Electric Vehicles, or EVs, are already here, and gaining market share every day. EVs are so popular that General Motors (GM) recently announced an all-electric lineup by 2035, with 40% of their vehicle production being electric by 2025. While many of us believe this goal is ambitious, it demonstrates the commitment made by Americans to fundamentally change the way we travel.

Today, GM has yet to increase profitability by even one cent with electric vehicles. Given today’s cost structure, GM loses money on every VOLT produced and sold. VOLT is the only electric vehicle (EV) produced today by GM, and I doubt TESLA feels threatened by VOLT’s current (pun intended) paltry market share. After all, look at previous GM forays into the EV market; the Electrovair and EV1, which were both disastrous.

Before internal combustion engines became the norm, electric vehicles were very popular. By 1900, about 1/3 of all vehicles on the road were electric. Sales remained strong for a few years, during which gasoline engines began to gather market share. However, increases in the availability of electricity to consumers also fueled (again, pun intended) the EV market.

The biggest factors in the popularity of gasoline cars were road building, the discovery of oil in West Texas, which drove gasoline prices down sharply, and World War II. When WWII ended, Americans tasted freedom afforded by private vehicles, and the Great American Love Affair with personal automobiles began. The rest, as they say, is history.

Or it was until the 1960s and 1970s when gasoline shortages began to drive prices higher. Additionally, 1970 saw the creation of the Environmental Protection Agency, or EPA, triggering renewed interest in EVs, viewed as environmentally friendly. General Motors, American Motors, and NASA all did pioneering work in EV development. GM’s earliest foray into the EV market was the Electrovair, which was based on the 1966 Corvair. Ralph Nader essentially doomed the Electrovair, along with the Corvair, with his 1965 book, Unsafe at Any Speed. Although Corvair was declared safe by the National Highway Traffic Safety Administration (NHTSA) in 1972, it was too late to save the model.

GM re-entered the EV market in 1996 with the first production EV, dubbed the EV1. Produced until 1999, EV1 was only offered for rent. In an action that remains controversial to this day, GM recalled every EV1 in 2002 and destroyed them all. Today, any number of car buffs would pay hefty sums to have an EV1 in their private collections.

In the middle of the EV1 era, Toyota’s Prius went into production in 1997. Many of us found the Prius’ appearance unconventional and confining. As thousands of owners have learned over 2+ decades since Prius is an excellent hybrid vehicle that performs as advertised. Worldwide sales are approaching 2 million, and larger new models have made Prius practical for families.

Other hybrids and EV ventures are commonplace, with TESLA leading the way, and proving the viability of EV cars. Competition is producing more and better options and at increasingly affordable pricing.

As a society, we are moving in the direction of electrified travel, both personal and commercial. However, electricity doesn’t magically appear in America’s wall outlets. Increasing demand for electricity will put the brakes (yeah, another pun) on the popularity of EVs unless we confront looming energy supply problems.

Environmentalists are doing their best to eliminate the use of “fossil fuels,” but they have demonstrated no ability to meet the rapidly increasing demand for electric power. Governments, both here and abroad, must come to grips with a requirement for a sufficient uninterruptable supply of electric power, now and in the future. Until that is accomplished, we should authorize new nuclear plants, as well as ending tax subsidies granted to buyers of electric cars. Allowing free markets to work, through traditional supply and demand, is the surest path to our electrified travel goal.

Van Wie Financial is fee-only. For a reason.

Beverly Hills High School produced a lot of crude oil for over 20 years. Wait, did you say, “Beverly Hills High School?” Yes, I did. For about 22 years, a large oil derrick on the campus of BHHS pumped hundreds of thousands of barrels from a very rich oil reserve under Los Angeles County. The BHHS derrick was wood-covered and brightly painted, and flaunted the moniker “Tower of Hope.” The well was closed in 2018 due to pressure from environmentalists.

