Ben Sits on TREBLE's Business Hotseat
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Join Ben as he goes on the hotseat as part of TREBLE's Power Networking Business Hotseat event on October 19th.
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A Different Way of Serving Clients
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Serving clients should be about more than just net worth or a minimum number of assets. Watch this video to learn more about Ben's philosophy; Financial Planning for everyone.
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Check out Ben on the "Protecting your Practice" Podcast
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Mental health providers work hard, so you want to make sure that your hard work pays off! That's where meeting with a financial advisor comes in! In this guest episode, Ben Offit talks about the importance of financial health as it relates to healthcare providers. He also answers frequently asked questions about working with a financial advisor. Be sure to keep some of these questions in mind if you decide to seek out your own financial advisor after listening!
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Let us Take Your Temperature
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We are periodically asking our clients to rate our team member's performance to better understand and serve you. Please look out for e-mails from Customer Thermometer asking you to rate an OA team member you have recently interacted with.
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- Facebook paid 23.4 million for Mark Zuckerberg’s security detail last year. Google paid out $5.4 million for security for its CEO, Sundar Pichia, while Amazon paid $1.6 million for Jeff Bezos. Apple only paid $470,000 for Tim Cook. Engadget, July 21, 2021
- “Investors remember three things: How much they initially invested, what was it worth at the high-water mark, and what’s it worth today.” Mark Zinder
-“You better live every day like it is your last because one day you’re going to be right.” Ray Charles
- Because of pandemic stress eating, the CDC reported the number of states in which 35% of the population is obese has soared from nine in 2018 to 16 this year. USA Today, September 15, 2021
- Congress has raised or suspended the debt ceiling 78 times since 1960. Cnet, September 30, 2021
- “No matter what accomplishments you make, somebody helped you.” Althea Gibson
- “Stupidity is always amazing, no matter how used to it you become.” Jean Cocteau
- In September the stock market finished in the red, ending an incredible seven-month-long winning streak. These streaks actually tend to be quite bullish for future returns, with the S&P 500 higher six months later 13 out of 14 times. CNBC, September 30, 2021
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Roth IRA Conversions – Everyone’s Favorite Tax Topic
Hi everyone, thanks for reading today! Today I want to talk to you about the nuances of Traditional IRAs and Roth IRAs and how you can understand and take advantage of some strategies here. But before we do so, let’s just go over the basics of these:
Basics of IRAs (Traditional vs Roth)
With these accounts – you can contribute up to $6K per year if you are under 50 and $7K per year if you are over 50. If you are over certain income thresholds you can’t contribute to a Roth IRA, or also a Traditional IRA (if you have a employer sponsored retirement plan). If you don’t have an employer sponsored retirement plan, you can freely contribute and deduct Traditional IRA contributions.
Traditional IRAs are funded with pre-tax dollars, and you get a tax deduction each year that gives you up front tax savings. Ie. If you contribute $6K to this, that is deducting $6K of income from your tax return that year. The money grows tax-deferred while it is in the account, and when you take it out it is subject to ordinary income tax rates. At age 59.5 you can take it out without any penalty (if you take it out prior to 59.5 you are subject to a 10% penalty) and at age 72 you are required to start taking Required Minimum Distributions (RMDs). When you pass away your heirs also have to take RMD’s subject to their own ordinary income tax rates.
Roth IRAs are funded with after-tax dollars so there are no up front tax savings, but the savings are on the back end because you pay no tax on any future withdrawal – the growth is all tax-free. However, you still have to wait until 59.5 to access the growth portion of the money or you will be hit with a 10% penalty, unless you take out for qualified reasons or you take out your basis without penalty. When you pass away, your heirs will also not be taxed on these accounts.
One caveat is necessary here – you need earned income to contribute to these accounts. If you are retired and don’t have earned income, you most likely can’t contribute. If you are filing Married Filing Jointly on your taxes and only one spouse has an income, that is fine and both of you can still contribute. However, you can only contribute up to the limit of your income. Ie. If you only make $4K of income per year, you can’t contribute $6K to an IRA or Roth IRA.
Traditional 401k and Roth 401k
These are work sponsored plans with the same tax properties as noted above, but have no income limitations! Also, if you are under 50 you can contribute up to $19,500 in these or up to $26K per year if you are over 50!
Roth conversions
If you want to get more than $6K per year into a Roth, you can move money from an IRA to a Roth – which is called a Roth conversion and you can do any dollar amount. However, when you do this, you need to pay ordinary income tax on the amount that you do (ie. if you do $20K conversion, you would add $20K to your ordinary income for that year).
