Category Archives: Investing and fiduciary requirements

Using Retirement Plans For Cash During Advanced Illness

This article appeared in Forbes, written by Carolyn McClanahan.

Money is saved in retirement plans in the hope that one day you will use it for retirement bliss. Unfortunately, advanced illness may hit unexpectedly and result in an immediate cash need. What do you do if you lack liquid assets but have money wrapped up in retirement plans? Fortunately, retirement plans can be used for advanced illness in certain situations. This article explains how to tap into your retirement plans during this difficult time in your life.

Step 1: Know what type of retirement account you have available

Each type of retirement plan has different rules for how money can be used during illness without penalty.

  1. 401k and 403b plans are very common and have similar rules. Your employer decides whether to allow hardship distributions when the plan is set up. Refer to the “summary plan description” that is provided to you each year or ask your human resource department if hardship distributions are available. For these plans, the IRS requires that you access all other available distributions and loans from the plan first.
  2. 457b plans have a slightly stricter definition of when plans can be utilized for illness. Distributions are allowed only when a participant has an unforeseeable emergency, so a sudden diagnosis of a serious illness would fit that category. The employer has to prove that you have no other resources in place to meet your need, so they will ask for appropriate documentation from you. Again, your employer has the ability to determine whether they allow hardship withdrawals in the first place, so check with your human resources department.
  3. IRA accounts can be used without penalty if you are older than 59 ½. If you are younger, there are three ways IRA accounts can be used for illness:
    • If disability is “total and permanent” as determined by a physician, and you cannot work for at least a year, or the condition will result in your death, you are allowed to use money from your IRA penalty free.
    • If you have unreimbursed medical expenses above 10% of your adjusted gross income, you can pay for those medical expenses out of your IRA account. Have an accountant or financial planner run calculations for you.
    • If you are unemployed and drawing unemployment benefits, your IRA can be used to pay for health insurance premiums for you and your family.

Step 2: Understand the tax implication of the withdrawal

All withdrawals from 401k, 403b, 457b, and traditional IRA accounts are taxed as regular income upon withdrawal. Have an accountant or financial planner provide tax projections to prepare you for the tax consequences. Make certain you withhold enough taxes so you will not be subject to underpayment penalties.

Remember that the more you withdraw from retirement accounts, the higher your adjusted gross income will be on your tax return. This increase in income may limit your ability to deduct some health expenses. Likewise, if you have no income other than from retirement plans, taking distributions will create income that medical expenses can be deducted against in the tax year. Again, it would be wise to get an accountant involved early.

Roth IRA accounts are funded with post-tax dollars, so if you take early withdrawals, the amount you deposited originally (the basis) is tax-free, but any earnings are taxed at regular income tax rates.

Step 3: Apply for the withdrawal

Make certain the withdrawal paperwork from your place of employment states the withdrawal is for hardship purposes. If making a withdrawal from your IRA account, instruct the custodian of your account that the withdrawal is for hardship purposes – either for medical expenses or for permanent disability.

Because of the distribution, you will receive a 1099-R for tax purposes in January. Check this document immediately to make certain the distribution is coded correctly. Box 7 of the 1099-R should be marked with code 2 – early distribution, exception applies (under age 59 ½) or code 3 – disability. If the code is not correct, contact the custodian immediately and have them issue a new 1099-R with the correct code. If not corrected, the IRS will charge you a 10% penalty for the withdrawal.


Quarterly Economic Update

Stocks advanced for the third quarter out of the last four: the S&P 500 rose 2.36% in three months and climbed to a new record close of 1,669.16 on May 21. While the Federal Reserve threatened to let the air out of the rally as the quarter wound down, key indicators largely showed improvement even as the effects of the sequester cuts presumably trickled down to Main Street. The dollar strengthened and gold was hit hard, though oil pushed toward $100 a barrel. The housing recovery continued undeterred.1,2


