Bob’s Journal for 11/30

How to Capture the Benefits of Year-End QCDs

A qualified charitable distribution (QCD) from a traditional IRA often is the best way for someone over age 70½ to make charitable contributions. You have until Dec. 31 to nail down the benefits of the QCD for this year, but you want to avoid some key mistakes.

In a QCD, the owner of a traditional IRA directs the custodian to transfer money from the IRA to one or more charities. Or the custodian can give the IRA owner a check made out to charity, and the owner delivers the check.

Some IRA custodians offer “checkbook IRAs” in which owners can take distributions from the IRA by writing checks. Owners of checkbook IRAs can make QCDs by writing checks against the IRAs to charities.

The amount of the QCD isn’t included in the IRA owner’s gross income for the year, but it qualifies as part of any required minimum distribution (RMD) for the year. Distributions up to $100,000 qualify for QCDs in 2023. The limit rises to $105,000 in 2024.

Be sure to avoid some key mistakes people make when trying to execute QCDs.

If you are subject to RMDs and took distributions earlier in the year, those earlier distributions count toward your RMD amount and are included in gross income.

You still can make QCDs later in the year, and the amount will be excluded from gross income. But QCDs won’t help you avoid taxes on distributions taken earlier in the year. That’s why it’s best to make QCDs early in the year and have them apply to your RMD. Remember that for 2024.

Another timing issue is that the amount must be out of the IRA by Dec. 31. If the IRA custodian gives you a check payable to a charity or you write a check against the IRA, the check must clear and the amount be out of the IRA by Dec. 31 to qualify as a QCD for 2023. Likewise, if you direct the custodian to make a distribution directly to a charity, the distribution must be completed by the end of the year.

Timing is important when your plan is to have the QCD qualify as all or part of your RMD for the year. If the check doesn’t clear by Dec. 31, you failed to take part of your RMD and are subject to a penalty.

You don’t need to wait until your RMD beginning date to make QCDs. While RMDs now don’t begin until age 73, QCDs still can begin after age 70½.

Making the QCDs before your RMD beginning age is a good idea. The QCD is a way to take money out of the traditional IRA tax free, and reducing the IRA balance this year trims the amount of your future RMDs.

For a distribution to qualify as a QCD, you can’t receive any benefit. So, don’t use the QCD to make a donation that entitles you for a gift or other benefit from the charity.

A QCD can be made only from a traditional IRA, not from any other type of retirement account.

Advice on IRA Rollovers Covered by New Proposed Labor Department Regulations

The U.S. Department of Labor is making another attempt to impose a fiduciary standard on most financial advice related to retirement plans, including IRAs.

The recently proposed regulations would impose the fiduciary standard on any “trusted advisor” who advises on a retirement plan transaction. The advisor could be a broker investment advisor, insurance professional or some other professional.

The Labor Department is attempting to close what it perceives as several gaps in existing regulations.

Brokers are regulated by the Securities and Exchange Commission. The SEC imposed Regulation BI on brokers in January 2020. That regulation prohibits brokers from putting their revenue interests ahead of a client’s interests. But it doesn’t impose a fiduciary standard on brokers.

Regulation BI also covers only securities. It doesn’t cover other financial products, such as annuities.

Regulation BI also doesn’t cover insurance agents. It covers only SEC-registered securities brokers. Registered Investment Advisors are covered by other SEC rules.

Any financial professional who gives advice about a retirement plan, including one-time advice such as rollover recommendations, would be covered by the proposed regulations.

The Department of Labor has made clear that it believes some insurance agents provide bad or incomplete advice to customers regarding retirement plan rollovers and reap higher fees and commissions in the process. Specific targets of the Labor Department are insurance agents who recommend that 401(k) or IRA balances be rolled over into fixed indexed annuities or variable annuities.

The new proposed regulations succeed previous regulations that were thrown out in 2018 by a federal appeals court, which ruled that the regulations were beyond the Labor Department’s authority.

The new proposal was written to address concerns listed by the appeals court.

Critics say the proposed regulations would impose significant new costs on brokers and insurance agents and reduce the number of professionals willing to advise non-affluent individuals.

The Labor Department probably will issue final regulations during the summer after receiving and evaluating comments on the proposal. Various financial industry groups are likely to file lawsuits asking the courts to invalidate the regulations.

How to Read the Latest Ranking of Best Places to Retire

U.S. News recently issued the 2024 version of its annual ranking of the best places to retire.

At the top of the ranking is Harrisburg, Pennsylvania. Each of the top five locations are in Pennsylvania, as are seven of the top 10 places.

Longtime readers know that I advise skepticism about such rankings because of their limits and methodology.

U.S. News considers only the 150 most populous metro areas in the United States. Smaller localities receive no consideration.

The ranking considers six factors that the publication says were selected based on surveys of current and near-retirees. The surveys asked people about the factors most important to them when considering a retirement location.

The surveys also determine the weighting of the different factors. Various data sources were used to rate and rank the localities on each factor.

Reasons for skepticism are that the factors that rate highly in the surveys might not be your priorities, and you might weigh them differently. The factors don’t include proximity to family, climate and low traffic congestion, three factors that I find many people place a high priority on when selecting a retirement location.

Changes in a location’s ranking from year to year also are a reason for skepticism. For example, last year, Lancaster, Pennsylvania, was Number One and Harrisburg was Number Two. In the latest ranking, Harrisburg was at the top of the list and Lancaster fell to third.

New York City went from 14 last year to six in the latest ranking. U.S. News reported the change primarily occurred because the city ranks very highly in health care and rates well in overall happiness, desirability and the job market.