Los Angeles County sits on a massive oil reserve, which was discovered in 1893. As recently as 2019, California produced 442,000 barrels of crude oil daily. That number is down from 1,079,000 barrels per day in 1985. At $60/barrel, oil brings into the State’s economy more than $26 Million daily (oil production is a process industry, meaning it operates 24/7/365).

For an interesting look at the history of oil production in LA, I suggest the website, https://oilandgas.lacounty.gov/history/ for its excellent pictures and brief, but informative, narrative.

Today, California seemingly detests oil. A large segment of Californians would abolish oil and gas production immediately. A significant percentage would also cease oil and gas consumption as well. Recent experience in Texas demonstrates just what a tragic idea this represents.

Texas produces oil, gas, nuclear power, and “renewables,” which include wind and solar. The State has resources sufficient to keep Texans supplied with energy, with enough surplus to export. Usually. Recent events displayed an unexpected exception to “business as usual.” A rare intense winter storm rendered production of several forms of energy inoperable for days and left hundreds of thousands of Texans without heat, lights, and potable water.

Nationwide, only natural gas and renewables are increasing in market share. Coal and oil consumption are being driven down by record-low market prices of natural gas. So long as gas remains plentiful and inexpensive, we expect the changeover to proceed. However, it should be left to market forces, rather than political pressures, to dictate the rate of replacement.

Political trends have been veering away from coal, oil, nuclear, and even natural gas, in favor of renewables. This utopian (“green”) view has failed to consider the consequences of real-life conditions affecting real people, as recently seen in Texas. Accelerating implementation of renewables, in the absence of contingency plans, can lead to unnecessary death and destruction.

The bottom line seems very clear. For every 1% of renewable energy consumption in today’s market, we need to have 1% traditional energy available in reserve. Fossil fuels are latent energy until needed, whereas wind and solar currently must be consumed within seconds of production. Worse yet, they cannot always be produced. Nuclear energy is the cleanest and safest of all and is available as required. However, nuclear power is hated by environmentalists, most of whom have no concept of nuclear power’s safety and efficiency.

Consequences of ignoring the realities of energy were on display recently in Texas. It was not a pretty sight. We cannot let it happen again. State and Local Governments, and especially the Federal Government, take heed.

Van Wie Financial is fee-only. For a reason.

In this blog and on The Van Wie Financial Hourradio program last August, I asked the question, “Is your side-hustle being threatened?” My reference was to a national movement attempting to reclassify an ever-growing number of “gig workers” (those who receive 1099s, also known as “independent contractors”) into traditional W-2 employees. What difference does it make? If you have a “side-hustle,” meaning a voluntary, usually part-time, second, or third job, you understand the reasons and consequences of choosing this method of income enhancement.

Despite the constant under-reporting of inflation by the government and media, everyone knows that prices are rapidly escalating. Food, gasoline, insurance premiums, and many other necessities, are reflecting dramatic price increases to consumers. For most people, incomes (especially net of taxes and benefits) are not keeping pace.

For millions in America, and in countries around the world, one answer to closing the gap has been a “side-hustle.” Having a supplementary money-making gig has allowed many ambitious Americans to maintain, or even enhance, their lifestyles. Perhaps surprisingly, many people profess to enjoy their alternative employment for more than financial reasons; freedom and flexibility are most often mentioned.

As the old saying goes,“No good deed goes unpunished.”Gig workers are again being targeted by the usual groups of do-gooders, who are trying to force them into becoming W-2 employees. This is being fought in Courts around the country and the world. Unsurprisingly, many employers and employees are not readily accepting the change. Companies such as Uber and Lyft, along with other businesses that need part-time and/or seasonal workers, are being challenged to eliminate gig workers.

American courts and politicians have for some time been pressured into maintaining the status quo, but this week produced an ominous decision from “across the pond.” From the Supreme Court of the United Kingdom (UK) came a ruling that may well produce a ripple effect in this country. In the UK, Uber BV vs. Aslam (Aslam) was unanimously ruled to eliminate the gig status of Uber drivers. That decision will most likely metastasize, and like COVID-19, spread over several continents.

