Investments: “Miraculous Turnaround”
As of March 31st of this year, almost a month and a half ago, the S&P 500 was down almost 5% for the year. The war in Iran was in a deadly gridlock, missiles were raining down throughout the Middle East, and traffic in the Strait of Hormuz significantly reduced. Fast forward to early May, and markets are at all time highs after a scorching hot April, a month that saw the S&P 500 increase by over 10%, the highest monthly increase since April 2020. Why the rapid turnaround? The rally was kickstarted by President Trump announcing on Truth Social that the United States and Iran had come to a two week ceasefire agreement, sparking hope that the conflict in the Middle East would not go on for much longer. This cease-fire, paired with a once again superb kick off to earnings season, helped propel the market to a monthly performance not seen in years. Despite the rebound, there is still reason to be cautious. History indicates this, as the stock market has seen a monthly gain of 10% just four times since 1992, and on average gained ~1.5% the following month. On top of that, the Iran conflict is still alive and well, and up until last week, oil had continued to hold steady above $100 a barrel. If elevated energy prices persist, the resulting inflationary pressures could begin working their way further into the economy and complicate the path forward for both consumers and the Federal Reserve. Times like these serve as a reminder of Warren Buffett’s advice to “be fearful when others are greedy, and greedy when others are fearful,” as strong market rallies and renewed optimism should still be met with a disciplined process, patience, and a long-term perspective.
Sources: WSJ, Barron’s
Planning: Medicare & RMDs
Required Minimum Distributions, or RMDs, can do more than just create a higher tax bill in retirement. A consequence that is often overlooked in planning for these distributions is their impact on income thresholds such as Medicare Income-Related Monthly Adjustment Amount, or IRMAA, surcharges. Due to RMDs being included in taxable income, those with large IRA balances can unintentionally push themselves into higher premium brackets for Medicare Part B, leading to higher healthcare costs later on in retirement. Although you will not be able to avoid RMDs entirely, there are ways to help minimize their tax impact in retirement. Strategies such as Roth conversions and Qualified Charitable Distributions, or QCDs, can help mitigate this risk and help manage the tax burden that can come with larger RMDs. Roth conversions are a way to reduce IRA balances while QCDs allow charitably inclined individuals over 70 ½ to satisfy RMD requirements without increasing their taxable income. All in all, thoughtful tax planning can help investors remain flexible in retirement; avoid an unnecessary increase in taxable income; and avoid increases in Medicare premiums.