My recommendation is that you first determine the lifestyle you want and the factors that are most important to you.

The established lists of best places to retire can be used as starting points in your search, not because of the rankings but because of the data and information that might be presented with them.

There’s no substitute for spending an extended period of time in a location before ruling it in or out. Quite often, people discover a place that was great for a vacation of a week or two isn’t the place they want to live all year.

Where I live in Aiken, South Carolina, there are many people who first retired to Florida or places along the coasts of the Carolinas. After a few years, they discovered they didn’t enjoy living full-time in those areas and relocated.

The Data

The economy didn’t change much in the first half of November, according to the PMI Flash Indexes.

The PMI Manufacturing Index declined to 49.4 at mid-month from 50 at the end of October. The PMI Services Index improved to 50.8 from 50.6.

The result is that the PMI Composite Index for the economy was 50.7 at mid-November, the same as at the end of October.

The Philadelphia Fed Manufacturing Index improved to negative 5.9 in November from negative 9 in October. The negative number indicates the sector still is contracting.

The Kansas City Fed Manufacturing Index had a similar improvement in November, to negative three from negative 8 in October.

The Dallas Fed Manufacturing Index fell a little in November to negative 19.9 from negative 19.2 in October.

The Richmond Fed Manufacturing Index fell to negative 5 in November from positive 3 in October. Almost all components of the index, including optimism about the future, declined.

Industrial production decreased 0.6% in October following a 0.1% increase in September. Over 12 months, production was down 0.7% through October after being down 0.2% through September.

Manufacturing production declined 0.7% in October. It was up 0.2% in September. Over 12 months, manufacturing production is down 1.7% through October after being down 0.9% in September.

Durable goods orders declined 5.4% in October after rising 4% in September. Most of the drop was due to fewer transportation orders.

After excluding aircraft and defense orders, which is considered a good measure of business investment, orders declined by only 0.1% in October and 0.2% in September.

Pessimism among home builders is increasing. The Housing Market Index from NAHB was down to 34 in November from 40 in October. November marks the fourth consecutive month the index declined, and the November level is the index’s lowest since December 2022.

New home sales declined 5.6% in October, and September’s sales were revised down from the initial estimate to an 8.6% increase.

The median sale price of a new home was $409,300 in October, down from $496,800 12 months earlier. The average sale price of a new home was $487,000 in October, compared to $543,300 12 months earlier.

Housing starts increased 1.9% in October after rising 7% in September. But most of the October increase was due to a 4.9% rise in starts of multifamily homes. Single-family home starts increased by only 0.2%.

Existing home sales plummeted 4.1% in October after declining 2.2% in September. Existing home sales have fallen for five consecutive months, and October’s level of sales was the lowest since August 2010.

Despite the decline in sales, the median sale price for existing homes increased 3.4% from 12 months earlier.

Home prices increased 0.2% in September, according to the S&P Corelogic Case-Shiller Home Price Index, after increasing 0.3% in August. The index is up 3.9% over 12 months, after being up 2.1% over 12 months ending in August.

The FHFA House Price Index, which covers only single-family homes with mortgages insured by one of the federal programs, increased 0.6% in September, following a 0.7% rise in August.

Over 12 months the FHFA index is up 6.1% through September after being up 5.8% through August.

The Consumer Confidence Index from The Conference Board rose to 102.0 in November after declining the two previous months.

The present situation component of the index declined but expectations improved. Even so, the Expectations Index was 77.8 and has been less than 80 for three consecutive months.

The Conference Board indicated readings below 80 usually are followed by a recession within a year and that both its Consumer Confidence Index and Leading Economic Indicators Index show a short, shallow recession is likely in the first part of 2024.

The Consumer Sentiment Index from the University of Michigan continues to decline. The final measure for November was 61.3, down from 63.8 at the end of October.

The end-of-November level was an improvement from 60.4 registered in mid-November but was the lowest month-end level since May and the fourth consecutive monthly decline.

Consumers expect higher inflation for both the year ahead and over five years than they did a month earlier.

Gross domestic product (GDP) expanded at a 5.2% annual rate in the second quarter, according to the second estimate. The first estimate pegged growth at 4.9%. The second estimate is the highest rate since the fourth quarter of 2021.

New unemployment claims declined by 24,000 to 209,000 in the last week. Two weeks ago, new claims were at a three-month high.

Continuing claims, which lag a week behind new claims, declined to 1.840 million from 1.862 million.

The Markets

The S&P 500 rose 1.30% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 0.51%. The Russell 2000 increased 5.18%. The All-Country World Index (excluding U.S. stocks) added 1.66%. Emerging market equities are 1.79% higher.

Long-term treasuries lost 0.62% for the week. Investment-grade bonds increased 0.03%. Treasury Inflation-Protected Securities (TIPS) added 0.31%. High-yield bonds gained 0.23%.

In the currency arena, the U.S. dollar declined 0.37%.

Energy-based commodities increased 2.67%. Broader-based commodities rose 4.40%. Gold declined 0.06%.

Bob’s News & Updates

My latest book is “Retirement Watch: The Essential Guide to Retiring in the 2020s.” Learn more and order by clicking here and here. You can be among the first to write a review.

My previous book, “Where’s My Money: Secrets to Getting the Most out of Your Social Security,” is receiving mostly five-star reviews on Amazon for telling you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on amazon.com or Regnery.com.

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Series, click here.

A recent five-star review of my book, “The New Rules of Retirement” on amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check my amazon.com author’s page.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.