WHAT NEXT FROM THE FED?
In less than two weeks, the Federal Reserve will meet for the last time in 2022. The first meeting next year isn’t until the end of January. Various members of the Fed have made speeches that Public Enemy Number One is “INFLATION”! Although Wall Street had a great October and early November following the very positive news on inflation being less than anticipated in September and was followed by a lower-than-expected Producer Price Index (PPI) for October, we still have a long road ahead with inflation sitting at 7.2% year over year. The Fed’s target is 2% inflation.
There will be another data point on inflation occurring just before the Fed meeting, and if it shows that inflation has continued moving down, it may allow the Fed to raise rates by only 50 basis points rather than 75 basis points. If you think the Fed is ready to rest or perhaps even pivot, you may need a dose of reality. That 50 basis point increase might lead to a Santa Claus rally during late December. However, a 75 basis point increase will likely disappoint the markets and could lead to December taking away much of the gains we have enjoyed the past two months.
We will likely see one or two rate increases in the new year before the Fed rests. In the meantime, we feel that those with the cash to invest should do so by dollar cost averaging and will likely feel good about it three years from now. For others, you will want to consider selling some of your losers before year-end, which will help offset any gains you might have. If you can’t use the losses this year, do not worry, they will carry forward into next year and the next until you use them all. If you still like the stock, you may buy it back 31 days after selling it. You can also use the cash to rebalance your asset allocation.
UPDATE ON STUDENT LOAN FORGIVENESS
Just a few days after the elections, a Federal judge in Texas made the road to forgiveness longer, harder, and more uncertain by striking down President Biden’s student loan forgiveness program. The Department of Education immediately stopped taking applications for the roughly 40 million who would have seen a total wipeout of the loan or a potential $20,000 reduction. Twenty-six million people have applied. Since the beginning of the pandemic, student loan repayments have been suspended and were set to begin again in January 2023 until the President extended the payment moratorium again until June 30, 2023. There is lots more going on in this area, so if you have a student loan reach out to us for further assistance.
NEW TAXACHUSETTS DOES IT AGAIN!
In Massachusetts’s past election cycle, they had their sixth ballot initiative to graduate their income tax. Previously, they had a flat rate of 5% on all taxable income except for short-term capital gains and gains on collectibles which were taxed at 12%. Now, by a vote of 52% to 48%, those with taxable income over $1 million will pay an additional 4% on all income over that amount. Almost double! Though it only affects 0.6% of the population, this group already pays more than 0.6% of the tax. In every state that imposed a “millionaire tax,” they have lost taxpayers to other states with either lower rates or perhaps, like here in Florida, where there is no state income tax.
Just think about how unfair this might be in some situations: 1) a person sells their business or other assets that they have held for a long time (think residence) so for one year, they have the privilege of paying higher taxes; 2) how about someone that wins the lottery, or 3) they have a deferred compensation plan that pays out in one year but not others. Here is the crazy part – Massachusetts has a law requiring the state to refund taxpayers if the government earns too much. This year Massachusetts will refund approximately 13% of the paid taxes. It isn’t like the politicians need more money.
NEW RULES FOR INHERITED IRAs
Before the passage of the SECURE Act, when someone inherited an IRA, the beneficiary could stretch the withdrawals over the beneficiary’s life expectancy. What a powerful tool for creating wealth over time. But the SECURE Act changed the rules by forcing many beneficiaries to withdraw the money over 10 years (with only a few limited exceptions). The biggest exception is for a spouse who inherits an IRA. Initially, it appeared that the beneficiary could take all the money in year one or delay 100% until year 10 and everything in between.
Earlier this year, the IRS surprised investors with a further “clarification.” For those beneficiaries who inherit an IRA where the decedent had already begun taking Required Minimum Distributions (RMDs), the beneficiary must take money out each and every year over the ten years, and the entire account has to be emptied by the tenth year. Fortunately, the IRS provided relief from this new rule for 2021 and 2022. Otherwise, the beneficiary would be subject to a penalty of 50% of the RMD that should have been taken, plus they still had to pay income taxes. But that relief seems to have disappeared beginning in 2023.
The 2023 RMD must be taken based on the life expectancy tables. For those of you who have an inherited IRA subject to this new rule, we will work with you and your tax professional to determine how these new rules affect you and the proper amount required to be taken annually.
WHAT CHINA’S PROTESTS MEAN FOR INVESTORS
A deadly apartment fire in western China (link) sparked protests across the country as COVID restrictions were blamed for delaying rescue efforts. Arguably, the largest act of defiance against the communist regime since the 1989 Tiananmen Square massacre, the protests mark a potential turning point in China’s harsh, ongoing COVID lockdowns. Markets have reacted negatively to the news and the fear of the unknown. Investors are inherently risk-averse and afraid of uncertainty.
