April is Financial Literacy Month – our favorite month of the year. Plus we think everyone could use a bit of fun right now.

1. How are contributions to an IRA taxed?

a. They aren’t.

b. What is an IRA?

c. It depends on what type of IRA. Roth IRA contributions are made after taxes are paid and Traditional IRA contributions are made before taxes are paid

d. It depends on what type of IRA. Traditional IRA contributions are made after taxes are paid and Roth IRA contributions are made before taxes are paid.

e. No idea. I need to call LFS. Marci and Lori are there answering the phone as usual and I want to confirm that anyway.

2. Which is better for me? A Roth 401K or a Traditional 401K?

a. A Roth 401K of course because it helps my cash flow every month now.

b. A Traditional 401K of course because it helps my cash flow every month now.

c. What’s a 401K?

d. Both are good and I can have both.

e. Not sure. I need to call LFS. Marci and Lori are there answering the phone as usual and I want to confirm that anyway.

3. What is a bear market?

a. A market of high volatility

b. Who cares? We never have this anyway.

c. A market of decreasing stock prices

d. A market of decreasing bond prices

e. Not sure. I need to call LFS. Marci and Lori are there answering the phone as usual and I want to confirm that anyway.

4. What is the difference between a mutual fund and an ETF?

a. Mutual funds are traded on a stock exchange while ETF’s are not.

b. Why does it matter?

c. Mutual funds are generally actively managed and ETF’s are generally not actively managed.

d. Mutual funds are more liquid because they have higher fees.

e. Not sure. I need to call LFS. Marci and Lori say they are there answering the phone as usual and want to confirm that anyway.

5. What generally happens to bond prices when interest rates go up?

a. They stay the same.

b. They go down.

c. They go up.

d. Interest rates never go up, so not sure why this matters.

e. Not sure. I need to call LFS. Marci and Lori say they are there answering the phone as usual and I want to confirm that anyway.

• When should I start taking social security?

• Do I need a trust? Do my parents need a trust?  What about my kids?

• Can I pay less income tax?

• Should I do a Roth conversion now to reduce my RMDs when I have to start taking them?

• How do I start spending the money I have worked decades to accumulate without worrying all the time that I will run out of money?

• If I have different types of accounts, in what order should I withdraw money when I need it?

• Can I afford to retire?

• How much should I really be saving every month? 

• If I don’t have children, what do I need to do to ensure my financial and healthcare wishes are met?  If I do have children, what do I need to do to ensure my financial and healthcare wishes are met?

Watch your mail in the next few weeks for an exciting announcement from LFS!    

Can’t wait for our letter??  Feel free to call us now!

Happy 2025! 

For 2025, there are plenty of changes which impact IRA’s and 401K’s so we will just cover the major ones here.  There could be additional changes later in the year of course. 

For 401K/403B/457:

• The maximum employee contribution has been increased from $23,000 to $23,500.  The catch-up contribution for employees age 50 and over remains at $7,500 for a total of $31,000.    New for 2025 is a total catch up limit of $11,250 for active participants who are between 60 and 63 years of age.  This brings the total employer plan contribution to $34,750 for these employees.

For Traditional IRA’s:

• Contribution limit stays at $7,000 for 2025.  The catch-up contribution for those age 50 and over is still $1,000 for a total of $8,000.  The income tax deductibility level has been increased. We will review with you individually as needed.

For ROTH IRA’s:

• Contribution limit stays at lower of earned income or $7,000 for each spouse.  Catch-up contribution of additional $1,000 for age 50 and over. 

• Contribution eligibility has increased:

• Full contribution with Adjusted Gross Income (AGI) increased to $150,000 for a single taxpayer.  Phase-out between $150,000 and $165,000.  We can help with the phase-out math.

• Full contribution for each with total Adjusted Gross Income (AGI) less than $236,000 for married/filing jointly taxpayers.  Phase-out between $236,000 and $246,000.  We can help with the phase-out math. 

• 2024 contributions (of $7,000 or $8,000 if age 50 or over) can be made until April 15, 2025.  Let us know if you plan to do this so we can ensure the deposit gets applied to the correct year.

Call with questions or if we can help get these changes made for you. 

As promised earlier in the month, we are now going to re-introduce you to Roth IRA’s, but this time, as great financial gifts for your lucky and hard-working children or grandchildren.  As I said earlier, there are very few investments which grow tax free, but 529 plans and Roth IRA’s do just that!

