• We just got the decision from the Federal Reserve of a quarter of a point drop.
• The Federal Reserve delivered what the market largely expected, but the interesting thing was the votes, with a nine-three split showing a growing divide that could get interesting next year as leadership changes.
• Trump is going to appoint a new leader, and he basically said the litmus test for whether you’re in as a new leader or not is whether or not you’re going to lower interest rates.
• There’s no foregone conclusion that whoever President Trump puts in as a new Fed chair is going to actually abide by that, because the circumstances may be such that maybe we shouldn’t.
• The Fed makes their interest rate decision one week before they get the jobs number, which seems backward to us!
• We haven’t crossed into bubble territory, but it’s headed in that direction, and this looks very much like what has happened in other bubbles.
• History may not repeat itself, but it rhymes.
• Cisco was the darling of the Y2K era, got absolutely slaughtered when the market went down 90%, and it took 25 years to get back to its share price from 2000.
• This week it got back to its share price from 2000, and it took 25 years to get even.
• This is why we think buy and hold doesn’t work.
• We believe in diversification and having a strategy to address big, bad bear markets.
• If you have an inherited IRA, the law has been clarified and changed, and if you don’t abide by it, you could be subject to a 25% excise tax penalty that goes off on December 31.
• Before 2019, inherited IRAs followed the stretch rule and were simple, but Congress made it indecipherable, tried to fix it, made it worse, and final regulations did not arrive until 2024.
• In 2025, if you don’t take required minimum distributions, you could face a 25% excise tax plus income tax, which could make it a 40% hit and is draconian.
• Many people think the 10 year rule means you don’t have to take anything until the 10th year, but in many cases you are now required to take distributions starting this year.
• The important thing to remember is that you have until the end of this year to make sure you do it right, so make sure you talk to a professional.

Transcript:

Hello everyone, and welcome back to our weekly market alert video. And we have so much to talk about. I am so excited. We’re going to have more fun than a human being should be allowed to have when talking about all this boring financial stuff. And so let me go into what we’re going to talk about on this our weekly excursion into the land of retirement planning and all the rest of it. First of all, I want to announce to you that this is going to be a little bit different this time, because we have a very special second half of this market alert video, which applies to those of you who have an inherited IRA. So I’m going to dismiss those of you who don’t at the at the end of the first half, but those of you who have an inherit IRA, there is a tax law clarification change that could cost you 25% penalty if you don’t abide by it. Very important. So if you’ve inherited an IRA, make sure you stay tuned after the first half. But also, we just got the decision from the Federal the FOMC the quarter of a point drop, and so we’re going to talk about that and the impact of that. And of course, we still are on bubble watch, and we want to give you a quick story that you’ll find very interesting, that will illustrate the effects of what bubbles can do in real time. So we have a ton to talk about. So let’s get started. So I want to first bring in to the fray, Jordan Roach, our Chief Investment Officer, Jordan, how you doing? We’re great today. Yeah, energy today, for whatever reason. I don’t know why, full of energy today on the Friday I have, yeah. I mean, I’m raring to go. This is, this is going to be fun, before we get started, though. You know, I want to ask you a question, do you shop online, or do you go to like the malls? Well, I do very little, my lovely wife. What? My lovely wife, who takes that burden off me? So she love languages, so she buys her own, her own Christmas present. Oh, no, she doesn’t buy her own Christmas present. I do do that. I typically do that in person. So you go to the mall to buy it for her wherever. Yes, you don’t do it online. You don’t like just go on Amazon and buy it. I don’t it makes me nervous. Okay? I don’t like it to feel and see and kind of look. Yeah, and do you like, do you get it done early, or do you wait till the last second? Oh, I’m very much last second person. Yeah, me too. I love, I love it. You know, you go to the mall, you can’t find parking, you’re you’re in there, you’ve got the stress of the thing you want to buy, maybe is sold out your elbow to elbow with everybody. It’s good under the gun. I love it. And you know when it’s when the malls are all crowded like that? You know what that is? That’s the smell of money. That’s the dollars. Yeah, Empty Bowls. Man, I love the smell of money. Man, capitalism is the best baby. So, yeah, that’s me. So if you ask me if I’ve done my people ask, have you done what you’re shopping Heck, no, I wait until the last