Another Year, Another Market Prediction

Another year in the books – stocks are up, bonds are down, and cryptocurrencies pretty much did everything imaginable and we added to our vocabulary included meme stocks, SPACs, Non-Fungible Tokens (NFTs), so what does 2022 hold?

At Offit Advisors we are not in the prediction business, but instead we are in the business of managing risk and expectations.

In 2021, the big theme was inflation which ended at around 6.8% according to the Consumer Price Index.  This means things that costed $1 in 2020 ended up costing $1.068 by the end of 2021.  

How did this happen?  When the pandemic hit and there was risk to the economy that businesses could go under and thus have ripple effects throughout the economy, the Federal Reserve (Fed) stepped in.  The point of the Fed is to interfere to help sustain and regulate the economy.  They have targeted benchmarks of 2% inflation and full employment (96% of people working).  To achieve this, they added a range of stimulus packages to businesses and individuals and families and created a low cost of borrowing environment with low interest rates.  

They accomplished their goal, but perhaps we still have too much money flooding the system and interest rates are perhaps still too low and this creates inflation.  Think of the real estate market – when interest rates are low, it inflates asset values because you can pay more for a house.  Also, when more money is chasing the same thing, prices also go up.  So, in essence what the Fed has done is inflationary.

If you believe that the “market is efficient” what it is telling us so far is that with prices going up, and businesses are passing on these price increases to consumers, so far it is working because the market is going up with this notion.  

How will this affect the markets in 2022?  Well, we don’t know exactly how this will play out in the markets, because there are variables, so instead of focusing on what the market will do, one needs to focus on their own financial plan.

Many “experts” predict where the stock market will wind up by the end of the year, but they are usually wrong!   The prediction game is futile, because we don’t know perfectly how technology or inflation will unfold, the pandemic proves no one can prove with certainty how will it play out or how the recovery or how the Fed, Congress, or what Presidents will do.  There are risks in the background – war, terrorism, cyberthreats, etc.

The other thing is that people have become accustomed to 15%+ returns over the past couple of years with almost no volatility, which usually is not the norm.  We may see a market pull back of negative returns for a longer period at some point soon or have returns under 10% for a more sustained period, and that is ok and normal.  That doesn’t mean we are having a bad year; it just means the market is having less acceleration than it has the past couple of years, which is okay!

Investors should always be investing based on their needs because the market is unpredictable on a day-to-day basis– instead of saying what will do well this year, say what do I need to do for my plan to be successful for years to come?  How much income do I need and when do I need it? And match up your portfolio allocation to your personal needs.