Under Aslam, Uber drivers in the UK are now entitled to minimum wage and benefits such as Holiday Pay. While that may sound reasonable, even compassionate, it also allows the company to dictate working hours and conditions for drivers. In fact, the entire employer/employee relationship is altered, allowing the employer to establish mandatory wages, hours, and working conditions.”

Resulting from this relationship change, drivers may not be free to set their own hours. Rather, the Employer may demand their services in terms of time and place. Routes and hours can be changed, and when a customer requests a car, there may or may not be available rides in the immediate area. One inevitable result will be disappointed and inconvenienced customers.

The entire business model of ridesharing is now at risk. There will be some winners, but there will be a great number of losers. Many of the losers will be customers, and the overall volume of business activity could be diminished. Prices are certain to rise. And for what?

Aslam doesn’t stop at ridesharing. Delivery services for various products are booming in the COVID-19 economy, and these will also be affected, should Aslam’s decision trickle down to this country. We know that our Supreme Court (SCOTUS) has a fondness for International laws.

The UK Court decision does not have to migrate to the USA. Congress could enact legislation to maintain the current voluntary system. After all, many elected officials use ridesharing, especially in Washington, D.C. Sadly, few are likely to care about cost and availability, as they are “prioritized” customers, and they get reimbursed for transportation expenses in the Capital City. By taxpayers. Go figure. Be careful what you wish for.

Van Wie Financial is fee-only. For a reason.

You may have seen a headline last week in many large papers and financial news outlets, proclaiming, “Home prices rocketed in 4th quarter.” According to the ubiquitous headlines, median home prices were up 14.9% in the 4th

The articles I read correctly stated that the rise in the median home price was the highest ever recorded. Whether this was tailored to be a political statement is anyone’s guess, but at best it is misleading to most people. Did your home’s value increase 14.9%? Likely, not even close. So, what gives?

One of the oldest sayings in math (and journalism) is that “figures lie, and liars figure.” Combine that with another old adage that states that “there are 3 basic kinds of lies; white lies, damn lies, and statistics.” Together, these can be used to imply to a reader that something is better or worse than the actual statistical meaning. (In today’s journalism, add lies of omission.)

What’s the problem? The word “median,” is an often-misunderstood statistical term that describes consumer preferences more than housing prices. The median sale is defined as the sale which has an equal number of sales lower and higher in price, regardless of actual value. Any individual home may have increased in value, decreased in value, or stayed the same. That has no effect on the median value.

Variables that influence the median sale value include economic conditions, the supply of housing in all price ranges, changing consumer preferences, tax considerations, and a host of other decision-making criteria. None of these factors applies directly to your home, although some can affect the market value of your homestead. Rarely does any single residence increase by more than a few percentage points in an entire year (yes, it can happen).

A quick example will illustrate my point. Eleven homes sell in a quarter, ranging from $100,000 to $1,000,000. Of these, 5 are below, and 5 are above, the “middle” house, which for argument’s sake is $500,000. The median sale for that period is $500,000. Now let’s say that a similar group of 11 sells next quarter, but the highest value home is $2 Million. The median price is unchanged, but the average sale price rises. In the next quarter, low-priced homes are no longer available, as investors have been gobbling them up. Now the lowest-price sale is $200,000. Median sale? Still $500,000. Average sale? Up.

Reading statistics requires careful attention, as well as an understanding of the use of statistics. Writers often support a particular point of view and slant their stats accordingly. Go figure.

Van Wie Financial is fee-only. For a reason.

Last week we discussed recent hoopla over GameStop common stock (GME) and the Robinhood trading platform. GME suddenly became very volatile, and a lot of quick money was made and lost. Not unexpectedly, those speculators who lost were angered and were willing to blame “the system,” or virtually everyone else, except themselves (of course).