It may make sense to do this if your business has a tough year, or if you are starting a new business and your income may be lower than otherwise it will be, you can do this at a lower tax bracket and try to convert up to the 12% or 22% tax bracket, understanding your tax bracket may be higher in the near future.
It also may make sense to do this for Individuals who retire prior to 72 (ie. Retiring at 62 or 65 or 70) and you are not required to take RMDs yet, have no earned income coming anymore, and you can live off of after tax accounts (savings account, taxable account, etc.) your income may be lower and you can convert to Roths to maximize up to 12 or 22% bracket again, and get money working tax free and not take RMDs from those balances in the future!
Another option may be to do this if there is a pull-back in the market. (ie. If the market is temporarily down in value, and your IRA value went from $100K to $70K, and you convert it then you are only paying tax on $70K instead of $100K).
The concept boils back to triggering income today intentionally and paying tax on a lower tax bracket than a higher tax bracket you may be in the future.
One other caveat is necessary to consider here, is that once you convert, it cannot be undone. So it may make sense to wait until December to do these things so you have all relevant tax and income information understood and realized before doing it.
‘Backdoor’ Roth IRAs
If you don’t want to convert your IRA to a Roth IRA, you can make new contributions to a non-deductible IRA and ultimately convert to a Roth after that. There is no tax consequence to doing this if you are converting after-tax funds to a Roth IRA (but only if you have no other IRA accounts including Simple IRAs or SEP IRAs which would trigger something called the pro-rata rule!). This would make a partially taxable conversion when you do this.
Possible changes to Roth IRAs!
However, all of this could change in the coming months with tax reform. Here are some potential changes coming down the road
- Backdoor Roth IRAs could be removed
- If your income is over threshold ($400K for single filers, and $450K for married filing jointly) – Roth conversions could go away
- If your accounts are over $10M and between $20M that the IRS could require RMDs from Roth IRAs to get them under this threshold
I hope this is helpful to you and you enjoy the fascinating world of Roth IRAs!
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Volatility Rears Its Head in September as Equities Decline
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HIGHLIGHTS:
- Volatility returned to the market in September. For the first time since May, the VIX Index, a measure of volatility, broke above 25 on an intra-day basis. The VIX closed the month above 23, the highest end to a month since February.
- Equities closed out September in the red. Although declining equities have been a rare occurrence over the last year and a half and might be unsettling for investors, it is important to remember that some back-and-forth movement in equities is normal during a market cycle.
- The 10-year U.S. Treasury yield moved higher in September. Early August saw the yield decline to 1.19%, but it moved higher from that point and ended the month of September and the quarter higher at 1.52%.
- The U.S. economy is still recovering, but as expected, the rate of growth has slowed. The Delta variant and ongoing supply chain issue appear to be
causing an additional short-term headwind to economic growth.
- The Delta variant appears to be peaking, so hopefully more progress can be made against the pandemic as we head later into the year and into 2022.
- We expect ongoing economic improvements and continued above trend growth to close out 2021 and into 2022. Volatility, however, could stay elevated with markets near all-time highs and pandemic issues ongoing.
EQUITY MARKETS
Stocks fell rather sharply in September. These declines pushed most major U.S. equity indices into slightly negative territory for the quarter, with one of the few exceptions being the S&P 500, which eked out a fractional gain. In the large-cap space, growth underperformed value for the month, but outperformed it for the quarter. The year-to-date numbers still favor value stocks. Small-caps, which started the year strongly, lagged for the quarter, but outperformed on a relative basis for the month. Similar to the pattern we have seen recently, when interest rates rise, large-cap growth and particularly large-cap tech companies generally struggle, while small-caps and value stocks generally perform better.
This was the backdrop for September. The VIX Index closed August just above 16, but it moved higher in September, closing at 23.14. Our expectation of a more volatile second half of 2021 started to materialize in September. We believe investors should be prepared for ongoing periods of volatility over the next several months with stocks near all-time highs, the Delta variant still problematic, a Fed likely to announce and begin its tapering of bond purchases, political strife in Washington DC, and a historically weak seasonal time of the year.
Size and style mattered once again in September, but all major categories of equities declined during the month. We still believe that the value/growth disparity that reached a peak last year will likely continue to shift in 2021 with value improving on a relative basis. We continue to use our disciplined approach of seeking out what we believe to be high-quality companies with improving business conditions at what we believe are good prices. These types of companies can be found in both the value and growth universe, but the market’s shift to value stocks since the latter part of 2020 has benefited our focus on quality companies.
