [1] => parse_tax_query ) [tribe_is_event] => [tribe_is_multi_posttype] => [tribe_is_event_category] => [tribe_is_event_venue] => [tribe_is_event_organizer] => [tribe_is_event_query] => [tribe_is_past] => )

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3 Roth Conversion Traps To Avoid After The SECURE Act

Roth conversions can be a powerful tax and retirement planning technique. The idea behind most Roth conversions is to take money from an IRA and convert it to a Roth IRA. Essentially, you’re paying taxes today instead of paying taxes in the future.
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                    [post_date] => 2022-09-19 09:03:21
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                    [post_content] => The popular Green Day song titled “Wake Me Up When September Ends” feels quite appropriate given the recent market volatility. In fact, the S&P 500 has now dropped at least 3% for three of the past four weeks. As we’ve noted in this commentary, stocks tend to be quite volatile and potentially weak in September, and that is playing out once again in 2022.
  • It’s been another volatile September. We’ve seen this before, and it may not be over yet.
  • We expect there’s more room for interest rates to rise, especially if core inflation remains high.
  • The Fed is likely to raise interest rates by 0.75% in September, but the key will be how far the Fed will go.
  • Economic indicators, including retail sales, manufacturing, and unemployment claims, do not point toward a recession.
It isn’t all bad though. The last three months tend to do quite well in a midterm election year, so we are still optimistic an end-of-year rally is possible. One more positive is just how bad the action was on Tuesday. After the hotter-than-expected inflation data (more on that below), the S&P 500 fell 4.3% for the worst single day for stocks since June 2020. Along the way, less than 1% of the S&P 500 finished higher, one of the lowest readings in recent memory. This is the 20th time since 2000 that less than 1% of S&P 500 stocks closed higher on a single day. But only twice were stocks still down one year later, and the average return was a very solid 19.1%. Not to be outdone, every stock in the Nasdaq 100 closed red on Tuesday, for only the 13th time in history and the first time since March 12, 2020. But looking back at the index one year after this rare event shows the Nasdaq 100 was higher every time and up 21.2% on average. The bottom line is stocks will still be in a seasonally weak period for the next few weeks, so caution could be warranted. But the recent heavy selling is consistent with a market nearing bottom, and a strong year-end rally is still quite possible.

Interest Rates Could Keep Rising If Inflation Stays High

The August CPI report was not pretty. The headline number came in at 0.1%, pulled down by gas prices but higher than an expected -0.1% reading. The problem was core CPI, excluding food and energy, was 0.6%, twice what was expected. Tobacco, new vehicles, vehicle repairs, dental services, and hospital services all came in hotter than expected. Shelter costs continued to remain strong, while pandemic-impacted goods and services, including used/new cars, apparel, airfares, hotels, and furnishings, did not exert as much of a deflationary force as was expected by this time. There were still some positives. For starters, CPI likely peaked in June at more than 9% year-over-year and fell to 8.3% in August. It should continue to trend lower. We have seen huge drops in prices paid in various manufacturing surveys, improvements in time to delivery, and imploding used car prices. All these factors will feed into the official inflation numbers over the next few months. Nevertheless, markets were quick to react, as a hot inflation report led investors to expect the Fed to continue raising rates at a furious pace. Investors currently anticipate the federal funds rate to be raised as high as 4.2%. The white line in the chart below shows investor expectations for the fed funds rate, while the green line shows the median of the dots, which represent each Fed member’s estimate for where the policy rate will be in 2022 and beyond. As you can see, the green line for 2022 is well below the white line (investor expectations). The Fed has a meeting this week, and we will be watching how much higher Fed members move their estimates and whether they match the market’s expectations. Our view is the green line will shift higher, close to 4% or more. That is why we’re still cautious on our outlook for interest rates. We believe there’s room for rates across the spectrum to rise — on the back of higher policy rates. Short-term Treasury interest rates, which are a good approximation of monetary policy, have surged this year and are well above pre-crisis levels. After the August inflation report was released, one-year rates rose from 3.70% to 3.92%, while slightly longer-term five-year rates rose from 3.47% to 3.58%. So, they certainly are closer to where policy rates may get to but not quite there yet.

