The ABCs of IRAs
Here we are in mid-March and many of us have not filed our tax returns for 2020 yet. If you haven't filed your tax return for 2020, you can still make a contribution to an IRA for 2020. This leaves many wondering which would be better, a Roth IRA or a Traditional IRA? It depends! Either can be more or less appropriate depending on your circumstances and expectations for the future. Let me share with you our most recent blog, The ABCs of Roth and Traditional IRAs as it elaborates on when each is appropriate.

Both Traditional and Roth IRAs (Individual Retirement Accounts) have tax advantages that can lead to enhanced asset growth. It may not seem like much in the beginning, but it adds up over time, and if you don't need the liquidity of the assets immediately it is something worth considering every year. 

What are the benefits of each?

The traditional IRA offers the possibility of a tax deduction (depending upon one's income and tax filing status) and full deferral of taxes on investment earnings until withdrawal.
 
On the other hand, The Roth IRA does not give rise to a deduction, but all withdrawals are potentially tax free, including withdrawals of investment earnings. Withdrawals of contributions are always without tax consequence. So, if your tax bracket is currently low, putting the assets in a Roth IRA avoids the future taxes on the gains from those assets, which given a long growth period could be substantial.
This month's Famous Will is Samuel Clemens better known by his pen name Mark Twain.

FAMOUS WILL FOR THE MONTH SAMUEL CLEMENS
CLICK THE NAME TO READ
CLICK THE NAME TO READ

Let me guess, when reading his Will, I bet you thought you were going to find some Mark Twain isms? Like, "April 1st this is the day upon which we are reminded of what we are on the other three hundred and sixty-four." or, "When I was a boy of 14, my father was ignorant I could hardly stand to have the old man around. But when I got to be 21, I was astonished at how much the old man had learned in seven years." Nope, just a legal document!

In one of this month's Informational Articles read Foreign Exchange, Simplified referencing the McDonald's Big Mac Index. Also, bestowing the responsibility of being trustee to a family member or friend may be overwhelming, read Choosing Your Trustee.

Hopefully within the next few months the majority of us will be fully vaccinated and we can begin to return to some normalcy. For me, it will be trying to make up lost time spent with my 9-year-old twin granddaughters.

Wishing you a Happy Spring Season,
Ira J. Brower, Founder
Foreign Exchange, Simplified
Economists have many theories about currencies and exchange rate behaviors. One of these is called "purchasing power parity," or PPP. The idea is that real purchasing power shouldn't vary around the world, that a basket of goods and services that costs $100 in the U.S. should cost the same everywhere, from Europe to Asia, from industrialized countries to developing ones.

With the wide disparity in economic and cultural life among nations, coming up with a single basket of goods that all nations have in common is one of the problems with testing this theory. Since 1986 The Economist has solved this part of the riddle by reducing the basket to a single item, the McDonald's Big Mac. Each year the magazine calculates a Big Mac index, as shown in the table below, determined at the close of 2020.

The first column gives the local prices of the Big Mac converted to dollars. Comparing these provides a measure of how overvalued or undervalued a foreign currency is relative to the dollar, in the second column.

Although the Big Mac index is subject to some distortions by local sales taxes, trade barriers, and other factors, The Economist reports that its PPP estimates are remarkably close to those derived by more sophisticated methods. The data confirm the generally accepted wisdom that China's currency has been undervalued significantly.

Big Macs around the world
Source: The Economist, January 12, 2021; https://www.economist.com/big-mac-index

Caution for investors. The volatility in currency exchange rates is just another difficult fact of life for investors, one that adds both risk and reward to the international component of an investment portfolio. Although it may be important for investors to have a global perspective, it's also important to stay well diversified, not concentrated in a single country or region.

(March 2021)
© 2021 M.A. Co. All rights reserved.
IRAs in 2020 and 2021
In 2019 Congress revisited the rules for qualified retirement plans and IRAs, with an eye toward boosting retirement savings. To that end, the age limit of 70 1/2 for making a contribution to a traditional, deductible IRA was eliminated, beginning in the 2020 tax year. However, one still must have "earned" income to make any IRA contribution -- income from investments, pensions, gifts, and Social Security benefits does not count.

The amount that may be contributed to traditional and Roth IRAs has not changed, 6,000 for 2021, as it was in 2020. Those 50 and older may make an additional $1,000 "catch-up" contribution. 