How volatile was GME? On April 3, 2020, the low trade was $2.57/share. On January 28, 2021, the high trade was $483.00/share. That is an increase of 18,694%. The closing price on Friday, February 5, 2021, was $63.77, a decline of $419.23/share in just 6 trading sessions.

Whenever a large amount of money is made in the market, it generates an understandable amount of attention. It also results in an absurd pattern of trading activity. All too often, that activity brings in many unqualified players. How do unqualified traders participate in an arena they do not fully understand? There are some companies that do not properly vet their customers before allowing them to participate in fast-moving and dangerous stock trading.

Without editorializing as to the regulation of financial markets, as professional Financial Advisors, we would never recommend that our clients get involved in Short Selling (selling securities you don’t own) or Derivatives (all kinds of options, including puts and calls). Normally, we are not asked about these areas of Speculation (as opposed to Investing). That changes during periods of intense excitement and media coverage, such as the recent GameStop fad.

Every definition we can find for the word fad includes terms such as temporary, short-lived, craze, and other terms for ideas that fade away. See the grammatical similarity between fad and fade? Coincidence? We think not.

Speculation is short-term activity, whereas Investing is a long-term process involving attainable goals, planning, and patience. People in any age group and/or economic status can become successful investors. The clientele of Van Wie Financial demonstrates that principal. We represent a microcosm of the gigantic world of free financial markets and participants.

Very few speculators will succeed over time. A few will make extraordinary gains, but the majority will likely lose their proverbial shirts.

We are watching for the day GME once again trades for $2.57/share, reasonably certain that day will soon arrive. GameStop is already losing money, and their business model reminds us of Blockbuster Video, which faded away as trends changed. Who will lose the remaining $60+ per share? It will most likely be speculators who jumped into the fad without any justification.

Van Wie Financial is fee-only. For a reason.

No one seems to know for sure whether “Robin Hood” ever existed, and there is no verified story. Whether truth or fiction, here is the way I learned the story. Robin Hood supported King Richard while the King was away defending the English Throne. That made Robin a British loyalist, and not necessarily the self-righteous wealth-redistribution legend. He took what interlopers stole from the Crown and returned it to the rightful owners, therefore not robbing from the rich to give to the poor.

Update Robin Hood to Wall Street 2021, where we find a stock trading service dubbed Robinhood. What Robinhood and other similar platforms do well is to allow novice investors without a great deal of money to purchase fractional shares in good companies. Not only do I like the concept, but it is also educational and interesting for investors. But there is another side to the concept. Robinhood was recently fined $64 Million for misleading customers as to the cost of its service, which is advertised to be free.

This week brought Robinhood to the forefront of Wall Street’s news coverage. On Wall Street, “Selling Short” (read: selling shares you do not own) is legal. Conditions are simple; shares must be legally borrowed from a consenting owner, with a money-backed promise to return the same number of shares borrowed. For that privilege, the lender (stock owner) also gets a payment from the Short Seller (consider it rent). The lender also continues to collect any and all dividend payments paid during the rental period.

A Short Seller believes that the market price of the borrowed stock will fall. When it does, the seller will buy more shares on the open market, and simply return newly purchased shares to the lender. The Short Seller then pockets any positive difference and moves on.

That assumes the stock price actually went down.

What happens when the stock price rises? At some point, the Short Seller will generally get fed up, buy new, more expensive, shares to return to the lender, absorb the loss, and lick his or her wounds. If the stock rise is fast and furious, the Short Seller’s losses skyrocket. At that point, the Sort Seller can experience a “Short Squeeze” (run out of his or her own “guarantee money”). The brokerage, having conducted the Short Sale transaction according to a written arrangement with the Short Seller, issues a “margin call,” meaning “pay up now.” The Short Seller must come up with enough cash to cover the margin call, or get caught in the “Short Squeeze.” Even if a personal loan is required, the cash must be paid, under penalty of law.

What if Short Sellers “borrow” more than 100% of outstanding shares? Impossible, you say? Mathematically, you are correct. Legally, you are correct. Morally, you are correct. But it is done frequently. And illegally. It is done so frequently it has a name, “Naked Short Selling.”