Still No Sign of Recession

Data last week showed consumer spending remains solid, with retail sales rising 0.3% in August. This was mostly driven by auto sales, although spending was strong in various other sectors, including restaurants and building material and supply stores. The only drag was gasoline station purchases, where sales fell 4%, but that was because gas prices fell. If anything, we’re surprised at the strength of retail sales, which mostly comprise spending on goods, even as the country puts COVID in the rearview mirror. Real retail sales, which are adjusted for prices, rose 0.2% in August and are almost 10% above the pre-crisis trend, with no sign of slowdown yet. Industrial production did slow in August, falling 0.2%. However, this was because of a large pullback in electric power output. The all-important manufacturing sector saw production tick higher by 0.1%, and that overcame a 1.4% decline in motor vehicle and parts production. This is another puzzle for us — supply chains are clearly improving, but vehicle production remains below pre-pandemic levels. This is entirely because auto production is down about 32%, while light vehicle truck production (like SUVs) is back where it was. At the beginning of the year, we expected a pickup in auto production, providing more of a tailwind to the economy. Finally, though certainly not the least important, unemployment claims continue to fall and remain well below pre-crisis levels. That means people getting laid off can find jobs quickly, without having to file for unemployment benefits — a sign of a very strong labor market. The downside is that increases the odds of the Fed continuing to raise interest rates to cool the economy down.   This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services. Compliance Case # 01489423 [post_title] => Market Commentary: Wake Me Up When September Ends [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => market-commentary-wake-me-up-when-september-ends [to_ping] => [pinged] => [post_modified] => 2022-09-19 13:10:34 [post_modified_gmt] => 2022-09-19 18:10:34 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/market-commentary/market-commentary-wake-me-up-when-september-ends/ [menu_order] => 0 [post_type] => market-commentary [post_mime_type] => [comment_count] => 0 [filter] => raw ) [1] => WP_Post Object ( [ID] => 64756 [post_author] => 181142 [post_date] => 2022-02-24 15:12:58 [post_date_gmt] => 2022-02-24 21:12:58 [post_content] => Russia’s invasion of Ukraine on February 24 has pushed the S&P 500 into a deeper decline. Stocks had already fallen more than 10% in anticipation of the attack and concerns over inflation and higher interest rates. When the invasion proved to be on the aggressive end of expectations, markets initially fell even further. The U.S and other countries had already imposed some economic sanctions on Russia, and we expect those to increase in coming days. The Russian attack on Ukraine is an undeniable human tragedy. Ukrainian and Russian lives will be lost. Our hearts are heavy as we think about tragic human consequences from the Russian government’s territorial ambitions. The human consequences are much more serious than the impact on portfolios. Ukraine’s very small stock market isn’t included in any major indexes. Ukraine’s economy is the 40th largest in the world, just below Sweden and just above Kazakhstan. Its major trading partners include Poland and Germany. Russia and Belarus are also large trading partners, and it was from those two countries that the attack was launched. Russia’s economy is far larger, yet accounts for only 1.8% of global GDP. Russia represents less than 0.4% of global stocks markets, so its impact isn’t terribly significant either.
    The decline in global markets comes primarily from concerns about three key risks related to the invasion:
  • What will be the adverse economic consequences of sanctions?
  • What are the risks the conflict escalates into something larger?
  • What are the long-term consequences of the attack?
Europe is the region that will be most impacted by the sanctions. European markets are down more than the U.S. in response to the invasion, a metric we also saw play out when Russia engaged with Ukraine in 2014 – European markets fell more than three times as much as the U.S. Europe’s biggest concern is making sure the region has adequate oil and natural gas supplies to meet demand. Otherwise, surging fuel prices and shortages would slow the European recovery. Other industries will be affected by concerns over joint ventures or lower trade, but energy is the top issue and the one we will be watching most closely. We expect the effect on the U.S. economy to be minimal, outside of the potential for higher energy prices. We are monitoring the escalated risks brought on by the conflict. The most impactful concern is the possibility that the conflict expands beyond Ukraine and involves a NATO member. The likelihood of escalation is very low in our estimate, but it isn’t zero. Neither Russia nor NATO wants to engage in a major armed conflict in Eastern Europe. A leading indicator of increasing risk would be cyber attacks by Russia against countries imposing sanctions or the potential for the U.S. and others to use cyber attacks against Russia. Cyber attacks are a long way from an invasion, but if they occur, it would raise the risks of escalation. The long-term consequences of the attack indicate we are likely entering into a riskier period with multiple regional powers vying for a stronger position on the global stage. Russia is clearly making a bid for a larger role, and China has been moving in that direction for many years. The risk of China getting more aggressive against Taiwan is one example of how a riskier global environment might affect portfolios. Yet U.S. stocks did fine during the Cold War. Using monthly data from the end of World War II to the fall of the Berlin Wall, the S&P 500 rose an average 11.8% per year. The question for investors is how to react to the invasion. Adjusting your portfolio in response to world events proves to be very difficult. To do it effectively, the investor would have to correctly gauge what would happen, how people would react, how that reaction will change over time and what will happen in the future. That isn’t easy. For instance, how many people expected the market to perform so well during the worst pandemic in our lifetimes? During the first Gulf War, the S&P 500 fell 18.8% in about three months and then rallied over 29% in the next year. Experience has shown that investors often end up losing more money in the long run by engaging in such behavior. Keep in mind, corrections – defined as a 10% decline – are normal. There has been one in 22 of the last 42 years. In only eight of the 22 corrections did the S&P 500 drop more than 20%. And in 13 of the 22 years with a correction, the market finished higher for the full calendar year. That means markets often bounce back from corrections quite quickly. A more productive approach is to remember the long-term rewards for investing come from bearing risks like this one. If you are concerned, reach out to your advisor. We recently compared investing to a long workout on an exercise machine. If you are finding the difficulty of the workout is more than you can handle, it doesn’t mean step off the machine. Instead, talk with your advisor about whether it is prudent to dial back the difficulty – in this case, risk – to make the workout a little easier to handle. This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. S&P 500 INDEX The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. https://www.cia.gov/the-world-factbook/field/real-gdp-purchasing-power-parity/country-comparison/ https://www.cia.gov/the-world-factbook/countries/ukraine/#economy J.P. Morgan Asset Management Guide to the Markets®: 1Q 2022 https://www.cnbc.com/2014/03/03/europe-seen-sharply-lower-on-ukraine-instability.html https://theovershoot.co/p/russia-was-prepared-to-withstand?utm_source=url Compliance Case # 01286210 [post_title] => Market Commentary: How Russia's Invasion of Ukraine Could Impact Markets, and How Investors Should Respond [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => market-commentary-how-russias-invasion-of-ukraine-could-impact-markets-and-how-investors-should-respond [to_ping] => [pinged] => [post_modified] => 2022-02-25 14:44:45 [post_modified_gmt] => 2022-02-25 20:44:45 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/market-commentary/market-commentary-how-russias-invasion-of-ukraine-could-impact-markets-and-how-investors-should-respond/ [menu_order] => 0 [post_type] => market-commentary [post_mime_type] => [comment_count] => 0 [filter] => raw ) [2] => WP_Post Object ( [ID] => 64668 [post_author] => 90034 [post_date] => 2022-01-03 10:05:29 [post_date_gmt] => 2022-01-03 16:05:29 [post_content] => 2021 was a very happy year for U.S. stock investors. The S&P 500 finished the second year of a pandemic 28.7% higher than it started the year. Other countries did not do as well. The MSCI ACWI, which includes U.S. stocks, rose 18.5% in 2021. Those returns are still very impressive, but they lag behind the S&P 500. Bonds declined slightly. The Bloomberg U.S. Aggregate Bond Index slipped 1.5% last year. Key Points for the Week
  • The S&P 500 returned 28.7% in 2021 as large U.S. companies continued to outperform many asset classes.
  • Valuations on the S&P 500 remain above average even though strong earnings have helped reduce ever higher valuations from late last year.
  • Industrial production data from Japan and South Korea show those two countries are helping to ease the shortage of semiconductors and automobiles.
Earnings are likely to have grown more than 45% in 2021, based on the first three quarters of results and estimates for the fourth quarter. As shown in Figure 1, the strong earnings growth allowed the price-to-earnings (P/E) ratio to drop in 2021 even though markets moved significantly higher. While valuations have declined, they remain above average and are being supported by low bond rates. Figure 1 shows the next 12-month earnings (NTM) have fallen from a peak of 30 to just under 25. The last 12 months (LTM) P/E ratio has also declined. Moving back to fundamentals, industrial powerhouses Japan and South Korea reported strong bounces back in industrial production after having slowed in October. Strength in auto and semiconductor manufacturing boosted Japan to 7.2% growth and South Korea to 5.1% growth. Weekly results were in line with the yearly themes. The S&P 500 index added 0.9% last week. The MSCI ACWI gained 0.8%. The Bloomberg U.S. Aggregate Bond Index added 0.2%. The U.S. employment report will headline a series of key labor market reports this week. Figure 1 Three Big Shifts in 2021 Why do people set New Year’s resolutions? Humans use auspicious dates, such as New Year’s or birthdays, to evaluate their lives and plan for next steps. Nothing stops us from setting our next big goals on August 10, but those with birthdays on that day are much more likely to do so than the rest of us. The downside of this approach is we start to lump time periods together based on the calendar and attribute more meaning to those periods than they deserve. A natural consequence is failing to notice major changes because the annual data obscure some underlying movement. In this week’s update, we review three keys shifts from 2021 that will likely shape markets in the coming year. Interest Rates The biggest shift occurred in interest rate policy. The supply shortages and government stimulus proved too much for supply structures, and the Fed turned hawkish as inflation rose. The first step was to begin reducing extra purchases of government bonds and mortgages. Once those extra purchases have tapered to zero, the Fed signaled it will likely move rates away from the near 0% rate it established shortly after the pandemic began. Chinese Policy China shifted away from a free-market approach for its most innovative companies and moved toward reining them in with more regulation. Those companies had made their founders and others very wealthy. But rather than embrace that growth, President Xi Jinping sought to reshape it with an emphasis on a broader distribution of wealth. The resultant risk for Chinese companies is one reason emerging markets finished lower last year. Sector Performance Another example of the calendar giving the wrong impression comes from style box performance. “Small value” was the top performing style box in the Morningstar Style Box universe, rising 31.8% last year and beating out second place “large core,” which rose 29.3%. It would be logical to assume small-cap value had some momentum going into 2022. But the truth is small-cap value built up a big lead and then limped to the finish. In the first five months of the year, small value gained 31.5% and outperformed large core by more than 20%. For the last seven months small value barely moved while large core posted steady gains. 2021 will go down for most of us as the second year of the COVID-19 pandemic. As we enter the third year of wrestling with the virus, our focus will rightly be on managing life. Yet, some major shifts are occurring that may turn out to be very important next year, especially if COVID begins to fade.   - This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. S&P 500 INDEX The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. MSCI ACWI INDEX The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set. Bloomberg U.S. Aggregate Bond Index The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds. Morningstar U.S. Small Cap Value The index provides a comprehensive depiction of the performance and fundamental characteristics of the Small Value segment of U.S. equity markets. This Index does not incorporate Environmental, Social, or Governance (ESG) criteria. Morningstar U.S. Large Core The index measures the performance of US large-cap stocks where neither growth nor value characteristics predominate. This Index does not incorporate Environmental, Social, or Governance (ESG) criteria. https://assets.contentstack.io/v3/assets/bltabf2a7413d5a8f05/blte17a5c5c6424f2b8/5e6b98f7c745241f422a79ae/INS_INX_OneSheet.pdf https://indexes.morningstar.com/our-indexes/details/morningstar-us-large-core-FSUSA00KGW?currency=USD&variant=TR&tab=overview https://indexes.morningstar.com/our-indexes/details/morningstar-us-small-value-FSUSA079P8?currency=USD&variant=TR&tab=overview https://www.wsj.com/articles/xi-jinping-aims-to-rein-in-chinese-capitalism-hew-to-maos-socialist-vision-11632150725 https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5wYWNpZmljLWNvbnRlbnQuY29tL2Nob2ljZW9sb2d5/episode/OTI2ZTgzZDktZGNmYi00OWNlLWJlMTctMjVlZTY4NDdiZDEx?hl=en&ved=2ahUKEwjAzZXbhJT1AhXGklYBHR31AVEQieUEegQIAhAF&ep=6 https://www.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_121721A.pdf?hsCtaTracking=31d0f488-5c02-4193-b93b-f1708067f4fa%7Cb994622e-6b82-4c98-ad34-76c848088314 Compliance Case #01230023 [post_title] => Market Commentary: S&P 500 Finishes Second Year of Pandemic 28.7% Higher Than It Started [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => market-commentary-sp-500-finishes-second-year-of-pandemic-28-7-higher-than-it-started [to_ping] => [pinged] => [post_modified] => 2022-01-03 10:05:29 [post_modified_gmt] => 2022-01-03 16:05:29 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/market-commentary/market-commentary-sp-500-finishes-second-year-of-pandemic-28-7-higher-than-it-started/ [menu_order] => 0 [post_type] => market-commentary [post_mime_type] => [comment_count] => 0 [filter] => raw ) [3] => WP_Post Object ( [ID] => 64601 [post_author] => 90034 [post_date] => 2021-11-01 10:12:10 [post_date_gmt] => 2021-11-01 15:12:10 [post_content] =>  U.S. GDP grew at an annualized pace of just 2% last quarter, a marked slowdown from last quarter’s 6.7% (Figure 1). Contracted auto production sliced around 2% off growth, and concerns over the Delta variant slowed demand and the return of workers to the labor force. Third quarter growth disappointed many. Final estimates were for 2.8%, and those had been much higher earlier in the quarter. Key Points for the Week
