• The One-Day Trade Settlement: What It Means for Investors

    Introduction

    On May 28th, 2024, a seemingly inconspicuous trade settlement change swept through the financial markets in the United States. While it might have gone unnoticed by many, this update holds significant implications for investors, both individual and institutional. Let’s delve into the details of what transpired and explore its impact on the world of investing.

    The Trade Settlement Period: A Crucial Aspect

    Before we dive into the recent change, let’s understand the concept of trade settlement. When you buy or sell a security (such as stocks, bonds, or exchange-traded funds), the actual transfer of ownership and funds doesn’t happen instantaneously. Instead, there’s a lag between the trade execution and the settlement—the moment when ownership officially changes hands and funds are exchanged.

    Traditionally, the settlement period for U.S. and Canadian securities traded on U.S. exchanges was two business days after the trade date. In other words, if you sold a stock on Monday, the settlement would occur on Wednesday. This delay allowed time for various administrative processes, including verifying the trade details, transferring shares, and ensuring the funds were available.

    The Latest Update

    As of May 28th, 2024, the trade settlement period for U.S. and Canadian securities traded on U.S. exchanges was shortened to one day after the trade date.

    The Impact on Individuals

    • Faster Processing Time – For individual investors, this change translates into speed. When you sell a security, you’ll receive the proceeds in half the time. No more waiting for two days; your cash will be available sooner. Whether you’re reallocating your portfolio, taking profits, or rebalancing, the reduced settlement period enhances your agility.

    • Reduced Transaction Risk – Imagine you’re selling a stock to fund an important life event—a down payment on a house, your child’s education, or retirement expenses. With the shorter settlement window, there’s less exposure to market fluctuations. The risk of unexpected price movements impacting your transaction diminishes significantly.

    The Institutional Perspective

    Institutions—brokerages, mutual funds, and pension funds—also benefit. The streamlined settlement process reduces operational complexities. It simplifies back-office tasks, minimizes reconciliation efforts, and enhances overall efficiency. For large-scale trading operations, this adjustment is a game-changer.

    Conclusion

    The seemingly subtle shift from a two-day settlement to a one-day settlement is anything but trivial. It aligns with the digital age’s need for speed, efficiency, and risk reduction. As investors, we welcome this change—one that empowers us to act swiftly and confidently. So, the next time you execute a trade, remember that behind the scenes, the wheels are turning faster than ever.

    For a more detailed analysis of the institutional impact, you can explore the SEC’s fact sheet. Additionally, if you have any questions or need personalized guidance, our team at Lane Hipple is here to assist you.

  • Understanding New Jersey’s Senior Freeze Program

    Navigating Property Tax Relief in the Garden State

    Understanding the importance of financial planning for seniors, the State of New Jersey offers the “Senior Freeze” Program, a property tax relief initiative designed to stabilize property taxes for eligible residents. This program is specifically for those aged 65 and older, providing them with the opportunity to freeze the amount of property taxes they pay at a level established in a base year, protecting them from future tax increases due to rising property values or rates.

    Eligibility Criteria: To qualify for the Senior Freeze Program, applicants must meet several criteria:

    • Age – Must be 65 years or older on December 31, 2022, or receive Social Security disability payments on December 31, 2022, and also on December 31, 2023.
    • Home Ownership – Must have owned and lived in or leased a site in a mobile home park for a manufactured or mobile home that they owned since December 31, 2019, or earlier.
    • Taxes – Must have paid all 2022 property taxes by June 1, 2023, and all 2023 property taxes by June 1, 2024.
    • Income Limit – Have an annual household income of $150,000 or less in 2022 and $163,050 or less in 2023. With some exceptions, all income must be taken into account, including things such as Social Security and pensions.

    Click here to find out if you are eligible

    Benefits: The primary benefit of the Senior Freeze Program is the ability to lock in the amount of property taxes paid at the level of a designated base year. This means that even if property tax rates increase, eligible seniors will continue to pay the amount they paid in their base year, effectively freezing their property tax burden. This can provide significant financial relief and stability for seniors living on fixed incomes.

    The program also includes provisions for reimbursement of the difference between the amount of property taxes paid in the base year and the amount paid in the current year, subject to the program’s rules and limitations. Here are some Frequently Asked Questions.

    Application Process: Interested seniors can apply for the Senior Freeze Program by completing an application form available here on the New Jersey Department of Treasury’s website. It is important to apply within the specified deadlines and provide all required documentation, including proof of age, residency, home ownership, and income. The deadline for submitting the 2023 application is October 31, 2024.