Here’s where the recent GameStop (GSE) story begins. In last week’s case, many of the GSE shares “borrowed” did not exist. The number of shorted shares was at least 40% higher than the total number of shares available. That illegal Naked Short Selling activity caused a panic when buyers began to bid up the market price. Similar to a “run on the bank,” the Short Sellers were required to execute panic share purchases to cover their short positions. Ironically, their purchases enhanced the price runup, and they lost billions.

As you might imagine, many of these self-important Wall Street Insiders were not about to take that lying down. So, who was the object of their ire? The “little people,” who talked and traded on Robinhood, Reddit, etc. My premise is very simple. The losers have only themselves to blame. (Note to the SEC – Stop allowing illegal activity in the market. Note to the Short Sellers who lost a fortune or two – no one feels sorry for you.)

The bottom line on the GSE/Robinhood story is simple; “little people” made lots of money legally, and Wall Street Insiders lost that money through illegal practices. Karma? Redistribution of wealth sometimes looks more like poetic justice.

Van Wie Financial is fee-only. For a reason.

Sudden Wealth occurs to a few people annually, but rarely is it comparable to the recent winners of two huge lotteries. These include a $731.1 Million Powerball winner in Maryland, and an even larger $1 Billion Mega Millions winner in Detroit. Our business has personal experience with Sudden Wealth, and it is not all fun and games time. At least, not at first.

Thankfully, we do not yet know either winner’s name. The winners’ names will eventually be revealed, but they will hopefully remain anonymous until precautions can be made for both their personal safety and financial security. Otherwise, as soon as they become known, the winners are likely to get harassed and even threatened with physical harm.

Planning for Sudden Wealth is relatively straightforward when a sizeable inheritance is anticipated. Most often in these cases, the beneficiary is a person from a wealthy environment, with experience in personal safety and money management. However, when unexpected Sudden Wealth occurs, winners can be caught without a clue how to proceed.

We have all seen big winners voluntarily show up on television in a day or two, sporting for all to see their smiling faces and a gigantic check (both in physical and numerical terms). These people generally have no understanding of the “attention” they are about to receive from family, old friends, and new “friends.” From experience, we know that throngs of people are convinced that Sudden Wealth should be shared, with them of course.

Winners have only one obligation to anyone except themselves, and that one is important. The Internal Revenue Service is always ready to reduce net winnings by a significant percentage. Depending on the state of residence, State Revenue Agents will also be lurking around the Lottery offices. Winnings will be reduced before being paid out through withholding of Federal (and perhaps State) Income Tax. What IRS does not do, and does not tell you, is that the actual tax due is MUCH higher than the amount withheld. This amount must be set aside before it is squandered or tied up.

Van Wie Financial has assisted people with their transitions to Sudden Wealth, and we understand that the actual size of the inheritance is not the most important factor. Staying wealthy should be the primary goal of winners. Planning for the perpetuation of wealth begins with a simple concept; don’t spend the principal. That does not mean they shouldn’t live well, as money sometimes does buy happiness, but spending and investing must be controlled.

A qualified advisor can illustrate for you the long-term effects of good planning and investing. If you are ever faced with this prospect, it costs you nothing to call our radio show, or to make an appointment to discuss your situation in our office.

Van Wie Financial is fee-only. For a reason.

Remember when April 15 was the dreaded “Tax Day” in America? That was way back in pre-COVID-19 America (2019). Tax deadlines were extended into summer for the COVID-19 chaotic year 2020. Although COVID-19 remains with us, it appears that April 15th will again be the dreaded deadline for filing individual Tax Returns or an Automatic Extension to October 15, and (in either case) paying up any tax due for your 2020 Tax Year on or before 4/15.