Many of you are familiar with Roth IRA’s, but for those of you that are not, here is a brief overview:    

Roth IRA’s were created by the Taxpayer Relief Act of 1997 to help Americans save for retirement.  These IRA’s have become enormously popular in the last 20 years but there are some important considerations:

• The dollar contribution limits are the same for Roth IRA’s and traditional IRA’s.  Eligibility for a Roth IRA requires “earned income,” subject to an income cap which is not present for traditional IRA’s. 

• Contributions are made with after-tax dollars, unlike those in traditional IRA’s or most company sponsored retirement plans.

• Because the contributions are made with after-tax dollars, the contributions can be withdrawn at any time, without tax or penalty.  This might be important for young investors like your children or grandchildren who might need the money they invested before retirement.

• Unlike traditional retirement plans, the earnings can also be withdrawn tax-free, subject to owner age and account duration rules, and there is no requirement for distributions to begin at any age.

As I said above, there is a requirement for the Roth IRA account holder to have “earned income” in order to be able to contribute BUT the actual contribution can be funded by anyone (YOU in this case) as long as the dollar amount of the contribution does not exceed the owner’s earned income or annual maximum allowed.

Head spinning?  How about an example?  You have a 19 year old grandson who worked over the summer stocking shelves in the middle of the night for Kroger.  He earned $2000 and will receive a W-2 from Kroger.  I am guessing he probably can’t invest this $2000 in a Roth IRA because he is saving every penny for college, BUT you can fund it for him.  You have until April 2025 to make this 2024 Roth contribution.  We will help you understand eligibility requirements and then help you actually pull this off.

Want to read more about Roth IRA’s?  See attached link. https://www.investopedia.com/terms/r/rothira.asp

Back by popular demand, the next two Bernie’s BLOG posts will provide info on some great financial holiday gifts for you, your children, or grandchildren.  This blog will cover 529 educational plans and the next one will re-introduce many of you to Roth IRA’s.   By the way, we are not suggesting that you forego fun gifts for your offspring, but we really like the idea of longer term not nearly as “fun” gifts to help secure the financial futures of your lucky family members. 

As many of you know, there are very few investments which grow tax-free, but 529 plans and Roth IRA’s do just that, at least for now. 

529 plans are state run educational savings plans which can be used for very broadly defined educational expenses for adults or children.  These funds can be used for pre-college, trade school or college tuition/fees.  The investments in a 529 plan can be made by anyone, subject to gift tax requirements, and are made with after-tax dollars although some states offer a state tax credit to parents who contribute in their state of residence (North Carolina does not offer this credit at this time).  The funds in a 529 plan can be moved to another child and the funds do not have to be used in the state in which the plan was funded.  Unlike other investments, 529 plans are controlled by the account “owner”,  not by the child.  Taxes and penalties are due if money is not used for educational expenses, but again, the definition of educational expenses is quite broad and usually includes computers, books, and room and board.   There has also been an important change to 529 plans – up to $35,000 of unused funds can now be rolled over to a Roth IRA for the child, subject to lots of rules of course. 

These plans carry low management fees because they tend to be “target date” funds where the investment mix is automatically rebalanced as the child gets closer to college age. 

Although 529 plans are not LFS managed assets, we would be happy to assist you in starting one for your children or grandchildren, or even yourself!  There is no minimum dollar requirement to open an account and dollars can be added throughout the year. 

If you want to read up, see link below, or feel free to call us to talk more.   

https://www.investopedia.com/terms/1/529plan.asp

Congratulations to Jordan and Matt, Lori and Charles, and Grandmother Toby!  Photos from last weekend’s beautiful event in Orange, Virginia are attached. 

We are so happy to welcome Matt to our family! 

For those of you who unfortunately checked up on your portfolio on Monday August 5 when the S&P 500 dropped 160 points, you may still be asking yourself (and us) what actually happened that day. 

Of course, no one really knows the actual answer, but it was likely a “perfect storm” of financial and non-financial events.  The good news is that the market drop was short-lived (at least for this market cycle) and the S&P 500 quickly returned to its record-breaking highs (again for this market cycle)

If you dug a little deeper that day, you may have read about a massive spike in the VIX so we decided to dig a little deeper into what the VIX is and what it MIGHT mean, so we all know when it happens again. 

