Required Minimum Distributions (RMDs) Can Be Skipped in 2020

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Required Minimum Distributions (RMDs) usually have to be taken each year from certain accounts such as IRAs, 401Ks, and other qualified retirement accounts by owners over age 70 1/2. Similarly RMDs have to be taken by account owners of inherited IRAs. Since RMDs have to be completed before of the year, some owners of these accounts may be wondering if they have to take it out before Dec 31st. Due to the pandemic, RMDs can be skipped this year. This relief was part of the The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed earlier this year.

Note: This post applies to US investors only

Below is an excerpt from an article at Schwab:

Hayden Adams, CPA, CFP®, and director of tax planning at SCFR, offers answers to some common questions retirees are asking about RMDs in light of the CARES Act:

1. Do retirees have to take RMDs from retirement accounts in 2020?

“No, all RMDs have been suspended for 2020,” says Hayden. This waiver includes any retirement account subject to RMDs, such as IRAs, 401(k)s, Roth 401(k)s and inherited accounts.

2. What age do I have to be in order to qualify for the waiver?

If you are subject to RMDs, the waiver applies to you regardless of age. It includes original account owners over age 70½ (or 72, under the SECURE Act), original account owners who turned 70½ in 2019 but have not taken their distribution yet, and inherited-IRA beneficiaries of any age (see number 3, below).

3. Does the waiver apply to inherited IRAs?

Yes. The waiver extends to inherited IRAs (including stretch IRAs), as Schwab interprets the law. Even inherited IRAs with non-spousal beneficiaries, which would normally need to be liquidated within 5 years of the original account-holder’s death, are not required to take a distribution in 2020. You should consult with your tax advisor, but Schwab’s interpretation is that beneficiaries have an extra year to fulfill the 5-year requirement, since RMDs can be skipped in 2020.

Source: Can You Forgo Taking RMDs in 2020?, Schwab

Related articles:

Price Changes of Consumer Goods and Services in the US from 1998 To 2019

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Prices of basic needs for living have soared in the US in the past few years while discretionary items have become cheaper. For example, housing prices are unaffordable in many parts of the country. Though shelter is the most basic need of any human being it is very expensive and housing costs continue to rise due to a variety of factors including inflation and policies. Similarly Education has become expensive especially at the college level where a third-rate school can cost five figures in tuition alone for a 4-year degree. Of all the basic human needs, healthcare is the most important and unfortunately the most expensive. Healthcare costs have in fact increased more than college tuition since 1998. It should be noted that most of the money spent on healthcare does not actually go towards the treatment of the patient but rather towards administration and paperwork operations run by insurance companies and to some extent the providers.

The following chart shows the price changes of select consumer goods and services since 1998:

Click to enlarge

Source: The Ruffer Review 2020, Ruffer LLC, UK

Below is a brief excerpt from the above report:

THIS SNAPSHOT OF THE US ECONOMY SHOWS THE DIVERGENCE in the price of selected consumer goods and services.

Mass consumer products such as TVs, toys and mobile phone services have become both cheaper and of much higher quality, thanks to improvements in technology. Cars have also improved vastly, without becoming less affordable.

By contrast, things that contribute to long-term quality of life – such as healthcare and education – have become significantly more expensive. Here, the rate of increase in prices has far surpassed the wage growth of the average American consumer. Healthcare costs have risen by more than 236% while a college education costs 187% more than it
did in 1998.

The key takeaway is that in the current structure of the economy, necessary items are expensive while useless items are cheap. The million dollar question is what will it take to fix this fundamental flaw in the system.

Earlier:

The Complete List of Italian ADRs Subject to Financial Transactional Tax

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Italy is one of the few countries that imposes a transaction tax for all financial transactions (FTT). This includes Italian ADRs trading on the US markets. The current FTT rate is 0.20% with a lower rate for certain transactions. This 20% rate will impact the overall return an investor earns on Italian ADRs. This tax is on top of the dividend withholding tax rate which is 26% for US investors. So investors need to consider these factors before buying Italian ADRs.

