March 2017

A New Landscape

As a wealth management firm, our priority is to work with our clients to implement strategies and investments based on individual needs, while being cognizant of the ever-changing world around us. Certainly the world of politics has caught more than its fair share of headlines of late. As advisors, we take seriously our job to counsel to the best of our ability based on the real, perceived, and potential actions of government.

There are a multitude of factors at play in our current economy, but we are hearing a lot of questions about our perception of the political landscape and its effect on how we manage our business and assets. It’s clear to me that at this point, our country is in a state of heightened “political sensitivity.” With that in mind, I want to be clear that in no way am I supporting nor disparaging the current administration.

I recently returned from a conference road trip, where I attended the TD Ameritrade conference in San Diego and the Ladenburg Thalmann conference in Snow Bird-Utah. These experiences offered me the opportunity to listen to a number of economist and asset managers, and there were some common themes throughout.

Many spoke of the potential for regulatory roll-back under the new administration as a potential factor for earnings growth in the coming years. There is also a thought that tax reform could actually happen with Republicans in control of all three executive branches. However, no one really knows what tax reform, if any, will actually be completed, or what it may look like. There’s speculation that tax reform may help small and mid-sized companies, as they tend to have the highest effective tax rates. Additionally, many felt that as the economy continues to grow (albeit at a relatively slow rate) and as the unemployment rate pushes down, we could start to see some inflationary pressure—pressure that could, in turn, lead the Fed and Treasury to act, and thereby create an environment with modestly higher interest rates. A theme that began years ago and is expected to continue is that while the US economy has its issues, it’s likely still a better bet for growth than international markets.

We also felt it was important to address the headlines regarding additional regulation directed at the financial services industry.

The “Fiduciary Duty Rule or Conflict of Interest Rule” was unveiled by the Labor Department in the Spring 2016 and was set to take effect in April 2017. On February 3rd, President Trump signed a Presidential Memorandum directing the Department of Labor to examine the rule’s impact. At this point it is likely that the rule will, at a minimum, be delayed. Likely it will be revised, if not rescinded.

At its surface the rule certainly sounds like a good thing for consumers. Supporters of the rule say it will hold brokers and financial advisers who work with tax-advantaged retirement savings to a fiduciary standard. Like many things, the reality is not that simple. The impact of the regulation and how advisors will actually comply with the regulations is extremely unclear. Kuhn Wealth Management is a Registered Investment Advisor (RIA) and is already held to a fiduciary standard for all assets (retirement and non–retirement) managed in the RIA.

If the regulation were to pass, we will be required to take appropriate steps to comply with the new regulation. Likely we would face less competition, as the regulation actually targets commission-based advisors who are not currently held to a fiduciary standard. It’s possible the new regulations would drive many commission-based advisors out of the business. I believe this would have the unintended consequence of reducing financial advice that is available to investors with a smaller amount of investable assets. The fee based/RIA model works well for our business, and for other RIA businesses that primarily service individuals with fairly substantial net worth. However, the business model probably won’t work as well to service smaller accounts, where commissioned-based compensation may still make the most sense.

Elizabeth Warren, who championed this rule said the following, “Today, after literally standing alongside big bank and hedge fund CEOs, [President Trump] announced two new orders: one that will make it easier for investment advisors to cheat you out of your retirement savings…” and the other part of the quote refers to President Trump considering a roll back of parts of the Dodd–Frank act, which is another topic altogether.

Our firm is not out to “cheat you out of your retirement savings.” I am confident you also believe that; otherwise, you wouldn’t be working with us. I also believe the vast majority of other investment advisors are working hard and doing their best to help their clients. Across the board, when I hear professionals in our industry talk about the potential regulation, their concern is not about being held to a fiduciary standard (as many already are), but rather the uncertainty of the regulation and the elimination of consumer and advisor choice. For me, the biggest fear is having unnecessary government regulation get in the way of doing what is best for our clients.

The financial services industry and our firm have both evolved over the years. When I started this firm in 2003, the retail financial services industry was almost exclusively commission based. At that time, we weren’t held to a “fiduciary standard.” This didn’t mean that we didn’t put our clients first; since our formation it has always been our priority to put our clients’ needs before our own.

Please know that no matter what happens with this legislation, we will continue to provide you with unbiased professional advice and continue to put your needs first.

My door is always open and my phone is always on. Please feel free to reach out with any questions or concerns, at any time.

Best,
Nathan

A Review of Required Minimum Distributions

The first wave of baby boomers turns 70 this year, which makes it a great time to offer clarity on required minimum distributions (RMDs).

Taking a Distribution

The first question our clients ask is something along the lines of, “why do I need to take a distribution?” If you recall, money invested into IRA and 401K accounts are pre-tax. The government doesn’t want investors to shelter that money (tax-free) forever, so a required distribution allows the government to collect tax on the asset as the distributions are made.

When Will I Take My First RMD?

