Most Medicare participants receive Part A (Hospital) with no monthly premium. Medicare B (Medical) charges a standard base premium to all participants, currently $144.60/month. Some Social Security benefit recipients have an additional monthly premium deducted for Medicare Part D, the optional prescription drug coverage available to Medicare recipients.

Higher-income recipients must also pay a surcharge for Part B. Dubbed the Income-Related Monthly Adjustment Amount (IRMAA), the additional premium requires involuntary extra “contributions” from some Social Security recipients. There is no added benefit attached to IRMAA charges, and it is not voluntary. Further, the participant does not have to be wealthy to be charged more than the base rate under IRMAA.

It gets worse. There is also a surcharge for higher-income Medicare recipients to cover Medicare Part D, the prescription drug coverage. This charge is particularly egregious, as it is applied regardless of whether they choose to be covered by Part D. Many Social Security recipients purchase independent drug coverage from private providers. They pay their private premiums and use only the private system, never relying on Medicare Part D.

Pay attention here if your income has dropped. IRMAA is applied to a Social Security recipient’s account based on an income tax return that is over a year old. Every year, many people of Medicare age experience a dramatic drop in income. Without taking action, they will have to pay the surcharges during a period that could strain their reduced cash flow. These people are not without recourse.

Social Security Form SSA-44 is used by people who have had a life-changing event resulting in a decrease in income to make a formal written appeal to the Social Security Administration for relief under IRMAA. Form SSA-44 is easy to find online, easy to complete, and can save Social Security recipients a significant amount of money. Some reasons for decreased income include:

  • Marriage or Divorce
  • Death of a spouse
  • Work stoppage (retirement, layoff, etc.)
  • Loss of income-producing property
  • Loss of pension income
  • Employee settlement payment was non-recurring

If you experience a substantial decline in income and are paying IRMAA surcharges, it is up to you to take action. After a year, Social Security will find you and make the reduction, but you will have paid the IRMAA adjustment for a year, with no recourse but to wait. Excess payments will not be refunded to you. There is a limited time to file the SSA-44 and receive any repayment.

In our financial planning practice, we meet many people who have no idea what they are actually receiving from, and paying to, Social Security, on a monthly basis. They are only aware of their monthly deposit amount (the net income). Please check your benefits at ssa.gov, even if you have not previously established an account. There you can get a comprehensive earning record, an explanation of your Social Security Benefits and Medicare costs, and a link to the SSA-44 if needed.

Knowing what to do can save you a lot of money.

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

Since 1997, the U.S. Government has been issuing Treasury Inflation-Protected Bonds (“TIPs”) to investors and savers who are interested in protection against a persistently rising cost of living. Originally, there were short maturity (5-year), medium maturity (10-year) and longer maturity (20-year) TIP issues. In 2009, 20-year TIPs were replaced by 30-year maturity TIPs.

By 1997, many savers had become disenchanted with low-return U.S. Savings Bonds, and TIPs presented an extra “kicker.” Not only Inflation-Protected Treasury Bonds have a coupon yield, their principle values are also adjusted for reported inflation. The inflation adjustment is made by raising or lowering the principle value of the bond by the rate of inflation for the prior year (again, reported inflation, meaning the inflation rate which the government announces to the public via the Consumer Price Index, or “CPI”).

Investors with inflationary concerns have long held TIPs as a portion of their portfolio bond allocation. While savers can invest in individual TIPs at treasurydirect.gov, most investors prefer the flexibility of TIP mutual funds and ETFs. Van Wie Financial prefers to use ETFs for their flexibility and low operating costs.

Risk in investments involves variability of returns, and TIPs are no different. Both their underlying coupon interest rates and their inflation adjustment vary over time. Obviously, total investment returns from TIPs change with time and conditions, and some time periods are more profitable than others. Considering when to own, and when to sell, TIPs, is a decision based primarily on expectations regarding inflation and interest rates.

For years we have complained about inflation under-reporting by the government. That will likely never change, as the government has too much at stake. Cost-of-Living Adjustments (“COLAs”) are paid to employees, Social Security recipients, members of the military, etc., and are based on increases in CPI. Large inflationary increases mean increased government expenditures, requiring increased Federal deficits and National Debt.

The 52-week price range for the iShare TIP is between $107.37 and $123.16, and it closed Thursday at $121.85. With the current inflation report being negative and interest rates being close to zero, we cannot justify buying TIPs right now. According to a concept dubbed the “overnight test,” an advisor considers a simple test when determining when an asset should be bought or sold. The “overnight test” presumes that all portfolio assets were sold yesterday. In the morning, each asset is then subjected to the question, “Would you buy this today?” If the answer is yes, the asset is retained, but if the answer is no, it is a candidate to be sold.