When Federal Reserve chairman Ben Bernanke mentioned on June 19 that the central bank might reduce its easing effort later this year and end QE3 altogether in mid-2014, global markets tumbled and the S&P 500 ended up having its first losing month in several (-1.50%). While this was the major event affecting investors in Q2, there were many other consequential economic developments.1,3


Non-farm payrolls expanded by (a revised) 199,000 in April and 195,000 in May, the Labor Department noted. The jobless rate was at 7.6% by May, with the long-term unemployed numbering 4.3 million (1 million fewer than a year before). Consumer spending staged a rebound – it declined 0.3% in April, but then rose 0.3% in May. Consumer incomes rose 0.5% in May (the biggest gain in three months) after a 0.1% rise in April. As for consumer inflation, it was certainly mild: the Consumer Price Index rose 0.1% in May to bring America’s annualized inflation rate to 1.4%. Perhaps as a reflection of the increase in personal spending and low inflation, retail sales were up 0.1% in April and 0.6% in May. While the Commerce Department revised Q1 GDP down to 1.8% in June (from an initial 2.4% estimate), the hope was that the Q2 figure might show solid improvement.4,5,6,7,8


Consumer sentiment improved. April’s Conference Board consumer confidence index was at 69.0; by May it was at 74.3 and in June it reached 81.4. The University of Michigan’s survey also logged an ascent, rising from 76.4 in April to 84.5 in May, then settling at 84.1 in June.9,10


The Institute for Supply Management’s manufacturing PMI had its ups and downs in the quarter. It wound up at 50.9 in June after coming in at 50.7 in April and 49.0 in May. ISM’s non-manufacturing index rose to 53.7 in May from a 53.1 mark a month earlier – and then it declined in June to 52.2. The Producer Price Index showed similar ups and downs, dropping 0.7% for April and rebounding 0.5% in May. Overall durable goods orders rolled in at a consistent pace: up 3.6% in May.11,12,13,14


When the Supreme Court repealed Section 3 of the Defense of Marriage Act (DOMA) in June, it brought federal recognition of same-sex marriages. Financially, that allowed married gay and lesbian couples to file joint tax returns with the IRS and tap into partner health insurance benefits; it also made surviving spouses in such marriages eligible for Social Security survivorship benefits. College students watched interest rates on Stafford loans double to 6.8% due to congressional inaction as June ended, though Capitol Hill lawmakers talked of a fix this summer. Finally, Standard & Poor’s upgraded America’s credit outlook to “stable” from “negative” in June.15,16,17


China’s economy showed distinct signs of cooling off in the quarter. Markit’s monthly PMI showed the nation’s manufacturing sector contracting in May (49.2) and June (48.2), and fears emerged that China might fall short of its 7.5% GDP target for the year. The PRC’s leaders were increasingly focused on rooting the country’s economy in personal consumption rather than exporting and investing. In an effort to clamp down on shadow banking, the People’s Bank of China attempted to curb funding in the interbank lending market, resulting in skyrocketing short-term interest rates. Chinese stocks fell 5.3% in the wake of that move. By the end of the quarter, manufacturing PMIs were at 50.3 in India, 51.0 in Indonesia, 49.5 in Taiwan and 49.4 in South Korea.18,19,20


The good news from Europe: by June, eurozone inflation had declined 0.8% in a year. The bad news: it had risen 0.4% since April to 1.6%. Unemployment for the euro area reached 12.2% in May, up 0.1% from April and up 0.9% in 12 months; at the quarter’s end, jobless rates among EU members ranged from 4.7% (Austria) to 26.9% (Spain). In June, the European Central Bank cut its 2013 GDP projection for the eurozone to -0.6%. It did forecast 1.1% growth in 2014.21,22,23