On It with Offit - December 2021

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DEC | 2021 A Holiday Message from the Team at Offit Advisors The team at Offit Advisors shares a message for you and your loved ones this holiday season. Ben Offit interviewed Ned Atwater, Founder and Owner of Atwater’s during Leadership Baltimore County’s Economic Development day in early December. What To Know Before Doing Any Year-End Portfolio Balancing Check out this article from CNBC featuring Principal Ben Offit. Read More - Apple, Alphabet, Microsoft, Amazon, and Tesla, between them, have gained $6.5 trillion of value since their March 2020 lows. Apple alone has risen in value by an astonishing $1.85 trillion in just 433 trading sessions. Axios Markets, December 9, 2021 - On Monday of last week, 90% of the total bitcoin supply of 21 million has been mined. Yahoo! December 14, 2021 - The average NFL team sends more clothes to the laundry in one week than the average family does in two years. An average team can clean more than 5,500 pounds a week, compared to the average household which does 41.5 pounds. Consumer Reports, April 26, 2012   - “In trading, you have to be defensive and aggressive at the same time. If you are not aggressive, you are not going to make any money, and if you are not defensive, you are not going to keep it.” Ray Dalio - The wait for micro-chips from order to delivery is now at a record 21.7 weeks. Bloomberg, October 6, 2021 - For years conventional wisdom held that millennials would become the generation that largely spurned homeownership. Instead, since 2019, when they surpassed the baby boomers to become the largest living adult generation in the U.S., they reached a milestone, accounting for more than half of all home-purchase loan applications. The Wall Street Journal, December 14, 2021 - Before the pandemic changed the working world, Americans ranked flexibility to set their own work schedules as the 74th most important out of 76 attributes associated with a successful and happy life. Now it sits at No. 2, second only to compensation. Axios November 16, 2021 A Holiday Note from Ben to Close Out 2021 Hello loyal readership, I hope as you read this you are enjoying your favorite holiday beverage, kicking your feet up by the fire, and ready to enjoy this great article below. Today I’d like to discuss some lessons we have learned from 2021:   1. Inflation is not extinct - this has been the core economic issue of 2021 and most likely as well into 2022. This has been driven by supply chain issues and stimulus money flooding into the economy.  With the supply chain issues, that may not go away for a while as many countries outside the US dont have Covid under control as much as the US and this can cause delays as our products are from global sources.  Eventually inflation will come back to more normal levels as technology and innovation will drive inflation under control by creating various efficiencies.    2. Inflation has hurt your cash and bonds - if inflation has been a tad over 6% this year and your cash is earning near 0% and your bonds are earning less than 1-2%, then effectively you are losing money!  Meanwhile, if stocks/equities have been up over 20% this year than you are making money.  We have said it many times in this publication, that the best hedge against inflation is stocks/equities.  The only reason to have bonds is to have them in a time of crisis or when the markets go down because when that happens,  the bond portion of you portfolio usually goes up slightly, or maintains its value, or only goes down slightly And certainly less than equities.     3.  Higher taxes haven’t happened…yet! - People were bracing themselves for higher taxes and it hasn’t happened yet.  We were talking about getting rid of the step up in basis, capital gains being taxed at ordinary income tax rates, estate tax thresholds being way lower, and this hasn’t happened at all.  Thank goodness for this because it would have caused some serious rushed planning towards the end of the year.   4. Speculative investments have become increasingly popular - Crypto, NFTs, SPACs, you name them.  Many investors have grown increasingly attracted to these opportunities even though they have no real earnings, have no real underlying value, but people are buying into the notion of the future adaptation of these types of investments.   I am not disputing the value of blockchain technology, cryptocurrency, or any of these innovations, but from an investing perspective it is impossible to know which of the 6,000 crypto current ices will be the winner and thus it is hard investment to make successfully.  The challenge with this is that are ARE going to be people who make a fortune on these investments, but unfortunately it will only be around 1% of the lucky people and 99% of people are going to be investing in something that ends up being worthless.  This is the essence of speculation.  An analogy to this was in the early 2000’s there was a race to be the top internet search engine - and if you had invested in early leaders like Lykos, Ask Jeeves, etc you would have lost your money when Google finally arrived won.  I believe this is a similar phenomenon going on with these types of assets    5. Market predictions for 2022? - Not so fast!  As i have said many times i don’t pretend to know where the market will be and anyone who tells you that is not telling you the truth.  It is ok to accept the fundamental truth that we never know where the market will be tomorrow, but we know that in the future it will be much higher than where it is today.  In 2021, the market did terrific stemming from the stimulus money and people getting more and more vaccinated and going back to a more normalized life and business cycle.  Also  the rapid advancement and adaptation in technology has contributed to the market’s increase.  So back to where the market will be in 2022?  We don’t know but the market cares about where earnings of companies will be in 12 months from now for example.  So if the market feels positive about the future then the market could continue to rise, if the sentiment is not positive it could go down.  A lot of this will depend on what direction the various Covid variants may go.     Lastly, one final point for 2021.  This is a time of year when people are thinking of tax strategies and being more gift and charitably oriented.  91% of charitable gifts are in cash even though most people don’t have 91% of their assets in cash.  If you have stocks that grown and appreciated in value it would be a better strategy to gift that to a charity because you get the same income tax deduction but you ALSO get out of paying the capital gains tax on the sale of that stock and so does the charity.  So be gift-smart and strategic everyone!   