Preparing for Tax Day, both financially and emotionally, requires planning, organization, and knowledge. We have already seen the first 2020 tax documents arrive by mail. Forms 1099, which notify IRS that you received income needed to assess your tax status, are showing up in mailboxes across the fruited plain. Keep them, scan or photograph them as you are able, and file them in your “Tax Day” paper holder.

Today we are looking at investment portfolios that may have changed custodians during 2020, or in some cases, account changes at the same custodian. Changes of this nature generally trigger Tax Forms that require attention and understanding. Otherwise, the taxpayer may be subject to being overcharged, or worse, singled out by IRS for explanations. Knowing what to look for will alleviate potential problems.

Following are some specific dates to keep in mind (from our custodian, TD Ameritrade). All of these dates refer to reporting income online, and all refer to 2021. Your financial institutions may have slightly differing dates, but the documents are universal. Hard copy mailings of these forms will usually arrive a little later.

All of the above are routine “reminders” that income has been reported, and if you receive any of these forms, that income must be included in your Tax Return. Massive IRS computer systems will match these income reports to individual returns and will flag unreported or under-reported income.

So much for the easy part. Complications abound, as some deadlines are flexible. Notable is the form K-1, generally due by March 15, but extended as far out as September 15 for entities filing automatic extensions to their own Returns.

Knowing that you will eventually receive one or more Forms K-1 can save the time, expense, and irritation of filing an amended Form 1040-X later in the year.

Another potential tax reporting problem involves Qualified Retirement Accounts, including the IRA, 401(k), 403(b), etc. When these accounts are rolled into other accounts, usually Traditional IRAs, 1099 will be issued to the owner for the withdrawal. However, when the accounts are rolled into Qualified Accounts, rolled over funds are not taxable.

Proving the Qualified nature of the rollover is the responsibility of the account owner. This is done with a Form 5498, which supports the funds having been rolled over in a timely fashion, rendering the transaction tax-free; hence the term “tax-free rollover.” Here’s the rub – Form 5498 is not required to be sent until May 31, long after the Tax Filing Deadline.

We should note that Form 5498 does not have to be filed with your 1040, but you must be sure to get it and save it for proof of the rollover, should you be questioned or examined by the IRS.

We believe that the most convenient, thorough, and hassle-free procedure is to file for an automatic extension of your filing date using Form 4868. Only if you are expecting a large refund does it make sense to file early or on time. That situation can be avoided through careful planning of your withholding throughout the year. We can help.

Van Wie Financial is not a tax preparer, and we do not render tax advice. We are qualified tax planners and work closely with our clients’ tax professionals in the development of individual tax strategies.

Van Wie Financial is fee-only. For a reason.

Apparently, Christmas was not over on December 25th. Two days later, our feckless Federal Government promised Americans piles of Christmas “goodies.” Oh, and incidentally, also to the Sudanese, Jordanians, Cambodians, Burmese, Egyptians, Pakistanis, Costa Ricans, Salvadorians, Guatemalans, Nicaraguans, Panamanians, Belizeans, and (indirectly) the Russians. We could go on.

Whether you prefer the legal name Consolidated Appropriations Act of 2021, or my moniker, “Son of Stimulus,” it is a behemoth. In a mere 5,593 pages, Congress broadcast our money far and wide, “saving” the world from ravages of the COVID-19 economic disaster, world politics, or whatever else.

Americans, who should always be first in line for our own tax dollars, are being treated with an appalling lack of respect. Both quantity and severity of our citizens’ problems have been underrepresented in this massive spending bill, which was made available for Congress to read and absorb for a staggering 4 hours prior to casting their “Aye” and “Nay” votes.

What could possibly go wrong?