First of all, the VIX is the ticker for the CBOE (Chicago Board Options Exchange) Volatility Index.  The VIX, which is also called the Fear Index, is a real-time measure of investors’ expectations for short- term price changes in the S&P 500.  It is calculated from prices of short-term S&P Index options.  The index is calculated for the following 30 days and then annualized for the following 12 months.    Simply, the VIX measures how fast stock prices are expected to change.   In general, when the VIX goes up, stocks prices fall (investor fear is higher) and when the VIX goes down, stock prices increase (investor fear is lower). 

Experts suggest the following rules of thumb:

• When the VIX is between 0 and 12, investors should expect low volatility for the following 30 days

• When the VIX is between 13 and 19, investors should expect normal volatility for the following 30 days

• When the VIX is 20+, investors should expect higher than normal volatility for the following 30 days

The long-term average VIX reading is 21.  The highest ever VIX to date was almost 83, which happened in March 2020.  The second highest reading was 81 which occurred during the 2008 financial crisis.  On the

other hand, the lowest VIX recorded was 9 in November of 2017?  Remember that?  No one does.

So what happened to the VIX in early August?

The VIX spiked above 60, with the highest ever intra-day jump, and ended very close to the “market panic” level.  Within just a few days, the VIX returned to a more normal level.   Experts believe there were likely several factors for the spike:

• Concerns about the U.S. economy following July inflation and unemployment numbers

• Any excuse to sell, given the rapid rise in technology mega cap stocks tied to big bets in AI

• The steep decline in the Yen carry trade (investors borrowing Yen at very low interest rates and the purchasing U.S. or other assets with potentially much higher returns)  

• Nuances in calculations

• World events – continuing escalation of mid-east wars, upcoming U.S. elections, China economic woes, etc. 

The VIX today is 15.8.  September has historically been the most volatile month of the year and the VIX has risen slightly for the last 30 days.  Most of us expect ongoing market volatility for at least the next 40 days as the U.S. election nears so the VIX is a good way to see if other investors agree. 

Congratulations to Bradley and Maayan, Marci and Howard, and Linder grandparents.  Photos from beautiful ceremony in Providence, Rhode Island are attached. 

We are so happy to welcome Maayan to our family!  Marci and Howard are grateful to all of you for the notes and texts – they will be back in touch soon!

As I am enjoying a much-needed replacement of my usual non-stop news coverage with Olympic swimming, skateboarding and soccer, I can’t help but wonder if anyone makes any money from all of this.  Interesting question with the expected answer, which I am sharing below. 

The answer is not really. 

Historically, the average $10 billion needed to host the summer games has dealt a financial and environmental blow to the host city/country.  The construction of temporary infrastructure, promised to aid the host city for the following decades, has rarely delivered on that commitment.  The likely cost overruns, coupled with the potential environmental impact, has made it increasingly difficult to convince cities and countries to host these games.  The notable exception to the negative financial impact was the 1984 Summer Games in Los Angeles, which delivered a $200 million surplus, largely by using existing infrastructure and offering valuable sponsorships and broadcast rights.  Los Angeles will again host the summer Olympics in 2028, although some of the events will be held as far away as Oklahoma City!   I will say that financial considerations aside, we really enjoyed the 1996 Summer Olympics here in Atlanta!

Now what about 2024 host city Paris?  The International Olympic Committee (IOC) and Paris hope to reverse both the negative press and the historically negative financial and environmental trends.  These are valiant efforts for sure but it’s way too early to assess the results.  Critics insist that changing the financial and environmental trajectory will require a vastly different athlete and fan experience, with the likely need for permanent or a small rotation of host cities/countries.  Since that’s not happening for the foreseeable future, let’s have a look at some of the numbers.   

• 5 of the last 6 Olympic games have had cost overruns of at least 100%.  And experts claim that some of the actual costs have not been included in the analyses.  Many of the eventual host countries also invested $100 million in their bids to secure the Games.

• Summer Olympic games are almost double the cost of winter Olympic games.

• The current cost estimate for the Paris Olympic and Paralympic Games is $9.7 billion which is 25% over the initial bid from 7 years ago.  Officials cite this little factor called inflation.  Yep.

