So, why is “economy” in quotes here? That’s because it means something different to every
individual. According to the Journal of Economic Perspectives, Vol. 30, No. 1, Winter 2016 (in
case you’re really bored…) the word economy comes from two Greek words oikos and nemein.
And, at first, I thought of yogurt…. But Oikos means “Household” and Nemein means
“Management.” It is generally a description of the production and consumption of goods and
services of a region. The ancient Greeks, as in so many other ways, had a good take on this.
The economy is about the household. Some households will think it good; others will think it
bad.

Your clients who are going through a divorce or trying to recover from an injury are going to be
worried about their household first and foremost. The issue in our polarized society is that they
are either going to be overly optimistic or overly anxious. Daily ups and downs will seem like a
bellwether or omen of future results. Reports on consumer confidence, trade imbalances,
suggestions from TV stars from bygone days to buy Gold, or Reddit users suggesting meme
stocks can all add to the noise they’re experiencing.

In order to quiet the noise in my head, I did some digging… not too much because I want to
keep these short, but just enough to show you it will all be okay. I used the Dow Jones
Industrial Average on or immediately before inauguration day going back to January 2, 1950 (I
know that’s not inauguration day, but it is when Statmuse had its earliest value for the DJI. I
could have done this back to 1881 using Wikipedia’s data, but that seems a bit much since most
of us don’t even remember 1950. I also know that the DJIA is not the “economy,” but it has
been widely recognized as a symbol of the health of the American economy, and most people,
whether they know it or not have some investment in this standard. And, as mentioned above, it
can be run back to before Lincoln’s assassination.

Since 1950 there have been 19 terms (yeah that’s 76 years), there have been 14 different
presidents, 38 different iterations of congress, hot and cold wars, pandemics, recessions, crisis,
terrorist attacks, some assassinations, a few assassination attempts, mass migrations,
environmental disasters, booms, busts, strikes, plane crashes, military actions, passed and
failed constitutional amendments, and just about anything Billy Joel could have thrown into a
song. With all that run-on sentence being read here are 10 other fun facts.

1. Since January 2, 1950, the DJIA is up 21,117%.
2. The average gain over the course of an administration is 36.72%
3. The largest % loss was 24.09% by Bush parte deux in his second term. This is an
   outlier as the other losses by presidents over the course of their term did not exceed 7%.
4. Both parties have had presidencies with loss over the course of their term.
5. The largest gain was by Clinton in his first term at 111% followed by Reagan at 82% then
   Obama at 71%, Eisenhower at 66%, and Trump 1 at 57%
6. By percentage, the largest single day decline was Black Monday, Oct. 19,1987, falling
   22% to 1,738.74. The market still finished Reagan’s second term up 82% from 1985 to
   1989 despite the crash.
7. The largest point drop was March 16, 2020, remember COVID, when the DJIA lost 2,997
   points, 12.9%. The largest gain was on March 24, 2020, when it gained 2,113.
8. Clinton, Obama, Reagan, and Eisenhower are standouts in the “two-term” category.
   Kennedy (using Johnson’s terms) netted a 47% growth over 8 years and Nixon/Ford
   netted a paltry 3%. Only Bush II had a significantly depressed result at -25% over two
   years.
9. Running this on the first trading day of 2025 with the DJIA at 42,544.22 puts Trump 1
   and Biden both at $11,358 in gains. The difference is 57% to 36% growth respectively
   because of the starting value.
10. The average increase in value has been $2,228.62 dollars over the last 19 terms, yet
    only 6 terms have recorded increases in excess of that number. All 6 have occurred
    since 1993.

I put my spreadsheet below. Please feel free to check my work. Always happy to acknowledge
an error. That being said. If your client is looking for some help with the anxiety caused by the
new administration, this should let you know that even in the worst eight years of the last 75, we
came out okay and in the best, we crushed it. Sharp drops are usually made up for with
significant gains in short order. Clients who have too much of one thing or another may feel a
pinch. Getting professionals involved who can help with the conversations surrounding money
is going to make your and your clients’ lives better… If you need help having these
conversations, please look us up.

The post Does the President Matter… appeared first on Torchlight Resolutions.

RMDs apply to most retirement accounts, including traditional IRAs, SEP IRAs, SIMPLE IRAs,
and most employer-sponsored retirement plans like 401(k) and 403(b) accounts. However, Roth
IRAs are exempt from RMDs during the owner’s lifetime but are subject to RMDs after the
owner’s death if they are inherited by non-spousal beneficiaries.

Individuals must begin taking RMDs by April 1 of the year following the year they turn 73 (for
those born between 1951 and 1959) or 75 (for those born in 1960 or later). After this initial year,
RMDs must be taken out by December 31 of each year.

RMD amounts are calculated based on the account balance as of December 31 of the previous
year and the IRS life expectancy tables. This formula is: Account Balance/Distribution Period.
Let’s say your client’s retirement account balance is $800,000 and the distribution period is 21.2
years, the RMD would be approximately $37,735. RMDs are generally considered a part of
one’s taxable income. Withdrawals are subject to federal income tax and can be subject to state
income tax as well (the more the merrier). Failing to take the full RMD amount will result in a
huge penalty of 25% of the amount that was supposed to be withdrawn, which is certainly
something to keep in mind.