  • U.S. annualized GDP growth slowed to 2% from 6.7% last quarter as concerns over the Delta variant and ongoing supply issues limited economic growth.
  • Businesses seeking to restructure supply chains and altered demand patterns have pushed business investment 13.2% higher during the last 12 months.
  • Core PCE inflation increased 0.2% in September, the lowest level in seven months.
Businesses have multiple options when facing a supply shortage. One is to automate more tasks, and business investment increased 13.2% during the last 12 months. Another option is to increase prices. Core PCE inflation indicates prices are rising at a slower pace. The 0.2% increase in inflation for goods excluding food and energy was the smallest in the last seven months and indicates businesses are being cautious when raising prices. When the chief shortage is labor, wage increases can help lure people back to the labor force. Employment costs jumped 1.5% in September. Investors looked past some of the weakness in the report and focused on the positive. The S&P 500 added on 1.3% and finished 7.0% higher in October. The index of 500 large U.S. stocks ended the month at a new record. The global MSCI ACWI tacked on 0.4%. The Bloomberg U.S. Aggregate Bond Index increased 0.5% last week but finished the month basically unchanged. The U.S. employment report and another round of corporate earnings are the top two data points this week. Figure 1 Misfiring The U.S. economy can no longer be characterized as hitting on all cylinders. This is especially true since the lack of new car production was a major reason economic growth increased much less than expected. Growth increased just 2%, using annualized calculations (Figure 1), missing final estimates for 2.8%. Supply chain woes showed up throughout the report but most strongly in automobile manufacturing and sales. Automobile sales sliced 2.4% off overall growth as motor vehicle and parts sales plunged 17.6% last quarter. To pin the blame on new car sales and broader supply challenges alone would be unfair. Initial estimates were for high single-digit growth in the third quarter, and those estimates were reduced consistently. The Delta variant contributed to slowing economic activity by making it riskier for consumers to engage. It also affected whether workers would return to the labor force. Restaurants and other service organizations are having a hard time finding workers, and the labor shortage may have contributed more to the slowdown than sluggish demand. Restaurant purchases grew at less than 25% of last quarter’s rate, indicating reopening didn’t occur fast enough keep the economy in high gear. Growth is expected to bounce back sharply in the fourth quarter. Economists anticipate some improvement in supply chain challenges. COVID-19 cases are declining, and several countries are reaching major vaccination milestones, which should increase production and alleviate some product shortages. Inventories have also been tapped for supply in recent quarters, and manufacturers will increase production for immediate sale and to provide adequate inventory for future demand. There are risks to expecting a big bounce back next quarter. Challenges in the supply chain are proving persistent, as companies struggle to adjust to higher demand. Labor supply isn’t bouncing back as quickly as many hoped. Many workers have left the labor force, and service businesses can’t recover as quickly without them. The U.S. employment report will provide the next major set of clues to determine if this economy can recover its strength.   - This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. S&P 500 INDEX The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. MSCI ACWI INDEX The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set. Bloomberg U.S. Aggregate Bond Index The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds. https://www.reuters.com/world/us/goldman-sachs-economists-cut-q3-growth-forecast-us-2021-08-19/ https://www.bea.gov/sites/default/files/2021-10/gdp3q21_adv.pdf https://www.bea.gov/news/2021/personal-income-and-outlays-september-2021 https://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf Compliance Case # 01173289 [post_title] => Market Commentary: Supply Issues and Delta Variant Slow Economic Growth to 2% [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => market-commentary-supply-issues-and-delta-variant-slow-economic-growth-to-2 [to_ping] => [pinged] => [post_modified] => 2021-11-01 10:12:10 [post_modified_gmt] => 2021-11-01 15:12:10 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/market-commentary/market-commentary-supply-issues-and-delta-variant-slow-economic-growth-to-2/ [menu_order] => 0 [post_type] => market-commentary [post_mime_type] => [comment_count] => 0 [filter] => raw ) [4] => WP_Post Object ( [ID] => 64077 [post_author] => 90034 [post_date] => 2021-04-12 11:28:46 [post_date_gmt] => 2021-04-12 16:28:46 [post_content] =>  Producer prices climbed 4.2% last week (Figure 1). Energy prices contributed to the largest gain since the index rose 4.5% in September 2011. The jobs market continues to see a high level of initial jobless claims while steady progress is being made in reducing the number of unemployed receiving continuing benefits. Last week initial claims rose 16,000 to 744,000 and continuing claims dipped by 16,000 to 3.7 million. Key Points for the Week
  • Inflation data will likely heat up temporarily as the deflationary months during the most severe lockdowns in 2020 are replaced by above-average inflation. Producer prices rose 4.2% over the last year.
  • The jobs market is showing mixed signs as initial unemployment claims increased 16,000 last week while job openings rose 268,000 in February as restaurants picked up hiring.
  • S. service business are experiencing growth based on a non-manufacturing report of 63.7, which was the highest reading ever and well above expectations of 58.5.
U.S. service businesses are finally experiencing a comeback. The ISM non-manufacturing index rose more than 8 points to an all-time high of 63.7. All business sectors experienced gains in March. Employment has been the slowest part of the index to recover but has made great strides. Business activity and new orders have been the strongest segments. Stock markets reacted positively to the week’s events. The S&P 500 gained 2.8% and is now up 10.4% for the year. The global MSCI ACWI index added 2.0% last week. The Bloomberg BarCap Aggregate Bond Index gained 0.4%. This week will be a busy one for data releases. Retail sales and industrial production from the world’s two largest economies will headline the week’s releases. Inflation has been a hot topic, and the U.S. and the eurozone will also release Consumer Price Index data. Figure 1 The Price is Right In 1972, just as inflation was about to take off in the United States, Bob Barker started encouraging contestants to “Come on down!” on the Price Is Right game show. Little did the show producers know that guessing prices was going to get harder as inflation twice surged above 10% over the next decade. During this period the pricing mechanism was not right in the U.S. economy. Some investors are worried we are about to experience a repeat performance. The Federal Reserve has supported the economy with very low interest rates and ample quantitative easing. The purchase of government bonds by the Fed has also helped the federal government run higher deficits without facing the risks of rapidly increasing interest rates. It seems like the seeds of higher inflation are being sown. Yet, our analysis shows the concerns are overblown. The risks of 1970s inflation or even inflation that is half that high seem relatively small and manageable. A big reason is the differences between the 1970s and the 2020s are large, and the trend has moved decidedly in favor of lower inflation in the last 50 years. The table below provides several comparisons between the decades:
Area 1970s 2020s
Energy Energy shortages and oil boycotts pressured prices Abundant energy available domestically
Energy Intensiveness Energy intensive and no limited substitutes Less energy intensive and energy substitutes gaining share
Population Baby boomers entering the workforce Slower population growth
Price Information Pricing information harder to source Internet makes finding cheap prices easier
Top Industries Autos and energy Technology and communications
Competition Lower global competition Higher global competition
Mindset High-inflation mindset Low-inflation mindset
As Table 1 shows, the economic conditions were quite different in the 1970s. The U.S. is producing more of its own energy today, and that energy is less important to the economy. U.S. energy intensity fell about 2% a year from 1970 until 2011. In the last decade, the introduction of hybrids, electric cars, and additional forms of renewable energy have further undercut the power of a potential energy shock on the U.S. The 1970s coincided with Baby Boomers entering the workforce and buying their first cars and homes. That demand helped to push prices higher. Raising prices is much more difficult today than in the 70s. First, pricing information is readily available, so the penalty for raising prices can be felt more swiftly than in the past. The types of industries generating demand are also less prone to price increases. Technology-focused businesses look to improving performance and achieving wider reach rather than increasing prices. Global competition makes price increases hard to implement as there are more true competitors. Autos are a good example. In the early 70s, the “Big Three” had nearly an 85% market share. By 2018, it was 44% as foreign manufacturing increased competition. The lack of inflationary pressure in the economy was witnessed just before COVID-19 and shows how the economy has changed. Unemployment had reached a 50-year low; yet, the Fed was cutting rates because inflation remained below the desired level. The same unemployment rate 50 years ago likely contributed to a period of rising inflation. We live in a different world, and a low-inflation mindset remains. The next few months will likely show increased inflation. We see this as a temporary statistical effect. Yearly comparisons are dropping off months last year when price increases were negative, but they still include the mid-year price rebound. Some inflation measures may creep over 3%. Supply disruptions or demand shifts may push the prices of some goods sharply higher for a few months. These are likely to be temporary. Those forecasting a return to high inflation are likely to be disappointed, especially if they end up on the Price Is Right. Contestants win by guessing the closest price without going over the actual value, and it seems like those fearing the worst are estimating too high. — This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. S&P 500 INDEX The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. MSCI ACWI INDEX The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set. Bloomberg U.S. Aggregate Bond Index The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds. https://www.aei.org/carpe-diem/animated-chart-of-the-day-market-shares-of-us-auto-sales-1961-to-2016/ https://www.eia.gov/todayinenergy/detail.php?id=10191 https://en.wikipedia.org/wiki/The_Price_Is_Right https://www.ishares.com/us/products/239726/ https://247wallst.com/investing/2010/09/21/americas-biggest-companies-then-and-now-1955-to-2010/ https://ghpia.com/slowing-population-growth-as-an-economic-problem/ Compliance Case #01004685 [post_title] => Market Commentary: Inflation Could Be On the Horizon, Service Businesses Make a Comeback [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => market-commentary-inflation-could-be-on-the-horizon-service-businesses-make-a-comeback-2 [to_ping] => [pinged] => [post_modified] => 2021-04-12 11:28:46 [post_modified_gmt] => 2021-04-12 16:28:46 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/market-commentary/market-commentary-inflation-could-be-on-the-horizon-service-businesses-make-a-comeback-2/ [menu_order] => 0 [post_type] => market-commentary [post_mime_type] => [comment_count] => 0 [filter] => raw ) ) [post_count] => 5 [current_post] => -1 [in_the_loop] => [post] => WP_Post Object ( [ID] => 64901 [post_author] => 90034 [post_date] => 2022-09-19 09:03:21 [post_date_gmt] => 2022-09-19 14:03:21 [post_content] => The popular Green Day song titled “Wake Me Up When September Ends” feels quite appropriate given the recent market volatility. In fact, the S&P 500 has now dropped at least 3% for three of the past four weeks. As we’ve noted in this commentary, stocks tend to be quite volatile and potentially weak in September, and that is playing out once again in 2022.
  • It’s been another volatile September. We’ve seen this before, and it may not be over yet.
  • We expect there’s more room for interest rates to rise, especially if core inflation remains high.
  • The Fed is likely to raise interest rates by 0.75% in September, but the key will be how far the Fed will go.
  • Economic indicators, including retail sales, manufacturing, and unemployment claims, do not point toward a recession.
It isn’t all bad though. The last three months tend to do quite well in a midterm election year, so we are still optimistic an end-of-year rally is possible. One more positive is just how bad the action was on Tuesday. After the hotter-than-expected inflation data (more on that below), the S&P 500 fell 4.3% for the worst single day for stocks since June 2020. Along the way, less than 1% of the S&P 500 finished higher, one of the lowest readings in recent memory. This is the 20th time since 2000 that less than 1% of S&P 500 stocks closed higher on a single day. But only twice were stocks still down one year later, and the average return was a very solid 19.1%. Not to be outdone, every stock in the Nasdaq 100 closed red on Tuesday, for only the 13th time in history and the first time since March 12, 2020. But looking back at the index one year after this rare event shows the Nasdaq 100 was higher every time and up 21.2% on average. The bottom line is stocks will still be in a seasonally weak period for the next few weeks, so caution could be warranted. But the recent heavy selling is consistent with a market nearing bottom, and a strong year-end rally is still quite possible.

