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August 2023

Donna Cournoyer
In Reading Recommendations

Getting the Message with A New History of Humanity

I like books and tend to accumulate them. Because of time constraints, though, I spend less time reading them than I’d like to. Which means I must be selective and find engaging material, because typically my reading time begins after 10 PM.

From time to time, a book makes it to the top of my nightstand pile serendipitously. For instance, during a cold stretch in winter, I laced up my Bean boots for a snowy walk to my neighbor’s house.

As I unlaced in his entryway, he dropped L.L. Bean: The Making of An American Icon in my lap. Leon Gorman’s book then became immediate, required reading –

much to my delight.

This past week, I was on a Zoom call with clients who needed to boost their computer monitor to get a better look at some details being shared on screen. They retrieved a copy of The Dawn of Everything: A New History of Humanity by David Graeber (anthropologist, deceased) and David Wengrow (archaeologist) to aid in the task.

Holding up the book, they sang praises for the work before slipping it under their monitor.

This book is visually distinctive in two ways: it is a large volume, and its jacket is bright orange with bold red font. I recalled that I had an unread copy sitting on my bookshelf, gifted to me in 2021, which I retrieved and waived in front of my video camera. We both had a laugh.

And I got the message. Graeber’s and Wengrow’s book migrated to the top of my reading list. I dove in that night, delighted once again. Perhaps you’ll join me for this broad-in-scope read that one well-known author has called “an intellectual feast”.

May August bring you serendipity, too, and many joyful turns of the page.

-RK

Donna Cournoyer
In College Planning

Federal Student Loan Repayments Resume

The US Department of Education’s COVID 19 relief for Federal Student Loans is ending soon and roughly 1 in 8 Americans will have to restart their loan payments as soon as October.

Interest resumes on September 1, 2023, and payments will be due starting in October 2023.

If you are a parent of a young adult who graduated during the past three years of the COVID 19 loan repayment pause, these students may have never been required to make a payment on their Federal Student Loans until now.

If you have a Federal Student or Parent Plus Loan, or if you are the parent of a recent college graduate, here are ways to prepare for the loan repayment start up:

This is a good time to check in with young adults and discuss their loans. Don’t assume they are aware of the repayment start and what to do.

Be sure to let them know that they must watch for communications from their servicer for a bill. You can be a resource to help them remain in good standing and on track to pay off their loans on time.

Anyone with outstanding Federal Student loans, which include Federal Direct Stafford Student Loans, Federal Direct Graduate Student Loans, Graduate Plus Loans, and Federal Parent Plus Loans, should prepare for repayment (unless you kept up payments during the pause).

Below are steps you should take in August and September.

By logging in to your FSA (Federal Student Aid) dashboard with your FSA ID and password, you will have access to the information you need.

Here are some specifics:

  • Log on to Federal Student Aid, and update your contact information, including mailing address, email, phone; you can also update your information with you loan servicer using this link
  • Confirm the status of your loans, total amount you owe, and the current servicer (government agency handling your repayment)
  • If you are repaying Student Loans for the first time, here is a step-by-step plan with links to be sure you are set up for your first payment: FSA: Repaying Student Loans for the First Time

Watch for communications regarding your loan: your bill, payment amount, and due date should arrive at least 21 days before your due date.

A smart way to save on interest is if you set up auto-pay so you will save 0.25% on your interest rate.

If you were on an income-based repayment plan, or want to explore more affordable plans information is here: FSA Income-Driven Repayment Plans

Important Note: If you choose an income-driven repayment plan, this will extend your repayment time, and interest and total amount to be repaid.

More information on the repayment start can be found at: Federal Student Aid-Managing Loan Repayment

Here you can find more information on:

 If you have questions about the Federal Student Loan repayment restart, or would like to discuss your situation with regard to paying for college, Donna is available to help.

 

 

 

Donna Cournoyer
In Financial Planning

Heir Drama: Inherited IRA Update

For high drama, summer is high season for moviegoers, thanks to Hollywood blockbuster film releases. Those with Inherited Retirement Accounts have been experiencing heir drama since 2020 thanks to Congress and the IRS – and the spectacle continues.

Congress passed the Secure Act in 2019 which changed many of the long-standing rules governing IRAs and other retirement accounts.

One of the more impactful changes was to the post-death distribution rules for retirement accounts held by “Non-Eligible Designated Beneficiaries” (essentially beneficiaries who are not surviving spouses).

The new rules applied to IRAs whose original owner died after January 1, 2020 did away with favorable tax treatment called the “Stretch IRA” for most Non-Eligible Designated Beneficiaries.

According to the new rules, rather than being able to take IRA distributions based on their own life expectancy, Non-Eligible Designated Beneficiaries were required to empty their inherited accounts within ten years of the death of the original owner.

The drama results from the interpretation of the requirements for timing of the distributions for Non-Eligible Designated Beneficiaries. The wording of the Secure Act was somewhat vague and therefore caused confusion about how heirs needed to take distributions.

