April 1, 2018, Bob Brinker's Moneytalk: Stocks, Bonds, Economy and Investing

April 1, 2018....Bob Brinker was live on  Moneytalk today...(comments welcome)
(Because of family commitments, Honey was not available today.)

FRANKJ'S MONEYTALK SUMMARY

Greetings and Salutations to all MoneyTalk regulars and Honeybee fans this Easter Sunday, April 1, 2018.  Bob Brinker was live today but I had my doubts, initially, because his opening comments didn’t address any current events, and he delayed giving out the toll free number until about 6 minutes into the broadcast. 

(Editorial comments in italics, as usual.)

That said, his initial comments bear repeating, especially if a listener is an investing novice:

·         You get to the Land of Critical Mass by saving and investing – turning your income stream into assets.

·         (In the Land of Critical Mass, you don’t need an alarm clock to wake you up for work).

·         Invest a minimum of 10% of your earnings.

·         Invest in yourself by keeping up in your field and getting a good education.

·         Don’t depend on someone else for your income, and don’t depend on a union.

·         Learn about the power of compounding – the Eighth Wonder of the World.

·         Take advantage of the many tax sheltered savings programs available:  401K, 457 plans, 403B, Traditional IRAs, spousal IRAs, Roth-IRAs, 401K-Roth plans. 

The Chinese Space Station, Tiangong-1 is on its way back to earth.  Bob spent a little time reviewing the situation here.  Tiangong means “Heavenly Palace.”   (A good name for a Chinese restaurant, I think.)   The 9 ton space station is going to enter the atmosphere in about 8 hours from the start of the show.  You have a better chance of winning the lottery than getting hit by debris from Tiangong-1.  One in 292 trillion.    

Bob did mention the market but it was more or less in passing:  The S&P 500 closed Thursday at 2643,  the Dow at 24,147 and West Texas Intermediate is at $64.94 per barrel.  In the second hour he mentioned Facebook telling us the “stock got whacked and whacked hard.”  The whacking came as the result of the revelations about Facebook that were recently in the news, particularly the news about a 2016 memo from top exec Andrew Bosworth who said FB’s growth comes at any cost, even the deaths of people.  Bob cited a Bloomberg article titled, “How Facebook helped shady advertisers pollute the internet.”  

Tino from Connecticut said he’s been listening a long time and sought Bob’s comment on a question Tino says he’s asked friends regarding money:  “How much is enough?”    Some of his friends say there is never enough.  Bob said if you’re not at critical mass then you need to accumulate more assets, but if you are already at critical mass, then “more” is not the right answer. 

How do you avoid paying taxes on your Required Minimum Distribution from a retirement account?  Bob told Kathy in Sebring FL that she could have her custodian sent the dough directly to the charity of her choice.  The key word here is “directly.”  Don’t take the possession of the money and then give it to the charity.   Then she wanted to know about giving the RMD to nieces and nephews for college expenses.  Sure, fine, but she would pay taxes on the RMD.   The gift limit is now at $15K per year, that’s the amount you can give to anyone, not just a family member. 

A later caller asked a question that has been dealt with many times on MoneyTalk:  “I gave my kids $12K in stock, do they have to pay capital gains?”   The answer from Bob was “No, as long as they haven’t sold it.”  

Bob is OK with the way Patrick, calling from Cheesehead Country, (Wisconsin) has sliced up his portfolio.  He has 80 percent in equities and 20% of that is in international stock.  Bob mentioned that a lot of large US companies actually have a lot of overseas sales.  

“Run it past a tax pro.”  That’s what Jack in Nashville better do to find out if he can contribute to a Traditional IRA while also maxing out his 401K.   Sure, he can do both, the question is whether he gets any deductibility.  With the numbers Jack was throwing out my guess is, no deduction.  In that event, he’d be better off with a Roth-IRA but Bob did not suggest that.

A couple of callers had real estate questions.  One took a lump sum retirement and asked about investing in real estate via his tax sheltered account.  Bob said he’s done that himself (invested in real estate) but he did it with personal money because of the tax advantages that don’t exist in tax sheltered accounts.   Caller Bob in Cape May, NJ is heavily invested in real estate and he’s worried about inflation.  Advisor Bob was sanguine.  He said the Fed has targeted a 2% inflation rate for the Personal Consumption Expenditure Index and it is not there yet. 

Antone in Florida wants compounded interest on his CDs.  He said he has $335K in CDs going out 3 years and he’s getting 2% simple interest.  Bob told him with that size account he might do better by shopping around.  Hopefully, when Antone shops around he won’t run into a banker who tries to sell him an annuity instead … that’s what happened to Sharon in Castle Rock, CO when she spoke to a “financial advisor” about buying CDs.  This person said CDs are “the worst” form of fixed income – take your $260K  and buy an annuity instead.   MoneyTalk regulars know what Bob’s response was.  If you’re not a regular and you don’t know the answer, you better study up, this question will be on the final exam.