I hope you found this helpful and I will see you in 2022.   Stocks Decline in Late November as New COVID Variant Emerges HIGHLIGHTS News of a new COVID variant, Omicron, sent markets to their worst daily drop of 2021 the day after Thanksgiving. Volatility, as measured by the VIX Index, rose by more than 10 points that same day, one of the largest daily advances for the VIX Index in its history.   Equities took another leg down on the final trading day of November amid continued Omicron concerns. That decline was exacerbated by testimony from Fed Chair Powell who said the Fed would discuss ramping up their tapering at the December FOMC meeting.   As would be expected during heightened equity market volatility, a flight to quality ensued into U.S. Treasuries late in the month. The 10-year U.S. Treasury yield closed 11/23 at 1.67%, but Treasuries rallied to end the month with the 10-year yield ending November at 1.43%.   The U.S. economy picked up some momentum during the fourth quarter compared to the third quarter. However, continued high inflation readings and new concerns on the impact of Omicron overshadowed other economic data.   Volatility returned with a vengeance in late November. Much is yet to be learned about Omicron and its potential impact, but as more details on this variant emerge, in the near term, markets will likely react accordingly – good or bad. EQUITY MARKETS The wind came out of the sails of equities late in the month as news of the new Omicron variant emerged. With this backdrop, large-cap growth outperformed other areas of the market for the month. The Dow Jones Industrial Average, the S&P 500 and the NASDAQ Composite put in new all-time highs during November, but only the NASDAQ was able to hold onto gains for the month. The year-to-date numbers now show a clear advantage for growth stocks in the large-cap space, but value still rules in the mid and small-cap universe.   The CBOE Volatility Index, or VIX Index, spiked higher late in the month as the Omicron news hit the market. The VIX Index ended October at 16.26, but rose to 27.19 by the end of November. Our expectation of a more volatile second half of 2021 has materialized. Not only is the emerging news on the Omicron variant increasing volatility, but uncertainty surrounding the future course of the Fed’s actions and whether it might speed up the tapering in the months ahead (meaning a more hawkish Fed) has also unsettled the markets.   Size and style mattered once again in November. We still believe that the value/growth disparity that reached a peak last year will likely continue to shift as we move into 2022 with value improving on a relative basis. We continue to use our disciplined approach of seeking out what we believe are high-quality companies with improving business conditions at good prices. These types of companies can be found in both the value and growth universe, but with value stocks improving over the last year or so, that has benefitted our approach.   The numbers for November were as follows: The S&P 500 declined -0.69%, the Dow Jones Industrial Average fell -3.50%, the Russell 3000 dropped by -1.52%, the NASDAQ Composite eked out a 0.33% gain, and the Russell 2000 Index, a measure of small-cap stocks, was hardest hit, down -4.17%. Through eleven months of 2021, returns in the same order were as follows: 23.18%, 14.61%, 20.90%, 21.28%, and 12.31%, 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 leadership roles that started late last summer. Large-cap growth stocks have been the clear leader over the last couple of months.   Looking closer at style, the headline Russell 1000 Index declined -1.34% for the month with a year-to-date gain of 21.53%. The Russell 1000 Growth Index showed some of the best gains in November by increasing 0.61% and this index is up 24.95% year to date. The Russell 1000 Value Index relinquished its leadership role recently and that trend continued in November. For the month, it declined -3.52%, which put the year-to-date gain at 17.73%. For small-caps, value continued to outperform growth on a relative basis. The value/growth disparity is much more pronounced in small-caps for the year to date with the Russell 2000 Value Index up 23.24%, while the Russell 2000 Growth Index has gained a mere 2.38% during the same timeframe.   International markets once again lagged U.S. stocks in November. The MSCI Emerging Markets Index declined -4.08% in November, which keeps this index in negative territory (down -4.34%) for the year to date. The MSCI ACWI ex USA Index, a broad measure of international equities, fell -4.50% in November, which lowered the year-to-date gain to only 3.54%. Following the trend of recent years, U.S. stocks have continued to outperform their international counterparts. Within international markets, developed countries have done better than emerging markets so far 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 and October. Although that trend was continuing for most of November, the late month news on the new Omicron variant spurred a flight to quality and as a result, yields dropped sharply. Overall, the 10-year U.S. Treasury yield closed October at 1.55% and it ended November at 1.43%. Bond sector results were mixed for the month with this backdrop.   Fixed income returns were as follows for November: the Bloomberg Barclays U.S. Aggregate Bond Index gained 0.30%, the Bloomberg Barclays U.S. Credit Index rose a modest 0.08%, the Bloomberg Barclays U.S. Corporate High Yield Index was off by -0.97% and the Bloomberg Barclays Municipal Index gained 0.85%. For the year to date, those index returns in the same order were as follows: -1.29%, -1.00%, 3.34%, and 1.35%, respectively. With only one month to go in the year, the Agg is close to posting only its fourth annual drop since its inception in 1976. This has been clearly a challenging year for bonds and, in particular, for U.S. Treasuries. High yield bonds remained the clear leader year to date and municipals have also enjoyed gains as concerns about higher taxes mount.   The 30-year U.S. Treasury Index gained 3.36% for the month, as the 30-year yield dropped, but it is still off by -2.61% year to date. The general U.S. Treasury Index gained 0.77% in November and is down -1.82% 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, November 2021 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. 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 9030 RED BRANCH ROAD COLUMBIA, MD 21045, US Phone + Fax:  410 600 PLAN (7526) E – Office@OffitAdvisors.com W- www.OffitAdvisors.com   To schedule an appointment with us, click here! The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Want to change how you receive these emails? You can update your preferences or unsubscribe from this list.