    The Senior Freeze Program is a testament to New Jersey’s commitment to supporting its senior residents, ensuring they can enjoy their retirement years without the worry of increasing property taxes. For more detailed information and assistance with the application process, seniors are encouraged to visit the official New Jersey Department of Treasury website or contact their local tax office.

  • Warren Buffett on the Importance of Holding Cash

    An unwavering belief in the timeless wisdom of “waiting for the right pitch”

    At the recent Berkshire Hathaway annual meeting held in Omaha, Nebraska on May 4th, 2024, Warren Buffett once again emphasized his steadfast belief in the value of holding cash. Shareholders gathered eagerly to glean insights from the Oracle of Omaha, known for his timeless investment wisdom and prudent financial strategies.

    Buffett’s affinity for cash was particularly highlighted during the meeting, echoing his long-standing approach to capital management. Berkshire Hathaway’s first-quarter earnings report revealed an impressive cash hoard of $189 billion, consisting of $36 billion in cash and $153 billion in Treasuries. When pressed about this substantial reserve, Buffett remained resolute in his conservative approach.

    In Warren’s Own Words

    “I don’t think anybody’s sitting at this table has any idea of how to use it effectively and therefore we don’t,” Buffett stated.

    He emphasized that they are selective in their investments, choosing only those opportunities that offer substantial potential returns with minimal risk.

    Buffett’s perspective on holding cash underscores several key principles of financial prudence:

    1. Liquidity and Opportunity

    Holding cash provides Berkshire Hathaway with liquidity, allowing the company to swiftly capitalize on lucrative investment opportunities as they arise. In uncertain times, maintaining a substantial cash reserve enables flexibility and strategic maneuverability.

    2. Risk Management

    Buffett’s reluctance to deploy excess cash stems from his disciplined risk management approach. By preserving liquidity, Berkshire Hathaway remains resilient in the face of market volatility or unexpected economic downturns. This cautious stance minimizes the potential for capital erosion during challenging periods.

    Article: Your Financial Reset Checklist: Moves to Make as we Approach Mid-Year

    3. Patience and Selectivity

    Buffett’s investment philosophy centers on patience and selectivity. He and his team exercise diligence in evaluating potential investments, opting to “only swing at pitches [they] like.” This methodical approach underscores the importance of waiting for optimal opportunities rather than succumbing to impulsive or speculative ventures.

    4. Capital Preservation

    Cash holdings serve as a buffer against unforeseen circumstances or economic shocks. In an evolving market landscape, maintaining a robust cash position safeguards against the need for immediate divestment or distressed asset sales.

    Wait for the Right Pitch

    Warren Buffett’s unwavering commitment to holding cash reflects a fundamental belief in the importance of financial prudence and risk mitigation. His approach resonates with investors seeking stability and long-term wealth preservation. Despite mounting pressure to deploy capital, Buffett’s adherence to disciplined capital allocation underscores the timeless wisdom of “waiting for the right pitch.”

    Copyright © 2024 FMeX. All rights reserved.
    Distributed by Financial Media Exchange.

  • The Top 5 Funding Reminders for Roth IRAs

    By: Denise Appleby, MJ, CISP, CRC, CRPS, CRSP, APA

    The rules of Roth IRAs create multiple tax-saving opportunities for Roth funding.

    Many consider Roth IRAs a gold standard for retirement savings because they provide a source of tax-free income during retirement. This tax-free benefit includes tax-deferred earnings, which are tax-free for those eligible for qualified distributions. Taxpayers who choose to fund Roth IRAs instead of traditional IRAs pay taxes upfront in exchange for this benefit. However, the promise of tax-free income is only one of the factors that must be considered, and taxpayers who choose Roth must also consider various strategies and operational requirements. The following reminders are a good start.

    1. After-tax 401(k) contributions: an opportunity for tax-free conversions

    Once a plan participant is eligible to make withdrawals from their 401(k) or other type of employer plan account (401(k)), eligible amounts may be rolled over to an IRA or another eligible retirement plan. For those who want to continue tax deferral until they are ready to take distributions, a traditional IRA is a common choice for rolling over assets from 401(k)s. However, if the 401(k) account includes after-tax amounts, that after-tax balance is an opportunity for a tax-free conversion.

    Unlike a conversion of pre-tax amounts, for which a suitability assessment is often recommended because it is taxable when converted, the conversion of an after-tax amount is tax-free. Therefore, no suitability assessment is needed. Further, any earnings on the after-tax amount would eventually become tax-free in a Roth IRA when you are eligible for a qualified distribution—a contrast with earnings that accrue in a traditional IRA, which would be taxable when distributed.