• Paris already had many sports venues so the plan was to limit new construction to the Olympic Village which will presumably become mixed-income housing later, an aquatics venue and a small arena.  Not included in the $9.7 billion estimate was the $1.5 Billion to make the Seine clean enough to swim in, because presumably that was to be done regardless.  Still remains to be seen how that will work out. 

• There have already been 8.6 million tickets sold for the events in France (not sure if that includes tickets for the surfing in Tahiti) but early reports suggest fewer than expected visitors – with the expected negative impact on airlines, hotels, and restaurants.  Paris is also apparently considered a prime tourist destination, so a long- term tourism boost is less likely. 

My conclusion – I sure love to watch these events, even though I still cannot understand rugby, but not sure there is a strong financial proposition here.  Happy viewing! 

As promised, it’s time for some data and fun historical facts on the stock market before and after a Presidential election.  This is a politics-free zone, so read on!

Let’s look first at what has historically happened to the stock market during Presidential election years and then what happens after the election, depending on which party wins.  Spoiler alert….. it doesn’t really matter.

Now here is a shocker, election years tend to be volatile but in general, the market goes up.  Remember though that there have only been 18 Presidential election years since 1952 so there is limited data.  And let’s remember that in general over time, markets go up or none of us would be doing this.  The S&P 500 has averaged a 7% gain in the election years since 1952 which is short of the 10% average gain in all years, but there has not been a down election year during this time.  However, “re-election” years, which this clearly is, have delivered a better 12.2% gain since 1952.  We all know that past market performance is no guarantee, but I like our odds given the performance already this year. 

Now for some interesting election year data:

1. Top sectors in presidential election years since 1952: energy and financial services

2. Bottom sectors in presidential election years since 1952: materials and technology (hm?)

Now what happens after the election?  In general, markets go up, regardless of which party wins the White House.  And although I love the Schwab chart below which shows the market performance depending on the party of the President and Congress, my conclusion is that there is really no conclusion – in other words, there are other far more important factors which influence what the market does.  But might be good Independence Day, Labor Day, and Thanksgiving party conversations anyway!

FOR IMMEDIATE RELEASE

Linder Financial Services Receives 2024 Best of Alpharetta Award

Alpharetta Award Program Honors the Achievement

ALPHARETTA March 2024 -- Linder Financial Services has been selected for the 2024 Best of Alpharetta Award in the Financial Advisor category by the Alpharetta Award Program.

Each year, the Alpharetta Award Program identifies companies that we believe have achieved exceptional marketing success in their local community and business category. These are local companies that enhance the positive image of small business through service to their customers and our community. These exceptional companies help make the Alpharetta area a great place to live, work and play.

Various sources of information were gathered and analyzed to choose the winners in each category. The 2024 Alpharetta Award Program focuses on quality, not quantity. Winners are determined based on the information gathered both internally by the Alpharetta Award Program and data provided by third parties.

About Alpharetta Award Program

The Alpharetta Award Program is an annual awards program honoring the achievements and accomplishments of local businesses throughout the Alpharetta area. Recognition is given to those companies that have shown the ability to use their best practices and implemented programs to generate competitive advantages and long-term value.

The Alpharetta Award Program was established to recognize the best of local businesses in our community. Our organization works exclusively with local business owners, trade groups, professional associations and other business advertising and marketing groups. Our mission is to recognize the small business community's contributions to the U.S. economy.

SOURCE: Alpharetta Award Program

We know most of you are not quite as excited as we are about the 21st annual Financial Literacy Month, but we know you are excited about our annual financial literacy quiz!

As a reminder, Financial Literacy Month was created to build awareness of smart money habits, including budgeting, saving, spending, and investing.

Now to the quiz:

1. Which of the following assets would be expected to hold value during a period of inflation?

a. A certificate of deposit

b. A corporate bond

c. A house

d. This is a dumb question because we never have inflation.

e. No idea. Guess I better call LFS.

2. Which of the following investment strategies has historically shown the highest return over several years?

a. Avoiding the stock market entirely and keeping cash in a FDIC insured savings account.

b. Moving money in and out of stocks frequently to avoid downturns and take advantage of upturns.

c. Buying and holding a variety of stocks while largely ignoring short term fluctuations.

d. This is a dumb question because the stock market never has downturns or upturns.

e. No idea. Guess I better call LFS.