Here is a brief look at a few of the good, bad, and ugly features affecting the finances of Average Americans:

  1. Low and middle-income Americans are slated to receive individual payments of $600, down from “Stimulus Part 1,” when the amount was $1,200 each. The current payment represents a classic “too little, too late” scenario. President Trump’s quest to increase the $600 payments to $2,000 was not abandoned upon signing the bill into law but faces opposition from both sides.
  2. Required Minimum Distributions, or RMDs, which were waived for 2020, are back in 2021 for Qualified and/or Inherited Retirement Account owners. A further extension of the moratorium would have been helpful to many taxpayers, but “Son of Stimulus” failed to address the issue.
  3. Expired Supplemental Unemployment Payments were restored at the weekly rate of $300, reduced from $600; welcome, but not extravagant, as too many businesses remain involuntarily closed.
  4. People with Flexible Spending Accounts (the notorious “use it or lose it” accounts) will have increased time to use unspent Plan funds from 2020. Instead of the current deadline to drain the 2020 accounts, owners will now be able to roll all remaining balances into their 2021 accounts, and this rule will extend again into 2022.

As you might surmise, in a 5,593-page spending and taxing bill are buried an embarrassment of rules and handouts, most of which affect relatively few taxpayers, and are not covered here. As more information becomes available, we will keep you informed about additional changes.

The dictionary definition of “feckless” includes ineffective; incompetent, and futile, having no sense of responsibility; indifferent; lazy. Thomas Jefferson told us, “The government you elect is the government you deserve.” Examining both the content and process of passing “Son of Stimulus,” it is easy to conclude that we deserve our feckless governing body. In all likelihood, we will have exactly that for the near future. Americans must take care of their own personal finances; we can help.

Van Wie Financial is fee-only. For a reason.

“All good things must come to an end” (Geoffrey Chaucer, 14th Century). Alas, it rears its ugly head again on January 1, 2021, with the return of Required Minimum Distributions (RMDs) from Qualified Retirement Accounts.

As an optimist, I was hoping that the 2020 RMD “sabbatical” might be repeated in 2021, due to ongoing COVID-19 economic difficulties. Our incredible market rebound since March of this year has virtually eliminated any chance of a second year of reprieve, and RMDs remain slated to resume their mandate in January 2021.

Although about 80% of Qualified Retirement Account owners withdraw more than their required withdrawals annually, a smaller, significant, population was grateful for the 2020 suspension. We hoped that another year of RMD reprieve would follow, reducing taxable income again next year, and not influencing the income-based cost of Medicare Parts B and D. That prospect is not looking good, so we have to plan accordingly. But, there is good news for some age groups. Here are a few highlights:

  • For taxpayers born after June 30, 1949, initial RMDs are not required for another year, as the Required Beginning Age was raised from 70-1/2 to 72, eliminating 2021 RMDs for affected taxpayers
  • Life Expectancy Tables have been revised to reflect longer average life spans, lowering the amount of all RMDs (unfortunately, this provision does not take effect until January 1, 2022)
  • Proposals now in front of Congress would increase maximum purchases of Qualified Longevity Annuity Contracts (QLACs) from $135,000 to $200,000; a brief explanation of these contracts and their potential RMD-reducing impact follows

Qualified Longevity Annuity Contracts, or QLACs, are insurance products designed for Retirement Account owners who wish to reduce their RMDs for a period of time. Maximum values of QLACs have been raised from $130,000 to $135,000; however, those values continue to also be limited to 25% of the Retirement Account value, and so maybe reduced. The QLAC does not pay dividends or interest, so QLAC returns are totally based on reduced RMDs. This reduces current income, and, ipso facto, also reduces current taxes on income.

QLAC maturity (date of the first annuity payment) is flexible and is set by the account owner at contract purchase, with a maximum maturity age of 85. Upon maturity, the QLAC pays a taxable annual distribution to the account owner until death, similar to an RMD. The original contract value is guaranteed by the insurance carrier, so any unpaid premium dollars will be returned to the account prior to the account being inherited.

We assume that the 2020 RMD suspension has come to an end, but not without some additional benefits for many owners of Qualified Retirement Accounts. Rattling around the hallowed halls of Congress is a proposal to increase the Required Beginning Distribution Age to 75 from the recent 72. An optimist can always hope for the passage of this helpful change.

Van Wie Financial is fee-only. For a reason.