Most likely as you read this you have already heard that the United Kingdom has voted to leave the European Union. This issue has caused excess turmoil in the markets as the world awaited yesterday’s vote. Polls were speculating that the United Kingdom would vote to stay in the European Union. That was a primary cause for the major US market indices to climb over 1% on Thursday.
Early polling was wrong, and early this morning the United Kingdom announced it is leaving the EU. The global markets today are showing a flight to safety as the dollar is strengthening, gold is rising and US interest rates are falling. The news this morning will be filled with stories about falling markets as the world tries to digest this information.
As we have said many times, global uncertainty, especially global surprises, often causes severe short term market movements. Today is no exception. There will be much talk about Brexit and market turmoil today. We are aware, watching and implementing strategies to keep your long term plans on course. We cannot accurately predict the markets, however, we can try to invest to help you weather a storm and take advantage of opportunities as they present themselves.
What do we know at this time?
It is clear that United Kingdom has voted to exit the EU. At least in the short run, the markets do not like this outcome. Multi-national financial intuitions, such as J.P. Morgan, will be looking at having to restructure their UK and EU operations over time; this might add additional pressure on global financial institutions.
In many of our portfolios, we have a hedge against the US dollar with a global bond position. We are currently watching that position closely.
As of now, we believe that this correction will bring down the price of many solid companies, likely creating buying opportunities in many of the companies that have made us the economic leader of the world.
It is important to understand that this vote is only the start of a process. The UK will invoke article 50 of the Lisbon Treaty. This will grant the UK approximately two years to untangle itself from the EU.
Today is not the end of anything; it is the beginning of a process that will take quite a long time to unwind.
In the meantime, we are available for you during this trying time. Please feel free to contact us via email, telephone or schedule a meeting.
Michael Kresh CFP®
Chief Investment Officer
Creative Wealth Management LLC.
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.