Interest Rates Could Keep Rising If Inflation Stays High

The August CPI report was not pretty. The headline number came in at 0.1%, pulled down by gas prices but higher than an expected -0.1% reading. The problem was core CPI, excluding food and energy, was 0.6%, twice what was expected. Tobacco, new vehicles, vehicle repairs, dental services, and hospital services all came in hotter than expected. Shelter costs continued to remain strong, while pandemic-impacted goods and services, including used/new cars, apparel, airfares, hotels, and furnishings, did not exert as much of a deflationary force as was expected by this time. There were still some positives. For starters, CPI likely peaked in June at more than 9% year-over-year and fell to 8.3% in August. It should continue to trend lower. We have seen huge drops in prices paid in various manufacturing surveys, improvements in time to delivery, and imploding used car prices. All these factors will feed into the official inflation numbers over the next few months. Nevertheless, markets were quick to react, as a hot inflation report led investors to expect the Fed to continue raising rates at a furious pace. Investors currently anticipate the federal funds rate to be raised as high as 4.2%. The white line in the chart below shows investor expectations for the fed funds rate, while the green line shows the median of the dots, which represent each Fed member’s estimate for where the policy rate will be in 2022 and beyond. As you can see, the green line for 2022 is well below the white line (investor expectations). The Fed has a meeting this week, and we will be watching how much higher Fed members move their estimates and whether they match the market’s expectations. Our view is the green line will shift higher, close to 4% or more. That is why we’re still cautious on our outlook for interest rates. We believe there’s room for rates across the spectrum to rise — on the back of higher policy rates. Short-term Treasury interest rates, which are a good approximation of monetary policy, have surged this year and are well above pre-crisis levels. After the August inflation report was released, one-year rates rose from 3.70% to 3.92%, while slightly longer-term five-year rates rose from 3.47% to 3.58%. So, they certainly are closer to where policy rates may get to but not quite there yet.

Still No Sign of Recession

Data last week showed consumer spending remains solid, with retail sales rising 0.3% in August. This was mostly driven by auto sales, although spending was strong in various other sectors, including restaurants and building material and supply stores. The only drag was gasoline station purchases, where sales fell 4%, but that was because gas prices fell. If anything, we’re surprised at the strength of retail sales, which mostly comprise spending on goods, even as the country puts COVID in the rearview mirror. Real retail sales, which are adjusted for prices, rose 0.2% in August and are almost 10% above the pre-crisis trend, with no sign of slowdown yet. Industrial production did slow in August, falling 0.2%. However, this was because of a large pullback in electric power output. The all-important manufacturing sector saw production tick higher by 0.1%, and that overcame a 1.4% decline in motor vehicle and parts production. This is another puzzle for us — supply chains are clearly improving, but vehicle production remains below pre-pandemic levels. This is entirely because auto production is down about 32%, while light vehicle truck production (like SUVs) is back where it was. At the beginning of the year, we expected a pickup in auto production, providing more of a tailwind to the economy. Finally, though certainly not the least important, unemployment claims continue to fall and remain well below pre-crisis levels. That means people getting laid off can find jobs quickly, without having to file for unemployment benefits — a sign of a very strong labor market. The downside is that increases the odds of the Fed continuing to raise interest rates to cool the economy down.   This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services. Compliance Case # 01489423 [post_title] => Market Commentary: Wake Me Up When September Ends [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => market-commentary-wake-me-up-when-september-ends [to_ping] => [pinged] => [post_modified] => 2022-09-19 13:10:34 [post_modified_gmt] => 2022-09-19 18:10:34 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/market-commentary/market-commentary-wake-me-up-when-september-ends/ [menu_order] => 0 [post_type] => market-commentary [post_mime_type] => [comment_count] => 0 [filter] => raw ) [comment_count] => 0 [current_comment] => -1 [found_posts] => 31 [max_num_pages] => 7 [max_num_comment_pages] => 0 [is_single] => [is_preview] => [is_page] => [is_archive] => 1 [is_date] => [is_year] => [is_month] => [is_day] => [is_time] => [is_author] => [is_category] => [is_tag] => [is_tax] => 1 [is_search] => [is_feed] => [is_comment_feed] => [is_trackback] => [is_home] => [is_privacy_policy] => [is_404] => [is_embed] => [is_paged] => [is_admin] => [is_attachment] => [is_singular] => [is_robots] => [is_favicon] => [is_posts_page] => [is_post_type_archive] => [query_vars_hash:WP_Query:private] => 4988683a7012c9995754a9c3eb333ba2 [query_vars_changed:WP_Query:private] => [thumbnails_cached] => [stopwords:WP_Query:private] => [compat_fields:WP_Query:private] => Array ( [0] => query_vars_hash [1] => query_vars_changed ) [compat_methods:WP_Query:private] => Array ( [0] => init_query_flags [1] => parse_tax_query ) [tribe_is_event] => [tribe_is_multi_posttype] => [tribe_is_event_category] => [tribe_is_event_venue] => [tribe_is_event_organizer] => [tribe_is_event_query] => [tribe_is_past] => )

Market Commentary

Market Commentary

Market Commentary: Wake Me Up When September Ends

The popular Green Day song titled “Wake Me Up When September Ends” feels quite appropriate given the recent market volatility. In fact, the S&P 500 has now dropped at least 3% for three of the past four weeks. As we’ve noted in this commentary, stocks tend to be quite volatile and poten …
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                    [post_content] => Despite an evolving society, college is still a right of passage for many. We pack the family SUV with suitcases and dreams and take the young hopeful on to their next adventure. 

One of the most important investments you can make is helping your kids, and even grandkids, fund their education with a 529 college savings plan. With college costs running double or more than they did 30 years ago and the student loan crisis reaching about $1.6 trillion in debt, every little bit helps.

Let’s look not just at the basics of a 529 plan, but at 529 planning – how this powerful savings tool fits into your overall financial plan and helps you optimize the support you give young people in your life.