Understanding RMDs and their tax implications, penalties, and how they may affect the specific
accounts your client holds is critical for recognizing the most beneficial division. Do you want to
better understand RMDs and their use in a divorce case? There may be advantages to giving
these assets to the other spouse in a grey divorce. It’s better to be sure. Click the button below to
set up a complimentary consultation with a Certified Divorce Financial Analyst.

The post Required Minimum Distributions (RMDs) appeared first on Torchlight Resolutions.

Here’s the basic scenario: In one scenario a famous family gets all their retirement income from 2 sources, their IRA/401(k) and social security.  In the other scenario the family gets the same retirement income from 3 sources: 1/3 from IRA/401(k), 1/3 from a taxable account, and 1/3 from tax free accounts (Roth IRA and life insurance cash value).  

Assumptions:

1. Max Social Security Benefit (SSB) of $45,864/year for Han ($3,822/month).
2. Leia’s SSB is half of Han’s, so she receives $22,932/year ($1,911/month).
3. Filing status: Married filing jointly.
4. Other relevant assumptions:

• All traditional IRA withdrawals are taxable as ordinary income.
• Roth IRA withdrawals are tax-free since they meet the qualified distribution criteria.
• Long-term capital gains are taxed at favorable rates, depending on total income.
• Social Security benefits are taxable based on total income.

Now, let’s compare the tax implications of withdrawing $150,000 from a traditional IRA versus $150,000 from diversified sources for Han and Leia Solo, who are both receiving Social Security Benefits(“SSB”).

Scenario 1: Withdraw $150,000 from Traditional IRA

• IRA/401(k) Withdrawal: $150,000 (fully taxable as ordinary income).
• SSB Total: $45,864 (Han) + $22,932 (Leia, we all know she was really the bread winner) = $68,796.

Total Income = $150,000 (IRA) + $68,796 (SSB) = $218,796.

• Taxation of SSB: Since their income exceeds the thresholds for Social Security taxation, 85% of their Social Security benefits will be taxable.
• Taxable portion of SSB: $68,796 × 85% = $58,476.

Adjusted Gross Income (AGI):
$150,000 (IRA) + $58,476 (Taxable SSB) = $208,476. (pro tip: remember this number or be prepared to scroll back up)

• This total income will be taxed at ordinary income rates. A portion of this income may be taxed in the highest marginal tax bracket depending on other deductions.

Scenario 2: Withdraw $150,000 from Diversified Sources

1. IRA Withdrawal: $50,000 (fully taxable).
2. Long-Term Capital Gains: $50,000 (taxable portion after adjusting for cost basis, is presumed $25,000, we’ll use $25,000 going forward as we’re looking at tax consequences).
3. Roth IRA: $50,000 (tax-free).
4. SSB Total: $68,796 (same as in Scenario 1).

Total Income = $50,000 (IRA) + $25,000 (LTCG) + $68,796 (SSB) = $143,796 (plus $25,000 in basis and $50,000 Roth withdrawal, total is the same $218,796).

• Taxation of SSB: Because of their income, 85% of Social Security benefits will be taxable.
• Taxable portion of SSB: $68,796 × 85% = $58,476.

Adjusted Gross Income (AGI):
$50,000 (IRA) + $25,000 (LTCG) + $58,476 (Taxable SSB) = $133,476. (Do you remember that number?… Go ahead scroll back up we’ll wait.)

• Capital Gains Tax: The $25,000 of long-term capital gains will be taxed at the capital gains rate, which could be 0%, 15%, or 20%, depending on total income and tax brackets.
• IRA and SSB: The $50,000 IRA withdrawal and taxable portion of SSB are taxed as ordinary income.

Tax Implications Summary

Key Differences:

1. Higher Tax Bracket in Scenario 1: In Scenario 1, withdrawing $150,000 from the IRA pushes total income significantly higher, leading to higher taxation of Social Security benefits and more of the income taxed at ordinary rates.
2. Favorable Tax Rates in Scenario 2: In Scenario 2, only a portion of the withdrawal is taxed at ordinary rates, and $50,000 from the Roth IRA is tax-free, so we’re not calling it “income” in the taxed sense of the word. The long-term capital gains of $25,000 benefit from a more favorable tax rate, potentially as low as 0% or 15% and the other $25,000 was taxed during the working years.
3. Reduced AGI in Scenario 2: The lower AGI in Scenario 2 results in less overall tax liability compared to Scenario 1.

By diversifying the income sources in Scenario 2, Han and Leia can reduce their taxable income, potentially benefit from lower capital gains tax rates, and lessen the tax burden on their Social Security benefits.

Here’s the payoff:

If Han and Leia only have IRA investments and Social Security they pay $30,386 in federal income tax.  If they diversify, they pay  as little as $7,576 federal income taxes for THE SAME AMOUNT of Money, $218,796.  If you need help talking to your divorce, personal injury or probate client, reach out to us.  We can help with strategies even when people think it’s otherwise too late…  If your head is still spinning give us a call, it’s free.

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