It was a down quarter for many benchmarks. Some Asia Pacific indices logged gains – the Nikkei 225 (+10.32%), the Sensex (+2.97%), the KSE 100 in Pakistan (+17.04%), the TAIEX in Taiwan (+1.81%). Others didn’t – the Shanghai Composite went -11.51%, the Jakarta Composite -2.47% and Australia’s ASX -3.30%. In the west, the TSX Composite went -4.87%, the Bovespa -15.78% and Mexico’s IPC All-Share -7.84%. While the DAX (+2.10%) and CAC 40 (0.20%) managed small Q2 advances, quarterly losses were more common in Europe – including descents for the RTSI (-12.64%), IBEX (-1.99%) and FTSE 100 (-3.06%). Among regional and multi-country indices, the Global Dow lost only 0.03%,  the DJ STOXX 50 3.46%, the Asia Dow 3.30%, the MSCI World Index just 0.07% and the MSCI Emerging Markets Index 9.14%.24,25


With hints of waning demand in China, U.S. stocks hitting new all-time highs and the dollar growing stronger, there was plenty of selling. The quarter was a disaster for gold, which dropped 23.3% to settle at $1,223.70 on the COMEX on June 28. (In the first half of 2013, gold futures declined $452.10.) Silver’s quarter was even worse: it dropped 31.3%. Platinum futures sank 14.9% in Q2, palladium futures 14.0%. For some other commodities, it was a different story: the first half of 2013 ended with oil up 2.4% YTD, natural gas up 3.9% YTD and cotton up 10.0%. The U.S. Dollar Index went +0.19% in the quarter.26,27,28


A steady stream of positive news arrived from this sector. The April Case-Shiller Home Price Index came out in June, and it showed home prices across 20 cities rising 12.1% in 12 months. The Case-Shiller hadn’t seen a yearly gain that large since March 2006. By May, the National Association of Realtors reported a 12.9% annual gain in existing home sales with a 15.4% increase in the median price of a residential resale; NAR also noted a 12.1% annual improvement in pending home sales. Housing starts and building permits were respectively up 28.6% and 20.8% above year-ago levels by May, and the Census Bureau also noted a 29.0% annualized gain in new home sales.14,29,30,31,32


This might have been the last quarter for rock-bottom mortgage rates. In Freddie Mac’s June 27 Primary Mortgage Market Survey, the average interest rate for the 30-year FRM had risen to 4.46%. (Compare that to 3.57% on March 28.) Other mortgage types also grew more expensive: 15-year FRM, 2.76% to 3.50%; 5/1-year ARM, 2.68% to 3.08%; 1-year ARM, 2.62% to 2.66%.33


Q2 2013 was not as spectacular for U.S. equities as its predecessor. Still, all three major U.S. indices advanced. At the close on June 28, the Dow settled at 14,909.60, the S&P at 1,606.28 and the NASDAQ at 3,403.25. In addition, the Russell 2000 gained 2.73% for the quarter, closing at 977.48 on June 28. Fear increased, at least as measured by the CBOE VIX. The VIX soared 32.26% in the quarter.1

Gloom invaded Wall Street late in the quarter when Ben Bernanke spoke of tapering QE3. Intellectually, investors knew the Fed couldn’t ease forever – but the market sure had a hard time swallowing the pill. The market dip was far from a correction, though, and subsequent economic indicators lightened the mood on the Street. The coming quarter presents the market with strong challenges: few analysts see great things ahead for this next earnings season, there is fear that the jump in mortgage rates may slow the housing comeback, and investors are keeping wary eyes on economic and political developments in China, Europe and the Middle East.  If the housing, hiring and personal spending numbers measure up to expectations in the coming months, stocks may move a little higher in Q3 while Wall Street waits for fall.




