Happy New Year everyone! This blog will focus on 2020 changes in funding to retirement accounts and the next one will cover the 2020 changes to distributions from retirement accounts. Spoiler alert: the distribution changes are potentially complicated and we will plan to cover those with you individually as well.

401K/403B/TSP et al:

• Contribution limit increased to $19,500 (up $500)
• Catch-up contribution limit (for those 50+) increased to $6,500 for a total of $26,000 (up from $25,000)

Roth/Traditional IRA:

• Contribution limit is $6,000 (no change from 2019)
• Catch-up contribution limit (for those 50+) is $1,000 for a total of $7,000 (no change from 2019)
• Income limit eligibility for Roth contribution:
  • Phase-out begins for individuals begins at $124,000 and stops at $139,000 (up $2,000 from 2019)
  • Phase-out begins for couples begins at $196,000 and stops at $206,000 (up $3,000 from 2019)

SEP IRA:

• Contribution limit is 25% of gross salary or $57,000, whichever is less (up $1,000 from 2019)

Let us know if you need help adjusting your contributions or if you have questions about your eligibility.

Hello, it’s Bradley, Marci’s eldest, here with another of my obituary blog posts. You may have missed it in the news, (there were a few other pressing headlines in December) but on December 8th, 2019, former Chairman of the Federal Reserve, Paul Volcker, passed away at the age of 92. I thought that given the recent focus on the Federal Reserve and interest rates, it may be worth writing a few words about him.

Paul Volcker was born in 1927 in NJ, and so grew up during the Great Depression and World War II. In his senior thesis at Princeton, Paul criticized the failure of the Federal Reserve to restrain inflation following WWII (something that clearly influenced his later thinking). After several years working for the Federal Reserve Bank of New York and Chase Bank as an economist, he joined the Nixon administration as Under-Secretary for monetary affairs and was later appointed as president of the Federal Reserve Bank of NY, and finally to the Federal Reserve Chairmanship by President Carter in 1979.

When Paul Volcker took over the Federal Reserve, the United States was facing persistently high inflation, the increase in prices (or decrease in the value of the dollar) over time. These inflation levels were due in part to higher prices of oil due to the Arab oil embargo and Iranian Revolution.

High levels of inflation can be extremely detrimental to the economy, as they discourage saving (since the value of saved dollars decreases over time). In economics, inflation can be seen as too much money chasing too few goods, resulting in higher prices.

The usual antidote to inflation is a decreased money supply. And contracting the money supply is exactly what Volcker’s Fed did. Volcker increased the Federal Funds rate (the rate that banks lend money to each other; it is generally the lowest interest rate in the economy) to 20%! By comparison, the “tightening” of interest rates in today’s Fed reached only 2.5%. These high interest rates decreased the ability of individuals and corporations to borrow money, resulting in a decrease in the money supply and corresponding decline in inflation. This strategy also contributed to a recession (and unemployment rates of 10%), but by 1983 inflation had fallen to the Fed’s target of 3%.

Following Volcker’s term as Fed Chair, inflation has never risen to the same heights as in the 1970’s. This is due (in part) to the fact that Volcker’s Fed had convinced markets that if inflation were to rise again, the Federal Reserve would raise interest rates to squash it, and as in so many things in finance, expectations became reality. This collapse of inflation led to the incredible rates of economic growth in the 90’s, and later in the 2010’s. Later in his life, Volcker became an outspoken critic of banking consolidation, including support for the “Volcker Rule” requiring the separation of commercial banks from proprietary trading (a subject beyond the scope of this already too long blog post). We will all remember Paul Volcker as the inflation warrior he was.

As many of you have noted, it is likely that Schwab will be acquiring TD Ameritrade, which is the current custodian for our client accounts. If the deal goes through, the effective date will likely be sometime in the second half of 2020.

The obvious question is what this means for all of us. And the obvious answer is that we do not know yet. Our objective will be to make this potential transition as seamless as possible for all of you! And of course, we would love to get more responsive, more error-free service from Schwab. We will see about that part.

The good news is that we, and many of you, have been through this before. The bad news is that we, and many of you, have been through this before.

Feel free to call with questions or whining about this news. We are doing same.

Lori

We know a lot of you have high yield saving accounts and/or money markets at Synchrony.

Synchrony had a very bad day on Monday and accidentally sent emails to many customers regarding trial deposit into their Synchrony accounts or Amazon Creditbuilder accounts. This was absolutely an error and Synchrony has assured me that all accounts are safe.

Here is what the emails looked like and Synchrony’s response, when I finally got through. I have since received another email on another topic. All the phone lines and website are out of service right now due to very high volume – which isn’t helping.

As usual when there is a problem of any type, I recommend that you change your Synchrony password once you can get back into your account.

Back, by popular demand, is our December 2018 post on Roth IRA’s as holiday gifts for children or grandchildren. Still a great idea!!!

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 70 ½ years of 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 as a lifeguard at a community pool. He earned $2000 and will receive a W-2 from the city. 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 2020 to make this 2019 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