I was honored to have been invited to attend the first quarterly meeting of 2014 of the Council of Economic Advisors in Fort Lauderdale, which took place on January 15th. As you may know, Martin Kurtz, CPA, is a long-standing member of the Council, which is made up of a group of twenty seven business executives in the Fort Lauderdale area who report to the Federal Reserve on a quarterly basis on business trends and outlooks as they see it.
The Council devotes time to discussing the special concerns that business owners have for their own companies as well as for their regions, fulfilling the Fed’s purpose of staying in touch with the realities that businesses face as a result of federal policies on trade and interest rates. Council members are selected based on their role as leaders in their business communities. There are Advisory Councils in each of the twelve Federal Reserve banks, and the program was established to improve communications with the various sectors of the economy within each Federal Reserve District.
In the previous meeting, as reported by the Sun Sentinel1, the atmosphere of uncertainly created by Washington’s inability to work well and play together had a significant impact on decisions made by members of this group. The Council’s outlook on the local economy has undergone some changes since that last meeting.
At the first quarterly meeting, Federal Reserve questions were presented to Council members, who were asked about their expectations with regard to short and medium term growth and how they might be impacted by inflation and price pressures, among other things. I was very encouraged to learn that overall most of the members have an optimistic outlook for 2014, across many sectors. They are confident about growth potential for the long and short term and have increased their expectations of business growth for the next two to three years.
Nearly a third expect to do more hiring than in 2013, and only 12% expect to hire less than in 2013. Half of the retailers in the group reported holiday sales that were much higher than they expected – and 38% said that sales were higher than last year. While 71% expect their inventories to remain about the same in 2014 as they were in 2013, the general outlook and sense of growth is very positive.
This meeting was a breath of fresh air for me. While I am usually elbow-deep in analysis and reports from large corporations and financial markets, speaking directly with business owners and hearing such a positive outlook from them was very encouraging. When Main Street and Wall Street are somewhat aligned, and Washington is working, to the extent that it can, all signs point to a positive outlook for the near future. It’s a nice change, and one that I hope will continue.
1 Sun Sentinel, January 18, 2014
The Roth Advantage Part 2: First Time Homebuyer
March 16, 2018
Dan Kresh FPQP™
There are ways for first time homebuyers to access some funds from retirement accounts without "penalty". Though you may be able to avoid an early withdrawal penalty, you will be lowering the amount in your retirement account. You would likely be purchasing your first home many years before you plan to retire, depleting your account when it has the most time to grow. This is a complicated decision. It is important to understand the differences between how you could access funds early from Traditional or Roth IRAs.
A first-time homebuyer can access up to $10,000 from either a Roth or Traditional IRA to contribute towards a down payment[i]. Any funds taken out from a Traditional IRA, for any reason, including a first-time home purchase would be taxed as ordinary income. The tax deferred nature of the Traditional IRA is its biggest advantage, so using funds from a Traditional IRA to help fund a home purchase will forfeit some of that benefit while shrinking your nest egg.
With a Roth IRA, you can take out contributions at any time for any reason without a tax consequence since it's already after-tax dollars[ii]. The Roth IRA owner can also access up to $10,000 of profit for a first-time home purchase, and if you have had the Roth for more than 5 years that would be tax free.[iii] You should NEVER consider a retirement fund an emergency fund, however; the fact remains that there are less barriers and penalties to accessing funds from a Roth IRA early than from a Traditional IRA.
Tapping into your retirement account to buy a home should not be your first choice, but it's nice to know what options could be on the table. You have the best chance of growing your nest egg if you contribute the maximum into your IRA for as long as possible. Taking funds out of your retirement account before retirement age, with or without penalty and or tax, means you will have a smaller principal to hopefully compound over time. Your retirement money will serve you best in retirement and should be invested in a well-diversified portfolio for the long haul. Any investment involves the risk of loss of principal but the more diverse your investments and the longer your time horizon the better your chance is to mitigate that risk.
If your income is at or approaching limits for contributing to a Roth IRA part 3 of this series will discuss a potential way for you to contribute to a Roth IRA using Roth conversions. It's never too early to start thinking about retirement. The earlier you start the more time you have for growth. You work hard for your money, we work hard so your money can work for you.
[ii]Roth IRA Withdrawl
[iii]IRA To Buy A House
A Roth IRA distribution is qualified if you've had the account for at least five years and/or the distribution is made after you've reached age 59½, because of your total and permanent disability, in the event of your death or for first-time homebuyer expenses. Distributions made prior to age 59 1/2 may be subject to a federal income tax penalty. If converting a traditional IRA to a Roth IRA, you will owe ordinary income taxes on any previously deducted traditional IRA contributions and on all earnings.
You should always consult a tax professional and though this piece contains some tax information it should not be considered tax advice.