TIP does not pass our “overnight test” right now. We would not be buyers in the current economy. For those holding TIPs in other mutual funds or ETFs, the logic is the same.

Long-term total returns on TIP (the iShare) have averaged 4% over the life of the ETF (2003 – present). Year-to-date, TIP has returned 4.41%, and this is only April. The TIP market price is up about 13% from its low of the past 52 weeks. It is not a stretch to think that realizing gains (by selling shares) would be a commonsense move, especially in tax-deferred Retirement Accounts. For taxable accounts, tax implications would enter into the equation. For our clients, we know their cost basis for those holdings, and can easily evaluate the impact of selling in terms of profit and loss.

In the near term, returns on TIPs are likely to be virtually nonexistent. The reason for this is the inflation adjustment, which can reduce the face value of the bonds. TIP (the iShare) pays a monthly dividend if and when the combination of underlying yield and the inflation adjustment are positive. However, if that total is negative due to inflation, no dividend is paid out until the value of the bond once again becomes positive with upward inflation.

Over the life of the ETF, TIP has occasionally paid a monthly dividend over $1.00/share. There have also been extended periods of time when the monthly dividend has been zero. At least for now, it appears that we are in for a zero (or very low) monthly dividend.

For current clients with TIPs, please consider what we have presented and let us know if you have questions or instructions as to how to handle your transactions. For people who are interested, we continue to meet with potential clients, although not yet face-to-face. Phone meetings can be scheduled on our website strivuswealth.com. Let’s stay safe out there, but let’s also keep communicating.

Last week we introduced basic financial planning topics presented by the 2020 Families First Coronavirus Response Act, or the “Cares” for short. Cares will impact most Americans to some degree, and today we are focusing on investors. Primary Cares provisions include suspension of Required Minimum Distributions, or RMDs, for the calendar year 2020.

About 80% of Americans with Retirement Accounts withdraw more than their RMD requirement every year for living expenses. This Blog is written especially for the other 20%, but everyone can learn from these concepts and suggestions.

Under the current U.S. Tax Code, taxpayers in the lowest two income tax brackets pay zero tax on Capital Gains and Qualified Dividends. For 2020, that applies to taxpayers reporting Taxable Income under $80,250 (married filing jointly). For these people, the marginal tax rate is only 12%, meaning that every extra dollar they earn (up to that limit) is taxed at a very low 12%.

Many taxpayers exceed the 12% income tax bracket only because of their requirement to take their annual RMDs, which are included in Taxable Income. In 2020, any of these people can simply curtail or limit the amount taken from Retirement Accounts, and some will fall back into the 12% bracket. That is “slam-dunk” short-term Income Planning.

Longer-term financial planning is more complex, and other opportunities exist due to Cares. This is especially true due to recent stock market stress, which has caused many asset values to fall sharply. Beaten-down assets in Traditional IRAs and 401(k)s can be converted directly to Roth Account assets, simply by paying ordinary income tax on the amount converted.

Note that RMD withdrawals cannot be converted to Roth IRA deposits. Also, Roth contributions can only be made from earned income, and are subject to upper income limits. Neither applies to Roth conversions, which are always allowable. Conversions may be in cash or in kind, meaning actual stocks, bonds, mutual fund shares, and ETF shares.

Benefits of carefully planned Roth Conversions are numerous, including:

  • If the assets to be converted are highly depreciated, the (taxable) value of the conversion is only the current market value, regardless of original purchase price. 
  • If the taxpayer is in a low tax bracket, which is especially likely this year in the absence of a 2020 RMD, the effective tax rate is historically low.
  • Future market appreciation and dividends while in the Roth remain forever tax-free.
  • Whatever funds are eventually withdrawn from the Roth Account will not be taxed.
  • No RMDs will be required from the Roth Account (including the conversion amount )during the life of the Account Owner, reducing lifetime tax liability.

 An old saying goes, “Opportunity only knocks once.” While we don’t necessarily agree with the singularity of the event, we think we are hearing noise at the front door.

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

Technically called the Families First Coronavirus Response Act, the shorter acronym for the Bill that was signed into law on Friday, March 27, 2020, is the Cares Act. Cares will impact most Americans to some degree, but what it will mean to you depends on your individual circumstances. For some, it will mean being able to pay the mortgage or rent next month. For others, enhanced unemployment benefits are important.