On It with Offit - November 2021

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NOV | 2021 Wealth Managers Under 40 by Fortune Magzine Congratulations to Offit Advisors Principal Ben Offit on being named a Top Wealth Manager Under 40 by Fortune Magazine. Look out for the February or March issue of Fortune Magazine, where Ben will be featured! Award candidates who satisfied 10 objective eligibility and evaluation criteria were named 2021 Five Star Wealth Managers. Eligibility Criteria - Required: 1. Credentialed as a registered investment advisor or a registered investment advisor representative. 2. Actively employed as a credentialed professional in the financial services industry for a minimum of five years. 3. Favorable regulatory and complaint history review. 4. Fulfilled their firm review based on internal firm standards. 5. Accepting new clients. Evaluation Criteria - Considered: 6. One-year client retention rate. 7. Five-year client retention rate. 8. Non-institutional discretionary client assets administered. 9. Number of client households served. 10. Education and professional designations. Student Loans Update if you were trying to get public student loan forgiveness in the past and were denied, there may be new hope for you!  If you were working for a 501c3 organization or government entity or still are and you had public student loans, between now and next October you may be able to do an audit and get back payments considered as eligible towards the 120 required payments to be considered for Public Student Loan Forgiveness (PSLF)!  If you think this situation may apply to you, you should jump on this immediately because FedLoan is still the servicer on student loans and that may change in January and all of the records could be lost.  If you want to have a deeper consultation about this, please let us know! Schedule a Meeting - This year, the government collected $627 billion more in tax revenue than it did in fiscal 2020, pulling in a record-high $4.05 trillion. TheRightFacts - In seven years, Amazon has grown from a zero share of the U.S. shipping market to 21%, surpassing FedEx at 16%. The US postal service remains dominant with 38%, while UPS accounts for 24%. Yahoo!Life, October 21, 2021 - The wait for micro-chips from order to delivery is now at a record 21.7 weeks. Bloomberg, October 6, 2021 - In the United States, of every dollar spent on food, just 14.3 cents goes to farmers. National Farmers Union - “The reason life works at all is that not everyone in your tribe is nuts on the same day.” Anne Lamott - “I’m giving up drinking until Christmas. Sorry, wrong punctuation. I’m giving up. Drinking until Christmas.” Anonymous Helpful Tax Advice as 2021 Comes to a Close by Ken Savell, Tax Advisor Hi Everyone!   With year-end approaching, it is time to start thinking about moves that may help lower your tax bill for this year and next. This year’s planning is more challenging than usual due to the uncertainty surrounding pending legislation that could, among other things, increase top rates on both ordinary income and capital gain starting next year. Whether or not tax increases become effective next year, the standard year-end approach of deferring income and accelerating deductions to minimize taxes will continue to produce the best results for all but the highest income taxpayers, as will the bunching of deductible expenses into this year or next to avoid restrictions and maximize deductions.   If proposed tax increases do pass, however, the highest income taxpayers may find that the opposite strategies produce better results: Pulling income into 2021 to be taxed at currently lower rates, and deferring deductible expenses until 2022, when they can be taken to offset what would be higher-taxed income. This will require careful evaluation of all relevant factors.     We have compiled a list of actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all of them will apply to you, but you (or a family member) may benefit from many of them.   Please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves might be beneficial:     • Higher-income individuals must be wary of the 3.8% surtax on certain unearned income.  Pending legislative changes to the 3.8% net investment income tax proposed to be effective after this tax year would subject high income (e.g., phased-in starting at $500,000 on a joint return; $400,000 for most others) S shareholders, limited partners, and LLC members.  Accelerating some of this type of income into 2021 could potentially be beneficial. • Long-term capital gain from sales of assets held for over one year is taxed at 0%, 15% or 20%, depending on the taxpayer's taxable income. If you hold long-term appreciated-in-value assets, consider selling enough of them to generate long-term capital gains that can be sheltered by the 0% rate. • Postpone income until 2022 and accelerate deductions into 2021 if doing so will enable you to claim larger deductions, credits, and other tax breaks for 2021 that are phased out over varying levels of AGI. These include deductible IRA contributions, child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may actually pay to accelerate income into 2021. For example, that may be the case for a person who will have a more favorable filing status this year than next (e.g., head of household versus individual filing status), or who expects to be in a higher tax bracket next year. That's especially a consideration for high income taxpayers who may be subject to higher rates next year under proposed legislation.  • If you believe a Roth IRA is better for you than a traditional IRA, consider converting traditional-IRA money invested in any beaten-down stocks (or mutual funds) into a Roth IRA in 2021 if eligible to do so. Keep in mind that the conversion will increase your income for 2021, possibly reducing tax breaks subject to phaseout at higher AGI levels. This may be desirable, however, for those potentially subject to higher tax rates under pending legislation. • It may be advantageous to try to arrange with your employer to defer, until early 2022, a bonus that may be coming your way. This might cut as well as defer your tax. Again, considerations may be different for the highest income individuals.  • Many taxpayers won't want to itemize because of the high basic standard deduction amounts that apply for 2021 ($25,100 for joint filers, $12,550 for singles and for marrieds filing separately, $18,800 for heads of household), and because many itemized deductions have been reduced or abolished, including the $10,000 limit on state and local taxes; miscellaneous itemized deductions; and non-disaster related personal casualty losses. You can still itemize medical expenses that exceed 7.5% of your AGI, state and local taxes up to $10,000, your charitable contributions, plus mortgage interest deductions on a restricted amount of debt, but these deductions won't save taxes unless they total more than your standard deduction. In addition to the standard deduction, you can claim a $300 deduction ($600 on a joint return) for cash charitable contributions.  • Some taxpayers may be able to work around these deduction restrictions by applying a bunching strategy to pull or push discretionary medical expenses and charitable contributions into the year where they will do some tax good. For example, a taxpayer who will be able to itemize deductions this year but not next will benefit by making two years' worth of charitable contributions this year. The COVID-related increase for 2021 in the income-based charitable deduction limit for cash contributions from 60% to 100% of MAGI assists in this bunching strategy.  • Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2021 deductions even if you don't pay your credit card bill until after the end of the year.  • If you expect to owe state and local income taxes when you file your return next year and you will be itemizing in 2021, consider asking your employer to increase withholding of state and local taxes (or make estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2021. But this strategy is not good to the extent it causes your 2021 state and local tax payments to exceed $10,000.  • Required minimum distributions RMDs from an IRA or 401(k) plan (or other employer-sponsored retirement plan) have not been waived for 2021, as they were for 2020. If you were 72 or older in 2020 you must take an RMD during 2021. Those who turn 72 this year have until April 1 of 2022 to take their first RMD but may want to take it by the end of 2021 to avoid having to double up on RMDs next year.  • If you are age 70½ or older by the end of 2021, and especially if you are unable to itemize your deductions, consider making 2021 charitable donations via qualified charitable distributions from your traditional IRAs. These distributions are made directly to charities from your IRAs, and the amount of the contribution is neither included in your gross income nor deductible on Schedule A, Form 1040. • Consider increasing the amount you set aside for next year in your employer's FSA if you set aside too little for this year and anticipate similar medical costs next year.  • If you become eligible in December of 2021 to make HSA contributions, you can make a full year's worth of deductible HSA contributions for 2021.  • Make gifts sheltered by the annual gift tax exclusion before the end of the year if doing so may save gift and estate taxes. The exclusion applies to gifts of up to $15,000 made in 2021 to each of an unlimited number of individuals. These transfers may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax. • If you were in federally declared disaster area, and you suffered uninsured or unreimbursed disaster-related losses, keep in mind you can choose to claim them either on the return for the year the loss occurred (in this instance, the 2021 return normally filed next year), or on the return for the prior year (2020), generating a quicker refund.  • If you were in a federally declared disaster area, you may want to settle an insurance or damage claim in 2021 to maximize your casualty loss deduction this year.    These are just some of the year-end steps that can be taken to save taxes.  Let us know if you have any questions!   Reprinted with permission from Ken Savell, Tax Advisor, and Bloomberg. Copyright ©2021 www.bloomberg.com New Highs in October as September Volatility is Short-Lived HIGHLIGHTS: As quickly as volatility came, it dissipated in October. After hitting an intraday high of 25.6 in September, the VIX Index, a measure of volatility, traded below 15 in October – the lowest intraday mark since early July. It settled the month at 16.26. Equities bounced back strongly from declines in September. Large-cap growth was particularly in favor in October, but equities across the board advanced. The 10-year U.S. Treasury yield moved modestly higher in October, closing the month at 1.55% compared to 1.52% at the end of September. Yields rose sharply during most of the month, closing 10/21/21 at 1.68%, but the last several days of the month saw yields move lower. The U.S. economy is still recovering, but as expected, the rate of growth has slowed as evidenced by the initial read of 2.0% annualized GDP growth in the third quarter. The Delta variant and ongoing supply chain issues appear to be causing an additional short-term headwind to economic growth, but we expect fourth quarter growth to improve from the Q3 level. Volatility, however, could stay elevated with markets once again at all-time highs and a showdown over government funding looming. EQUITY MARKETS The sharp drop in stocks in September was more than equaled by their strong rebound in October. The Dow Jones Industrial Average, the S&P 500 and the NASDAQ Composite put in new all-time highs in October (and surpassed those with new highs on November 1). Large-cap growth outperformed in October in a bit of a rewind to most of 2020. The year-to-date numbers now favor growth stocks in the large-cap space, but value still rules in the mid and small-cap universe. The VIX Index closed September at 23.14, but that dropped significantly to 16.26 by the end of October. Our expectation of a more volatile second half of 2021 started to materialize in September, but October proved to be much less so. We believe investors should be prepared for ongoing periods of volatility over the next several months with stocks at all-time highs, supply chain issues pushing prices higher, and a Fed likely to announce and begin its tapering of bond purchases in November. Size and style mattered once again in October, but all major categories of equities advanced 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. The numbers for October were as follows: The S&P 500 gained 7.01%, the Dow Jones Industrial Average rose 5.93%, the Russell 3000 advanced by 6.76%, the NASDAQ Composite rallied 7.29%, and the Russell 2000 Index, a measure of small-cap stocks, improved by 4.25%. Through ten months of 2021, returns in the same order were as follows: 24.04%, 18.77%, 22.77%, 20.88%, and 17.19%, 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, but that shifted once again in October with large-cap growth leading the way. Looking closer at style, the headline Russell 1000 Index gained 6.94% for the month with a year-to-date gain of 23.18%. The Russell 1000 Growth Index rallied by 8.66% in October and is up 24.20% year to date. The Russell 1000 Value Index relinquished its leadership position by gaining “only” 5.08% in October, which put the year-to-date total at 22.03%. For small-caps, value continued to outperform growth on a relative basis. The value/growth disparity is much more pronounced in small-caps for the year to date with the Russell 2000 Value Index up 27.60%, while the Russell 2000 Growth Index has gained a mere 7.64% during the same timeframe. International markets lagged U.S. stocks in October, but developed markets were able to recover some of the weakness in recent months. The MSCI Emerging Markets Index gained only 0.99% in October, which keeps this index in negative territory (down -0.27%) for the year to date. The MSCI ACWI ex USA Index, a broad measure of international equities, gained 2.39% in October, which pushed year to date results to 8.43%. Following the trend of recent years, U.S. stocks have continued to outperform their international counterparts. Within international markets, developed countries have done better than emerging markets, which have been weighed down by China. 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. October saw a modest continuation in this trend. The yield closed the month of September at 1.52% and it rose to 1.55% by the end of October. Bond sector results were rather mixed with this modest increase in rates. Fixed income returns were as follows for October: the Bloomberg Barclays U.S. Aggregate Bond Index slipped -0.03%, the Bloomberg Barclays U.S. Credit Index gained 0.22%, the Bloomberg Barclays U.S. Corporate High Yield Index was off by -0.17% and the Bloomberg Barclays Municipal Index dropped -0.29%. For the year to date, those index returns in the same order were as follows: -1.58%, -1.09%, 4.36%, and 0.50%, respectively. High yield bonds remained the clear leader year to date and municipals have been able to sneak out a slight gain as well. The 30-year U.S. Treasury Index gained 3.42% for the month, as the 30-year yield dropped during the month, but it is still off by -5.78% year to date. The general U.S. Treasury Index fell by -0.07% in October and is down -2.56% 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 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. 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 9030 RED BRANCH ROAD COLUMBIA, MD 21045, US Phone + Fax:  410 600 PLAN (7526) E – Office@OffitAdvisors.com W- www.OffitAdvisors.com   To schedule an appointment with us, click here! The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Want to change how you receive these emails? You can update your preferences or unsubscribe from this list.