3. A 15-year mortgage usually has higher monthly payments than a 30- year mortgage on the same property. The total interest paid over the life of the loan is

a. More for a 15-year mortgage than a 30-year mortgage

b. Less for a 15-year mortgage than a 30-year mortgage

c. Exactly the same interest regardless

d. Too much

e. No idea. Guess I better call LFS.

4. When GE stock split earlier this month, why did I get some cash in my account?

a. GE paid me to take some shares in the new company.

b. A dividend was paid in cash right after the split.

c. GE paid cash for my fractional GE Aerospace share instead of issuing a partial share of GE Verona

d. It doesn’t matter because I already spent both dollars GE gave me.

e. No idea. Guess I better call LFS.

5. What should I do if I get a website link in an email from Schwab that I have not been told about by LFS? Or if Schwab calls me?

a. Do not click on the link or call Schwab. Call LFS immediately.

b. Do not click on the link or call Schwab. Call LFS immediately.

c. Do not click on the link or call Schwab. Call LFS immediately.

d. Do not click on the link or call Schwab. Call LFS immediately.

e. Got it?

There is a growing concern about “spoofed” websites which are designed to convince users that they are visiting legitimate sites.  Some of you have reported this huge concern to us with links from Schwab which are not actually from Schwab.  Because of the reports from account holders, Schwab has provided some information and talking points for advisors to share with clients.  We have also gotten reports of fake emails with links which look like they are from us.

How this happens:

Potential fraudsters purchase “sponsored links” to fake websites which appear at the top of search results.  They hope that we, as unsuspecting potential victims, will click on these links and be directed to these fake websites where we could be exposed to malware or asked to provide confidential information. 

What we all need to do, for all website links, not just for Schwab links

• Watch for URL errors, including misspellings, grammar/format errors or unusual website domains.  Even one letter out of place is a signal that something is likely amiss.  The fake emails from us have originated from fake email addresses.  Check that. 

• When you click on the site link, you are notified of a login issue and often directed to a hotline phone number.  There may be a mention of unauthorized account activity.  Remember that Schwab will never ask you over the phone for your account login password so if someone asks you for that, do not provide it.  Obviously, we will never ask you for passwords in email or on the phone either. 

• Question anything from Schwab which looks like an attempt to create a sense of urgency.  Call us right away before you act.

Additional steps we are taking:

• As you know, we look at all account activity every day in every account so we will track you down if we see something unexpected – that we didn’t talk about, that we didn’t initiate, or which doesn’t follow your patterns of financial behavior. 

• We have seen some of these attempts via DocuSign or other electronic document approval systems. 

• We only use DocuSign and only via Schwab.  Links from any other document approval systems are not from us/Schwab.

• We originate 100% of the DocuSign envelopes you get from Schwab.  Schwab cannot do this on their own.  And we will TELL YOU via email, text, or phone when we send you a DocuSign agreement via Schwab so that you know we sent it.  If you have not heard from us, don’t open until or unless you confirm with us. 

• Some Schwab documents from us are delivered via email link to your Schwab.com (Schwab alliance log in) rather than via DocuSign.  But we will also TELL YOU via email, text or phone when we send a document this way so you know it is from us.  For extra security, consider logging into your Schwab.com account vs using the email link. 

• If you are not sure, call us right away. 

Tax time is here, and everyone is so happy about it.  Said no one ever and especially not this year.  There has been a fair amount of chaos surrounding 1099’s from Schwab and Ameritrade.  It should be easier than this, but at this point, we are all for just getting through it!   This should be much cleaner for 2024.

 Easier part first:

1. If you took a RMD in 2023, your 1099R will be issued by either Ameritrade or Schwab – depending on where the account was custodied when the RMD was done.   If you took RMD’s from both Schwab and Ameritrade accounts, you should receive a 1099R from each.

2. There is no such thing as a combined Ameritrade and Schwab 1099 for a taxable account.  If you had a taxable account (individual, joint, trust etc) at both Schwab and Ameritrade in 2023, you get a 1099 from both Schwab and Ameritrade, as long as there was at least $10 in dividends paid. 

3. As always, if you have an IRA but are not taking RMD’s, you will get no 1099 for that account.

 Now for the tricky part:

1. These forms should be mailed to you as always, but this has been spotty so far.  We do not have ours via US Mail yet.

2. If we moved your taxable account or IRA prior to the Labor Day automatic rollover, your Ameritrade 1099 may or may not be available on your Schwab Alliance account, despite what Schwab is saying.  It should be mailed to you and/or we can get it for you.