This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. BSE Sensex or Bombay Stock Exchange Sensitivity Index is a value-weighted index composed of 30 stocks that started January 1, 1986. The Karachi Stock Exchange (KSE) is Pakistan’s largest and one of the oldest stock exchanges in South Asia by market capitalization.  The TWSE, or TAIEX, Index is capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.  The SSE Composite Index is an index of all stocks (A and B shares) that are traded at the Shanghai Stock Exchange.  The Jakarta Stock Price Index is a modified capitalization-weighted index of all stocks listed on the regular board of the Indonesia Stock Exchange. The Australian Securities Exchange (ASX) is Australia’s primary securities exchange. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization.  The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The Mexican IPC index (Indice de Precios y Cotizaciones) is a capitalization-weighted index of the leading stocks traded on the Mexican Stock Exchange. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The RTS Index (abbreviated: RTSI, Russian: ?????? ???) is a free-float capitalization-weighted index of 50 Russian stocks traded on the Moscow Exchange in Moscow, Russia. The IBEX 35 is the benchmark stock market index of the Bolsa de Madrid, Spain’s principal stock exchange.  The FTSE 100 Index is a share index of the 100 most highly capitalized companies listed on the London Stock Exchange. The Global Dow (GDOW) is a 150-stock index of corporations from around the world, created by Dow Jones & Company. The Dow Jones STOXX 50 is a stock index representing 50 of the largest companies in Europe based on market capitalization. The stock universe used for selection is an aggregate of the 18 Dow Jones STOXX 600 Supersector indexes, which together capture about 95% of the capitalization of the major stock exchanges in 18 European countries. The Asia Dow is an equal-weighted, 30-stock index that measures 30 of the leading blue-chip stocks traded in the Asia/Pacific region, The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results.  Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.




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The Fed Perturbs the Markets


A more positive view of the economy equals a big negative for Wall Street.

The end is in sight for QE3. On June 19, the Federal Reserve let investors know that “easing without end” will eventually end, perhaps as early as mid-2014. Wall Street had anticipated such a signal, but investors still reacted emotionally to the news, with the Dow Jones Industrial Average ceding all of its May and June gains in less than two market days. (The index fell 206 points on June 19 and 354 points on June 20.) Bears see the air quickly coming out of the rally; bulls think the rally will pause during the turbulence, then resume.1,2

Good news implied bad news. In its June 19 policy statement, the Fed presented a brighter economic outlook. It saw unemployment lessening to 6.5-6.8% in 2014. It also envisioned growth of 3-3.5% for 2014 and possibly as much as 2.6% growth in 2013.1,3

Then came the press conference after the release of that statement, at which Fed Chairman Ben Bernanke stated that the central bank could scale back its bond buying in late 2013 and end its current stimulus altogether next year, provided the economy is healthy enough. While the Fed will keep purchasing $85 billion in bonds per month in the short term and hold interest rates where they are until the jobless rate hits 6.5%, Wall Street saw a disquieting big picture: an end to the era of easy money.2,3

The Fed’s announcement hardly came out of left field, but Wall Street reacted as if it did. QE3 could not last forever; a central bank can only practice aggressive easing for so long before risking damage to an economy, and the timing of the news was pretty much in line with expectations. Still, the major U.S. and Asian benchmarks dropped around 2% on the first full market day after the news and the major European markets were down more than 3%. Gold dropped more than 6% on June 20 to $1,296 an ounce and the 10-year Treasury yield climbed to 2.42%, with the real yield of the 10-year TIPS up to 0.46% after rising 0.32% in two days.4,5,6


When & how might the Fed taper? In a new Bloomberg survey, 24 of 54 economists (44%) believe that the Fed will reduce QE3’s scale to $65 billion a month at its September policy meeting. Alternately, 28% of the economists feel tapering will start in December and 13% think we won’t see it until 2014. As to when QE3 will end, 44% of the respondents said June 2014.7

The Fed could end up winding down QE3 later than it anticipates. In fact, you could point to many statistics in this job market that don’t support tapering. Looking at job creation from December through May, payroll growth has averaged 194,000 jobs a month – not the 200,000+ the federal government would like to see. The labor participation rate (the amount of people employed + the amount of people looking for jobs) is scraping a 29-year low. Inflation is not only low, so are inflation expectations: the Cleveland Fed is forecasting average consumer inflation of 1.4% for the next 10 years.8

Who might get hurt the most when interest rates rise? Investment classes across the board took a hit in the wake of the Fed’s announcement as emotion ruled the markets. Historically, fears of rising rates and actual rising rates have tended to affect certain sectors and classes of investments more than others. The utilities and financials sectors have faced headwinds in such a climate in past decades, and it is well documented that REITs are highly sensitive to changes in the interest rate environment. The energy sector and foreign stocks have fared better when rates rise. Still, past performance is no barometer of future results and the markets hardly move on logic alone.9

Will the bull market stumble? For some long-range perspective, we’ll let Prudential Financial market strategist Quincy Krosby have the last word. As he told CNBC last week, “We haven’t had a meaningful correction in the market and if this selloff continues…it doesn’t mean the market is going to collapse. It is essentially recalibrating – the road to normal is going to be filled with detours.”2

Reeve Conover may be reached at 877-423-9990 or


This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.



