MARKET UPDATE MAY 2024

Stocks have rebounded nicely in the last three weeks.  Both the S&P 500 and the Nasdaq are now at new all-time highs.

Between November of last year and the third week of March this year, the S&P 500 and the Nasdaq (top two lines) moved sharply higher.  All three major stock indices pulled back in April and rebounded in May. 

Inflation data, interest rates and recession concerns continue to drive the markets in both directions.  Even slight changes in inflation are generating strong reactions from the market. I find it to be surprising that a 0.1% change in the inflation reading generates such a strong reaction from the stock market.  I doubt that the inflation data is even accurate to one tenth of one percent. 

Our valuation model is now showing that the S&P 500 is slightly overvalued after the big runup since last November.  As of May 1st, our Market Value Indicator suggested that the S&P 500 was about 3% above its fair market value.  That has increased to about 8% so far in May.  This level of overvaluation is not very concerning, but we will keep an eye on it.

Notice that the S&P 500 was overvalued by about 16% before stocks began to fall in January of 2022. It was not just inflation and interest rates that contributed to the bear market of 2022.

We do not use Market Valuation as a trading variable.  It is not very useful in the short term.  It does have value for the long-term direction of the market. 

Stay Disciplined my Friends,

Phil

---

Disclaimers *The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.

Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.

REQUIRED MINIMUM DISTRIBUTIONS

The IRS changes the 401K and IRA rules periodically, so I like to review them once a year for our followers.  In today’s post, I will be focusing on the rules for Required Minimum Distributions or RMDs.

Required Minimum Distributions (RMDs) are minimum amounts that IRA and retirement plan account owners generally must withdraw annually starting with the year they reach age 72 (73 if you reach age 72 after Dec. 31, 2022). 

Required Minimum Distributions (RMDs) are an essential element to consider when planning for retirement with retirement accounts such as 401(k)s, IRAs, and other tax-advantaged savings plans. Understanding the rules surrounding RMDs is crucial to avoid penalties and make the most of your retirement savings.

You generally must start taking withdrawals from your traditional IRA, SEP IRA, SIMPLE IRA, and retirement plan accounts when you reach age 72 (73 if you reach age 72 after Dec. 31, 2022). The RMD rules apply to all employer sponsored retirement plans, including profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans. The RMD rules also apply to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs.

The RMD rules do not apply to Roth IRAs while the owner is alive. However, RMD rules do apply to the beneficiaries of Roth 401(k) accounts.

Account owners in a workplace retirement plan (for example, 401(k) or profit-sharing plan) can delay taking their RMDs until the year they retire, unless they're a 5% owner of the business sponsoring the plan.

This minimum withdrawal is based on your life expectancy and the total value of your retirement accounts. Generally, a RMD is calculated for each account by dividing the prior December 31 balance of that IRA or retirement plan account by a life expectancy factor that the IRS publishes in tables.

Failure to take out the required minimum distribution can result in a hefty penalty—50% of the amount you should have withdrawn but didn't. You can withdraw more than the RMD in any year.  But a withdrawal in excess of the RMD in one year cannot be applied to the following year.

It's important to plan ahead for RMDs as they can have tax implications. The rules surrounding RMDs change frequently. The withdrawn amount is generally subject to income tax, so it's essential to consider how these distributions will impact your overall tax situation in retirement.

Overall, staying informed about RMD rules and requirements is key to successfully managing your retirement savings and ensuring you make the most of your hard-earned money in your golden years. Be sure to consult with a financial professional to help you navigate the complexities of RMDs and tailor a plan that suits your individual retirement needs.

Stay Disciplined My Friends,

Phil

---

Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.

Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.

401K AND IRA RULES

The IRS changes the 401K and IRA rules periodically, so I like to review them once a year for our followers.  In today’s post, I will be focusing on the rules for retirement contributions and access to those funds.

These rules only apply to tax-deferred accounts like 401K’s and IRA’s.  If you save for retirement in a taxable account, you can contribute any amount you wish and you have total access to those funds.

Contribution Limits

For 2024, the contribution limit for 401K accounts is $23,000 per year.  For IRA accounts, the limit is $7,000 per year.  The IRS allows for higher contributions for people over the age of 50.  The additional contribution amount allowed for those age 50 and over is $7,500 per year for 401K accounts and $1,000 per year for IRA accounts.  IRA limits apply to both traditional and Roth IRA accounts. 

For self-employed individuals, the SEP IRA limit is the lesser of $69,000 or 25% of compensation.

For 401K accounts that have a company match, the IRS limit for combined (employee and employer) contributions is $69,000.

Always make sure you are contributing enough to maximize the company match portion of the contribution.  This is free money.

All of your contributions plus the company match contributions plus any investment gains grow tax free until you begin withdrawing money in retirement.

But to qualify for all of the tax breaks, you need to leave the money in the account until you reach age 59 ½.  That is the tradeoff. 

Withdrawal Rules

After age 59 ½ or whenever you begin making withdrawals from your 401K or IRA accounts, you will pay taxes annually on the amount of money you withdraw from those accounts.

If you withdraw money from 401K or IRA accounts before the age of 59 ½, you will pay a tax penalty equal to 10% of the money you withdraw.

The IRS does allow for hardship exceptions to access the money before age 59 ½.  These exceptions cover things like large and unexpected medical expenses, foreclosure prevention, etc.  You should consult a tax professional to make sure you qualify for a hardship exception.

Loan Rules

The other way you can access money from your retirement account before age 59 ½ is via a loan against your 401K account.  Loans are not allowed against IRA accounts.

It is highly recommended that you avoid loans and early withdrawals as you lose the tax free and compound growth benefits associated with retirement accounts.  The money you withdraw and borrow stops growing in your retirement account.  You should not borrow against your 401K for discretionary expenses like travel or entertainment.

The rules for 401K loans often differ for each plan so check out your plan documents.

Some plans allow up to 50% of your account balance or up to a max of $50,000.

Typically, loans are paid back over a period of 5 years including interest.  In this case you are paying interest to yourself as the money goes back into your account.

If you leave your job, you may have to pay back the full amount of the loan in a short period of time.

In our next post on retirement account rules and regulations, we will review Required Minimum Distributions and best practices for withdrawals and IRA rollovers. 

Stay Disciplined My Friends,

Phil

---

Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.

Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.