For investors, Cares opens a window for Financial Planning opportunities not before seen in our lifetimes. Perhaps the item that will affect investors most is a one-year hiatus on Required Minimum Distributions, or RMDs. The entire RMD obligation for most Retirement Plans and IRAs has been waived for 2020. While final details have yet to be ironed out, here is a look at what it could mean.

People born in 1950 or later already received a delay on their RMDs from the Secure Act in 2019, which raised the RMD effective age from 70-1/2 to 72. Now, people born before 1950 have a similar, but one-time opportunity.

Many people withdraw more than their annual RMD, as they need the money to live. These people will not be affected by Cares provisions. However, many others withdraw RMDs from Retirement Accounts only because they would otherwise be penalized. These folks have been presented a one-time financial planning opportunity in 2020.

However, before anyone assumes that proper planning is as simple as skipping their 2020 RMD, an individual analysis may prove more complex. Income Planning in the absence of RMDs allows taxpayers to take advantage of today’s relatively low tax rates, including the potential of a zero tax rate on Capital Gains and Qualified Dividends.

Under the current Tax Code, taxpayers in the lowest two brackets pay no tax on Capital Gains and Qualified Dividends. For 2020, that applies to taxpayers reporting Taxable Income under $80,250 (married filing jointly). This amount includes earnings from employment, taxable Social Security benefits, pensions, and it also includes interest income, dividends, and Capital Gains.

For people who do not need their RMDs, in whole or in part, and may have multiple sources of potential cash flow, planning how much to receive from what source can make a vast difference. Reporting taxable Social Security income is a must, as is pension income. Retirement Account withdrawals are, for this year, optional.

By carefully planning income sources, one might reduce his or her 2020 Taxable Income under the break point, rendering Capital Gains and Qualified Dividends untaxable this year. This may be assisted by cutting back or eliminating RMDs from taxable accounts. If more income is needed, Roth withdrawals could substitute for one year. Brokerage accounts may substitute for other income sources.

People who have already been drawing RMDs in early 2020 are able to repay all or some of those funds, erasing the taxability. This is done by classifying repayments as 60-day Rollovers. As the name implies, only funds withdrawn with the past 60 days are eligible. Further, no other 60-day Rollovers will be allowed for an entire year after repayment of the funds.

Taxes are generally withheld from RMDs, usually at 20% of the RMD value. IRS will not give you that money back in the current year, though it will be credited to your next tax return, the same as all your other withholding. You may reimburse (from other funds) your Retirement Account for the taxes withheld.

Investors with assets in multiple forms should pay particular attention to the year 2020, while they have an opportunity that is unlikely to happen again. If you have reason to believe that Income Planning could serve your needs, we can help.Van Wie Financial is fee-only. For a reason.

The word dilemma has 3 meanings, according to Dictionary.com. One is “a situation requiring a choice between equally undesirable alternatives.” This definition is perfect for what is happening today across the fruited plain. Option 1 is to risk further spreading the COVID-19 Virus (coronavirus), and equally distasteful is Option 2, curtailing of individual liberties.

Ronald Reagan famously quipped that the most dangerous words in the English language were, “I’m from the government, and I’m here to help.” Unfortunately, the recent coronavirus scare has elicited a giant wave of government actions, at all levels of governance.

Understanding and accepting that coronavirus is dangerous, we are adamantly opposed to the degree of power usurpation being exercised by some state governors, including those in California (a Democrat) and Ohio (a Republican). There are several others. Ordering arbitrary and blanket closings of schools may be acceptable due to public health risks, but blanket shutdown of restaurants, bars, beaches, and other socially-oriented establishments appears to cross the line.

As Americans, we are guaranteed certain freedoms by our Constitution including the incorporated Bill of Rights. Among those rights are life, liberty, and the pursuit of happiness. These encompass our right to patronize public establishments that we enjoy. Usurping those freedoms cannot be taken lightly, as once governments assume new and dangerous powers, if left unopposed, those governments will utilize their newfound powers again and again. Each exercise of ill-gotten powers will require less justification, all in the name of “keeping us safe,” and doing it “for the children.”

As freedoms are being eroded, while our federal government creates massive “bailout” plans, we should be reminded that governments can print money, but they can’t print wealth. People, individually and in groups, create wealth. When governmental printing presses replace individual efforts, the country suffers irreplaceable long-term losses.

Yet, reasonably expected economic losses for Americans are so large that only government is large enough to provide needed liquidity immediately.

Reagan also warned that “Freedom is never more than one generation away from extinction.” Evidence of freedom’s erosion is everywhere; from rising popularity of socialism, to most of the “politically correct” movement. College campuses now have “free speech zones” for those who have differing opinions, as well as “safe speech zones,” where students are not required to hear ideas with which they disagree. Guess which zones are larger? The trend is both impractical and dangerous.