    Essential Tip: If you want to roll over their 401(k) account to an IRA, and that 401(k) includes an after-tax amount, instruct the plan administrator to split the distribution and send the after-tax amount to your Roth IRA. Doing so helps to ensure that the after-tax amount is not sent to your traditional IRA.

    2. Micro conversions for tax management

    Roth conversions are included in income, with any pre-tax amount being taxable for the year the conversion occurs. However, converting small amounts over time can mitigate the tax impact. For example, an individual who wants to convert $500,000 could make $50,000 yearly conversions over ten years instead of converting the entire $500,000 all at once. This strategy is commonly referred to as micro-conversions.

    This strategy can also be used to stay within a tax bracket in cases where a conversion could cause some of the individual’s income to be taxed at a higher tax bracket.

    Ideally, you would consult with your tax advisor to project the tax impact of the conversion and help them determine how much would be an ideal amount to convert each year.

    3. Tax withholding is not conversion

    If you want to have taxes withheld from the requested conversion amount, the withholding tax is not included in the conversion. As a result, the amount withheld for taxes will be subject to the (10% additional tax) 10% early distribution penalty unless an exception applies.

    Example 1: 45-year-old Sean’s Traditional Number 12345 had a balance of $100,000—all of which is pre-tax amounts. He instructed his IRA custodian to convert Traditional IRA Number 12345 to his Roth IRA Number 67890 and withhold 20% for federal taxes. Based on his instructions:

    • $20,000 was sent to the IRS for federal tax withholding.
    • $80,000 was deposited to Roth IRA #64890 as a Roth conversion.

    The result:

    • $100,000 is included in Sean’s income for the year.
    • $100,000 is taxable.
    • $80,000 is not subject to the 10% early distribution penalty.
    • $20,000 is subject to the 10% early distribution penalty because it is not part of the Roth conversion.

    If Sean had funds in a regular savings account (not a tax-deferred account), he could pay the income tax from that account instead of his traditional IRA.

    Consideration: An analysis should be done to determine if it makes good tax sense for Sean to perform a Roth conversion if it requires paying the income tax from his IRA.

    4. Roth conversion amounts must be rollover eligible

    A Roth IRA conversion is a two-part transaction:

    1. A distribution from the traditional IRA, and
    2. A rollover to the Roth IRA- which is treated as a conversion.

    Consequently, like a rollover, only eligible amounts can be included in the amount credited to the Roth IRA.

    An example of an amount that is not eligible to be rolled over is a required minimum distribution (RMD). If you are at least 73 this year, you must take RMDs due from your traditional IRA before any Roth conversion.

    Reminder: If the funds are in an employer plan and you are still employed by the plan sponsor, you should check with the plan administrator to determine if you must take an RMD for the year.

    5. Let conversion amounts sit and stay for at least 5-years

    A Roth IRA conversion is not subject to the 10% early distribution penalty, regardless of the age at which it occurs. However, distribution from a Roth conversion amount is subject to the 10% early distribution penalty if it occurs before it has aged in the Roth IRA for at least five years.

    Example 2: Using the facts from Sean’s example above, assume that the conversion was done in 2024. If Sean withdraws any amount from that $80,000 conversion before January 1, 2029, it would be subject to the 10% early distribution penalty unless he qualifies for an exception.

    Reminder: The 10% early distribution penalty does not apply if you are at least age 59 ½ when the distribution is made or if the distribution qualifies for an exception to the penalty.

    Note: Under the ordering rules, any regular Roth IRA contribution or conversions done in previous years would be drawn before Sean’s 2024 Roth conversion.

    Disclaimer

    The tips provided in this article are generally operational in nature. The decision of which to choose—Roth IRAs vs. traditional—is more complex and requires a suitability analysis. However, using some of the strategies mentioned in this article can lessen any immediate tax effect. Except for the tax-free conversion of after-tax funds from a 401(k), the assistance of a tax professional should be engaged to help determine suitability.

    Original Post by Horsesmouth, LLC.: https://www.savvyira.com/article.aspx?a=99588

  • Your Financial Reset Checklist: Moves to Make as We Approach Mid-Year

    Strategic Adjustments for Enhanced Financial Health: A Mid-Year Review Guide

    As we approach the midpoint of the year, it’s an ideal time to review and potentially reset your financial strategies. This period allows you to assess your progress towards your annual goals, adjust your budgets, and fine-tune your investment strategies, too. Here’s a practical mid-year financial reset checklist to guide you through your mid-year financial review.