On It with Offit - October 2021

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OCT | 2021 Ben Sits on TREBLE's Business Hotseat Join Ben as he goes on the hotseat as part of TREBLE's Power Networking Business Hotseat event on October 19th.   Get Registered A Different Way of Serving Clients 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. Check out Ben on the "Protecting your Practice" Podcast  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! Listen Now Let us Take Your Temperature 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.  - 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 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! Volatility Rears Its Head in September as Equities Decline 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 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. 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 9030 RED BRANCH ROAD COLUMBIA, MD 21045, US Phone + Fax:  410 600 PLAN (7526) E – Office@OffitAdvisors.com W- www.OffitAdvisors.com   To schedule an appointment with us, click here! The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Want to change how you receive these emails? You can update your preferences or unsubscribe from this list.

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

1. Backdoor Roth IRAs could be removed

2. If your income is over threshold ($400K for single filers, and $450K for married filing jointly) – Roth conversions could go away

3. 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!

On It with Offit - September 2021

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SEP | 2021 TEAMMATE SPOTLIGHT Meet Laura!   Laura Sendldorfer is our Financial Advisor & Insurance Specialist. She loves helping clients achieve peace of mind and financial freedom through money management, investments, and insurance.   Interests Finance - I enjoy the planning process and helping others achieve their goals. Real Estate - I enjoy seeing transformations and bringing houses back to life, although it’s not quite like HGTV. Traveling - to see all this beautiful world has to offer, learning from other cultures, and experiencing their cuisine. Running - after a year of in-person races being canceled, I look forward to running the delayed cherry blossom 5K this weekend, later this month to the Baltimore running festival and the Bay Bridge run on Halloween. Favorite Philanthropy Doctors Without Borders Favorite Offit Advisors Value Clear Goals- I think it’s magic to help clients set visions and clear goals for the future. Favorite Thing About Working with Our Clients Walking through life with our clients and being able to celebrate their success and growth with them. What Gets Me Out of Bed in the Morning A good coffee (I’d call myself a coffee snob), sunshine, family & friends and my endless list of personal goals. Name One Thing You'd Spend More on to Get the Best Quality For most things, I choose quality over quantity. Some examples are: Coffee, food, travel (although I have yet to fly first class), and most definitely running shoes.   Meet with Laura The IRS Dirty Dozen and Related Scams to be Aware Of! Hello Loyal Readership! Today I want to talk to about some tax related topics and go over an interesting publication that occurs each year from the IRS called the Dirty Dozen. This is a list they put out each year of items to be aware and things they are looking at. Here are some of them that are interesting and you should definitely be aware of! 1. Pandemic related scams – As we all know there have been various forms of stimulus payments and relief over the past year and half or so and there have been scammers trying to prey on people’s lack on understanding of these stimulus options. These scammers may be contacting clients about their payments or make sure they get it and are asking for financial information.This will be a common theme in this article but the IRS will never initiate contact with you via phone, text, email, social media. If someone contacts you saying they are with the IRS – delete it or don’t open it. They will only initiate contact via a letter from the IRS in the regular snail mail. 2. Unemployment fraud – along with the pandemic, many people have filed for unemployment benefits and scammers have also tried to prey on this. Scammers will try to obtain your personal information and file an unemployment claim using your data in which they will get the payment for. If you happen to receive a 1099-G form showing income from unemployment benefits – this is a tip off of fraud that someone filed unemployment under your name. If this happens, reach out to state department to get this corrected, and don’t include this income on your actual tax return because it is not real income attributable to you. 3. Unsuspecting victims –With the pandemic, many charities need more support than normal, but people also getting calls from fake charities claiming that they need support and asking for an immediate donation. To ensure that a charity is real, you can ask any charity for their full name of their organization, their tax id number, and locate them on the IRS to site to verify their status. 4. People imitating the IRS – these people or organizations target seniors or people that don’t have English as their first language saying they need to clarify an issue and need your personal information. Again – the IRS will not contact you directly – it is fraudulent. They will only contact you via an official letter in the mail. If you do speak another language other than English, you can use Schedule LEP and you can indicate preferred language, they will send a letter in your native language. 5. Backtax consolidators – Be aware of firms saying they can help with your backtaxes. These firms can charge high up front fees, and don’t guarantee results. If you need assistance with your backtaxes or IRS payments, the IRS can offer payment plans with a relatively moderate interest rate and there aren’t fees to get it setup. 6. Ghost preparers – someone who says they will prepare a tax return for you but won’t put their name on or sign the return is someone to stay away from. This can be someone looking to initiate stimulus payment fraud, or another scam of some sort. 7. Personal information cons – impersonator calls claiming to be from the IRS about a tax lien or messaging you on social with a link to gather information about you. 8. Phishing scams – these may not be targeted at individuals but actual companies trying to get information from companies that may have personally identifiable information on people. Any company needs to be aware and trained of fake links, or emails with malware that may try to extract data from your computer that could compromise people’s data. 9. Abusive arrangements – this is about being aware of tax promoters who are promising very large tax deductions from alternative tax strategies. They could be promoting ideas lie conservation easements (investing in a piece of land that is subsequently donated), foreign country tax treaties with gray area (ie. Malta), claiming benefits you are not entitled to (R&D and green energy) even though you haven’t done them, and the IRS is aware of taxpayers getting involved in these ideas. You are legally required to include how found out about