Many observers expected that Non-Eligible Designated Beneficiaries would not be required to take annual distributions during this 10-year period as long as the account was fully distributed by the end of the 10th year.

In February 2022, the IRS issued Proposed Regulations that would make a subset of these beneficiaries (those who inherit accounts from decedents who died on or after the date whereby they were required to begin taking distributions) subject to both the 10-Year Rule and annual Required Minimum Distributions (RMDs).

The source of the drama was that these were merely proposed regulations, so beneficiaries remained in limbo regarding whether they would need to take distributions in 2022 (or should have taken them in 2021) to avoid potential tax penalties.

Then in October 2022 the IRS issued a notice waiving any potential penalties for Non-Eligible Designated Beneficiaries for 2021 and 2022 for missing RMDs from their inherited retirement accounts, which effectively eliminated RMDs for those years.

The tax saga continued to play out, because the IRS remained silent about the requirements for 2023 and onward.

Heirs who’ve been enjoying the tax-related theatrics were treated to a new release from the IRS in July 2023. Notice 2023-54 eliminates penalties for Non-Eligible Designated Beneficiaries for failing to take RMDs for 2023 and pushes forward RMDs yet again until at least 2024.

But the drama rolls on, because the IRS has yet to provide information as to when final regulations might be expected that could clarify RMD requirements for future years.

From a tax planning perspective, although Non-Eligible Designated Beneficiaries do not have to take distributions from their inherited accounts, they can still make voluntary distributions.

If you fall into the category of Non-Eligible Designated Beneficiary, you may want to consider the impact to your income tax situation over time by delaying distributions. Holding off could mean future spikes in taxable income, and ultimately paying more in tax over time.

If you have questions, Susan and I can help you look more closely at your tax situation. We can recommend tax-related strategies, including retirement account distribution strategies, with the goal of reducing the amount of tax you’ll pay over the long term.

If you’re an existing client, we encourage you to send us a copy of your 2022 tax return so we can review it and help minimize any potential drama related to your future tax situation.

RK

Donna Cournoyer
In Investment Strategy

Measuring the Market

By any measure, stock market performance has been pleasing so far in 2023. Large company US stocks have gained about 17.5% as of August 10.

Is 2023 performance too good to be true? Should you be making moves in your portfolio, to prepare for the next, inevitable downturn? After all, some prognosticators claim we’re now “due for a correction” (or worse).

Rather than trying to figure out what will happen next week, next month, or next year, I believe it’s more constructive to view financial markets through a longer-term lens.

Consider the past five years of returns: 2022, when stocks fell 18%, was terrible. Which was preceded by three wonderful performance years: 2021, 2020 (despite the pandemic), and 2019 (+29%, +18%, and +31%, respectively). But stocks struggled in 2018, falling by 4.5%.

The five-year look back on large company US stocks (average annual return) as of August 10, was 11.2%. And the very long term? Large company US stocks returned 11.5% per year, on average, over the previous 94 years.

Bonds, as you might expect, have not only failed to keep pace with stocks (as is usually the case) but have experienced a protracted slump after a period of very low yields, followed by a big jump in interest rates.

The 5-year average annual return for US investment-grade bonds as of August 10 was a paltry 0.6%. Longer term, bonds have returned about 5% on average per year since 1928.

While you’re unlikely to get the long-term average annual return over any one specific 12-month period, the odds of receiving a positive outcome by holding a well-diversified portfolio are stacked in your favor.

The chart below depicts annual returns of a portfolio allocated 60% to stocks and 40% to bonds, going back to 1926 (courtesy of Vanguard). Annual returns are slotted into one of seven buckets, ranging from -20% or worse to +30% or better.

The key take-aways from the chart, regarding 60% stock / 40% bond portfolios are:

  • Annual returns have landed most frequently in the +10% to +20% bucket
  • More than half the time annual returns have exceeded 10%
  • It is rare for a balanced portfolio to experience a year like 2022 (black block) and land in the -10% to -20% bucket
  • If you set your expectations for the long-term annual return from a well-diversified portfolio somewhere in the mid-single digits, you’re unlikely to be disappointed
Donna Cournoyer
In Market Updates

July 2023 Market Recap: Stocks Heat Up

Stock market heat stayed high in July. Better-than-expected economic growth, declining inflation, and receding recession fears were supportive of the “new bull” which began last month.

For the month of July, the S&P 500 index of large company US stocks rose by 3.3%. Foreign stocks climbed by 2.7%. Year-to-date as of July 31, US stocks gained 20.6% and foreign stocks were up by 12.6%

However, stronger-than-expected economic growth, along with the possibility of interest rates needing to stay higher for longer to cool inflation, put downward pressure on the bond markets.

The Bloomberg US Aggregate Bond Index fell slightly last month (less than 0.1%). Through the end of July, the bond market return year-to-date was 2.25%.

Below is a summary of July returns.

RK

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