Jim in Tennessee said he used money from his 401K account to buy an annuity “in a moment of insanity.”  Can he make a silk purse out of a sow’s ear?  In other words, when he has to start taking RMDs, will the $6000 annual income from the annuity qualify as part of the RMD?   Bob said no.  He spared Jim a tongue lashing over using tax sheltered money to buy an annuity.  (Another final exam question.)

The Hits Just Kept Coming:  Ed and his wife (in their 60’s) inherited $ 1 Million from a relative of his wife’s.  The money was in mutual funds managed by a wealth manager who recommended to Ed that they re-invest at least half in annuities.   Bob told Ed that he and his wife inherited the money, not the salesman.  They never explored the reason why Ed might be considering an annuity, namely the need for steady income and the concern about running out of money.  Bob told Ed to do a side by side comparison of the offered annuity and a similar one from Vanguard. 

Another shark attack:  Michael.  Retired 2015.  Age 67.  $800K in a Traditional IRA.   A financial advisor advised him to move it to a Roth-IRA.   Bob said it was “dreadful” advice.  Michael would not be subject to RMDs for another 3 years so by converting (a taxable event) he’d be prepaying taxes. Converting would also put Michael in the highest tax bracket, another downside.  Bob got very agitated at this really bad suggestion and for good reason.     

Darrell in Houston is on solid ground (pardon the pun).  Darrell’s question was whether he could consider $10K in net income from a rural property worth $300K as part of his fixed income stream.   Bob said yes after getting assurances from the caller that the appreciation outlook for the property looked good. 

What do you know, Charles Schwab got a mention today.  Phil, listening on KSFO wants to move some of his stash from Vanguard to Schwab because a friend working there will look after his accounts and help with diversification.   Bob pointed out that Chuck Schwab has been on the show, is a friend of the program and is a fantastic person.  He told Phil he’d be inclined to use both firms in order to keep access to Vanguard’s huge stable of no load funds.  No mention of whether this was tax sheltered money or personal money that would trigger a tax event.

Bob’s third hour guest was a perennial favorite, Barbara Weltman, tax expert and contributing editor to the J. K. Lasser tax advice books.  Barbara is usually on twice a year, once toward the end of the calendar year when people are making last minute gyrations  that affect their taxes, and then about this time of year when people (some anyway) are scrambling to get their taxes filed.

For those who may be scrambling, you can always file for an extension.  You don’t need to give a reason, just get the one page form, fill it in and mail it.  They didn’t mention it, but my understanding is you need to also send along what you think you owe, to avoid penalties.  The extension gets you an extra six months.  Bob and Barbara chewed on whether the extension increases your audit risk, Barbara said no.  

Speaking of audits, they’re at an all time low.   Funding for the IRS has decreased 25% since 2010 and audits are down 25% since then.   It’s all about politics.   What politician wants to tell his constituents he or she wants more money for the IRS?  

With a $21 Trillion debt, the government needs all the legitimate tax money it should be collecting to pay the interest on the debt.  Just my opinion.  If we’re going to have a tax code then enforce it. 

Some people are whining about delays in their refunds.  Barbara pointed out that by law, the IRS cannot issue a refund to anyone when the refund is the result of tax credits like the Earned Income Tax Credit, the Child Tax Credit or the Additional Child Tax Credit.   These are “free money from the government” programs. 

Oh, wait, correction:  “free money from other taxpayers” programs.   So, if people have to wait a little, too bad. 

Lucas called from Buenos Aires with a property tax question.  In 2017 he prepaid his 2018 taxes for property he owns in Virginia.  However he had not received an actual tax statement for 2018 – would this payment be deductible on his 2017 taxes?  Barbara said the IRS said before that this would not be deductible unless you actually received a bill for the 2018 taxes, but … there is a lot of pushback and they may accommodate people who have done this. 

“Talk to your IRA custodian.”  Barbara’s advice given to Clark who converted $45K in Traditional IRA to a Roth-IRA in late 2017.  Now it is worth only $36K so he wants to know if the conversion can be undone.   So why would he want to re-characterize it?  The $45K is treated as ordinary income on his tax return for 2017, that’s why. 

Whether disability income is taxable …. that depends.  Barbara said such income from Social Security IS taxable.  If it is from private insurance or an employer it depends.  You’ll get a statement telling you how to handle it. 

David from Reno got a surprise from his former employer.  He retired from the financial services industry and sold his book of business to a co-worker.  His former employer treated this income as wages, and reported it to him (and the IRS) on a W-2.  David wants it treated as “1099” income.  Social security and Medicare taxes were taken out.  Tricky one.  Barbara said take it up with your former employer. 

I hope everyone had a good Easter or Passover.

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