these ideas, and they won’t fly under the radar with the IRS. If it seems like you are saving too much on taxes, ad it is too good to be true, it probably is. So in the end, this article is not meant to scare you, but rather is intended to raise your awareness of some things that could be scams in the tax world! - The last time the S&P had a pullback of 5% or more was October 2020. Since 1929, the S&P has experienced only 12 other streaks of nine months long like this one. Seeking Alpha, August 16, 2021 - Last month, three out of four cargo containers leaving the port of Los Angeles were empty. The Port of Los Angeles head, Gene Seroka said, “Our largest export commodity continues to be air.” The Loadstar, August 23, 2021 - New research shows that U.S. alcohol consumption rose 39% during the pandemic and 323% among mothers with young children. Fox News, August 16, 2021   - Roughly 75% of all foods and beverages in America contain added sugar. According to the American Heart Association, the average adult swallows the equivalent of six bowling balls of the stuff each year. Meanwhile, the average child downs enough added sugar to fill a bathtub. Medium, August 18, 2021 - Americans are on average 7.8 points more confident than Brits that they could beat various animals in a one-on-one fight, including a medium-size dog, a chimpanzee, a kangaroo, and a goose. YouGov, May 21, 2021   - “If A is success in life, then A = X + Y + Z. Work is X, play is Y, and Z is keeping your mouth shut.” Albert Einstein Stocks Advance Further in August as Bonds Pause Highlights    In what has become a bit of a broken record, the S&P 500 Index, NASDAQ Composite, and Dow Jones Industrial Average each posted new all-time highs in August. Small-caps enjoyed gains, but generally lagged large-caps for the month and the Russell 2000 Index has still not surpassed its high from March.   With large-caps and growth continuing their recent strength, market leadership has shifted. Value is still handily outperforming growth in small and mid-caps year to date, but a slight advantage goes to growth for large-caps. Small-caps overall have forfeited leadership to large-caps year to date.   The 10-year U.S. Treasury yield moved modestly higher in August. After drifting down to its lowest level since February early in the month to 1.19%, the yield moved higher closing August at 1.30%. It had ended July at 1.24%. Outside of high yield, most bond sectors were down for the month.   The U.S. economy is recovering solidly, and recent job gains have been the highlight. Inflation numbers remain elevated and garner a lot of attention. The Fed has reiterated its belief that inflation is transitory at this point.   The delta variant continues to spread more widely across the U.S. It is yet to be seen whether this might have an impact on the economic reopening.   We expect ongoing economic improvements and continued above trend growth in the second half of 2021 and into 2022. Volatility, however, could increase in the months ahead with markets near all-time highs and pandemic issues ongoing. Equity Markets   In the large-cap space, growth continued its recent trend of outperformance compared to value in August. Small-caps, which started the year strongly, have lagged in recent months as growth and large-caps have rallied. Outside of a mid-month spike above 21, the VIX Index remained subdued in August. The VIX Index closed July at 18.24 and ended August at 16.48. Despite the trend lower in the VIX Index, we believe investors should be prepared for ongoing periods of volatility over the next several months with stocks near all-time highs and some uncertainly surrounding the Delta variant. Size and style mattered once again in August with the largest-cap growth companies outpacing smaller and more value-oriented companies. Although there will be times when growth rallies, 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 August were as follows: The S&P 500 gained 3.04%, the Dow Jones Industrial Average advanced 1.50%, the Russell 3000 improved by 2.85%, the NASDAQ Composite led indices higher rising 4.08%, and the Russell 2000 Index, a measure of small-cap stocks, increased by 2.24%. For the year to date, returns in the same order were as follows: 21.58%, 17.04%, 20.39%, 18.92%, and 15.83%, 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. Looking closer at style, the headline Russell 1000 Index gained 2.89% in August. The Russell 1000 Growth Index drove results as it had in the prior two months, up 3.74%, while the Russell 1000 Value Index gained only 1.98%. For the year to date, the returns were 21.08% and 20.32%, respectively. While growth has caught up to value in the large-cap space, value is still easily outpacing growth in the mid and small cap universe. For example, the Russell 2000 Value Index is up 25.43% year-to-date, while the Russell 2000 Growth Index has gained a mere 6.92% during the same timeframe. International markets bounced back in August after a difficult July following China’s ramp up of regulatory restrictions. The MSCI Emerging Markets Index gained 2.62% in August, which accounts for most of the year-to-date gain of 2.84% for this index. The MSCI ACWI ex USA Index, a broad measure of international equities, advanced 1.90%, which contributed to the 9.40% gain for this index so far this year. Following the trend of recent years, U.S. stocks have continued to outperform their international counterparts. 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 once again. The yield closed the month of July at 1.24% before ending August at 1.30%. Most bond sectors struggled in the first quarter, particularly the most interest-rate sensitive bonds, but they had enjoyed a period of recovery over the following four months. In August, most bond sectors declined with the notable exception of high-yield bonds, which have been the clear leader in fixed income so far in 2021. Fixed income returns were as follows for August: the Bloomberg Barclays U.S. Aggregate Bond Index slipped -0.19%, the Bloomberg Barclays U.S. Credit Index declined -0.24%, the Bloomberg Barclays U.S. Corporate High Yield Index rose 0.51%, and the Bloomberg Barclays Municipal Index dropped -0.37%. Year to date, those index returns in the same order were as follows: -0.69%, -0.23%, 4.55%, and 1.53%, respectively. Treasury Inflated Protected Securities (TIPS), which had rallied strongly in recent months with increased worries about inflation, gave up some ground in August declining by -0.18%, but its year-to-date gain still stands at 4.26%. Shorter-dated U.S. Treasuries enjoyed gains in August (the 5-year U.S. Treasury Index rose 1.02%), but longer-dated Treasuries declined. The general U.S. Treasury Index fell by -0.17% in August and is down -1.43% 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, August 2021 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. 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 9030 RED BRANCH ROAD COLUMBIA, MD 21045, US Phone + Fax:  410 600 PLAN (7526) E – Office@OffitAdvisors.com W- www.OffitAdvisors.com   To schedule an appointment with us, click here! The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Want to change how you receive these emails? You can update your preferences or unsubscribe from this list.