    1. Review Your Budget

    Start with a thorough review of your current budget:

    • Examine Spending Habits: Compare your planned expenses against actual spending. Look for areas where you’ve overspent and identify categories where you can cut back.
    • Adjust Budgets: Based on your spending review, make the necessary adjustments to your budgets for the rest of the year. Consider any changes in your income or expenses since the beginning of the year.

    2. Evaluate Your Emergency Fund

    An emergency fund is crucial for financial security, providing a buffer against unexpected expenses:

    • Assess Fund Adequacy: If you don’t have one already, work toward an emergency fund that covers at least three to six months of living expenses. If you aren’t near your goal yet, plan how you can bolster this fund in the second half of the year.
    • Replenish If Needed: If you’ve had to dip into your emergency fund, it’s alright! That’s why you have it. However, now you need to make a plan to replenish it. Prioritize this to avoid potential financial strain going forward.

    3. Reassess Your Financial Goals

    Mid-year is a perfect time to reassess and refine your financial goals:

    • Goal Progress: Evaluate how close you are to achieving the goals you set at the beginning of the year. This could be saving for a down payment, paying off debt, building a plan to pay for healthcare in retirement, or investing more of your retirement savings.
    • Adjust Goals as Necessary: Life circumstances change, and so may your financial goals. Adjust your strategies to better align with your current situation and future aspirations.

    If you neglected to set goals at the start of the year, it’s not too late! There is nothing magical about January 1, so get started setting your goals now with the S.M.A.R.T. goals framework.

    Related: New Year, New Goals: Planning Your Money Moves for 2024

    4. Check Credit Reports

    Regular checks on your credit report can help you catch and rectify any inaccuracies that might affect your financial health, not to mention helping you spot identity theft:

    • Request Credit Reports: You can obtain a free credit report from each of the three major credit bureaus once per year at AnnualCreditReport.com.
    • Review for Accuracy: Look for any discrepancies or fraudulent activities. Promptly report any errors to the credit bureau for correction.

    5. Review Insurance Coverages

    Insurance needs can evolve, so it’s important to periodically review your policies:

    • Assess Coverage Needs: Consider changes in your life that might affect your insurance needs, such as buying a new home, changing marital status, or adding a family member.
    • Shop for Better Rates: Compare your current policies with what’s available on the market to see if you can find better rates or more comprehensive coverage for the same price.

    6. Optimize Your Investments

    Market conditions change, and so should your investment strategies:

    • Portfolio Review: Assess the performance of your investments and consider rebalancing if your asset allocation has drifted from your target, which happens to many investors over time.
    • Tax-Saving Strategies: Consider tax implications of any buy or sell actions in your portfolio and explore opportunities like tax-loss harvesting to offset gains.

    7. Plan for Tax Liabilities

    You may be breathing a sigh of relief with tax season behind you, but working all year round to understand your potential tax liabilities can help you manage your finances more effectively:

    • Estimate Taxes: Use your current earnings and expenses to estimate your tax liability for the year.
    • Adjust Withholdings: If you anticipate a major tax bill or a significant refund, adjust your tax withholdings accordingly to better manage your cash flow.

    8. Reflect on Your Financial Well-Being

    This step is a subjective addition to your mid-year financial reset checklist because financial well-being means different things to different people. So, decide what it means to you and take a moment to reflect on how you’re feeling about your finances:

    • Financial Stress Test: Consider how you would handle a financial emergency. Do you feel confident about your financial situation?
    • Educational Opportunities: Look for ways to improve your financial literacy. Engaging with financial news, books, or seminars can provide valuable insights and enhance your financial decision-making skills.

    Concluding Thoughts on Using a Mid-Year Financial Review Checklist

    A mid-year financial review checklist is a practical tool that can help you take proactive steps to stay on track with your financial objectives. This checklist serves as a guide to help you assess various aspects of your finances, from budgeting and savings to investments and taxes. By taking the time to review and adjust your financial plan now, you can improve your financial health and approach the rest of the year with a solid strategy in place.

    Illuminated Advisors is the original creator of the content shared herein. I have been granted a license in perpetuity to publish this article on my website’s blog and share its contents on social media platforms. I have no right to distribute the articles, or any other content provided to me, or my Firm, by Illuminated Advisors in a printed or otherwise non-digital format. I am not permitted to use the content provided to me or my firm by Illuminated Advisors in videos, audio publications, or in books of any kind.