How the Chinese government will respond and what that means for businesses and their investors creates uncertainty. More specifically, many multinational corporations have deeply integrated China into their supply chains over the last several decades, so any worker strikes or government seizure of businesses would have substantial ramifications. Reorganizing supply chains is a costly, multi-year endeavor that hurts corporate profits. On the other hand, the protests could finally force the communist government to finally relax its exorbitant restrictions and unleash the world’s second-largest economic engine. In the meantime, expect volatility to persist as investors price the probabilities of these (and many other) outcomes.
SIX YEAR-END TAX PLANNING IDEAS
You still have time in 2022 to reduce your tax bill and make April 15th a little less painful. Here are six ideas for you to consider over the next 31 days:
1) Maximize the contributions to your retirement plan(s). Talk with your human resources personnel and increase the contributions out of your paycheck or take a big part of any year-end bonus. The money is tax deductible and grows tax deferred.
2) What if you do not have a retirement plan or never enrolled? Not to worry, you may still have l time to set up an Individual Retirement Account (IRA), a Simplified Pension Plan, and maybe even a pension or profiting sharing plan.
3) If you participate in a Health Savings Account (HSA), then maximize your contribution to this plan. Not only are the contributions tax deductible, but the plan accumulates and is distributed tax-free when the proceeds are used to pay medical bills.
4) If you have realized capital gains this year, then perhaps look for investments with a loss and consider selling them to realize the loss as it can be used to offset the gains. If you still like the investment, you can buy it back in at least 31 days. If you buy back within 30 days, it is considered a “wash sale,” As a result, it is like you never sold it in the first place. If you don’t want to be out of the market, consider buying a similar company or a broad ETF within the industry.
5) Given the market disparity this year, your portfolio’s asset allocation is likely out of balance. Use the proceeds from the tax loss harvesting and/or cash to rebalance the portfolio.
6) If you must take Required Minimum Distributions (RMDs) from your retirement plan and are charitably inclined, you can satisfy the RMD by having the custodian send a check on your behalf directly to the charities of your choice. The maximum you can send out of the retirement plan, however, is $100,000. The RMD gift will not count as income and therefore, it is not tax deductible. If you have any questions, please do not hesitate to call us, but please don’t wait until the last minute.
INFLATION FINDS ANOTHER VICTIM – DIVORCING COUPLES
The Wall Street Journal published an article, “Amicable Divorce? Not in this Market,” reporting that inflation and the stock market’s downturn have only increased the tensions and stress for divorcing couples.
One major source of contention – “Who gets the house?” As divorce attorney Heidi Tallentire noted, the higher mortgage rates change how couples treat the family home. If one spouse buys the other’s share in the home, then that spouse will probably need to refinance the mortgage at higher interest rates. While the remaining spouse must search for a residence in a market with low inventory and high-interest rates or high rents.
Some couples who cannot afford to live apart agree to live together and divide living space like an upstairs and downstairs arrangement. Instead of divorcing, attorney Jacqueline Harounian, sometimes recommends a postnuptial agreement or legal separation giving couples advantages like filing a joint tax return or staying on a family health plan.
Inflation has also caused higher legal bills with the Labor Department reporting that legal services rose 7.4%. Inflation and the bear market also cause divorcing spouses to spend more time fighting over how to value assets and, ultimately more in legal fees. A vicious cycle for divorcing couples.
TOP TEN PLACES TO RETIRE ABROAD
Doesn’t it sound really cool to live abroad in retirement? Where do you think most Americans retire when they live abroad? Investment News took data from the Migration Policy Institute to look at the top ten best places where at least 5,000 Americans have moved for retirement:
10) Argentina;
9) Trinidad and Tobago;
8) Romania;
7) Czech Republic;
6) Costa Rica;
5) Chile;
4) Poland;
3) Brazil;
2) Greece
1) Ecuador.
Surprised by this list? We were surprised that Italy, France, England, and other popular travel destinations did not make the cut.

Do you need more personalized in-person financial advice? Do you value an attentive and personal relationship with your advisor? Do you need educational experiences like self-study and webinars focusing on individualized long-term financial planning? Do you include yourself among the 20% of women who don’t invest because they don’t know how to start? All good questions to ponder.
CONGRATULATIONS, RAY!
We are pleased to announce that our Executive Chair, Ray Ferrara, was selected again for Florida Trend’s “Florida 500” list. The Florida 500 list is published annually recognizing the top 500 business influencers in Florida.
On top of that, he recently received the “Champion of Business” award from Amplify Clearwater, the local Chamber of Commerce for his ongoing support of the Clearwater business community.
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