Quote of the Week
“The four most dangerous words in investing are: ‘this time it’s different.” – Sir John Templeton
The markets are selling off big time today (Monday) which is being blamed on the spread of the coronavirus or the new name for the virus, COVID-19 virus. It is clear that the virus is causing massive disruptions in supply chains with factories closed in China, and the virus spreading to Korea. East Asian stock markets are crashing with Korea leading the way.
The U.S. 10yr Treasury yield is collapsing towards levels not seen since the third quarter of last year. The 30yr Treasury yield set a historical low-level last week and is down substantially today. This is good for us because of our position in long term Treasuries. Remember, bond prices go up when yields go down.
I think this market drop needs to be put into perspective. Maybe the virus is just the trigger for a U.S. stock market that is greatly overvalued based on the fact that the economy is still slowing and manufacturing is crashing. What can’t go on forever, won’t.
So, don’t panic. In fact, we are positioned perfectly to take advantage of the economy slowing and bond yields falling. With a combination of the virus and a slowing of U.S. and global economies, I don’t see this trend stopping for the next few months. If the trend changes, we will change with it.
As most of you know, we have been using Hedgeye as our investment advisory firm since July of last year. We are very pleased with their advice and we are positioned accordingly. Darius Dale, a chief strategist with Hedgeye was recently interviewed on CNN. Take five minutes to give a listen to Darius. He does a good job of summarizing the current economic conditions.
There’s Still Time to Contribute to an IRA for 2019
Even though tax filing season is well under way, there’s still time to make a regular IRA contribution for 2019. You have until your tax return due date (not including extensions) to contribute up to $6,000 for 2019 ($7,000 if you were age 50 or older on December 31, 2019). For most taxpayers, the contribution deadline for 2019 is April 15, 2020.
You can contribute to a traditional IRA, a Roth IRA, or both, as long as your total contributions don’t exceed the annual limit (or, if less, 100% of your earned income). You may also be able to contribute to an IRA for your spouse for 2019, even if your spouse didn’t have any 2019 income.
You can contribute to a traditional IRA for 2019 if you had taxable compensation and you were not age 70½ by December 31, 2019. However, if you or your spouse was covered by an employer-sponsored retirement plan in 2019, then your ability to deduct your contributions may be limited or eliminated, depending on your filing status and modified adjusted gross income (MAGI). (See table below.) Even if you can’t make a deductible contribution to a traditional IRA, you can always make a nondeductible (after-tax) contribution, regardless of your income level. However, if you’re eligible to contribute to a Roth IRA, in most cases you’ll be better off making nondeductible contributions to a Roth, rather than making them to a traditional IRA.
|2019 income phaseout ranges for determining deductibility of traditional IRA contributions:|
|1. Covered by an employer-sponsored plan and filing as:||Your IRA deduction is reduced if your MAGI is:||Your IRA deduction is eliminated if your MAGI is:|
|Single/Head of household||$64,000 to $74,000||$74,000 or more|
|Married filing jointly||$103,000 to $123,000||$123,000 or more|
|Married filing separately||$0 to $10,000||$10,000 or more|
|2. Not covered by an employer-sponsored retirement plan, but filing joint return with a spouse who is covered by a plan||$193,000 to $203,000||$203,000 or more|
You can contribute to a Roth IRA even after reaching 70½ if your MAGI is within certain limits. For 2019, if you file your federal tax return as single or head of household, you can make a full Roth contribution if your income is $122,000 or less. Your maximum contribution is phased out if your income is between $122,000 and $137,000, and you can’t contribute at all if your income is $137,000 or more. Similarly, if you’re married and file a joint federal tax return, you can make a full Roth contribution if your income is $193,000 or less. Your contribution is phased out if your income is between $193,000 and $203,000, and you can’t contribute at all if your income is $203,000 or more. And if you’re married filing separately, your contribution phases out with any income over $0, and you can’t contribute at all if your income is $10,000 or more.
|2019 income phaseout ranges for determining eligibility to contribute to a Roth IRA:||Your ability to contribute to a Roth IRA is reduced if your MAGI is:||Your ability to contribute to a Roth IRA is eliminated if your MAGI is:|
|Single/Head of household||$122,000 to $137,000||$137,000 or more|
|Married filing jointly||$193,000 to $203,000||$203,000 or more|
|Married filing separately||$0 to $10,000||$10,000 or more|
Even if you can’t make an annual contribution to a Roth IRA because of the income limits, there’s an easy workaround. If you haven’t yet reached age 70½, you can make a nondeductible contribution to a traditional IRA and then immediately convert that traditional IRA to a Roth IRA. Keep in mind, however, that you’ll need to aggregate all traditional IRAs and SEP/SIMPLE IRAs you own — other than IRAs you’ve inherited — when you calculate the taxable portion of your conversion. (This is sometimes called a “back-door” Roth IRA.)
If you make a contribution — no matter how small — to a Roth IRA for 2019 by your tax return due date and it is your first Roth IRA contribution, your five-year holding period for identifying qualified distributions from all your Roth IRAs (other than inherited accounts) will start on January 1, 2019.
Finally, note that 2019 is the last tax year for which the age 70½ restriction on traditional IRA contributions applies. Due to passage of the SECURE Act in late 2019, beginning with the 2020 tax year, investors over the age of 70½ will be able to contribute to a traditional IRA provided they have compensation equal to at least the amount of the contribution (spousal IRA rules will remain in effect).
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