Which Italian ADRs are subject to Financial Transactional Tax?

The following table shows an updated list of Italian ADRs subject to Financial Transaction Tax:

Click to enlarge

Source: TD Ameritrade

Download List:

Earlier:

Australian Bull and Bear Markets Since 1970: Chart

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Stocks tend to earn higher returns relative to other assets over the long-term. This is because despite corrections and bear markets that can occur on a regular basis, over many years stocks go up more than they go down. To put it another way bull market returns are higher than bear market declines most times. So the key point to remember is not to panic and sell out during bear markets or corrections. We have reviewed the bull and bear markets in the US, Canada and India before. In this post let’s take a look at the Bull and Bear markets in Australia as represented by the ASX All Ordinaries Price Index:

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Source: Bull vs Bear, Zurich Australia

From 1970 thru 2019, there have been 10 bear markets in Australia. The duration of each bear market was 13 months and the average loss was 35%. On the other hand, the average bull market lasted 46 months with an average bull market return of 130%.

The chart also shows that while the bear market declines (light blue color) were sharp, the bull market rises were sharper.

Related ETF:

  • iShares MSCI Australia ETF (EWA)

Disclosure: No positions

 

Dividend Payers and Growers Outperform over the Long-Term

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Dividend-paying stocks beat non-dividend payers in terms of total return over many years. Among the stocks that pay dividends, it is even better to go with stocks that not only pay dividends but also increase them year after year consistently. Slow and steady rise in dividends compounds the return especially when a stocks is owned for years or decades. I written many articles in the past on the importance of dividends for success in equity investing. Below are some of those posts:

That said, a recent article in The Wall Street Journal noted that dividend stocks may have their moment of glory again. From the article:

Yet for something that theoretically shouldn’t matter, dividend-paying stocks have done swimmingly. The key seems to be focusing on those with high but sustainable payouts. Slicing large U.S. companies into quintiles by dividend yield found that the second-highest-yielding group beat the market most consistently each year over many decades. Measured from 1928 through 2019, a basket of dividend payers in that quintile saw a $1 investment turn into $25,395, according to Dartmouth College professor Kenneth French. A basket of nonpayers would have been worth just $2,139.

That result is all the more remarkable because dividends were a relatively small part of investors’ returns during the market’s most-rewarding decades. In the 1990s and 2010s they produced 16% and 17% of the S&P 500’s return, according to data from Morningstar and Hartford Funds. But they more than made up for it during less-exciting periods like the 1940s and 1970s, when they made up 67% and 73% of the return, respectively.

Part of the answer for why dividends mattered is that reinvesting them during those bleak times paid off—easier said than done when investors get discouraged. But another is what sort of company pays them in the first place. A dividend payer is more likely to be a value stock. In June, the average price-to-book ratio of Dividend Aristocrats such as AbbVie, ABBV -2.01% 3M MMM -0.54% and Colgate-Palmolive, CL -0.58% with at least a quarter century of rising payouts, was less than half that of the S&P Growth Index, according to ProShares. Value is out of fashion now, like it was in the 1990s and other bullish periods, but cheap stocks shine when the party ends. The same might not be true for companies that mostly reward shareholders through buybacks since they are much quicker to slash them just as stocks plunge.

Source: Dividends Will Have Their Day Again, WSJ

The importance of dividends cannot be understated as evidenced by the stats mentioned in the article above. The following chart shows the nice growth of the S&P 500 Dividend Aristocrats Index in the past 10 years:

Click to enlarge

Source: S&P Global

Ten constituents of the S&P 500 Dividend Aristocrats Index are listed below:

  1. Colgate-Palmolive Co (CL)
  2. Johnson & Johnson (JNJ)
  3. Chevron Corp (CVX)
  4. Emerson Electric Co (EMR)
  5. Raytheon Technologies Corporation (RTX)
  6. General Dynamics Corp (GD)
  7. Caterpillar Inc (CAT)
  8. AT&T Inc (T)
  9. T. Rowe Price Group Inc (TROW)
  10. Abbott Laboratories(ABT)

Disclosure: No Positions