The “SECURE ACT 2.0” was signed into law on December 29, 2022. It follows the SECURE Act of 2019 and is the second major legislation impacting qualified retirement plans since 2006. It consolidates three bills voted on over the course of the last year (Securing a Strong Retirement Act of 2022, Enhancing American Retirement Now Act, Retirement Improvement and Savings Enhancement to Supplement Healthy Investment of the Next Egg).

The legislation was designed to encourage businesses, especially small employers, to adopt retirement plans and help to close the gap to large employer plans. It also increases opportunities for individuals to save for emergencies and retirement, and to help individuals preserve their retirement savings.

SECURE 2.0 has a vast array of new provisions (more than 90) designed to help close existing gaps across the retirement system. We are going to focus on the provisions which are of the most interest to our clients, but our team is open to further questions about your specific needs.

Key Provisions of SECURE ACT 2.0

• When to start taking distributions from your IRA (and other qualified accounts). The original SECURE ACT raised it from age 70.5 to age 72, SECURE 2.0 Act increases the age at which individuals must begin taking RMDs (Required Minimum Distributions) from their retirement account from 72 to 73, starting on Jan. 1, 2023. The SECURE 2.0 Act will also eventually increase the RMD age to 75, beginning on Jan. 1, 2033.
• If you forget to take your RMD on time. The penalty is lowered to 25% (from 50%) and can be reduced to 10% if the IRA owner makes up the RMD in a timely manner. The law says this means the full amount is distributed by the earlier of the second year after the RMD was missed or before the IRS assesses a penalty. The IRS still can waive the lower penalty when a reasonable excuse is offered, but it’s not clear if the IRS will be as lenient now that the penalty is lower than 50%.
• Unused 529 college savings. Owners of 529 plans will be allowed to roll over funds to a Roth IRA of the beneficiary (beginning in 2024). There is a maximum $ 35,000-lifetime limit per beneficiary. It should be noted that the 529 plan will be subject to Roth IRA contribution limits, and in order to be eligible for the rollover, 529 plan account holders need to make sure their account is at least 15 years old and the Roth owner has includible compensation at least equal to the rollover. College is a major expense for all families, and expanding the use of 529 plans to allow for conversions to a Roth IRA down the road is a big positive. No need to worry about losing money not spent on education expenses.

• Larger IRA Contributions. Improvements to “Catch-Up” contributions reflect the reality that more people are working later and fewer have access to pensions. Secure Act 2.0 introduces a new category of catch-up contributions for 401K and employer-sponsored plans. Starting in 2025, there will be a new catch-up contribution limit for these plans: the greater of $10,000 or 150% of the standard catch-up contribution limit. For individuals not covered by these plans, the catch-up addition is $1,000 for individuals at least 50 years old. The standard catch-up limit for IRAs has been a fixed amount, but on Jan. 1, 2024, it will be indexed for inflation for Traditional and ROTH IRA contributions.
• Long-Term Care premiums before age 59 ½. The Secure Act 2.0 will let a client use up to $2,500 in individual retirement account or 401(k) plan account assets per year to pay for stand-alone long-term care insurance. A client can also use the distributions to pay for life insurance policies or annuity contracts that provide what the law classifies as high-quality sources of long-term care benefits. A client who uses the provision will have to include the distributions in taxable income but will not have to pay the extra 10% tax on early retirement asset withdrawals. For those in flood, or weather-damaged areas – Provisions for penalty-free early distributions of up to $22,000 for IRA owners who live in a “federally declared disaster area”, and they may repay the distribution within 3 years to avoid taxation.
• Provision for Terminal Illness. There are now penalty-free early distributions for IRA owners with a doctor’s certification of a terminal illness.

Much of the rest of SECURE 2.0 is focused on employer-sponsored retirement plans, including provisions that permit employers to add Emergency Savings accounts to their plans for participants to save up to $2,500 in after-tax ROTH contributions for emergency withdrawals. New plans must include automatic enrollment with initial contribution rates of at least 3% but not more than 10%. Starter 401k plans are encouraged for employers not currently offering a retirement plan with some coverage for the expense of setting up the plans.

Please contact us if you’d like to discuss a plan for you:

Yes Wealth Management:

651-426-5854.