possible moment to do it. I am with you. And, in fact, we’re still on the clock here. What we’re Yeah, it’s two weeks, and we’re still there. It’s an adrenaline rush, baby. All right, so let’s talk about the Federal Reserve. So first of all, they made the big announcement, right? Which was no surprise to anybody, but everybody’s on tenterhooks waiting for the big decision. What are they going to do? Are they? Are they not, even though we all knew they would, and so they delivered. Tell us about that. Yeah. I mean, I think, you know, there was a one point, maybe a month or so ago where everyone thought it was guaranteed rate cuts, and then it didn’t look as much of a guarantee. But still, yes, the overwhelming probability is they’re going to cut like, yeah, that’s the mark. Would be a little bit surprised if they hadn’t boy howdy we would have, I think that would have really quelled any sort of chance for a Santa Claus Rally or anything like that. So they delivered what the market largely expected. But the interesting thing, I think, was more in you look at the votes, right? Because they put it up, there’s opinions out there, and we’re starting to see a little bit of a chasm between certain parts of the governorship and then other governors, right? Like a nine three split. Nine three is still a big majority, though, big majority. But if you look at I thought they were like 5050, this so it’s moving more Yes, because you know how you spread, is the not the votes, is nine three, and it’s been pretty much unanimous up until this last vote of what to do. And if you look beyond that, you know you have governors who, for whatever reason, this cycle, it splits where they don’t have a vote this year, right? So they’re fed governor in Philadelphia, and maybe this year they don’t have a vote, and they still Powell as a Dallas Cowboys fan. I don’t think anybody in Philadelphia should get a vote. I’m sorry, okay, despite the fact we kind of have a lot of our history there, they’re out. So that was interesting, just to see, I think there’s a I think this could get interesting next year where that split between in favor of continued cuts or raising or staying, that could even out quite a bit well. But we’re going to get a new leader next year, right? Trump. Trump is going to appoint this new leader, and he. Basically said the litmus test for whether you’re in as a new leader or not is that you’re going to lower interest rates. I think that’s that’s true. That’s what he’s saying now. And I think the potential candidate is saying, Oh, this is a no brainer, right? We’re going to do this. But as like you brought up right before we talk the show this, you thought, you know, back when Trump elected Powell right as fed, like they were on the same page until, very quickly, oh, man, so he put Powell in there. And literally, six months later, you know, President Trump is all over the guy calling him incompetent, and he needs to go, and I need to fire this guy. And it’s like the guy was only in office for six months before, you know, he started feeling the heat. So there’s no foregone conclusion that whoever President Trump puts in as a new Fed chair, leader, Chairman, is going to actually abide by, yes, we’re going to lower interest rate, because the circumstances may be such that maybe we shouldn’t That’s exactly right. I mean, they’re an independent body, so he may right now it’s a he. I don’t think it’s gonna be she, right. But right now, if he looks at it and says, No, we should not lower interest rates. I’m sorry, Donald, but I know they can maintain that independence, right? I wouldn’t want to be elected Fed chair at kind of an inflection point in the monetary cycle. I think that’s a very tough job to have right now, especially with the president breathing down your neck, absolutely right? But you know, you know, you would think that if you know, speaking of the Cowboys, this could be like when Jerry Jones took over, and he’s got Jimmy Johnson, who’s the head coach, and he wants to step in and be the head coach. This could be a similar situation. Definitely could get that the fireworks are always at everything applies to the Cowboys. Yeah, that’s right, that’s right. So we’ll see with all this. It’s going to be very interesting, I think, next year. So I want to mock the Federal Reserve. There’s a lot to mock for just a moment. Okay, not that we’ve never done this before, because we really respect and think that the Fed is great, but I want to mock them because I’ve never been able to understand this in all the years that I’ve been doing this, and that is that they make their interest rate decision, you know, like this week and right now, all the all the talk is they want to lower interest rates because of the job market. Right? The Job, Job, Job. Nobody’s nobody cares about inflation anymore. Now it’s the jobs. So they make a decision about lowering interest rates one week before they get the jobs number, which they’re making their decision on. This seems insane to me. It feels too regimented, too self imposed. Why would we do this? Yeah, you’re creating the rules, right? Let’s wait. It’s like