2020: Trump, Iran and RMDs

Well, the first 20 days of 2020 have been very eventful. Trump is continuing with his never-ending tweets; Iran shot down a civilian Turkish airliner and shot missiles at US bases in Iraq; US and Iran tensions are higher than they have been in years; and if you turn 70.5 after December 31, 2019, you don’t have to take your Required Minimum Distribution (RMD) until you turn 72 (thanks SECURE Act).

How do geopolitical events typically shape the stock market in the short term? A recent article in the Washington Post discusses investors’ reactions (as measured by moves in the S&P 500) to major geopolitical events. The article asserts that throughout history US investors have long been able to look past the shocking news of the day and focus on the future. The image below shows that since 1941, the S&P 500 has had an average maximum drawdown of 5% after a major geopolitical event and an average recovery of less than two months.

Despite all of the geopolitical uncertainty, we don’t believe that 2020 will be any different. The overall health of the economy is still strong and because the US is nearly oil independent, more Middle East controversy shouldn’t have a significant long-term impact on the US markets.

Hey, you mentioned the SECURE Act, what is it anyway? Besides all of the tweets and political shenanigans you have seen already this year, you may have also heard about the Setting Every Community Up for Retirement Enhancement Act of 2019 or the SECURE Act. President Trump signed the act into law on Friday, December 20, 2019, with an effective date of January 1, 2020. This sweeping retirement reform could have both a positive and negative impact on retirees. Here is what you need to know:

  • The RMD age has increased to 72 for anyone who wasn’t already required to take it.
    • The age for RMDs has changed from 70.5 to 72 starting January 1, 2020.
    • If you turned 70.5 in 2019, you still must take your RMD by April 2020 (if you didn’t already take it in 2019).
    • If you turn 70.5 in 2020, you do not have to take your RMD until you turn 72.
  • The age restriction for IRA contributions has been removed.
    • As long as you have earned income, regardless of your age, you can now contribute to an IRA. *
    • Previously, if you were older than 70.5, you could not contribute to a traditional IRA.
  • Inherited IRAs must be distributed over 10 years.
    • Most beneficiary IRAs will no longer be able to be distributed over the beneficiary’s lifetime.
      • Exceptions include beneficiary IRAs transferred to:
        • Surviving spouses
        • Minor children
        • Disabled beneficiaries
        • Beneficiaries not more than 10 years younger than the decedent.

If you wish to read the full list of changes and all the details of the SECURE Act, please click here.

If the first days of January are any indication of what’s to come in 2020, we are going to be in for a quite an adventure. We believe this adventure will bring higher volatility, more sensational headlines, plenty of Presidential? tweets but an overall good year for the markets, albeit with lowered expectations from the spectacular results of 2019. Of course, history, although a reasonable lens for the future, is not always a true predictor of future results.

If you have questions, please don’t hesitate to ask and thank you for your trust and business.

*Please consult your accountant to determine IRA contribution eligibility.