In recent months, we in the financial industry have been increasingly impacted by a set of changing financial conditions and how these changing conditions have impacted our financial investors.  Inflation has raised its ugly head and while it seems to be peaking it still remains at a level not seen since the early 1980’s. Investors looking for the stock market as a solid place ‘to park’ their money, have come back to find their ‘stock market car’ without any wheels, missing a spare tire, and out of windshield washing liquid. At the same time, the ‘diversifying’ bond market also lost value as interest rates rose to reflect increasing price levels. 

In the past when faced with economic or financial conditions not of my liking, I often tried to look to historical conditions with a similar story and with a historically based solution or at least to find a villain (e.g., Banks and the Crash of 2007) to blame. Unfortunately, a simple review of past financial conditions or villains as a basis for current solutions is often inadequate. When I raise these issues, my brother and co-partner often raises his head from the table and correctly corrects me with a: “So now what are you going to do? I don’t need your problem (e.g., declining stock market, rising interest rates, …) I need your solutions”. He reminds me that being ‘Mugged by Reality’ is not an excuse for denying its existence and not moving forward. Today, we live in a global financial market and unlike in the past, what happens in Europe, Asia or Ukraine has an immediate impact on our markets. Today, new forms of ‘financial instruments such as Futures, ETFs, and Options impact today’s financial products, and reliance on individual stocks or mutual funds are often insufficient and inadequate.  

 I often hear my financial investment sisters and brothers tell me to rely on the principles of ‘Modern Portfolio Theory’.  I point out that Modern Portfolio Theory was initiated in 1952 by Harry Markowitz and is no longer Modern and was centered on individual stocks and bonds. Today we cannot simply give an excuse that we were ‘Mugged by (the new) Reality’ and that our reliance on past solutions proved inadequate. We have to remind our investors that while we know we may not have perfect solutions, we do realize that we live in a ‘World of Post-Modern Financial Theory’ in which simple historical data may be meaningless, and what we should understand are new financial ideas and how we can expect them to work in the new financial world.  This is why we at Yes Wealth bring to our clients, solutions that address new ways of providing returns that also manage risk in today’s reality.

In short, financial reality bites especially when it may be in one’s own rear end, but this may also be a good time to get up and to get off it, and move forward into the new financial world of global equity, fixed income, options, futures, private markets, alternative investments, etc. I look forward to meeting you in this new ‘financial’ world’.

Please contact us if you’d like to discuss a plan for you:

Yes Wealth Management:

651-426-5854.

The average American now changes jobs every 4.2 years, yet many are not just leaving their jobs behind, but are also leaving their 401K with their previous employer. While leaving your funds put may be the simplest solution at the time, it can be detrimental to your retirement picture. 401k plans, especially ones that offer a match, can be a useful tool to save for retirement, however, they are not perfect vehicles.  Not only do 401k plans often carry various fees not always understood by the investor, but due to compliance issues the investment offerings within 401ks leave much to be desired.  Most 401K companies have a “less is more” attitude, severely limiting your investment options, making it difficult if not impossible to invest in your best interest.  For their own protection, they often subtly push investors to select Target Retirement Funds, a much simpler option for investors and one which gives the Benefits companies legal cover. The problem is that simplicity may or may not work to the long-term benefit of the investor. These issues are why it is important that when you leave a company, you leave your 401k plan as well. So, if you shouldn’t leave your 401k plan where it is, what should you do with it? When you leave a company, you have 4 options for your 401k funds, only one of which we recommend in most situations.

• Stay Put: Keep your funds in your 401k (not ideal):  While this is the most convenient in the short term, each year Americans lose track of billions of dollars in old retirement accounts they forgot how to access.  Even if you manage to keep track of your various accounts, your 401k investment options are limited, and no active management of your funds is occurring.
• Roll your funds over to another company’s 401k (not ideal): While this would help with the tracking issue of option #1, in this plan you’re simply moving from one poor investment platform to another as your investment options remain limited.
• Cash out your 401k (not ideal): Cash-out withdrawals are considered income, triggering state & federal taxes, and depending on your age, could trigger a 10% penalty in addition to taxes.
• Roll your 401k into an IRA (ideal): A 401k Rollover to an IRA is considered a non-taxable event, meaning you owe no taxes at that time, and your investments can continue to grow tax-free.  You will have superior investment options in your IRA compared to what you had in your 401K, and you will likely be paying fewer fees.