3. If your taxable account or IRA account was moved over Labor Day, your Ameritrade 1099 should be available on your Schwab Alliance account, along with your Schwab 1099 or 1099R. 

4. There is still one more Ameritrade 1099 batch to be produced.  This is scheduled to happen by 02.29.

5. We are happy to help with anything you need.  We can access all of the old Ameritrade accounts and statements so don’t hesitate to tell us what you need. 

And while you are on Schwab Alliance, have a look at your document delivery preferences.  Now is the time to get those updated to reflect how you want to receive statements and tax forms in the future.  Your Ameritrade preferences were supposed to have been carried forward, but that has not consistently occurred.  As always, we can also reset these preferences for you if you confirm what you would like to have happen. 

 Enough already!

For those of you in the Required Minimum Distribution (RMD) taking stage, who are also charitably inclined, there is a new option, appropriately nicknamed “legacy IRA”.   As always, the rules are complicated and the answer to most questions is “well that depends” but have a read here and then call if you want to learn more.  We will phone a friend if needed!

What is a Legacy IRA?

A Legacy IRA is also known as a Qualified Charitable Distribution Charitable Gift Annuity (QCD CGA).  Under certain conditions (this is the “it depends” part) a donor can make a

1. one-time per tax-payer

2. tax-free

3. charitable distribution up to $53,000 in 2024

4. across multiple charities if desired and allowed by charities

This donation is in exchange for an income stream for a period of years.  Yes, this is an annuity of sorts.

1. This distribution counts toward your RMD in the year the donation is executed.

2. A standard charitable contribution (QCD) can also be made in the same year for the additional allowable amount (which is an additional $52,000 in 2024).

3. The annuity payments can be made to the donor or spouse

4. All annuity payments are taxable as ordinary income in the years received

5. Minimum annuity pay-out is 5% annually.

6. Charity must have capability to do since the charity is responsible for the documentation

Why do? 

1. No tax bill on the distribution

2. Income stream for life (annuity-like)

3. Proceeds on death go to your designated charity

There is also an option to make this one-time contribution to a Charitable Remainder Trust (CRT) rather than to a Charitable Gift Annuity.  That is equally as complicated so call on that too.    

Happy 2024! 

For 2024, there are plenty of changes which impact IRA’s and 401K’s.  There could be additional changes later in the year of course with some big changes expected for 2025. 

For 401K/403B/457:

• The maximum employee contribution has been increased from $22,500 to $23,000.  The catch-up contribution for employees age 50 and over remains at $7,500 for a total of $30,500.  NOTE:  in 2025, employers must put the employee catch-up contribution into a Roth 401K.  Some employers are offering the option to do that in 2024 so check with your employer or plan administrator if you are interested in doing this.  We can call with you as needed.      

For Traditional IRA’s:

• Contribution limit has been increased to $7,000 from $6,500.  The catch-up contribution for those age 50 and over is $1,000 for a total of $8,000.  The income tax deductibility level has also been increased. We will review with you individually as needed.

For ROTH IRA’s:

• Contribution limit increased to lower of earned income or $7,000 for each spouse.  Catch-up contribution of additional $1,000 for age 50 and over. 

• Contribution eligibility has increased:

• Full contribution with Adjusted Gross Income (AGI) less than $146,00,000 for a single taxpayer.  Phase-out between $146,000 and $161,000.  We can help with the phase-out math.

• Full contribution for each with total Adjusted Gross Income (AGI) less than $230,000 for married/filing jointly taxpayers.  Phase-out between $230,000 and $240,000.  We can help with the phase-out math. 

• 2023 contributions (of $6,500 or $7,500 if age 50 or over) can be made until April 15, 2024.  Let us know if you plan to do this so we can ensure the deposit gets applied to the correct year.

Call with questions or if we can help get these changes made for you. 

As promised earlier in the month, we are now going to re-introduce you to Roth IRA’s, but this time, as great financial gifts for your lucky and hard-working children or grandchildren.  As I said earlier, there are very few investments which grow tax free, but 529 plans and Roth IRA’s do just that!

