An Independent Registered Investment Advisory

  • From our April 2020 Newsletter: Oil Prices and RMDs

    Oil Prices Decline

    Saudi Arabia and Russia are both large exporters of oil and are in a market share feud. Both want to sell more oil to the rest of the world and one way is to lower the price and increase production. Currently oil is about $20/barrel. Many oil-producting companies need at least $40/barrel to be profitable. The lower prices can seriously damage leveraged companies and nations that have high fixed cost. In addition to a price decline and production increase from Saudi Arabia and Russia, we have a coronavirus outbreak that is shutting down America and reducing the demand for gasoline. People are staying home. As prices decline production tries to increase to maintain the same income, but there is only so much demand.

    Oil companies with highly leveraged balance sheets run the risk of going out of business. Stronger companies with less debt will only see a temporary decline in their earnings. These comapnies will recover when oil prices rise, but their long-term appeal is much less attractive.

    RMDS waived in 2020

    The new CARES act also included provisions related to qualified retirment accounts. For account owners of 401K, 403b, 457b and IRA plans who would be subject to RMDs (required minimum distributions) withdrawals are temporarily waived for 2020.  If you do not need money from your retirement plan account, you can leave it for another year before withdrawing it and paying income taxes. In addition, the 10% early withdrawal penalty for withdrawals from a retirement account by non-retiree age  individuals has been waived.

  • From our February 2020 Newsletter

    The SECURE Act was passed by Congress in December 2019. SECURE stands for Setting Every Community Up for Retirement Enhancement, but the more we investigate the specific law changes the less it feels like it is an "enhancement".

    When account owners of qualified plans including: IRA's, Roth IRA's, 401(k)'s, 403(b)'s, etc. pass away, non-spouse beneficiaries  (children, grandchildren, trusts, etc.) inheriting these types of accounts must now distribute the money within 10 years. The SECURE Act eliminates the "stretch" provision that allowed non-spouse beneficiaries to "stretch" annual required minimum distributions (RMDs) over their life expectancy.  Spousal beneficaries are still able to treat the money as their own and the RMD's now start at age 72 instead of age 70 1/2. 

    Let's look at an example of how the old stretch provision applied to a non-spouse beneficiary of an IRA. Let's assume a mother leaves her $500,000 IRA to her 55-year-old daughter, Rachel. Prior to the SECURE Act, Rachel would have been eligible to take required minimum distributions annually over her lifetime according to a life expectancy factor. For this example we assume that the inherited IRA earns 7% annually. The account grows over time and Rachel receives an increasing amount of RMD income each year. She also pays more in tax as her income increases. The balance of the account will be withdrawn at age 84, almost 30 years after she inherited the account.

    Continuing with the same example, now, under the SECURE Act, Rachel will need to distribute the balance of the inherited account at the end of 10 years, at age 64. There are no longer required annual RMD's but rather the requirement to distribute the balance at the end of the 10-year period.  If distributions are not planned tax-efficiently, in this example, Rachel would need to take a distribution of $983,756 at age 64--subject to income tax! That's a big tax bill.

    It is now increasingly important for beneficiaries to plan distributions in the most tax efficient manner and perhaps rethink some retirement and inheritance planning.  We are here to help!

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