After the election on November 8th, the markets took a surprise jump, hitting 19,000 on the Dow before the inauguration and passing through the psychologically powerful 20,000 during the 45th President’s first week in office.
We try to be politically agnostic. However, as investors we need to evaluate how the FED, the Treasury Department, and the administration’s policies might inform our investment models.
We believe that our new administrations’ positions on corporate taxes and regulations would be stimulative to the domestic markets. Putting that information into our models suggested a better than average return for the U.S. stock market. We still believe that to be true. However, prior to the implementation of policies that could be beneficial there has been movement on fronts that might offset those advantages.
Regardless of long term rationale, rapid movement on issues that the market sees as negative seem to have offset this positive momentum. Fast implementation of an immigration ban and strong talk of protectionism have at least temporarily shaken the market.
The overall near term growth of our markets depends on, for now, the belief that future policies will be stimulative. Tax reform and regulation reform definitely fall into that category. Recently, many major US based companies have become worried about filling technical jobs, which were often staffed by highly qualified, trained immigrants.
Although NAFTA may have cost American jobs, it was not without some benefits. There is no question that free trade between Canada, the US and Mexico has lowered the costs and prices of cross border goods. Lower costs of manufacturing and lower pricing to consumers are also stimulating. Time will tell if renegotiating this trade agreement will be beneficial. However, for the moment, the market seems to be concerned about the tightening of trading policies.
The markets are often controlled by emotion, something that we have discussed numerous times. The question that we cannot answer is whether or not the push of tax reform will be more positive for the US Markets than the potential for trade conflict will be a negative.
We can only be certain of uncertainty and our proclivity to handle it. We will remain vigilant in navigating our voyage in the direction we want to go. We remain ready to adjust to inclement weather and changes in tide so, that if they come, we can still stay the course.
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Advisory services offered through Creative Wealth Management, LLC a registered investment advisor.
Not affiliated with Royal Alliance Associates, Inc.
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.