529 Basics and Qualifications

A 529 plan is a savings vehicle specifically for education expenses – this usually means college but can mean elementary or secondary school tuition in some states. You can start them at any point and contribute to them throughout the student’s life and even while they are pursuing that education. Growth on the account and qualified distributions are tax-free. Ideally, you would start a 529 college savings plan when your child is relatively young to maximize earning potential. You can make regular contributions, and relatives can also contribute easily through digital interfaces like Ugift or Gift of College. For some contributors, a tax deduction comes at the state level. There are currently 30 states that have carved out tax credits or deductions for these contributions. Some states do not have such programs and some states – Alaska and Florida, for example – don’t have personal income tax so the question is moot. There is no federal tax deduction, so contributions are considered after-tax on that level. Using a 529 plan comparison tool can help you find the right plan for you with the deductions that apply in your area.

Qualifications

Like many financial instruments, qualifications are immensely important when withdrawing from or otherwise moving money in a 529. Qualified expenses for a 529 Plan include:
  • Tuition
  • Room and Board
  • College Fees
  • Textbooks and technology
  • Student loan payments up to a certain amount
  • Some professional apprenticeship programs
And just like other savings vehicles, when you move outside of these parameters you run into taxes and penalties. Only your gains in a 529 are subject to income taxes and a 10% withdrawal penalty for a nonqualified distribution. Any state income tax deductions or credits claimed may be subject to recapture.

Your 529 Plan in the Financial Aid Process

Many of us may remember the FAFSA (Free Application for Federal Student Aid), a pile of pink and white paper we filled out sometime during our senior year and sealed with hope as we sent it off in the mail. Now the process is digital, of course, but one of the things they still ask about is the student’s financial context. The Expected Family Contribution is an index number established by law that involves your family’s taxed and untaxed income, assets and benefits (i.e., unemployment and Social Security). The number of kids in the family, and how many of them are also attending college, is another contributing factor. Your 529 plan will be considered during the process. What’s important to realize here is that your aid package is based on your family’s assets, but not those of grandparents or other loved ones. Grandma could have $100,000 socked away in a 529 plan, and it won’t affect your student’s financial aid offering. So if that’s the case, keep grandma as the owner of the plan and the student as the beneficiary – because the financial aid review is looking at only the parents and student. Distributions for the student from grandma’s 529 plan will be considered on the next FAFSA and treated as untaxed income for the student. Remember that the FAFSA looks at the income from two years before, so payments from grandma should wait until later in college.

Transferring a 529 Plan

Another important out-of-the-box aspect of 529 planning concerns beneficiary transfer. In some scenarios, a student might not use all of their 529 money, thanks to scholarships and the like. The beneficiary of the plan can change without tax consequence if that new beneficiary is within the family – think of older brother finishing school and the plan transferring to younger sister. This beneficiary change is fairly simple and can be done on the plan’s website. Complexity might arise when the account crosses generations. Let’s say grandma has a 529 plan with her granddaughter as the beneficiary. Granddaughter doesn’t use up all the money in the account, and grandma designates her as the successor owner and then passes away, leaving her granddaughter as owner of the plan. If the granddaughter then names her son as the new beneficiary, it becomes a taxable transfer. Because the plan beneficiary changed to a family member of a younger generation than the current beneficiary, the beneficiary change is treated as a taxable transfer for gift tax purposes. It’s important to look forward to these changes strategically as much as possible, and discuss with your advisor and college planner how to minimize loss.

529 Plan Rollovers

A 529 college savings plan rollover is one maneuver that can help when plans might have to change hands or generations. The IRS allows one tax-free rollover from a plan per beneficiary per year. If you found a 529 plan you like better, for example, you can rollover your previous plan into that one. This can be helpful in preparing an estate. If grandparents are getting on in years and have a 529 plan in place for a grandchild, they could transfer the money to a parent’s account in this rollover without losing on taxes or penalties. Keep in mind that it’s per beneficiary, so grandparents could rollover but great aunt and uncle couldn’t do the same thing for the same person the same year.

Investing in the Future

Of course, the motivation behind a 529 plan goes far beyond tax breaks. You want to support a student’s dreams and a hopeful future. Planning intentionally with a 529 can help you optimize that support and make sure the most money goes where it should – to change a young person’s life. Get in touch today to see how education planning and other details fit into your financial picture! Make an appointment! This is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Before investing, the investor should consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan. [post_title] => How a 529 Plan Can Help You Save for College and Invest in the Future [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => how-a-529-plan-can-help-you-save-for-college-and-invest-in-the-future [to_ping] => [pinged] => [post_modified] => 2021-04-01 12:51:55 [post_modified_gmt] => 2021-04-01 17:51:55 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/monthly-newsletters/how-a-529-plan-can-help-you-save-for-college-and-invest-in-the-future/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) [1] => WP_Post Object ( [ID] => 62380 [post_author] => 6008 [post_date] => 2020-10-01 09:22:52 [post_date_gmt] => 2020-10-01 14:22:52 [post_content] => In the late 1920s, an enterprising Bostonian started selling subdivisions in the sunny ‘burbs of Florida. Promising orange trees in the backyard and rolling waves out the front door, he sold plots – sometimes 23 an acre! – near bustling towns like Nettie. Unfortunately, the entrepreneur’s name was Charles Ponzi, and Nettie, like his other locales, was a work of lucrative fiction. Scams have been around since money has been around. People find ways to circumvent laws, regulations and virus-protection software to leave town before anyone knows they – and the money – are gone. Let’s look at some of the scams out there right now, and how you can guard yourself and your family from buying some of Ponzi’s beachfront property.

An Unlikely Statistic

First, let’s look at an unlikely statistic. As far as fraud goes, it’s well known that the elderly are targeted. One recent study found that suspicious activity reports made by elderly clients had quadrupled from 2013 to 2017. Taking advantage of perceived frailty or technology confusion is the oldest trick in a very old book. But the curveball here is that more millennials report being scammed than any other age group. But they lose less per capita than elderly victims. Those in their 20s reported a median loss of $400, compared to $1,092 for those 80 and older. Practically living online, especially in the COVID era, simply extends the surface area that scammers can come across. For example, the highest fraud rates for millennials are in online shopping, and they are slightly less likely to be targeted by phone scams like their parents and grandparents. Answers to passwords and security questions can also be easier to find on social media accounts. Your birthday, your pet’s names, your favorite sports teams – all kinds of collateral information is available that savvy fraudsters can use to their advantage.

Fraud 2020

This year has left a lot of ducks sitting for financial scams. Disorienting news reports, the boredom of quarantine and generalized stress and paranoia have brought out the scammers with specific cons tailored just for this year.
  • Coronafinder Trojan Virus – This is a malware program that claims to show you who in your neighborhood tested positive. For a small fee, of course. They then take off with your credit card information and nothing happens.
  • Refinancing Scams – Fraudsters are capitalizing on the impulse a lot of us have to lower our monthly payments when we see the lower interest rates available.
  • COVID-19 Grants or Aid – You might get a Facebook message from someone claiming to be a government official asking you to pay an upfront fee and then they’ll send you a magical grant for COVID relief.
These are just a few examples, but the trend is clear: Scammers come out during vulnerable, transitional times. They take advantage of fear during a pandemic: They offer student loan relief and jobs to millennials; they offer phony health insurance and funeral prep to the elderly.

Information is Power

“All I need is your Social Security number…” A telltale sign of the modern scheme is a ploy for information. A Nigerian prince who wants to share his windfall with you, a friend who was robbed on a vacation and needs you to wire them money, or maybe that tech support person who calls and just needs you to log in one more time – these are the modern digital cliches in fraud. One of the classics in this sector is the phishing scheme. A fraudster will use a generic email sent to thousands of people to try to get just a few to respond with their critical information. The information can then be used to log into bank accounts or other forms of identity theft. The evolved version of this, especially of concern for business owners and executives, is spear-phishing. This is a specifically-aimed campaign that uses personal/proprietary information to pull off the scheme. One of the cautionary tales in spear-phishing is Ubiquiti, which was a victim in 2015 of a spear-phishing technique dubbed “whaling.” While their executive traveled globally and had limited communication with the home office, a fraudster jumped in and posed as the company leader, asking money to be wired to several locations. The total bill was $46.7 million, siphoned off over a matter of weeks.

Some Basic Coordinates on Preventing Fraud

There are commonsense reminders here like anywhere else: Don’t take candy (or offers for free stuff) from strangers, especially internet strangers. But chances are your assets are more complex, and the “strangers” who might pose a danger to you are more sophisticated. Let’s look at a few basics.

