Global Equities Advanced In 2019 – Stock Market Overview 

In sharp contrast to 2018, equity markets advanced in 2019 with gains not seen since 2013. Technology, financials, and communications were the leading S&P 500 sectors in 2019. Total stock market value increased $7.5 trillion for the year.

The equity market rebound from its topple in December 2018 was unexpected by many analysts, as 2019 began with expectations of a recession and further market downturn. International markets also advanced broadly in 2019, with gains in the developed and emerging markets. Global bond markets have been favorable for stocks as historically low rates during the past decade incentivized governments and companies worldwide to borrow, boosting growth in expansion and capital investments globally.

The price/earnings ratio for the S&P 500 Index ended 2019 at 18.3, up from 15.6 at the end of 2018. Analysts view this ratio as an indicator as to how fairly valued the equity market is.  (Sources: Bloomberg, S&P)

Rates Expected To Stay Steady – Global Fixed Income Overview

Fixed income markets are expecting that the Federal Reserve will maintain interest rates steady through 2020, with no anticipated increases or decreases. Performance was positive across all bond sectors in 2019, with yields stabilizing towards the end of the year. Ending the year at 1.92%, the yield on the 10-year Treasury bond is still the highest yield available among the developed government bond market. Government bond yields in developed economies such as Germany and Japan were still negative at the end of the year.

To shore up liquidity at the end of 2019 to avert a market disruption, as occurred in December 2018, the Fed injected billions of dollars into the repurchase-agreement market, also known as the repo market, and also bought roughly $400 billion of bonds since October 2019. The strategy has been very similar to the Fed’s quantitative easing program enacted during the financial crisis, also known as Q.E. (Sources: Federal Reserve, U.S. Treasury)

What It Takes To Be In the Top 1% Of Earners – Fiscal Policy

According to the most recent data released by the IRS, it took earnings of $515,371 to be part of the top 1% of earners in 2017. It took an additional 7.2% to crack the 1% mark from the prior year, equal to an additional $37,106 in income.

Of the 138,945,000 individual tax returns filed in 2017, 1,432,952 returns fell into the top 1% category. The top 50% tax earners were, on the other hand, more representative of taxpayers across the country, with an income threshold of $41,740. There were over 71 million taxpayers that fell into the top 50% in 2017.

Source: IRS, www.irs.gov/statistics/soi

The Secure Act – Key Provisions Affecting Retirement & College Savings Plans

Retirement plan legislation passed by Congress effective 2020 includes changes affecting millions of American retirees. The Setting Every Community Up For Retirement Enhancement Act, known as the Secure Act, was signed into law by the president on December 20th.

Inherited IRAs / Stretch IRAs 

Rules surrounding the distribution of funds from an Inherited IRA have changed by accelerating the distribution and taxation of Inherited IRA funds going to non-spouses. Those most affected by the new rules are retirees with generous IRA balances intending to leave funds to their children and grandchildren. Also referred to as Stretch IRAs, Inherited IRAs have allowed IRA beneficiaries to stretch distributions and taxes over an extended period of time.

A current rule that will remain the same is allowing a spouse to rollover their deceased spouse’s IRA to a spousal IRA and take Required Minimum Distributions (RMDs) based on their life expectancy. Inherited IRA rules will be modified by the newly imposed rules affecting non-spousal beneficiaries such as children and grandchildren, the most common types of inherited IRA beneficiaries, who will be required to distribute the entire balance within 10 years, rather than “stretching” the distributions out. A challenge for inherited IRA beneficiaries is the tax implication of accelerated distributions over a much shorter time period. Some beneficiaries may also run the risk of falling into a higher tax bracket, especially if they are working.

Traditional IRAs

The 70 1/2 age limit for Traditional IRA contributions has been repealed, meaning that as long as you have earned income from working, you may contribute past age 70 1/2. The repeal is applicable to contributions made for tax year 2020 and thereafter, not for tax year 2019.

RMDs

The required minimum distribution (RMD) age for IRAs has been raised to 72 from 70 1/2. The new RMD age applies to those who turn 70 1/2 after December 31, 2019.

401(k) Plans

Small businesses are encouraged to set up plans for their employees by increasing the cap under which employees are automatically enrolled in a plan at 15% of wages. Part-time employees who work either 1,000 hours annually or have three consecutive years with 500 hours of service are eligible for a 401(k) plan. Annuities will now become an option for employees taking retirement distributions from their 401(k) plan, providing consistent income similar to how pension plans used to decades ago.

529 Plans

Qualified student loans may be repaid with 529 plan assets up to a maximum of $10,000 annually. Parents may also use 529 assets for the birth or adoption of a child, up to $5,000 per year. (Sources: https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/SECUREACT)