President Trump has even said they should switch it. They should flip them around, or at least wait until they get the jobs number and then have the meeting to make the decision on interest rates. Why are they doing it in advance and with without the information on the whole reason why they’re lowering interest rates, right? I mean, what if the job is numbers next week come out and it’s like, we’ve hired, you know, 17 million people, and there’s no labor problem at all, right? And now they lowered interest rates to create jobs, and the jobs are fantastic. Well, maybe they’ve heard our whispers and they’re just saying jobs doesn’t matter anymore. That’s not reliable data. Maybe they’re doing that anyway. I think they’re I think the whole thing is, I agree with you, is backward to me, all right, so let’s go back on bubble watch, right? So we’ve been on bubble watch, and so as you guys, everybody who’s been watching this knows we are, you know, right now, it hasn’t crossed into bubble territory, but it’s headed that in that direction. This looks very much like what has happened in other bubbles, with the AI and all this stuff that’s being built out, etc. It’s very, very familiar, yes, right? And as we said, you know, there’s an old thing that history doesn’t repeat itself, but it rhymes. So, you know, we’ll see. But you brought up something interesting before you started this show. So share that with us. Yeah. So, you know, I like to look at individual stocks week to week and see price action. And the one that absolutely stood out was Cisco, right, the darling of the Y, 2k, run up through the 90s. I mean, oh man, it was the NVIDIA back then. Yeah, right, yeah, they, they were the Darling, the Darling kind of the head and face of everything, got absolutely slaughtered when the money went down 90% 90% and finally, this week, it got back to its market price. Share price from 2000 took 25 years, 25 years. So this goes back to the whole thing that we talk about that buy and hold is a really dumb idea, because if you own Cisco, and you said, I’m going to buy hold Cisco, because it’s going to come back and, you know, Cisco name brands, everything, right? I’m going to hold on to this, because it’s going to come back 25 years it took to come back to get it even, to get even well, all these opportunities and all these things going on 25 years. So that speaks to diversification. No question. It speaks to having a strategy to address that. Right, and who has a strategy to address that? I wonder. Jordan, can you. That can you illustrate or elucidate? You know, our strategy, certainly, if we were talking probably to some of the board and executive team in Cisco back in 2000 we might have had different thoughts on what to do going through there right as things are breaking down. That’s right. So there you go. Why you diversify? Why you have a strategy to address big, bad bear markets? Because, you know, I’ll tell you a quick story. So my next door neighbor was actually a high level executive at Cisco in 1999 1998 heading into 2000 and, you know, he was an executive did well, you know, kind of in my net worth category, I’ll say. But then when that Cisco went up, I don’t even know how many 1000s of percent it did, all of a sudden he was like a multi, multi millionaire, you know. And so he started. He was building four houses. He was still living in that house, you know, next door to me. But when I talked to him, Cisco to the moon. So he was building a house in Florida, in Colorado, he, you know, he was building, he was building four houses, one in California, and then when the whole thing crashed, he was in mid construction, and he lost all four of those houses. He lost his net worth and whatever cash he had been putting into, you know, the construction process, he lost that too, because he was mid project, and had to lose those, and he ended up having to sell the house next door to me. Oh, wow. So he, I don’t even know what happened to the guy, but you saw it unfold. I saw it right in front neighbor. Yeah, it was crazy, crazy, crazy, crazy. And again, diversification. Have a strategy to protect. Don’t think it won’t happen to you. Yeah, wow, that’s wild. Okay, so ladies and gentlemen, we’re going to go now into our discussion about inherited IRA. So if you have an inherited IRA, you have to absolutely hear this, because the law has been clarified, slash changed. There’s a 25% penalty if you don’t have if you don’t abide by this. So you don’t want to experience that. We’re going to go into that next. But for those of you who don’t have inherited IRA, you are dismissed. So let’s get started on the inherited IRA tax time bomb. And the reason we’ve called it that because it is ticking away and it goes off on December 31 so we want to get this in your hands as soon as possible. And I want to bring Sharla here, who is our tax specialist, into the conversation. Sharla, how are you? I’m fantastic. Ken, how are you? I am I could not be better. I love talking about how to save on taxes, and I love mocking our Congress and our and the IRS, because they have a propensity. You know, I’ve often said that if there