Monthly Archives

December 2019

Dec 20
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The Rules Are Changing For 401(k)s In 2020

By | Financial Literacy, Retirement

The Rules Are Changing For Your 401(k) In 2020

If you’re still working and contributing to a 401(k) or similar workplace retirement plan, there is some good news for the upcoming year.

If you’re under age 50, the amount you can contribute to your 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is now $19,500 for 2020—a $500 increase over 2019. Additionally, for those who are age 50 or over by December 31, 2020, the catch-up amount is now $6,500, up by $500 (and the first increase since 2015).

Keep in mind that you can still put away an additional $6,000 in an IRA—$7,000 for those age 50 or older. As always, these contributions can be made up until tax day, April 15, for the previous year’s taxes. That plus the new limits mean that an employee who is 50+ can sock away a total of $33,000 in tax-advantaged retirement accounts for 2020.

For Business Owners

For self-employed small business owners, the amount that can be saved in a SEP IRA or a solo 401(k) goes up from $56,000 to $57,000 in 2020, if all requirements are met. The limit on SIMPLE retirement accounts goes up from $13,000 to $13,500 in 2020 (plus $3,000 if you’re 50+). For defined benefit plans—similar to pensions of the past, but now used by high-earning self-employed individuals—the limit on the annual benefit goes up from $225,000 in 2019 to $230,000 in 2020.

Hardship Withdrawal Rule Changes

Even though making hardship withdrawals from 401(k) and 403(b) retirement plans will be easier for plan participants in 2020, for most employees, withdrawals should be a last-ditch option if you’re facing financial hardship. This is true especially if you’re under age 59-1/2, when you have to pay taxes plus a 10% tax penalty on the amount withdrawn.

However, it will be easier to start to saving again following a hardship withdrawal. Prior to 2020, employees who took a hardship withdrawal were barred from making new contributions to their plans for six months. Starting January 1st, this is no longer the case.

Also in 2020, employees can withdraw earnings, profit-sharing and stock bonuses rather than just their contribution amounts for 401(k) hardship withdrawals. (NOTE: 403(b) plan participants are still limited to just their contributions.)

Starting in 2020, your employer gets to decide whether you have to take a plan loan first—requiring payback with interest—before taking a hardship withdrawal; it’s no longer mandated by the government, it’s optional. Remember, taking a loan rather than a hardship withdrawal is almost always your best choice to keep your retirement on track.

Hardship Verification and Disaster Relief Rules

Hardship verification standards have been eased; an employer or retirement plan administrator is not required to determine if a hardship withdrawal is necessary by checking cash or assets available—the burden is on the employee to certify that it is.

To take a hardship withdrawal, employees must have an immediate and heavy financial burden or need that includes one or more of the following:

  1. Purchase of a primary residence.
  2. Expenses to repair damage or to make improvements to a primary residence.
  3. Preventing eviction or foreclosure from a primary residence.
  4. Post-secondary education expenses for the upcoming 12 months for participants, spouses and children.
  5. Funeral expenses.
  6. Medical expenses not covered by insurance.

In 2020, a seventh category has been added for expenses resulting from a federally declared disaster in an area designated by FEMA; the agency will no longer need to issue special disaster-relief announcements to permit hardship withdrawals to those affected.

 

If you have any questions about the new rules for 401(k)s and similar retirement savings plans, please call us! Our mission is to help you achieve your personal financial and retirement goals.

Call Bulwark Capital Management at 253.509.0395.

 

 

Sources:
https://www.forbes.com/sites/ashleaebeling/2019/11/06/irs-announces-higher-2020-retirement-plan-contribution-limits-for-401ks-and-more/#662aa23733bb
https://www.shrm.org/resourcesandtools/tools-and-samples/exreq/pages/details.aspx?erid=1312
https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/irs-final-rule-eases-401k-hardship-withdrawals.aspx
Dec 19
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Should Interest Rates Remain Low?

By | Bonds, Interest Rate Risk

Federal Reserve Board Chair Jerome Powell and other Fed officials recently asserted there was “no need to change to rates any time soon.” The minutes of the recent Federal Open Market Committee meeting on November 18 offered some details. Two Fed presidents — albeit hawks — stated their position that rates should remain at the current 1 . 50% to 1 . 75% range.

Federal Reserve Bank of Boston President Eric Rosengren, who dissented on the three recent rate cuts, reiterated his concern about low rates in a Bloomberg interview and ruled out negative rates, even if a recession occurs.

Federal Reserve Bank of Cleveland President Loretta Mester said in a talk the panel can take a wait-and-see approach before deciding its next move.

In testimony before Congress, Powell stated “the current stance of policy is likely to remain appropriate as long as the data supports,” he said. “Powell also indicated that a push to raise rates would likely require ‘serious’ inflation,” which is not expected.

The Bondbuyer.com asked Zach Abraham, in addition to other leading financial experts, what he thought of the Federal Reserve’s recent remarks.