A contribution is one thing, the deduction is something else. Those who have no employer retirement coverage are permitted a full deduction for IRA contributions, regardless of income. Those who have such coverage will find the deduction phases out as their modified adjusted gross income (MAGI) grows, as shown in the table below. A person whose spouse has an employer-provided retirement plan also has limits on the deduction.

The Roth IRA should be considered, especially by those whose income exceeds the deductibility threshold. There is no deduction for the contribution, but there is the possibility of complete tax freedom for all distributions. Income limits apply to Roth IRAs as well, but those limits are higher than for deductible IRAs.

Key IRA boundaries 
Source: Internal Revenue Code; M.A. Co.

(March 2021)
© 2021 M.A. Co. All rights reserved.
Choosing Your Trustee
When you create a trust, either now or to take effect under your will, whom do you want to choose as your trustee?

One or two individuals may come to mind. Literally, they are people whom you can trust. And choosing someone whom you trust is essential. These potential candidates, however, must possess other qualities just as important as trustworthiness.

The responsibilities of a trustee

To understand what these qualities are, you need to have an idea of the complex duties that a trustee must shoulder. Here, in order, are the key responsibilities of a trustee:

  • Initial steps. Study the terms of the trust and review the trust agreement or will. Accept trusteeship and take control of the assets. Meet with the trust's creator or beneficiaries to determine income and principal needs.
  • Begin administrative duties. Transfer assets to the trust's name and set up records. Inventory assets and record tax basis and acquisition dates of all trust assets. Determine adequacy of property insurance.
  • Undertake recordkeeping responsibilities. Collect income from investments and reinvest proceeds of matured investments. Record details of all investment income and principal receipts and disbursements.
  • Act as investment manager. Establish appropriate investment strategy. Monitor investments and make appropriate changes. Review the trust assets regularly for quality and performance. Supervise business and real estate interests.
  • Carry out duties to beneficiaries. Remit income regularly and send detailed income and principal statements. Exercise discretion in advancing principal amounts to beneficiaries, if needed and permitted by the terms of the trust. Pay for support, education and medical needs of beneficiaries, if required.
  • Attend to tax issues. Keep records of taxable income and adjusted cost basis of assets. File fiduciary income tax returns and furnish data for the beneficiaries' tax returns.
  • Monitor own performance. Submit actions to independent audit and examination. Seek legal counsel when necessary. Do not delegate authority. Avoid any conflict of interest.
  • Distribute trust remainder. Determine proper time for partial and final distributions. 
  • Calculate proper share for final distribution to each beneficiary. Provide accounting and tax data. Arrange for transfer of the trust's assets.

What do you want in a trustee?

As you can see from this list, it's highly unlikely that one or even two individuals could be capable of carrying out all these responsibilities effectively. Any individual whom you have in mind might prove talented in many of these duties but surely will be, at most, a talented amateur.
 
Several other criteria should guide you in making your choice. You want longevity and availability. In other words, your trustee should be someone who will last as long as your trust does and won't be distracted by illness, business or vacations.

Have you considered choosing us to serve as the trustee of your trust? Here are some of the important benefits that we offer:

  1. We retain an experienced staff. A professional trustee should be highly trained and know how to work with people.
  2. We have the specialized knowledge. A professional trustee must have a depth of knowledge about investments, taxes, accounting and sophisticated recordkeeping. 
  3. We offer unbiased investment judgment. A professional trustee should have no stake in the investment activity of any trust while serving as trustee.
  4. We remain impartial. A professional trustee should remain uninvolved in family conflicts and not favor one beneficiary over another.
  5. We are financially responsible. A professional trustee should possess substantial capital and financial resources to stand behind all actions and decisions.

Call upon us

Choosing the right trustee is a critical aspect of your financial and estate planning. When you name us to serve as trustee, you have the security and peace of mind that your instructions will be carried out according to your wishes and that your beneficiaries will receive what you want them to receive, as well as how you want them to receive it.

We would be glad to tell you more about our services. Contact us now for more information. 

© 2019 M.A. Co. All rights reserved.
Any developments occurring after March 1, 2019, are not reflected in this article.
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Because of the rapidly changing nature of tax, legal or accounting rules and our reliance on outside sources, Garden State Trust Company makes no warranty or guarantee of the accuracy or reliability of information contained herein nor do we take responsibility for any decision made or action taken by you in reliance upon information provided here or at other sites to which we link. ©2021. All rights reserved.