was a golden if there was an Olympics for complexity, the IRS would probably win the gold medal every single year. I think they’d beat out everybody. I think they’re fantastic. So let’s talk about this, the inherited IRA tax time bomb. So to get into where we’ve come, let’s go back to the beginning, which in this case is what year 2019 2019 so tell us, give us a kind of a historical journey to today. Thank you. So before 2019 if you inherited an IRA. The distribution scheme for that, the regimen for that, was super simple. It was called the stretch rule, and you could take your distributions from that for over the course of your life, straightforward, easy to understand. Nobody had a problem with it. Nobody had a problem with it. But we can’t we can’t be simple. We can’t be elegant. No, they had to tinker with it, and they had to make it complicated. Exactly. So in 2019 they wrote a law, and they attached some language related to the inherited IRAs in that law, and it was so indecipherable till no one could understand it, they could not make a chart to which actually made them very happy. I would think that they were celebrating that nobody could understand this new legislation we wrote. They’re like, Yeah, high five, buddy. That was fantastic. Well done, exactly. And so what happened? So in 2020 they were making another law, and they said, well, let’s tack on some language to try to fix what we did in 2019 let’s clarify it. Clarify it. It didn’t clarify it. It made it worse. Okay? And then what happened? So then in 2022 there was some regs that were proposed. I think there was another law that was passed, yeah. And then finally the IRS stepped in and said, We’re going to have to interpret this. So the IRS, so the IRS was the adult in the room. In this case, they basically told Congress, okay, guys, step aside, because you’re really screwing this up. Let us, who are the masters of complication, step in, because you guys aren’t doing a good enough job yet. Pretty much. Okay, so what did the IRS say then? Well, they proposed some regs in 2022 and that cooked on for a little while, so we still didn’t know what to. Do. And then in 2024 those regs became final. Okay? So in 2024 we have final regulations that we can now make a decipherable, somewhat roadmap, right? But then in 2025 suddenly, these taxes that were gone. Everybody thought that we had this 10 year rule where you didn’t have to take anything out, you know, for 10 years and whatever. And suddenly, boom, in 2025 if you don’t satisfy your required distributions, you’d be subject to to what penalties? Ooh. So the issue is penalties. So penalties? Yes, I know we don’t want the Are you kidding me? They have penalties. Yes. Gosh, who would have thought? Okay, so what are the penalties? So if you don’t take your RMDS, you’re gonna have to pay a 25% excise tax on that. So 5% excise of the amount that you should have taken, that you didn’t take, and you’ll pay taxes on it on top when you take it, when you take it out. So potentially, this could be 25% plus whatever tax rate you’re in. It could be like a 40% it’s pretty steep. It’s like, draconian. Yes, that’s what I like to call it. It’s draconian. Really nice work, which is why we’re putting this video out, this podcast, out to you guys. Because if you aren’t aware if you’ve been cruising along 2223 24 with your inherited IRA, and you haven’t taken any distributions, because the law didn’t require you to, well, guess what? Starting this year, in many cases, you are now required to and if you don’t do it, you’re going to be hit by the nicely awarded 25% excise tax. I think of it as a 25% penalty. Okay, so let’s, let’s entertain our viewers. Let’s do it, and let’s show them what the final regs that clarified everything look like, that’s what. So, all right, so I’m going to look at this. So we’re not going to go through this in great detail, because this is like mind blowingly complicated, in my view. But if you start at the top, that’s you. If you inherited an IRA, that’s you, right? So this is you, you’re the IRA beneficiary, and then it goes all the way down, and basically at the bottom there, there are six different ways to go depending and if you violate them, you could end up with this 25% excise tax Exactly, right? But the important thing to remember is that you have until the end of this year to make sure you do it right, right? And that’s why we’re doing this. This is an alert. This is a public service announcement. Is like, we want to make sure people are aware. Okay, so let’s, let’s dwell on this for just a moment, and there’ll be a quiz, by the way, for all everybody watching this, if you understand what’s on there, man, you are very, very smart, because now, and this isn’t even all of it. This is, this is about a third of it. We’re just showing like, one version that applies to most people. But there are two other versions of this chart where it gets like, right? It gets crazy. If, if the beneficiary passes away, and now there’s a next beneficiary, it’s worse, right? So if the original beneficiary is not there, and there’s another and it goes to the next one, yes, oh