The IRS Dirty Dozen, and Related Scams to be Aware Of

Hello Loyal Readership!

Today I want to talk to about some tax related topics and go over an interesting publication that occurs each year from the IRS called the Dirty Dozen. This is a list they put out each year of items to be aware and things they are looking at.

Here are some of them that are interesting and you should definitely be aware of!

1. Pandemic-related scams – As we all know there have been various forms of stimulus payments and relief over the past year and half or so and there have been scammers trying to prey on people’s lack on understanding of these stimulus options. These scammers may be contacting clients about their payments or make sure they get it and are asking for financial information. This will be a common theme in this article but the IRS will never initiate contact with you via phone, text, email, social media. If someone contacts you saying they are with the IRS – delete it or don’t open it. They will only initiate contact via a letter from the IRS in the regular snail mail.

2. Unemployment fraud – along with the pandemic, many people have filed for unemployment benefits and scammers have also tried to prey on this. Scammers will try to obtain your personal information and file an unemployment claim using your data in which they will get the payment for. If you happen to receive a 1099-G form showing income from unemployment benefits – this is a tip-off of fraud that someone filed unemployment under your name. If this happens, reach out to state department to get this corrected, and don’t include this income on your actual tax return because it is not real income attributable to you.

3. Unsuspecting victims –With the pandemic, many charities need more support than normal, but people also getting calls from fake charities claiming that they need support and asking for an immediate donation. To ensure that a charity is real, you can ask any charity for their full name of their organization, their tax id number, and locate them on the IRS to site to verify their status.

4. People imitating the IRS – these people or organizations target seniors or people that don’t have English as their first language saying they need to clarify an issue and need your personal information. Again – the IRS will not contact you directly – it is fraudulent. They will only contact you via an official letter in the mail. If you do speak another language other than English, you can use Schedule LEP and you can indicate preferred language, they will send a letter in your native language.

5. Backtax consolidators – Be aware of firms saying they can help with your backtaxes. These firms can charge high up front fees, and don’t guarantee results. If you need assistance with your backtaxes or IRS payments, the IRS can offer payment plans with a relatively moderate interest rate and there aren’t fees to get it setup.

6. Ghost preparers – someone who says they will prepare a tax return for you but won’t put their name on or sign the return is someone to stay away from. This can be someone looking to initiate stimulus payment fraud, or another scam of some sort.

7. Personal information cons – impersonator calls claiming to be from the IRS about a tax lien or messaging you on social with a link to gather information about you.

8. Phishing scams – these may not be targeted at individuals but actual companies trying to get information from companies that may have personally identifiable information on people. Any company needs to be aware and trained of fake links, or emails with malware that may try to extract data from your computer that could compromise people’s data.

9. Abusive arrangements – this is about being aware of tax promoters who are promising very large tax deductions from alternative tax strategies. They could be promoting ideas lie conservation easements (investing in a piece of land that is subsequently donated), foreign country tax treaties with gray area (ie. Malta), claiming benefits you are not entitled to (R&D and green energy) even though you haven’t done them, and the IRS is aware of taxpayers getting involved in these ideas. You are legally required to include how found out about these ideas, and they won’t fly under the radar with the IRS. If it seems like you are saving too much on taxes, ad it is too good to be true, it probably is.

So in the end, this article is not meant to scare you, but rather is intended to raise your awareness of some things that could be scams in the tax world!