Keep it Clear

Make sure your financial manager uses a clearing firm. A custodian as your go-between helps you to make sure your investments are getting where they need to go and staying safe. Our firm uses TD Ameritrade and Fidelity, and you can get on their website as well as ours to make sure your finances are in order. Bernie Madoff, the modern-day Ponzi, was able to run his long con in part because he didn’t use a clearing firm. The buck stopped with him, allowing him to fabricate statements and performance reports. An impartial third party is a vital check and balance, especially when large amounts of money are involved. Private equity investments, for all their freedom and potential profit, are especially vulnerable to a Madoff-type scheme. Without the clearing firm to keep a watchful eye on all involved, there can be potentially fewer safeguards against fraud. As nice as it is to own equity in a business, it’s nicer to have watchdogs in place to make sure you actually do!

The Tough Go Tech

Unfortunately, many con artists are near tech geniuses, haunting the internet to find the serious cash in digital transactions. High net worth clients are investing in customized cybersecurity involving a team of experts and coverage. One program, Starling, offers specific coverage for cybercrimes and fraud. They partner with a cybersecurity program that monitors internet activity through a VPN to watch for anomalous behavior and transactions. With only the nascent legal culture to find and prosecute cybercrimes and fraud, today’s investors can’t be too careful. Some high net worth clients, dissatisfied with enforcement online, have gone as far as hiring private investigators to navigate this uncharted territory.

Privacy is Still Cool

“Social media has made privacy uncool,” observed comedian Pete Holmes, and scammers know this better than anyone. Showing a little more caution with what you put online, and also making sure your password life is separate from your personal life, can help your security immensely.  Educating kids and grandkids on this is also an important step. Using a password manager or vault is another helpful measure that really should be standard operating practice in today’s world.

Scam Protection To-Do List

There are many fairly simple, practical measures you can take to guard against scams or if you feel you have been scammed. Here are a few:
  • Freeze your credit report – It’s fairly simple to freeze your credit report if you suspect fraud activity. The big three, Experian, Equifax and TransUnion, offer this complimentary service.
  • Report it – If you believe you are a victim of internet crime, you can report it to the Internet Crime Complaint Center (IC3) division of the FBI.
  • Two-step verification on accounts are a great idea whenever the option is offered.
  • VPN – Use a Virtual Private Network (VPN), especially when you send investment information or work on a public computer.
  • Something Phishy – Watch for emails out of nowhere asking for sensitive information, and which usually have misspellings or come from unfamiliar addresses.

Not on Your Own

If there’s anything 2020 has shown us, it’s that we’re not alone. We all worry about market dips, working remotely and itching under our masks together. People are looking out for each other and expressing solidarity in surprising ways. Preventing fraud and recovering from its damage is a matter of finding professionals you can depend on. Your financial advisor can help you put together a plan to keep you safe and help you avoid risks that are unnecessary and expose you. Set up an Appointment! [post_title] => How Financial Scams Work, and How to Keep Yourself Safe No Matter Your Level of Wealth [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => how-financial-scams-work-and-how-to-keep-yourself-safe-no-matter-your-level-of-wealth [to_ping] => [pinged] => [post_modified] => 2020-10-01 09:22:52 [post_modified_gmt] => 2020-10-01 14:22:52 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.carsonwealth.com/insights/monthly-newsletters/how-financial-scams-work-and-how-to-keep-yourself-safe-no-matter-your-level-of-wealth/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) [2] => WP_Post Object ( [ID] => 62064 [post_author] => 6008 [post_date] => 2020-09-03 11:13:00 [post_date_gmt] => 2020-09-03 16:13:00 [post_content] => Sneaking away during the lull between peak times – “the shoulder season” – is popular with savvy travelers for reduced crowds, milder weather and usually great deals on travel packages. Tired of the brutally hot summer in the south? Walk the vineyards at harvest in Tuscany. Not looking forward to the long cold months upcoming in New England? Chase the summer down to Cancun. All for considerably less than you’d pay in summer, while the under-21 crowd is back in school. But this year, travel – like everything else – looks quite a bit different. The headlines change about every time you refresh your browser as restrictions, qualifications and confusion plague the shoulder season. What used to be a relatively simple and inexpensive time to get away has become much more complicated. Let’s look at the complexities associated with autumn travel plans in 2020.

The Travel Supply Chain

What luck! You’ve found an all-inclusive, week-long cruise to Honolulu in October for your whole family! It costs less than it did for you and your spouse to go last fall, and now you can bring the kids! But when you get there, you better hope you enjoy the boat, because that’s where you’ll be staying! A mandatory 14-day quarantine is still in effect there right now and doesn’t show signs of letting up. Most of us can’t afford the time (or money!) to pop off to Maui for more than two weeks, especially at this time of year, so now the deep discount on the prices makes sense – and not in a good way. Other travel issues affect what might be called the “supply chain” of travel, even during the shoulder season. Social distancing measures and quarantine restrictions aren’t the same all over the world. You might be in a safe environment at home in Chicago and then land in a virus hotspot where the restrictions are more relaxed. Carrying the virus back with you, even if you never show symptoms, is a real possibility as we all know. If you can come back at all. Airlines have closed and reopened a few different times in different parts of the world. While you’re gone, could the border close before you get back home? What about your layover? Will the planes be grounded? Besides quarantine, these are the kinds of variables that keep people at home and on the ground.

Problems for the Tourism Business

From the business side of the question, the losses hurt and will probably hurt for a long time. A UN report estimated $3.3 trillion in losses for tourism in 2020, an astronomical number that will take years to recover. Think about it in practical terms. A cruise ship might have around 1,000 staff members. No cruises means no revenue, so these crew members are sent home because of lack of work, many of them to other countries. If the virus suddenly disappears, this isn’t a turnkey operation. Cruise lines can’t simply open up without trained crew members, who might be all around the world at this point. They also can’t run for a month until the restrictions change again. So recouping money lost during the pandemic is a matter of years, not months. On top of this, collateral business will be affected, probably long after quarantine is over. For cruise ships, the many ports that run everything from posh clinics to tchotchke souvenir shops are ghost towns. For college football cities like Auburn, Alabama, and Lincoln, Nebraska, the bars and restaurants are notably empty. Add to this the crime that can be part of life in some vacation destinations. Scarcity and desperation can make this worse and will keep on-the-fence travelers away. The overall markets showed record volatility this year, but for the most part have plateaued. S&P growth has slowed but continues to increase. But there are major parts of the economy, such as tourism, that have been devastated. The International Air Transport Association estimates that it will take until 2024 for air travel to return to pre-pandemic levels. It’s too early to tell what kind of long-term effect these issues will have, but we could be looking at discounted and otherwise complicated travel for a long time.

Keeping it Close to Home

Necessity, or at least inconvenience, births another one of the great American virtues: innovation. Take for instance the industry that is booming: outdoor retailers. Kayaks, fishing rods and bikes are disappearing off the shelves like toilet paper in April, and campsites are packed in. Tourism to favorite in-house destinations, which we may remember from decades past, is becoming popular again. Mt. Rushmore, Yellowstone, even old Route 66 will probably sell more t-shirts and oversized novelty pencils than they have in years. Costco has long been a provider of affordable vacation packages. Now they feature the national parks to their list of possibilities alongside tropical and European locations.

Shrugging in the Shoulder Season

So where does that leave us in the “shoulder season” of 2020? On the one hand, we may be looking at fantastic discounts and affordable vacations we’ve always dreamed of. On the other hand, the safety of our families and communities could be endangered if we travel carelessly. And while we might take the easier solution – just don’t go – we still need to practice self-care. Our physical and emotional health will decidedly affect our financial health. Innovation will be the name of the game. We have to think more comprehensively and creatively about what “vacation” means. That could mean considerably more planning ahead, such as using COVID Controls, an interactive website that shows updated travel restrictions around the world. Innovation also means rethinking “staycation” in the pandemic world. National parks, museums, local monuments can offer us a chance to relax and get our mind off work or other stresses. If you have kids in the mix, a hotel pool can be (just about) an exotic vacation. Catch a musical, eat steak every night and make the most of staying in place. More than likely, you’ll be spending less money on your autumn travel plans in 2020. That means more to invest, or it could mean putting something toward a make-up trip in the spring. Seeing Madrid or London in the warmer months is amazing, but it feels even better when it’s fully paid off with pocket money left over. How can we help you plan for this unprecedented year? Get in touch today to talk through your portfolio with your financial advisor. Make an appointment! [post_title] => How to Invest Creatively in Your Fall Vacation this Year [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => how-to-invest-creatively-in-your-fall-vacation-this-year [to_ping] => [pinged] => [post_modified] => 2020-09-03 11:13:00 [post_modified_gmt] => 2020-09-03 16:13:00 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.carsonwealth.com/insights/monthly-newsletters/how-to-invest-creatively-in-your-fall-vacation-this-year/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) [3] => WP_Post Object ( [ID] => 61984 [post_author] => 6008 [post_date] => 2020-08-06 12:02:09 [post_date_gmt] => 2020-08-06 17:02:09 [post_content] => Do you know what it was like to buy a house in 1982? You pulled up your Trans Am to the bank where the picture of President Regan hung on the lobby wall and got your checkbook out of your jean jacket. Then you signed up for a 30-year mortgage with a 17% interest rate! The housing market, along with the rest of the world, has changed quite a bit since then. Now, you sit at home in your pajamas and compare interest rates across several lenders on high-speed internet – rates that are usually less than half of what you paid a generation ago. COVID-19 tipped the gravity once again with this discussion and left us with historically low mortgage rates. The virus, quarantine and consequent economic depression caused the Federal Reserve to tank interest rates, leaving mortgage rates around or below 3.5% for most of the year. Compare this to a consistent rate of over 4% for several years running. We’ve come a long way since mom and dad’s Trans Am scenario, which means a culture shift for housing finance and the need for new strategies, especially in an off-kilter year like 2020. Let’s look at some new cautions and opportunities in the housing markets.

