Bob’s Journal for July 19, 2023

IRS Issues New Guidance on RMDs

The IRS isn’t ready to issue final rules on the changes made to required minimum distributions (RMDs) under the SECURE Act and other recent legislation, but it issued new short-term guidance last week.

RMDs were changed in significant ways the last few years. One major change is that the beginning age for RMDs was moved from 72 to 73 by the SECURE Act 2.0. The beginning age is 72 for those born before 1951, 73 for those born from 1951 through 1959 and 75 for those born in 1960 or later.

The IRS said the law was enacted so late in 2022 that many IRA custodians didn’t have time to update their systems. They sent incorrect notices that RMDs were due in 2023 to account holders who turned 72 in 2023 (those born in 1951).

Under regular IRA rules, owners who mistakenly took RMDs they weren’t required to take could return the money tax free within 60 days. In the new guidance, the IRS said it will allow a tax-free return of the money through Sept. 30, regardless of when during 2023 the RMD was taken.

That waiver of the 60-day limit on rollovers applies only to IRA owners who turned 72 in 2023 and mistakenly took an RMD for the year.

The second part of the guidance applies to beneficiaries who inherited IRAs after 2019. The original SECURE Act created the 10-year rule, requiring those who inherited either traditional or Roth IRAs to fully distribute the IRAs within 10 years after inheriting them.

In 2022, the IRS issued proposed regulations requiring annual RMDs during years one through nine for a beneficiary who inherited an IRA from someone who was taking RMDs at the time of death. If the IRA owner wasn’t taking RMDs at the time of death, the beneficiary isn’t required to take any distributions until year 10, under the proposed regulations.

But the IRS hasn’t finalized the regulations, and many in the tax profession are pushing back against the rule requiring distributions for years one through nine.

In the latest guidance, the IRS extended a waiver it previously granted. Beneficiaries who inherited IRAs after 2019 don’t have to take during 2023 the RMDs for years one through nine and won’t be hit with penalties for failing to take the RMDs.

What this also likely means is the IRS believes it is unlikely to issue final regulations before the end of 2023 or will issue them too late for many people to act on the regulations in 2023.

Rules for Money Market Funds Rewritten Again

The Securities and Exchange Commission (SEC) last week rewrote the rules on money market funds for the third time in 15 years.

Money market funds faced a problem during the financial crisis when the Reserve Primary Fund became the first to have its share price decline below $1 because of investment losses. Investors quickly liquidated their holdings in many money market funds, causing turmoil in the financial markets.

The rule changes made since 2008 are intended to discourage investors from redeeming a lot of shares during times of market stress. The first two sets of rule changes weren’t sufficient to meet the goal, according to the SEC.

The latest rule is a modification of a proposal the SEC made in 2021 and is scheduled to take effect in 18 months.

As in the past, most of the changes don’t affect retail money market funds, those sold to individual investors. The focus is on institutional investors and account owners who aren’t individuals.

Under the new rules, prime money market funds (those that own mostly corporate debt) used by institutional investors are required to impose fees when daily net redemptions exceed 5% of the fund’s assets.

In addition, all money market funds are required to keep at least 25% of their holdings in assets that mature in one day (an increase from 10% under current rules) and 50% in assets that mature within one week (30% currently).

Critics of the new rules say they are likely to make prime money market funds less attractive and continue to drive large institutional shareholders into other vehicles such as uninsured bank accounts. They say the rules imposed in 2014 had that effect and were a factor in the recent banking crisis.

They also argue that the potential for redemption fees will make institutional money market fund shareholders more likely to redeem shares in times of potential trouble, because they’ll want to redeem their shares before fees are imposed.

What to Make of Rankings of Investment Advisors

Many websites and publications publish annual lists of what they call the “top” or “best” brokers, financial advisors, or investment advisors. Consumers should know what is behind those lists before making decisions, according to Bob Veres, a longtime financial advisor and consultant to advisors.

The lists usually equate being the biggest to being the best or the top firm. The lists generally look only at a firm’s revenue or the amount of assets it manages for clients.