Many of you are familiar with Roth IRA’s, but for those of you that are not, here is a brief overview:    

Roth IRA’s were created by the Taxpayer Relief Act of 1997 to help Americans save for retirement.  These IRA’s have become enormously popular in the last 20 years but there are some important considerations:

• The dollar contribution limits are the same for Roth IRA’s and traditional IRA’s.  Eligibility for a Roth IRA requires “earned income,” subject to an income cap which is not present for traditional IRA’s. 

• Contributions are made with after-tax dollars, unlike those in traditional IRA’s or most company sponsored retirement plans

• Because the contributions are made with after-tax dollars, the contributions can be withdrawn at any time, without tax or penalty.  This might be important for young investors like your children or grandchildren who might need the money they invested before retirement

• Unlike traditional retirement plans, the earnings can also be withdrawn tax-free, subject to owner age and account duration rules, and there is no requirement for distributions to begin at any age.

As I said above, there is a requirement for the Roth IRA account holder to have “earned income” in order to be able to contribute BUT the actual contribution can be funded by anyone (YOU in this case) as long as the dollar amount of the contribution does not exceed the owner’s earned income or annual maximum allowed.

Head spinning?  How about an example?  You have a 19 year old grandson who worked over the summer stocking shelves in the middle of the night for Kroger.  He earned $2000 and will receive a W-2 from Kroger.  I am guessing he probably can’t invest this $2000 in a Roth IRA because he is saving every penny for college, BUT you can fund it for him.  You have until April 2024 to make this 2023 Roth contribution.  We will help you understand eligibility requirements and then help you actually pull this off.

Want to read more about Roth IRA’s?  See attached link. https://www.investopedia.com/terms/r/rothira.asp

Back by popular demand, the next two Bernie’s BLOG posts will provide info on some great financial holiday gifts for you, your children, or grandchildren.  This blog will cover 529 educational plans and the next one will re-introduce many of you to Roth IRA’s.   By the way, we are not suggesting that you forego fun gifts for your offspring, but we really like the idea of longer term not nearly as “fun” gifts to help secure the financial futures of your lucky family members. 

As many of you know, there are very few investments which grow tax-free, but 529 plans and Roth IRA’s do just that, at least for now. 

529 plans are state run educational savings plans which can be used for very broadly defined educational expenses for adults or children.  These funds can be used for pre-college, trade school or college tuition/fees.  The investments in a 529 plan can be made by anyone, subject to gift tax requirements, and are made with after-tax dollars although some states offer a state tax credit to parents who contribute in their state of residence (North Carolina does not offer this credit at this time).  The funds in a 529 plan can be moved to another child and the funds do not have to be used in the state in which the plan was funded.  Unlike other investments, 529 plans are controlled by the account “owner”,  not by the child.  Taxes and penalties are due if money is not used for educational expenses, but again, the definition of educational expenses is quite broad and usually includes computers, books, and room and board.   There has also been an important recent change to 529 plans – up to $35,000 of unused funds can now be rolled over to a Roth IRA for the child, subject to lots of rules of course. 

These plans carry low management fees because they tend to be “target date” funds where the investment mix is automatically rebalanced as the child gets closer to college age. 

Although 529 plans are not LFS managed assets, we would be happy to assist you in starting one for your children or grandchildren, or even yourself!  There is no minimum dollar requirement to open an account and dollars can be added throughout the year. 

If you want to read up, see link below, or feel free to call us to talk more. 

https://www.investopedia.com/terms/1/529plan.asp

Like most of our investment advisor peers, we spend a lot of time every month listening to Fed Chairman Jerome Powell trying to explain the Fed’s perspective on inflation and interest rate hikes.  Since the explanations are way too circular and complicated for me, I have developed my own inflation metric, and I am trying to use it to understand what is happening with inflation.  I thought I would share what I see and what I have learned.

As you can see from the attached photo, I measure inflation based on the prices of these two household staples:  my favorite cinnamon hazelnut coffee and a can of tomato basil soup.  I know many of you will claim that my favorite cinnamon hazelnut coffee is not real coffee and that this soup tastes more like the aluminum can than like tomatoes.  Both of these claims might actually be true but humor me just for the moment.  The cost of this coffee has increased from $5.99/bag in 2020 to $9.99/bag in 2023.  The soup which cost $1.70 in 2020 is now $3.09 per can at my local Publix.  Both items are subject to occasional Buy One, Get One promotions, so I do stock up.  More on this later. 