America needs a prescription for our ailment. Suggestions abound, but solutions are highly subjective. Individual freedom vs. pandemic truly poses a dilemma. Government actions being taken today will be judged in history as to their effects on the coronavirus, but also on individual freedom.

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

In study after study, over many decades, Americans have been shown to fear two things more than they fear death itself; public speaking, and running out of money. Most people suffer from one or the other, we suspect, and many are likely afflicted by both.

Van Wie Financial is not prepared to train people to speak confidently in front of crowds. We are equipped, however, to assist people with preparing comprehensive financial plans that have at their core the goal of financial independence. Integral to that is the exercise of Estate Planning.

Assets left behind at death comprise estates, and preparing for the disposition of estate assets is called Estate Planning. There is no estate too small for Estate Planning. Everyone has some combination of family, friends, real estate, financial assets, and digital presence. We should all care what will happen to our “stuff” when we are gone, regardless of how long we live. In actuality, Estate Planning should begin when people are young.

Most people know about the basic Will, which is technically called a Last Will and Testament. This fundamental document directs the disposition of assets, generally through a judicial process called Probate. The purpose of Probate is to determine subsequent ownership of your remaining assets, and to effect the disposition of those assets. A Living Revocable Trust (“LRT”) is a slightly more complicated form of asset distribution. Essentially, it works like a complex Will, but avoids the lengthy and costly Probate process. Further, it is a private, rather than a public, process. Making a Will should be a priority for newly-married people, and especially as they start families.

60% of Americans are intestate, meaning that they have neither a Will nor a Living Revocable Trust. When intestate people pass on, the governments of their states of residence determine final distribution of remaining assets. To us, this possibility is far more distasteful than actually discussing mortality and planning asset distribution. Would you be comfortable leaving your minor children’s care to the whim of a court if you pass away before they reach the age of majority in your state?

Proper preparation for life’s contingencies requires certain other documents to be legally prepared and executed. Privacy laws dictate that we put our wishes in writing as to our health care, incapacitation, and anything else that may impair our ability to act independently and rationally as we age. We all need to choose other people to assist us if we become incapable of doing everything alone.

While planning and implementing investments is flashier and more exciting than discussing mortality and asset distribution, the other aspects of Comprehensive Personal Financial Planning (insurance, taxes, etc.) are also vital to a financially successful life. We can help by working with you and your other chosen professionals to guide the comprehensive process.

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

Last year at about this time, we wrote a blog stating that it was a near-perfect time to buy a home. Looking back, we were spot on at the time. The last thing we expected was that one year later, even better conditions would be prevalent. “Better” is a tough thing to prove, but conditions are at least as favorable for home-buyers now, and buyers should pay attention. We have included some of last year’s highlights, with our updated comments supporting the premise. From 2019, here’s what we said:

“As young people, Baby Boomers often opined that if we could ever just lock in our parents’ mortgage rates, life would be grand. After all, our Moms and Dads only paid around 5% for fixed 30-year mortgages. A few decades ago, Baby Boomers were being charged up to and including 18% for mortgages. We all “knew” that we would never be so fortunate as to see those old 5% rates.”

By last March (2019), our old assumptions had been proven incorrect, because mortgage rates had actually dropped well below 5%. Today, a comprehensive look at the housing market elicits an unexpected conclusion; now could be an even better “buyer’s market.” There are, however, some limitations.

The national inventory of homes for sale is currently tight. Price appreciation generally results from scarcity, so conditions are likely to change relatively soon. Current conditions are providing an opening for anyone thinking of selling and/or buying a new or used home at a reasonable price, and with excellent financing terms. It is a “Goldilocks” market for both buyers and sellers. Not too hot, and not too cold; it is “just right.”

Anyone contemplating a home purchase, or a home sale and purchase, should act quickly. Market conditions are virtually unprecedented in our lifetimes. No reasonable person would expect this situation to be anything other than short-lived. In our opinion, conditions today present a unique opportunity for those who have been contemplating real estate transactions.

Van Wie Financial is not a licensed real estate brokerage, and our expectations are based solely on experience, coupled with knowledge of financial markets and interest rates. Consult a real estate professional if you are contemplating a change in your housing situation.

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

I put together this graph of active known coronavirus cases worldwide since 1/20/2020 using the data from this Johns Hopkins website:

https://www.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6

I am not a doctor, an expert in infectious disease, or a scientist, just a data nerd. I had not seen the data presented this way yet and thought it was interesting. This data is as of 8:00 AM on 2/28/2020.