The argument in favor of that simple approach is that a firm or investment advisor probably is good at what it does if it ranks highly by such measures. But that could also mean the firm simply is very good at marketing, says Veres. He is well-connected in the industry and says there are large firms he “wouldn’t send my dog to” and small firms he believes provide extraordinary service and advice.

The rankings make no attempt to delve into the quality of a firm. They also don’t consider the scope of a firm’s services. Firms and advisors that offer only investment services are ranked the same as firms that provide a full range of financial services for about the same cost.

Veres points out that on such lists most, if not all, of the advisors receiving top rankings are affiliated with the large brokerage firms and banks. Independent financial advisors and planners rarely make such lists.

The best way to find financial advisors to consider hiring is through referrals from others who have issues similar to yours and have had good experiences.

Another good way is to get to know a potential advisor through several meetings over a period of time instead of trying to make a decision after one or two meetings. Better yet, get to know several advisors before making a decision. It is worthwhile paying the advisors for their time and the advice they deliver during this period.

Whichever route you take, first make a list of the type of advisor you want, the services you’re expecting and the types of issues or problems with which you want help.

The Data

The Producer Price Index (PPI) increased by 0.1% in June after declining 0.4% in May. Over 12 months, the PPI increased 0.1% through June, down from 0.9% at the end of May.

The core PPI (which excludes food and energy) increased 0.1% in June, the same as in May. Over 12 months, the core PPI increased 2.4% as of June, which compares to 2.6% as of May. The 12-month core PPI increase in June is the lowest since January 2021.

Retail sales increased 0.2% in June after climbing 0.5% in May.

Excluding gas and autos, retail sales increased 0.3% in June and 0.5% in May.

The “core retail sales,” which exclude autos, gas, building materials, and food services, jumped 0.6% in June.

However, industrial production declined 0.5% in June, matching May’s decline.

Over 12 months, industrial production growth is negative 0.4% as of June.  One of the most reliable early indicators of recession is the 12-month growth in industrial production. When it turns negative, a recession usually is imminent. The major exception occurred in 2015, when the indicator turned negative but there was no recession.

The Housing Market Index for the National Association of Home Builders (NAHB) increased in July to 56 from 55 in June. The July level is the highest since June 2022. Despite the improvement, home builders said they were less optimistic about sales over the next six months.

Housing starts declined 8% in June, following a 15.7% increase in May. Housing starts have been positive in only three months of the last 12.

Despite the decline in the number of starts, the number of multi-family housing units under construction ties the record high set in July 1973.

The Consumer Sentiment Index from the University of Michigan surged in the first half of July to 72.6 from 64.4 at the end of June. The mid-July level is the highest since September 2021.

Both the current conditions and expectations components of the index improved significantly.

The Empire State Manufacturing Index decreased to 1.1 in July from 6.6 in June.

New unemployment claims declined by 12,000 to 237,000 in the latest week.

Continuing claims, which lag a week behind new claims, increased to 1.729 million from 1.718 million.

The Markets

The S&P 500 rose 2.65% in the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 2.03%. The Russell 2000 increased 3.25%. The All-Country World Index (excluding U.S. stocks) added 3.12%. Emerging market equities advanced 2.36%.

Long-term treasuries gained 2.09% for the week. Investment-grade bonds increased 1.23%. Treasury Inflation-Protected Securities (TIPS) added 1.23%. High-yield bonds climbed 1.11%.

In the currency arena, the U.S. dollar declined 1.71%.

Energy-based commodities increased 1.49%. Broader-based commodities rose 2.02%, while gold advanced 2.29%.

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.

P.S. My colleague, George Gilder, will be hosting a teleconference on July 26 at 2 p.m. EST — and you’re invited! The title of the conference is “How to Profit from the Next S&P500 Companies” and it is free. However, you have to register here to be able to attend. Don’t miss out!

P.P.S. Come join my Eagle colleagues on an incredible cruise! We set sail on Dec. 4 for 16 days, embarking on a memorable journey that combines fascinating history, vibrant culture and picturesque scenery. Enjoy seminars on the days we are cruising from one destination to another, as well as dinners with members of the Eagle team. Just some of the places we’ll visit are Mexico, Belize, Panama, Ecuador and more! Click here now for all the details.