Real Life Questions — Real World Answers: February 2020


Last year the stock market did great.  With the impeachment and election what’s it going to do this year?”

So you think I am psychic.  Or you think someone is psychic and you’re hoping it’s me?  So, let’s be clear about two things.  First, no one is psychic.  And the ones who claim to be able to predict the directions of stock/bond markets are delusional or criminal – sometimes both.  Second, I most certainly am not psychic – psychotic has been used on occasion – never psychic. 

Now on to 2020.  The economic numbers are currently sound.  Interest rates are near historic lows and expected to stay around those numbers.  Inflation is quite benign.  U.S. employment is at a historic high.  Wages are rising.  Corporate profits are solid.  Trade agreements with Canada, Mexico, and China are either in place or in development.  You may draw your own conclusions based on these facts.

What you should not/cannot do is base your investment ‘strategy’ on what you expect the markets to do over the next twelve months.  By definition we cannot know.  Therefore, a strategy based on what we cannot know is fatally flawed.

Create – or work with a financial advisor to create – an investment approach that fits you and your financial goals.  A solid approach should carry you through all the stages of the economic cycle.  Need help with such a plan?  All our initial consultations conducted in our More than Money World Headquarters (in the Holy Lands between Bethlehem and Nazareth) are provided to you free of charge.  Just ask.

I understand the rules for RMDs have changed.  How do I know if I can wait to begin my RMDs until I am 72?

Pretty simple.  If you were born before July 1, 1949 your RMD age is 70 ½ with all the attendant goofiness that rule carries with it.  If you were born on or after July 1, 1949 you can delay your RMD until your reach age 72.

Keep in mind, if you wish to use your IRA to fund your charitable contributions without needing to pay tax on that income – you may still do that starting at age 70 ½.  This inconsistency in these two rules provides a planning opportunity for those who are charitably inclined.

Does using a Fixed Index Annuity (FIA) make sense inside my IRA?”

It depends.  What is your goal for taking such a step?

If your goal is income tax sheltering – this is a bad idea.  If your goal is to maximize the return you’re generating inside your IRA – this is a bad idea.  If you believe that an FIA will give you stock market returns with no downside risk – this is a bad idea.

If your goal is to protect a portion of your retirement funds from losses – this could be a good idea.  If your goal is to supplement your bond component of your portfolio with a bond-like alternative – this could be a good idea.  If your goal is principal protection – this could be a good idea.

FIAs are complex financial products.  You must get a solid education in their working parts before you conclude they fit you.  Consult with an objective FIA advisor who can help you evaluate both your interest and (if they are a fit) what companies and FIA contracts might best fit your needs.  Questions?  We can help.

I recently changed jobs and have – for the first time – a 401(k) I can invest in.  I am 26, make a good living, have been saving a fair amount of every paycheck, and I’m excited to get started on my 401(k).  The company will invest 50% of what I invest up to 6% so I am absolutely going to do at least 6%.  I want to get all the free money – just like you say on your radio show.

The plan we have has about twenty different choices.  I’m not sure where to begin.  I would really appreciate your advice.”

Congratulations.  It appears you are making quite a collection of wise financial choices in your life.  Your 401(k) plan is another wise choice.  Getting all your ‘free money’ is another.  Making sure your investment choices are right for you is very sound thinking as well.

First, your plan almost certainly has a default fund.  This is an investment selected by the plan administrator to receive funds for people who wish to enroll, but are not sure which fund(s) to choose.  Don’t wait.  Enroll and if you haven’t yet decided where to direct your investments accept the default fund.

Second, your plan almost certainly has target date funds.  This are funds that are designed to meet the needs of the ‘average’ employee expecting to retire around a date in the future.  For example a Target Date 2050 fund would be appropriate for someone expecting to retire in about thirty (30) years.  The fund manager will select packages of diversified investments to meet this target.  One choice and you’re on your way.

Third, your plan almost certainly has a menu of additional investments (likely mutual funds) that might meet your needs.  At your age, you will likely want to keep your choices in growth assets and away from fixed income, bonds, and stable value funds.  You have forty (40) or so years until retirement.  This gives you plenty of time to weather the (many) down investment cycles that will occur over those years.

And, of course, you don’t have to do any of this alone.  Any quality advisor would welcome the opportunity to take the time to guide a young investor such as yourself.  You should expect to spend an hour or so reviewing your options, having your questions answered, and walking out with a good investment plan that fits you. 

Is it permissible to use my daughter’s 529 plan to pay off her student loans?”

As of January 1, 2020 the answer is now yes . . . sort of.

The SECURE Act allows for 529 Plan funds to pay $10,000 of student loans per student.  Of course, many students have student loan burdens far higher than $10,000, but the Act does not address that issue.

Additionally, this tax free use of 529 Plan funds to pay down student loans is the limit for the lifetime of the student.  Families are allowed to use 529 funds to pay $10,000 in student loan debt for each of their eligible children.  This gives some additional relief to families with multiple student loan challenges.

So, not great, but certainly better than before when the answer was a flat no.

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