Let’s start out with some simple definitions:

Inflation:  a general increase in prices of goods and services; a reduction in the purchasing power of money.  (ok I think we know this)

Deflation:  a general decrease in prices of goods and services; the inflation rate falls below 0%.  Deflation is actually quite rare and happens with a very weak economy.   When companies have to reduce prices to get consumers to buy, they have to reduce their costs too.  Often that results in layoffs or lower wages for employees.  Unemployment, or under-employment with lower salaries, means that more people do not have the money to buy these goods and then the companies have to continue to lower prices.   This is not good for the companies or for their stock prices.  Deflation can lead to a recession so central banks try to act swiftly when deflation occurs.  Again, this is rare in stable economies like ours. 

Jerome Powell and his buddies at the Federal reserve and at central banks around the world actually want to stem inflation and deflation.  Both can be very bad for the economy depending on why they happen and how quickly they come about.   Does that mean I don’t really want the price of my coffee to come down because it means the economy might be bad?  Not sure I’m there yet.

So what do we actually want to see happen to prices?   The answer is a much less well-understood term that we hardly ever talk about - disinflation.

Disinflation: inflation rate falls but it remains positive; prices continue to rise but at a slower rate.  This is the current and healthy scenario which prevents the economy from overheating or underheating.  Inflation at 2-3% is much lower than the 9% peak in 2022 but it is nowhere near the 0% or lower rate we saw in mid-2020.  It is still painful, however. 

Ok so now that we know the big picture economic goal is not actually for deflation, what do I want for my coffee and soup prices?   In truth, the prices have been very stable for the last six months and have not budged a penny in either direction.  I keep waiting for the prices to come down so that I can confidently declare that inflation is getting better – and that the bonds in our portfolios will start to rebound.  But maybe my goal is wrong, and for the sake of the broader economy, I should be happy that the prices are not going up.  I’m trying, but it sure feels like someone other than me is coming out way ahead here! 

The Schwab purchase of TD Ameritrade which was announced nearly 3 years ago is about to become a reality for all of us! 

As usual, if we have already moved your TD Ameritrade accounts to Schwab and/or you never had any accounts at TD Ameritrade, you can stop reading now and start your holiday weekend.  Enjoy!

For the rest of us, let’s summarize what’s in all those envelopes you have been receiving from Schwab and what you need to do.

Over Labor Day weekend, your existing assets at Ameritrade will be moved to new identically registered accounts to Schwab.  There is nothing you have to do for this to happen.  In one of those many envelopes from Schwab is a list of your new account numbers.  Don’t worry if you can’t locate this envelope, we have your new account numbers too.   Starting on Friday evening September 1, you will not be able to access your old Ameritrade account.  The plan is that you will be able to access your new Schwab accounts bright and early on Tuesday September 5.

Starting on September 5, you will be able to access your new Schwab accounts online via Schwab Alliance (schwaballiance.com).  Schwab Alliance is much like Ameritrade’s AdvisorClient but we think it is easier to use.  If you haven’t already done, you can go ahead and set up your Schwab Alliance credentials:

1. Go to schwaballiance.com

2. Select New Schwab user

3. Follow prompts

Note that each client must have their own unique Login ID and password.  After the log ins are established, you can link the accounts together so you can see them with a single log in if you wish.  We can help with all of this!  This is not urgent as your account will transfer and we can access it whether or not you have set up your credentials.  And if you do not use AdvisorClient, you do not have to use Schwab Alliance.  We can drop everything to paper just as we do now. 

If you have your existing Ameritrade accounts connected to a checking account and/or you have automatic transfers established from your checking account, these will carry over to Schwab.  Presumably.  So will your beneficiaries.  Presumably.   If you have a checkbook from Ameritrade which you have used in the last year, you will automatically get a new one from Schwab.  Presumably.  Over the first few weeks, we will be checking all of these details but please help us by letting us know if something is missing or is incorrect.

If you have automatic asset purchases or sales, we have had to cancel some of them since Schwab’s timing to do and transaction fees are different than Ameritrade’s.  We will be adjusting these individually with you as needed over the first few weeks if we have not already done with you.  There is nothing you have to do on your own. 

We can access any statements from Ameritrade that you may need after the transition.

As always, we will be available in our office, with plenty of coffee, up to and after the conversion so do not hesitate to call or drop by.