my gosh, then it’s like 7000 steps. It’s unbelievable, folks, let me tell you, this is masterful. You know, I think they are actually, I think they enjoy this, you know, let’s make it as complicated as possible. Anyhow. So let’s, let’s look at given the complexity, given all this stuff, what should somebody do if they have if they’ve inherited an IRA, what should they do? So if you’ve inherited an IRA, at the end of the day, you’re going to go through this chart, or you’re going to go with your professional and you’re going to come up with four possible things that are going to happen. You’re either going to be under the stretch rule, which means that you are able to take your distributions over the remainder of your life. Super easy. We like that. Or you’re going to be in the 10 year rule, which means that you have to take the distributions at some point over the next 10 years, you have to empty the account out. So the 10 year rule, the stretch rule, is you can take it out of the course of your lifetime. That’s the best one. The 10 year rule is you’ve got 10 years to empty the tank. So you could do it all at the beginning, all at the end, or equally in between. It doesn’t matter, as long as you’ve emptied the tank by the end of the 10th year, exactly. Okay. Then there are cases when you are in a situation where you have to do the 10 year rule and take required minimum distribute distributions. And that’s the one that we’re worried about for people, yes, because if you fall under that category, which is probably most people, right? So if you fall under the category of the 10 year rule, you originally, you thought, I don’t have to take anything out until the 10th year, and maybe, and so you’ve gone through 2223 24 where you haven’t taken anything. And now all of a sudden, 25 you have to Yes, and if you don’t, there’s a 25% excise tax we talked about, yes. Okay, so this is the one. This is the one honestly, that will probably snarl people up. The worst is because they think that they are in the good because they’re in the 10 year rule, yeah, but they’re not because there are circumstances, and it’s fairly common when they would need to take out RMDs as well. And the way that works. Is that you have the required distribution starting this year. And let’s say, for example, that you the first three years you did not take something, but you still have the 10 year rule. So over 10 years you do have to take it out. You start taking your required distributions every year now for the next seven years, right? Because the first three years you didn’t, and in the 10th year, essentially your required distribution is whatever’s left in, whatever’s left, right? So you have to take it all out at the end of the 10th year, whatever’s left. But in the meantime, you have to make these required distributions, which I think a lot of people are not aware of that, which is why we’re doing this, is concerning, yes, so we want to make sure we get that out to people. Okay, all right, and then what’s the last one is there’s a five year rule. It’s going to be pretty rare that that would ever happen, so you want to avoid it. And I would say, just make sure that you have a beneficiary. And if you’re this would come into play if you if you did not have beneficiaries designated in your IRA. And then also, if it’s a non human beneficiary, trust or an estate or something, they can be dealing with the five year rule, but the majority of people that are going to be dealing with things right now is going to be this 10 year rule, 10 year rule, plus RMDs, yeah. And again, ladies and gentlemen, this is important, which is why we’re getting it out to you right now, and why we call it the inherited IRA Tax Time Bomb, because if you don’t take your distribution, then you are probably going to be subject to that excise tax and a 25% penalty, I think, is big. And in addition, the tax on that when you take it out, adds to that 25 potentially makes it a 40% tax on it. You don’t want that. So make sure you talk to a professional, or better yet, go to our website and talk to one of our people. You may even get to visit with Sharla. Wouldn’t that be a treat? It’d be amazing. So again, I hope you enjoyed watching this as much as we enjoyed making it for you. We’ll see you next time on the retirement planners of America podcast. So thanks for watching, and we will talk soon.

Please note: transcript has been modified after the time of recording. 

Economic indicators and stock market performance cannot be predicted. Opinions expressed regarding the economy and the stock market belong solely to Ken Moraif on behalf of Retirement Planners of America and may not accurately portray actual future performance of the economy or stock market outcomes. Opinions expressed in this video is intended to be for informational purposes only and is not intended to be used as investment advice for individuals who are not clients of Retirement Planners of America. All content provided is the opinion of Ken Moraif, CEO and Founder of RPOA Advisors, Inc. (d/b/a Retirement Planners of America ) (“Retirement Planners of America”, “RPOA”). ©Copyright 2023