Variable-Rate Mortgage versus 30-year Fixed Mortgage

Introduced in the 1980s, variable-rate mortgages – also called adjustable-rate mortgages – were a step toward helping the average American own a home. The variable rate could come in much lower than the going interest rate, which might make it more appealing to Joe and Jane Public as they scraped their pennies together. Unlike generations before, who had to procure tens of thousands in cash and look down the barrel of a very high monthly payment for decades, the variable-rate put homeownership in reach. Joe and Jane could start homeownership with an interest rate at sometimes half of the 30-year fixed rates, which were nearly out of reach for most people in the middle of the bell curve in those days. Today, the variable rate can be especially helpful if your life is set to change regularly. If you plan to move in five years, it can be advantageous to lock in that low interest rate for that limited initial period. You’ll also have a lower initial payment. The risk with variable rates is that they – guess what? – vary. Twenty years ago you may have been able to get a variable-rate mortgage at 3%, beating the market standard of 8%. This adjustable-rate was good for five years, and then you hit the going rate of 6.5%. It might stay there for a year before changing again – and change could mean going up! On the other hand, your rates could go down for certain periods over the life of your loan, depending on the markets. If you were able to get a 30-year fixed-rate mortgage at 4%, then it would still be the same rate, no matter if the markets went up or down. Initially, you would have paid a bit more, but you don’t have to worry when the markets go up a few years later. Conversely, you don’t get to party when they go down, because your rate is locked in.

Current Rates

The debate between variable versus fixed-rate mortgages is a standard in financial circles, and both have pros and cons depending on your financial journey and goals. However, the current markets brought in a wild card because of the Fed’s efforts to shore up the economy. With the lower federal rate, mortgages in early August are coming in at 3%. A popular variable-rate mortgage, the 5/1, is coming in at 2.5%.

Do the Math

Let’s look at the math. Yes, 3% is higher than 2.5% by half a percent. At the 2.5% rate, you would save $5,000 over five years on a $200,000 home loan. But after that, you’re subject to whatever interest rate benchmark your variable-rate loan is tied to. Five years from now, interest rates could spike. If the interest rate on your loan suddenly jumps to 6% for a year, that $5,000 you saved is going to disappear quickly. Sticking with a 30-year fixed-rate, especially one you obtained in a low-interest market, will save you a lot in the long-run. Expand your vision from a few extra digits on the monthly bill to those few extra digits added up over the years. The variable-rate deal, which a bank or realtor might put in front of you, is similar to the maneuver often made by cell phone services. You sign on for a deal that shouts in loud, large-font letters: “PHONE FOR $29!!!” You don’t look closely enough to see that next to all those flashy words it says “per month.” Well, you can cover 30 bucks a month, no problem. But after two years, you find you’ve paid $720 – plus a small horde of hidden fees – for the phone. That’s not unreasonable, but it’s not peanuts either, and it certainly feels different than the easy $29 you were promised on that first day. This is a small scale example of what could happen with a variable-rate mortgage, it looks smaller now, but you have to consider the life of the payment plan, not one installment.

Play 4D Chess

The slang term “4D chess” comes to mind when we think of variable versus fixed mortgage rates – which means you think and move in four dimensions, seeing beyond what’s right in front of you. We have to play 4D chess in an economic environment like 2020. We’re seeing counter-intuitive circumstances, like traditional and variable-rate mortgages at nearly the same rates, and it isn’t over yet. In complex times like this, a meeting with your advisor can help you simplify and clarify. How can we help you? Get in touch today and we’ll help you plan out your next move. Make an appointment! [post_title] => Comparing Traditional Mortgages and Variable-Rate Mortgages in the COVID-19 Economy [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => comparing-traditional-mortgages-and-variable-rate-mortgages-in-the-covid-19-economy [to_ping] => [pinged] => [post_modified] => 2020-08-06 12:02:09 [post_modified_gmt] => 2020-08-06 17:02:09 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.carsonwealth.com/insights/monthly-newsletters/comparing-traditional-mortgages-and-variable-rate-mortgages-in-the-covid-19-economy/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) [4] => WP_Post Object ( [ID] => 62719 [post_author] => 6008 [post_date] => 2020-07-02 10:19:52 [post_date_gmt] => 2020-07-02 15:19:52 [post_content] => Debt consolidation and repayment takes up a lot of America’s bandwidth. You can’t watch TV, especially daytime TV, without seeing at least one advertisement promising you freedom from debt – call now! These gimmicks are hit-and-usually-miss, but the sheer ubiquity of this conversation tells us it’s on everyone’s mind. Debt, like every other financial issue, is emotional at its root. Salary, bank account size, credit score – these are all emotional issues, sensitive and sometimes painful. But debt is a nerve center. It connects to our family baggage, our psychological frailty and is a constant reminder of our financial limits. This relegates debt repayment to the not-fun-to-talk-about category – but it can become much more expensive as an afterthought. With that in mind, let’s look at two important debt reduction plans, realizing it has as much to do with our emotional makeup as it does with figures on a spreadsheet. Let’s look at two popular approaches: snowball and avalanche.

Debt Repayment Method No. 1: The Snowball Approach

This debt reduction plan has been most popularized by the one and only Dave Ramsey, whose faith-based approach to personal finance is incredibly popular. As confidently as they are presented, his methods are not without flaws, and the snowball debt repayment approach is something we should think through before implementing. The basics are simple: The person pays the minimum balance on each debt they have, and then adds any leftover money to the smallest debt in the row. After you pay off your smallest debt first, you then move on to the next and the next – a snowball effect. This approach is taken without regard to the interest rates or timelines on each debt. Let’s break this down. Dennis Debt-Payer has the following debts outstanding:
  • Car: $8,000
  • Credit Card: $10,000
  • Student Loan: $30,000
  • Harley: $4,500
He probably shouldn’t have bought the bike, but he fell in love with it and he de-stresses from the week by burning up the highway. Dennis finds himself in a good-enough job and decides, for his 40th birthday, that he will buckle down about the debt in his life. Using the snowball method, he starts with the motorcycle debt. Dennis has to maintain his minimum payments on all his debts, let’s look at those:
  • Car: $150
  • Student Loan: $200
  • Harley: $100
  • Credit Card: $250
So, Dennis is looking at $700 bare minimum in debt payments he has to make every month. Using the snowball method, he makes the minimum payments on everything to keep current. After all his bills are paid, Dennis has $400 to make use of, so he puts it toward the Harley debt, too. Nine months later, Dennis rides his hog to the post office carrying his last check for his last payment on his motorcycle loan. Flush with satisfaction, he narrows his list of debts and starts putting that newly freed-up $500 a month toward his car, which is now the smallest debt he owes. On the Harley payment, he paid $4,577 in all, ending up paying $77 in interest. One of the drawbacks here, for the credit card especially, is that the larger debts continue to collect interest through the process.

Debt Repayment Method No. 2: The Avalanche

Let’s rewind Dennis Debt-Payer and have him start with an entirely different debt repayment plan. This approach, called the avalanche method, starts with the highest interest rate loan, which for Dennis looks like this:
  • Credit Card: 19%
  • Car: 5%
  • Harley: 4%
  • Student Loan: 3.5%
Again, he pays the minimum amounts on everything, to keep the creditors at bay, but this time, he sets his sights on paying down his credit card debt with available money. The idea is to pay off the most expensive debt first, and once that falls then the next (car loan) and so the debt rolls down like an avalanche. In our first scenario, Dennis rode in triumph to the bank on his newly paid-off Harley in a mere nine months. Under the avalanche plan, it takes him over twice as long (about 18 months) to pay off his credit card, and he’ll still owe on everything else. However, in the long run, Dennis’s debt costs him a lot less under the avalanche method. The interest rate on a credit card is almost always the highest of any kind of personal debt and so becomes the most expensive in a short period of time. The avalanche addresses that issue first, and saves him money in the long run.

So Which Debt Repayment Method is Better: Snowball or Avalanche?