The numbers for September were as follows: The S&P 500 dropped -4.65%, the Dow Jones Industrial Average fell -4.20%, the Russell 3000 declined by -4.49%, the NASDAQ Composite tumbled -5.27%, and the Russell 2000 Index, a measure of small-cap stocks, slipped by -2.95%. For the third quarter of 2021, returns in the same order were as follows: 0.58%, -1.46%, -0.10%, -0.23%, and -4.36%, respectively.
We will continue to monitor how trends shift in the coming months and whether the recent gains in large-cap growth stocks develop more footing or whether small and mid-cap stocks, along with value, return to their recent leadership roles. September saw value and small-cap stocks perform relatively better than large-cap growth once again, but small-caps were the clear laggard for the quarter.
Looking closer at style, the headline Russell 1000 Index declined -4.59% for the month but gained a modest 0.21% for the quarter. The Russell 1000 Growth Index fell by -5.60% in September, but it advanced 1.16% for the quarter. The Russell 1000 Value Index declined by a more modest -3.48% for the month, but it was also down for the quarter by -0.78%. For small-caps, value outperformed on a relative basis in September and for the quarter, but regardless of style, small cap stocks were down across the board for the quarter. The value/growth disparity is much more pronounced in small caps for the year to date with the Russell 2000 Value Index up 22.92%, while the Russell 2000 Growth Index has gained a mere 2.82% during the same timeframe.
International markets struggled as well in September. The MSCI Emerging Markets Index dropped -3.97% in September, which pushed the year to date into negative territory. The MSCI ACWI ex USA Index, a broad measure of international equities, fell -3.20% in September, which cut the year-to-date gain down to 5.90%. Following the trend of recent years, U.S. stocks have continued to outperform their international counterparts in 2021.
FIXED INCOME
After surging higher during the first quarter of 2021, the yield on the 10-year U.S. Treasury dropped over the next four months. That streak ended in August as yields moved higher and that move higher continued in September. The yield closed the month of September at 1.52% compared to the August close at 1.30% and the end of Q2 at 1.45%. As would be expected as rates continued to move higher, most bond sectors struggled in September and the third quarter was rather flat.
Fixed income returns were as follows for September: the Bloomberg Barclays U.S. Aggregate Bond Index slipped -0.87%, the Bloomberg Barclays U.S. Credit Index declined by -1.07%, the Bloomberg Barclays U.S. Corporate High Yield Index was virtually flat, off only -0.01% and the Bloomberg Barclays Municipal Index dropped -0.72%.
For the third quarter, those index returns in the same order were as follows: 0.05%, -0.03%, 0.89%, and -0.27%, respectively. As the data shows, only high yield bonds were able to post positive results for the quarter and they continue to be the clear leader year to date. U.S. Treasuries, including TIPS, were down across the board in September. The general U.S. Treasury Index fell by -1.08% in September and is down -2.50% year to date. We continue to maintain our long-standing position favoring credit versus pure rate exposure in this interest rate environment.
Source: Clark Capital Benchmark Review, September 2021
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S&P 500 Index is an unmanaged group of securities considered to be representative of the stock market in general. You cannot directly invest in the index.
Dow Jones Industrial Average - The Dow Jones Industrial Average is a popular indicator of the stock market based on the average closing prices of 30 active U.S. stocks representative of the overall economy.
NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market. Today the NASDAQ Composite includes approximately 5,000 stocks, more than most other stock market indices. Because it is so broad-based, the Composite is one of the most widely followed and quoted major market indices.
Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index which includes the 3,000 largest companies in the U.S., based on market capitalization. As of the latest reconstitution, the average market capitalization was approximately $762.8 million; the median market capitalization was approximately $613.5 million. The largest company in the index had an approximate market capitalization of $2.0 billion and a smallest of 218.4 million.
Russell 1000® Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
Russell 1000® Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.
Government bonds are guaranteed by the U. S. Government and, if held to maturity, offer a fixed rate of return and fixed principal value.
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Securities offered through Kestra Investment Services, LLC (Kestra IS), Member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Offit Advisors is not affiliated with Kestra IS or Kestra AS. Offit Advisory Services, LLC is a tax firm but neither Kestra IS nor Kestra AS provide legal or tax advice and are not Certified Public Accounting firms.For more information on the Five Star Wealth Manager and the research/selection methodology go to: www.fivestarprofessional.com. Investor Disclosures: https://bit.ly/KF-Disclosures
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