Next, we usually hear, “when do I have to start taking my RMDs?” There are many nuances to a RMD and we always recommend getting professional advice. Generally, your RMDs begin at 70 ½ years of age. However, a grace period is allowed for the first RMD, giving you until April 1 the year after the year you turned 70 ½. We do suggest most clients take that first distribution in the year they turn 70 ½, simply because if you don’t, you’ll encounter two distributions within in one year—possibly increasing your tax obligation. In subsequent years, the RMD must be taken prior to year-end.

Calculating Your RMD

To calculate your RMD, you can reference an IRS table or an online calculator. We recommend the FINRA calculator—it’s quick and easy to use. The balance of the account at the previous year end is used when calculating your RMD amount.

Taking Your RMD

It’s important to remember that, while IRAs may be aggregated for calculating and RMDs may be taken disproportionality, this is not possible with 401(K) accounts. Each 401(K) must be figured separately and taken from that particular account.

Tax Witholding for Your RMD

When you take your RMD, you’ll elect how much you want withheld for both federal and state taxes. In Illinois, distributions from IRAs are not taxed; therefore, generally no withholding is taken. However, this will vary by state. On the federal level, it’s important to remember that if you do not elect to have taxes withheld, you’ll probably need to make an estimated tax payment. Our clients typically withhold between 15% and 30% for federal taxes.

What If I Don’t Need the Money?

We work with a number of clients who do not need the funds distributed from the RMD for their living expenses. While it is required that you take the money out of the retirement account, you do not need to spend the money. One solution is to push the distribution directly to non-retirement accounts rather than a bank account, we can also assist with strategies to make charitable donations with RMD amounts.

For some individuals it may make sense to convert traditional IRA assets to Roth. We can provide insight into the costs and benefits of converting traditional retirement assets to Roth. Roth assets do not require distributions during the owner’s lifetime; however, the conversion comes with tax implications that must be reviewed in-depth and on an individual basis.

We Can Guide You

If you have any questions regarding your RMDs or want to discuss Roth conversions, please call us at (847) 607-4976 or email us to schedule to an appointment.

IRAs at Tax Time

Tax season is here, so it’s time to share important IRA information!

Did you know, there’s still time to contribute to your IRA account for 2016? Please call us at (847) 607-4976 if you would like to make a contribution, or open an IRA account.

For the 2016 tax year, the income limitations for Roth IRA eligibility are:

• If you are filing as single, head of household, your eligibility begins to phase out starting at an AGI of $117,000.
• For those married filing jointly, your eligibility begins to phase out at an AGI of $184,000.

If you have contributed to a Roth IRA with us and your income is near or above the limits listed above, please contact us. We’ll work with you to find an appropriate solution.

The maximum contribution amount for 2016 is $5,500 with a $1,000 catch up contribution for those 50 years and older. Please remember you can only contribute up to your earned income for the year.

The 2017 tax year phase out will begin at:

• $118,000 for those filing single head of house hold
• $186,000 for those filling a married joint return.

If you want to open an IRA or make additional contributions to your IRA, we can help! Call us at (847) 607-4976 or email us to schedule to an appointment.

The deadline for most individuals to make 2016 IRA contributions is April 15, 2017.

New Faces and New Roles

Will Clark
We are excited to share with you that Will Clark is now an Advisor at Kuhn Wealth Management. Will joined our firm in 2016 as an advisor assistant, and we knew from the start that he was a great fit for our firm. While Will worked in our office, he was also busy studying to take the Certified Financial Planning and Series 65 exams. Will successfully completed both of these exams at the end of 2016 and we are thrilled to have him onboard full time as an advisor.

Will has a strong background in tax having completed his CPA course work at the University of Illinois. He also brings expertise in small and middle-sized business operations. We look forward to integrating Will into our practice and he looks forward to working with all of you.

Karla Jalowiecki
Please welcome Karla Jalowiecki, the newest member of the Kuhn Wealth Management team! We are thrilled to have Karla on board at the firm. In her role as Client Relationship Coordinator, Karla will be another point of contact for your day-to-day questions. She is also assisting with the seemingly endless amount of paperwork and forms that we generate.

Karla is a wonderful and busy mother of two energetic young daughters. Even after running around on mom duties, she brings a ton of energy and warmth to the office, along with some much needed decorating skills—skills that admittedly the rest of us are lacking.

As of 11/1/2016. The opinions expressed are those of the writer and does not necessarily represent the views of the presenting party, nor their affiliates. Past performance and predictions are not a guarantee of future results. The material contained hearin is obtained from sources believed to be reliable, but its authenticity, accuracy or completeness is not guaranteed. Projections are inherently limited and should not be relied upon as an indicator of future results. The S&P 500 Index is a widely recognized capitalization – weigheted index that measures the performance of the large- capitilization sector of the U.S. stock market. Direct investment in an index is not possible.

Securities offered through Concorde Investment Services, LLC (CIS), Member FINRA/SIPC. Advisory services offered through Kuhn Wealth Management, Inc., a state registered investment advisor. Kuhn Wealth Management, Inc. is independent of CIS and Concorde Asset Management, LLC. All of whom are unaffiliated with third party sites, and cannot verify the accuracy of nor assume responsibility for any content of linked third party sites. Information available on third-party sites is for informational purposes only.