On paper, with simple math in front of you, the avalanche method seems like the obvious choice. If Dennis went with the snowball method, in 18 months or so he will pay roughly $4,000 interest on $10,000 credit card debt – a lot of money but not as much money if he delayed repayment. But the psychology behind the approach is where the debate lies. The snowball method may be preferable because it provides the emotionally powerful “quick win.” Driving around on a paid-for motorcycle might give you just the inspiration you need to tackle the next debt. If that debt is gone in six months or a year, your motivation “snowballs” until you are debt-free. The avalanche method has math in its favor but is taxing mentally. Sure, you may chip away at that high-interest debt, but if it takes years to get rid of, that might not inspire you. You might be tempted to start taking financial “cheat days,” spending money unwisely because your debt repayment plan seems to have little effect and your goal still seems so far away.

Know Thyself

It’s a matter of knowing yourself: What motivates you? If you “avalanche” your debt, will you rack up more of it during the time it takes to pay off or will you stay motivated when the finish line seems so far away? If you “snowball” your debt, will a high-interest loan end up costing you more over time or will you ultimately be better off because you stay motivated to continue paying down what you owe? Your goal is to be debt-free, and you need to choose the method that will work for you – right now, and especially a year from now. Your advisor knows not only the models for debt-repayment, they know you, which is crucial in the journey toward debt freedom. Get in touch today, and let’s take the first step. Set up an appointment! [post_title] => Paying Off Debt: As You Work Toward Debt Freedom, is the Snowball or Avalanche Method Right for You? [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => paying-off-debt-as-you-work-toward-debt-freedom-is-the-snowball-or-avalanche-method-right-for-you-2 [to_ping] => [pinged] => [post_modified] => 2020-07-02 10:19:52 [post_modified_gmt] => 2020-07-02 15:19:52 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/monthly-newsletters/paying-off-debt-as-you-work-toward-debt-freedom-is-the-snowball-or-avalanche-method-right-for-you-2/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) ) [post_count] => 5 [current_post] => -1 [in_the_loop] => [post] => WP_Post Object ( [ID] => 64125 [post_author] => 6008 [post_date] => 2021-04-01 12:51:55 [post_date_gmt] => 2021-04-01 17:51:55 [post_content] => Despite an evolving society, college is still a right of passage for many. We pack the family SUV with suitcases and dreams and take the young hopeful on to their next adventure. One of the most important investments you can make is helping your kids, and even grandkids, fund their education with a 529 college savings plan. With college costs running double or more than they did 30 years ago and the student loan crisis reaching about $1.6 trillion in debt, every little bit helps. Let’s look not just at the basics of a 529 plan, but at 529 planning – how this powerful savings tool fits into your overall financial plan and helps you optimize the support you give young people in your life.

529 Basics and Qualifications

A 529 plan is a savings vehicle specifically for education expenses – this usually means college but can mean elementary or secondary school tuition in some states. You can start them at any point and contribute to them throughout the student’s life and even while they are pursuing that education. Growth on the account and qualified distributions are tax-free. Ideally, you would start a 529 college savings plan when your child is relatively young to maximize earning potential. You can make regular contributions, and relatives can also contribute easily through digital interfaces like Ugift or Gift of College. For some contributors, a tax deduction comes at the state level. There are currently 30 states that have carved out tax credits or deductions for these contributions. Some states do not have such programs and some states – Alaska and Florida, for example – don’t have personal income tax so the question is moot. There is no federal tax deduction, so contributions are considered after-tax on that level. Using a 529 plan comparison tool can help you find the right plan for you with the deductions that apply in your area.

Qualifications

Like many financial instruments, qualifications are immensely important when withdrawing from or otherwise moving money in a 529. Qualified expenses for a 529 Plan include:
  • Tuition
  • Room and Board
  • College Fees
  • Textbooks and technology
  • Student loan payments up to a certain amount
  • Some professional apprenticeship programs
And just like other savings vehicles, when you move outside of these parameters you run into taxes and penalties. Only your gains in a 529 are subject to income taxes and a 10% withdrawal penalty for a nonqualified distribution. Any state income tax deductions or credits claimed may be subject to recapture.

Your 529 Plan in the Financial Aid Process

Many of us may remember the FAFSA (Free Application for Federal Student Aid), a pile of pink and white paper we filled out sometime during our senior year and sealed with hope as we sent it off in the mail. Now the process is digital, of course, but one of the things they still ask about is the student’s financial context. The Expected Family Contribution is an index number established by law that involves your family’s taxed and untaxed income, assets and benefits (i.e., unemployment and Social Security). The number of kids in the family, and how many of them are also attending college, is another contributing factor. Your 529 plan will be considered during the process. What’s important to realize here is that your aid package is based on your family’s assets, but not those of grandparents or other loved ones. Grandma could have $100,000 socked away in a 529 plan, and it won’t affect your student’s financial aid offering. So if that’s the case, keep grandma as the owner of the plan and the student as the beneficiary – because the financial aid review is looking at only the parents and student. Distributions for the student from grandma’s 529 plan will be considered on the next FAFSA and treated as untaxed income for the student. Remember that the FAFSA looks at the income from two years before, so payments from grandma should wait until later in college.

Transferring a 529 Plan

Another important out-of-the-box aspect of 529 planning concerns beneficiary transfer. In some scenarios, a student might not use all of their 529 money, thanks to scholarships and the like. The beneficiary of the plan can change without tax consequence if that new beneficiary is within the family – think of older brother finishing school and the plan transferring to younger sister. This beneficiary change is fairly simple and can be done on the plan’s website. Complexity might arise when the account crosses generations. Let’s say grandma has a 529 plan with her granddaughter as the beneficiary. Granddaughter doesn’t use up all the money in the account, and grandma designates her as the successor owner and then passes away, leaving her granddaughter as owner of the plan. If the granddaughter then names her son as the new beneficiary, it becomes a taxable transfer. Because the plan beneficiary changed to a family member of a younger generation than the current beneficiary, the beneficiary change is treated as a taxable transfer for gift tax purposes. It’s important to look forward to these changes strategically as much as possible, and discuss with your advisor and college planner how to minimize loss.

529 Plan Rollovers

A 529 college savings plan rollover is one maneuver that can help when plans might have to change hands or generations. The IRS allows one tax-free rollover from a plan per beneficiary per year. If you found a 529 plan you like better, for example, you can rollover your previous plan into that one. This can be helpful in preparing an estate. If grandparents are getting on in years and have a 529 plan in place for a grandchild, they could transfer the money to a parent’s account in this rollover without losing on taxes or penalties. Keep in mind that it’s per beneficiary, so grandparents could rollover but great aunt and uncle couldn’t do the same thing for the same person the same year.

Investing in the Future

Of course, the motivation behind a 529 plan goes far beyond tax breaks. You want to support a student’s dreams and a hopeful future. Planning intentionally with a 529 can help you optimize that support and make sure the most money goes where it should – to change a young person’s life. Get in touch today to see how education planning and other details fit into your financial picture! Make an appointment! This is not intended to provide specific legal, tax, or other professional advice. For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Before investing, the investor should consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan. [post_title] => How a 529 Plan Can Help You Save for College and Invest in the Future [post_excerpt] => [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => how-a-529-plan-can-help-you-save-for-college-and-invest-in-the-future [to_ping] => [pinged] => [post_modified] => 2021-04-01 12:51:55 [post_modified_gmt] => 2021-04-01 17:51:55 [post_content_filtered] => [post_parent] => 0 [guid] => https://carsondemo.com/insights/monthly-newsletters/how-a-529-plan-can-help-you-save-for-college-and-invest-in-the-future/ [menu_order] => 0 [post_type] => monthly-newsletters [post_mime_type] => [comment_count] => 0 [filter] => raw ) [comment_count] => 0 [current_comment] => -1 [found_posts] => 17 [max_num_pages] => 4 [max_num_comment_pages] => 0 [is_single] => [is_preview] => [is_page] => [is_archive] => [is_date] => [is_year] => [is_month] => [is_day] => [is_time] => [is_author] => [is_category] => [is_tag] => [is_tax] => [is_search] => [is_feed] => [is_comment_feed] => [is_trackback] => [is_home] => 1 [is_privacy_policy] => [is_404] => [is_embed] => [is_paged] => [is_admin] => [is_attachment] => [is_singular] => [is_robots] => [is_favicon] => [is_posts_page] => [is_post_type_archive] => [query_vars_hash:WP_Query:private] => 33360e3352fab1dda1687c7ecea517e1 [query_vars_changed:WP_Query:private] => [thumbnails_cached] => [stopwords:WP_Query:private] => [compat_fields:WP_Query:private] => Array ( [0] => query_vars_hash [1] => query_vars_changed ) [compat_methods:WP_Query:private] => Array ( [0] => init_query_flags [1] => parse_tax_query ) [tribe_is_event] => [tribe_is_multi_posttype] => [tribe_is_event_category] => [tribe_is_event_venue] => [tribe_is_event_organizer] => [tribe_is_event_query] => [tribe_is_past] => )

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