When market conditions become unusually disrupted, it warrants a communication with our clients and friends, we broadcast an email summing up what we have discussed and analyzed. This week those conditions became apparent on Monday morning, and today we’ll share what was sent:

We won’t try to sugar coat this morning’s market futures – they are ugly. It appears that the general market perception regarding coronavirus is that world governments (particularly China) are neither handing the problem well, nor are they telling us the whole truth. Only in due time will we know.

Our concentration is always on the outlook for the business environment and corporate profits, which have been doing very well. How much impact will ultimately be felt on Q1, 2020 profits is unknown. Some companies, such as Apple, have warned about their supply chains being interrupted, which will dent their operating results for the near term.

With a product-oriented company, the result will mostly be felt in delayed sales, rather than lost sales. Some service businesses, in particular, restaurants and bars with large international sales, will incur actual lost sales. Bottom line – there will be some impact on profits.

Looking at the positive side, Americans have been finding out (the hard way) that diversification in supply chains is as important as diversification in portfolios. Whether computer parts, generic medicines, or auto parts, one delay in the wrong country can interrupt an entire process. For decades now, components have been outsourced to the lowest cost suppliers around the world. This process was often supported by trade deals that heavily favored developing countries.

Changes had already begun when the coronavirus was announced. Production is being spread around, including bringing a large segment back onshore. Ultimately, the big winners will be us. Add to that process our domestic production of oil and gas, which has rendered the U.S. the largest producer in the world. We are finally energy independent, something I remember being promised back in the 1070s.

What will happen in the equity market today is anyone’s guess. Likewise, how long it takes for the market to attain another new high is unknown. In the interim, we look at the fundamentals, and we see strength. As upsetting as it is to see that about 80,000 people worldwide have been diagnosed with coronavirus, and over 2,000 have died, we also look at the flu, which affects about 120,000 Americans annually, killing about 10,000.

Our suggestion is to ride this out, even if a market correction occurs. After all, a correction is about a 10% drop in equities, and we have gains over the past 14 months far in excess of that number. Also, our portfolios have components of bonds, cash, and alternatives, which will not fall like the equities. Market volatility has been at an all-time low, spoiling all of us along the way. A return to regular, normal volatility will not necessarily feel good, but it will ultimately do good.

Should anyone feel that they will lose too much sleep, please call us to discuss. Otherwise, enjoy a good book and avoid the fearmongers. We appreciate your business and look forward to seeing each of you in the near future.

Adam and Steve

Did you know that a Hard Fork occurs when one group within a network changes the rules, while another group in the network stays with the old rules. The two groups are then no longer compatible. An Airdrop, on the other hand, occurs when distributions are made to one or more individuals in a network. Both are fully taxable events. Got it?

“What in the world is he talking about?” you could reasonably ask. The simple answer is virtual currencies (a/k/a: “crypto-currencies”). Most of us know about Bitcoin, but there are in excess of 1,900 cryptocurrencies in the world today. There are also several cryptocurrency billionaires, and they are now all subject to scrutiny by various taxing authorities. Crypto transactions are often intentionally “off-the-books,” and are rarely reported to taxing authorities. Those authorities understand that fact, and they are not letting it go unnoticed.

Over the years, many of you have heard us explain that Van Wie Financial does not invest money, whether our own or that of our clients, in any vehicle that we cannot explain to a 12-year old in 5 minutes. From the start, we were suspicious of the very cryptocurrency concept, and our intuition cautioned us that IRS was going to get very interested in what was going on in the crypto world. Our feeling has long been that taxes were being conspicuously avoided through crypto transaction secrecy, and that IRS would eventually begin a deep dive into crypto-currency tax evasion. It has begun.

As financial advisors, we would never even consider crypto as a suitable investment. A client or potential client who wants to dabble in crypto will have to do so on their own. We have no expectation that this situation will change any time soon.

If you can explain the difference between a Hard Fork and an Airdrop, and if you believe that you can make money from cryptocurrency, approach it cautiously. But if you believe that crypto transactions will benefit your tax situation, whether federal, state, local, or international, please take our advice — divulge every transaction that you make to your tax preparer.

For anyone who is on the fence regarding crypto “investments,” we have a suggestion. Find a 12-year old and attempt to explain cryptocurrency to him or her. If they look at you with a blank stare, concentrate on more traditional investments. Meanwhile, until you can distinguish between a Hard Fork and an Airdrop, we suggest that you avoid the cryptocurrency temptation.

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