Bottom line:  Moving your 401k to an IRA when you leave a company brings with it many advantages, however, make sure to do your due diligence to find an advisor or IRA provider who promise low expenses, and if you need it – active management, as this too will be crucial for your long-term success.

Please contact us if you’d like to discuss a plan for you:

Yes Wealth Management:

651-426-5854. 

In a 2012 movie with Clint Eastwood (Trouble with the Curve), an aging baseball scout (Eastwood) with failing sight and years of experience and can hear how the bat sounds when a prospect hits the ball is in conflict with management that is more centered on data, what looks good and will sell with the public.  We have a new “Trouble with the Curve” (the interest rate curve).  So What? – Well, today there is an opinion that inflation is improving and the Fed should halt interest rate hikes now. This opinion feels good as it forwards the view that recovery will come sooner rather than later.  Many economists (and the Federal Reserve) however know that low income and fixed income (retired) families suffer most from inflation and continue to support elevated interest rates that could result in unemployment and recession until we are more certain inflation is under control.  Not being serious enough over inflation in the 1970s is an economic study on this issue and resulted in the Fed raising interest rates nearly 10% in just over 2 years.

The following graph from Gallup shows that public concern over inflation is the highest in 40 years.

Here’s what I think:

• Inflation and elevated interest rates are highly likely to remain the dominant considerations influencing the investment environment for the next several years and the Federal Reserve needs to be resolute in addressing them.
• What’s become clear is that superabundant government stimulus does in fact incur negative consequences, as the inflation of the past few years can attest. We saw an incredible rise in the stock price of companies that made no money. That available “free” money made it difficult, if not impossible, to distinguish investment skill from surfing the tide of superabundant liquidity. 
• It appears what we have now has gone back to recognizing businesses that actually turn a profit rather than just a dream of one.
• Fixed Income and “modern alternatives” can support portfolios with reasonable returns and low risk.

What is different now from the last 40 years? Howard Marks, Co-Chairman of Oaktree Capital Management has remarked “It seems to me that a significant portion of all the money investors made over this period resulted from the tailwind generated by the massive drop in interest rates. I consider it nearly impossible to overstate the influence of declining rates over the last four decades.” – So we recognize that along with inflation and rising interest rates, new approaches to globalization and changes in our energy sources have impacts that require investments that not only look to the future, but also protect your money and give some certainty in an increasingly uncertain world. This has always been our focus and continues to protect the assets we manage.

While most of today’s news seems challenging, with the Russian invasion of Ukraine, Global Warming and a looming recession, we believe opportunities exist. We see new opportunities for fixed income returns, modern alternatives investments that we’ve championed for years and a return to more equally weighted stock selection. Yes, rising interest rates and a need to reduce Federal debt is a new government focus, but adjustments can be made in your investment approach to deal with it.

Please contact us if you’d like to discuss a plan for you:

Yes Wealth Management:

651-426-5854. 

Within the past week, my brother stopped over to my house, to present his new model of hybrid electric/gas automobile. While certainly different from the gas-based vehicle I have in my garage, I realized it was part of the transition of the auto industry to a new means of propulsion. Knowing absolutely nothing about the process by which a hybrid electric/gas vehicle worked, I asked my neighbor (in this case an engineer who works for SpaceX) to describe the advances in automobile propulsion (gas to electric) and the implications for current and future modes of transportation and auto ownership. In our brief discussion I also came to realize not only how little I really understood about how new forms of automobiles worked but how much I currently depend on outside sales personnel and local service personnel in keeping my gas auto version alive. The move to increasingly electric centered vehicles will likely require the help and service of higher-level service stations and personnel and many current local auto services firms may soon be a thing of the past.

It occurred to me how similar the transition from gas to electric automobiles was reflective of today’s investment transition. Today we are moving from a simple stock/bond portfolio (aka today’s auto’s gas engine) to investment technology that, like cars, are more hybrid and rely on advanced artificial intelligence (e.g., ETFs, modern alternative investments). In short, I have come to understand that all of us will have to move to newer investment approaches to propel us into the future and one that is less dependent on the local investment service stations with less advanced personnel. We also should not necessarily focus on ‘large scale investment management firms’ that hope to sell investment products that may fit their own broad strategy but not your world. We at Yes Wealth have been leaders in modern alternative investments for over 20 years and still work with your individual needs. Simply put, we look forward to helping you in the transition from the current world of wealth management to the future one with more hybrid or advanced forms of investment. 