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5 Reasons Retirees Should Be Psyched About Rising Interest Rates

Forbes 6/26/13, Barry Glassman


Seniors and retirees may finally get their turn. For years, low interest rates have supported the economy, Wall Street, housing and corporations to the detriment of those who rely on investment income – namely retirees. As most of my clients are near or in retirement, they should be thrilled with rising interest rates. Here’s why:

  1. They don’t need to borrow money: Those who are hurt by higher interest rates are dependent on intermediate and long-term rates and typically fall into two camps: the consumer borrower looking for a mortgage; or corporations, municipalities, and government entities. Those who still have mortgages and have the proper credit have already refinanced their mortgages, most likely more than once.
  2. Their portfolios were positioned for higher rates: Rates had nowhere to go but up.   I love the quote from Greg Valliere, Chief Political Strategist for the Potomac Research Group, “EARTH TO MARKETS: A move to modestly higher interest rates was perhaps the most telegraphed event in recent market history. It was inevitable.”   With so much expectation, the market reaction last week was somewhat surprising. So while our bond strategy is not immune to rising interest rates, we certainly mitigated most of the downturn.
  3. They’ll need less capital to generate income: Over the past five years, retirees have seen their income streams dry up as historically low interest rates helped to prop up our faltering economy. They needed larger portfolios in order to produce enough income to maintain their lifestyles. Now, 10-year Treasury notes are paying 60% more than they were just six weeks ago meaning that $100,000 of Treasuries that were paying about $1,650 are now paying roughly $2,600. The result – retirees won’t need more capital to produce more income.
  4. The dream of a 4% or 5% safe yield is a little bit closer to reality: The closer “safe yield” gets to meeting the income needed from portfolios, the less retirees will need to rely on the stock market to succeed financially through retirement.
  5. Rates are rising without inflation: Many times in the past, rising interest rates came with rising prices. While I’m not suggesting that healthcare deflation is coming, at this point, inflation is benign while future portfolio income is on the rise.

While rising interest rates are bad news for those who haven’t refinanced or jumped to buy a house, or even municipalities who face higher refinancing costs as their current debt comes due, this could be the beginning of better times for retirees.


For investors, the Perfect Storm

Bill Gross,  Managing Director of PIMCO, and a bond maven, recently posted a brilliant article (in my opinion) about what just happened in the market.  I suggest all my clients read it at  It is a clear, concise discussion of one of those moments when there is just not any “safe” place to invest.

For the up-side to rising interest rates, read “5 reasons Retirees should be psyched about rising interest rates” in this newsletter.

Here is a little piece:

The forecast for bad weather as I’ve mentioned was becoming more rational with every increase in asset prices. If all markets were being artificially supported as PIMCO claimed and the Fed confirmed, then someday, someday that support via quantitative easing would have to be withdrawn. But the dark clouds seemed to be far off on the horizon. Investors worldwide piled on the leverage – not just in high yield or equity space – but in Treasuries as well. If the Fed (and BOJ) were going to keep writing checks at one trillion per year, then these two central banks alone might be buying 70-80% of all developed market future supply. The fear was that there might not be enough for others, not that there was too much leverage.

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Reeve Conover is a Registered Representative. Securities offered through Cambridge Investment Research, Inc., a Broker/dealer member FINRA/SPIC. Cambridge and Conover Consulting are not affiliated. Licensed in SC, NC, NY, CT, NJ, and CA. - SIPC - Brokercheck