“The Fed is watching the markets,” noted Zach Abraham, Principal/Chief Investment Officer at Bulwark Capital Management. “91% of household wealth is in financial assets and 8% is in real assets. When you consider the fact that the wealthiest and largest generation in our nation’s history is retiring en masse and now relying on said financial assets to replace income, the market is the economy,” he said.

While market pullback late last year was attributed “to decreased consumer spending in the fourth quarter, in reality, consumer spending dipped 8% BECAUSE the market dropped 20% in 2 months.”

Read the entire article here: https://www.bondbuyer.com/news/fomc-where-it-needs-to-be-for-a-treacherous-political-year

ABOUT THE PUBLICATION

The bondbuyer.com is designed for municipal finance professionals, bond issuers, government officials, investors and other decision makers in the municipal bond industry; the website receives nearly 59,000 unique visitors per month. It provides breaking news, analysis and data regarding all areas of municipal finance. The site features news on the national as well as regional levels, and it contains market statistics, graphs, charts, photos and weekly indices.

Dec 19
0

Did the Fed and the White House Come to a Meeting of the Minds?

By | Bonds, Investments, Stock Market

On November 18, President Donald Trump invited Federal Reserve Board Chair Jerome Powell to meet at the White House with him and Treasury Secretary Steve Mnuchin. Afterwards Trump tweeted, “Just finished a very good & cordial meeting at the White House with Jay Powell of the Federal Reserve. Everything was discussed including interest rates, negative interest, low inflation, easing, Dollar strength & its effect on manufacturing, trade with China, E.U. & others, etc.”

While the Fed released a statement saying that the meeting covered “the economy, growth, employment and inflation,” the Fed said Powell’s remarks “were consistent” with those he made at last week’s congressional hearings. “[Powell] did not discuss his expectations for monetary policy, except to stress that the path of policy will depend entirely on incoming information that bears on the outlook for the economy.” Powell told the president that monetary policy decisions will be “based solely on careful, objective and non-political analysis,” the statement said.

Zach Abraham, principal/CIO at Bulwark Capital Management, told reporters at the Bondbuyer.com that, “This is simply a case of Trump throwing everything at the Fed but the kitchen sink. If we really want to keep China in check, the Fed and the White House must be on the same page. Beijing and the PBOC have strategically exploited Fed Independence and the inherent lag between monetary policy and economic reality on the ground.

“I’d assume Trump is merely trying to close this gap and make nice with Powell as he’s realized the need to be on the same page. I just don’t think the White House has realized that lower U.S. rates and a lower dollar are precisely what Beijing wants,” said Abraham.

Read the entire article here: https://www.bondbuyer.com/news/whats-behind-trump-powell-meeting

ABOUT THE PUBLICATION

The bondbuyer.com is designed for municipal finance professionals, bond issuers, government officials, investors and other decision makers in the municipal bond industry; the website receives nearly 59,000 unique visitors per month. It provides breaking news, analysis and data regarding all areas of municipal finance. The site features news on the national as well as regional levels, and it contains market statistics, graphs, charts, photos and weekly indices.

Dec 19
0

How Will Lower Interest Rates Affect the Bond Market?

By | Bonds, Investments, Stock Market

On October 31, along with other financial industry experts,  Zach Abraham, Principal and Chief Investment Officer for Bulwark Capital Management was asked to weigh in regarding the Federal Reserve’s recent lowering of interest rates.

At that time, Federal Reserve Board Chair Jerome Powell had just made it clear the Fed expected to keep rates at a range of 1.50% to 1.75% unless events resulted in a “material reassessment” of the Fed’s outlook.

“While the rate cut certainly means that yields on treasuries are headed lower, it may not be so for the rest of the bond market,” said Zach Abraham, principal/CIO at Bulwark Capital Management.

“At some point in this cycle we will see spreads blow out. It’s inevitable, as it occurs in every cycle. Flight to safety puts a bid under treasuries while corporates are shunned as weakening economic fundamentals raise risks, or at least perceived risks, of corporate defaults.”

He called Powell’s claim that the Fed is on pause “a bit humorous.” The Fed trimmed the rate target by 75 basis points in the past three meetings and “launched a $100 billion standing repo facility (just quantitative easing by another name). It’s time we all face the facts. The Fed has a tiger by the tail and has no clue how to let go,” Abraham said. “Investors, as well as the market, are beginning to figure this out. Barring some exogenous/inflationary shock, we’re headed back to the zero bound.”

Read the entire article here: https://www.bondbuyer.com/news/how-feds-pause-will-impact-bond-market

ABOUT THE PUBLICATION

The bondbuyer.com is designed for municipal finance professionals, bond issuers, government officials, investors and other decision makers in the municipal bond industry; the website receives nearly 59,000 unique visitors per month. It provides breaking news, analysis and data regarding all areas of municipal finance. The site features news on the national as well as regional levels, and it contains market statistics, graphs, charts, photos and weekly indices.