Please contact us if you’d like to discuss a plan for you:

Yes Wealth Management:

651-426-5854. 

From Bitcoin to Zero Interest Rates, from slowing economies to skyrocketing stocks that defy logic, many people today are confused of both how to grow their investments and how to protect themselves from large “corrections.”  Investors often would like to go back to the world they grew up with where they believed that by finding the right stock/bond balance, their money could grow and also be protected.  First, this was never really true, but it is even less true today as bonds fail to provide much return and even some unexpected downside if interest rates rise.  Despite overwhelming evidence that during periods of investment crisis (most significantly like 2008 and 2020), traditional stock/bond diversification fails to deliver true downside risk mitigation, many still stick with the old beliefs. Today, even most investment advisors still fail to consider “modern liquid” alternative investments which provide real risk mitigation in a down equity market and conservative upside potential even when interest rates rise. So, what are modern liquid alternatives? These are strategies that provide upside potential like stocks do or more conservative returns like bonds used to provide, but are designed to limit the large downside risk of equities or the impacts of rising interest rates on fixed income. Traditional alternatives such as private equity, derivatives, fine art and commodities promise to provide significant return in the long run, but are often not liquid and have high investment minimums.  Unlike most traditional alternatives, liquid alternatives include mutual funds or exchange traded funds that can be bought and sold daily and have investment minimums most individuals can handle. Some of these strategies are called Market Neutral, Merger/Arbitrage, Event Driven and Hedged Equity.  Holding a portion of liquid alternatives in your portfolio can help you reach for return, while still allowing you to sleep at night, knowing you have protection on the downside. 

If you would like to know more about these options, or if you’d like to discuss a plan for you, please give us a call. 

Yes Wealth Management:

651-426-5854

By definition, a fiduciary is a person or organization that acts on behalf of another person or persons to manage assets. Essentially, a fiduciary owes to that other entity the duties of good faith and trust. The highest legal duty of one party to another, being a fiduciary requires being bound ethically to act in the other’s best interests.

This term “fiduciary” is a very good thing to hear if you’re searching for a financial advisor. It means the advisor is “legally required” to put your interests first, rather than enhancing their compensation. Fiduciary duty eliminates conflict of interest concerns which makes advice more trustworthy. Not all financial advisors are fiduciaries. All investment advisors registered with the SEC or a State securities regulator (Registered Investment Advisors or RIA) must act as fiduciaries. Broker-dealers, stockbrokers and insurance agents are only required to fulfill a “suitability obligation”. This means that while the advice they give you may be suitable to your situation; they may substitute a higher cost product that pays them more for a similar product that better aligns with your interest at a lower cost. This same conflict exists – albeit in a less visible way – with a group of advisors known as “Hybrid” advisors. These advisors work for large firms that offer both “fee-based” services and brokerage services and manage some of your money on a Fee-based basis but also put some of your money in products where they receive a commission. Fee-only advisors are sometimes seen as operating with less of a structural conflict of interest than brokers or other advisors who earn commission, which can vary from one product to another. However, in that mode, the advisor might have the incentive to engage in excessive trading activity or favor a specific investment that will net the largest commission or fee.

What about automated / on-line or “Robo-Advisors” which advertise as RIAs? They insist that they are fiduciaries. They are registered investment advisors, but are they fiduciaries? They typically only offer advice based on a relatively short risk questionnaire, but rarely get a full financial picture or understanding of goals. An back and forth discussion of goals and attitudes toward risk seems critical to providing fiduciary services and cannot be adequately addressed by checking a few boxes.

Choosing a fiduciary financial advisor can give you greater peace of mind. With a fiduciary financial advisor, you’ll know that the person managing your money is legally obligated to make decisions in your best interest. While non-fiduciary advisors are not necessarily bad actors, it’s easier to ensure that you’re working with someone who has your best interest at heart if you opt to work with a fiduciary.

Please contact us if you’d like to discuss a plan for you:

Yes Wealth Management:

651-426-5854