Bob’s Journal for 3/3/22

Act Before March 25 to Lock in The Best Long-Term Care Insurance Benefits

The cost of the best long-term care insurance (LTCI) plan around is scheduled to increase, but you can beat the price increase.

My friend and top insurance expert, David Phillips, recentl5y alerted me to the scheduled price increase. But my readers who apply by March 25, 2022, can lock in the current benefit levels. David surveys the entire LTCI market and has been telling my readers for several years about the best LTCI plan he’s seen.

The insurance company sponsoring the plan announced the premiums soon will increase. David estimates that those who apply after the deadline will receive benefits that are 20% to 25% lower for the same premium compared to those who apply before the deadline.

For more details, go to www.ropltc.com or call David or Todd Phillips at 888-892-1102.

IRS Releases Proposed Regulations on SECURE Act, Required Minimum Distribution Changes

The IRS finally released proposed regulations on required minimum distributions (RMDs) last week to address changes made by the Setting Every Community Up for Retirement Enhancement (SECURE) Act, enacted in 2019.

The proposed regulations are 275 pages long and will replace all existing regulations on RMDs instead of merely amending them for the SECURE Act changes.

Major news is the IRS once again changed its interpretation of the SECURE Act’s 10-year rule for inherited retirement accounts.

Remember the SECURE Act eliminated the Stretch IRA for inherited IRAs. In most cases, an IRA inherited after 2019 must be fully distributed within 10 years after the beneficiary inherits it. The 10-year rule applies to traditional IRAs, Roth IRAs, 401(k)s, and other defined contribution retirement accounts.

There are exceptions, known as eligible designated beneficiaries (EDBs). The exceptions are when the beneficiary is the account owner’s surviving spouse or child (but not a grandchild) under the age of majority, or is disabled, chronically ill, or no more than 10 years younger than the account owner.

The proposed regulations establish that the age of majority is 21 in all cases, instead of leaving the definition to each state’s law.

An EDB can use the pre-SECURE Act rules, which generally say RMDs can be taken using his or her own life expectancy or the remaining life expectancy of the deceased IRA owner, depending on the circumstances.

After the SECURE Act was enacted, the consensus among tax advisors was that after an IRA was inherited, a beneficiary who wasn’t an EDB could take the money out in any pattern as long as the IRA was fully distributed within 10 years. A beneficiary could wait until the end of 10 years and distribute the entire account. Or the money could be distributed gradually over the 10 years in any way that suited the beneficiary.

You might recall a kerfuffle in early 2021 when the IRS updated Publication 590-B, covering IRA distributions. The publication indicated that during the 10-year period a beneficiary had to take annual RMDs as under the old rules and also had to ensure the entire account was distributed by the end of 10 years.

After complaints and criticism from tax professionals, the IRS seemed to withdraw that rule. Several IRA officials said off the record that the publication was incorrect. After a few months another update was issued that excluded references to annual RMDs during the 10-year period.

The proposed regs add a more complicated rule or, more accurately, two rules.

Under the regs, if the account owner died before the date at which he or she would have to begin RMDs, the beneficiary doesn’t have to take distributions during the 10-year period. The account can be distributed in any pattern the beneficiary wants, as long as it is fully distributed by the end of 10 years.

But if the account owner died on or after the date RMDs had to begin, the beneficiary has to take annual RMDs during the 10-year period calculated using his or her life expectancy until the IRA is fully distributed. The IRA still must be fully distributed by the end of the 10 years.

For example, the beneficiary could take only the RMDs for nine years. In the 10^th year, the full IRA balance must be distributed. Or the beneficiary could fully distribute the IRA at any time during the 10 years but must take at least the RMD amount each year until the account is fully distributed.

I’ll be bringing more details to you here and in Retirement Watch as I go through the proposed regs.

The proposed regs, if finalized substantially as proposed, would apply only to years beginning on or after Jan. 1, 2022. For previous years, taxpayers can apply the existing regulations taking into account a reasonable, good-faith interpretation of the SECURE Act.

Do You Come Out Ahead on Social Security, Medicare?

During the working years, you pay a lot of taxes for Social Security and Medicare, but you later receive a lot of benefits. Over a lifetime, do your benefits equal or exceed the taxes?

Most people guess at the answer, but the Urban Institute periodically issues a report that crunches the numbers to answer the question.

The report found that for a single male worker who earned average wages every year of his career and retired in 2020 at age 65, the lifetime Social Security and Medicare benefits would exceed the lifetime taxes by $550,000. (The tax bill doesn’t include income taxes; only the designated Social Security and Medicare taxes.)

The benefit is greater for a married couple that had one wage earner who earned below-average wages over his or her career. That couple’s lifetime benefits exceeded lifetime taxes by $1.1 million.

The benefits are less, but still a net positive, for higher income beneficiaries. The researchers estimate that millennials who retire around 2060 will receive about double the net benefit from the programs.

Overall, the report finds that the programs pay more in benefits than beneficiaries pay in taxes.

But things are changing. For higher-income taxpayers, Social Security taxes are starting to exceed lifetime expected benefits.

Given the fiscal state of both Social Security and Medicare, the trade-off between benefits and taxes probably will change. Congress is likely to have to increase taxes or reduce benefits or a combination of both in the coming years.

When Investment Losses in IRAs Are Deductible

Readers sometimes want to know when losses in IRAs, particularly Roth IRAs, can be deducted on their tax returns.

The answer is, they can’t. Not anymore. The losses used to be deductible under limited circumstances, but the 2017 tax law suspended even that limited opportunity until at least after 2026.

An IRA is considered a separate taxpayer from its owner. Its losses aren’t the owner’s losses as long as the money remains in the IRA.

Under the rules, to deduct Roth IRA losses you first had to distribute all the money in all your Roth IRAs. Then, if you had more than one Roth IRA, you netted the gains and losses.

If you had a net loss, and if you itemized expenses on Schedule A of your tax return, you could include the loss as a miscellaneous itemized expense. But there was a deduction only when total miscellaneous expenses exceeded 2% of adjusted gross income.

So, even under those rules not many people could deduct losses they incurred in Roth IRAs.

The 2017 tax law suspended the deduction for miscellaneous itemized expenses through the end of 2025. Now, no one can deduct Roth IRA losses at least until the 2026 tax year.

The Data

Personal income was unchanged in January, and December’s 0.3% increase was revised higher to a 0.4% increase.

But personal consumption expenditures increased by 2.1% in January after declining a revised 0.8% in December.

The Fed’s preferred measure of inflation, the Personal Consumption Expenditure (PCE) Price Index increased 0.6% in January and 6.1% over 12 months. The 12-month increase is highest in four decades.

The personal consumption expenditure increase for January, after adjusting for inflation, was 1.5%.

After excluding energy and food, the core PCE Price index increased 0.5% in January and 5.2% over 12 months.

Consumer Sentiment, as measured by the University of Michigan, improved in the last half of February. The Consumer Sentiment Index increased to          62.8 at the end of February from 61.7 at mid-month.

At the end of January, the index was 67.2, and the final February level is the lowest month-end level since October 2011.

The recent decline is due entirely to falling sentiment among households with incomes of $100,000 or more.

The report on the index said respondents’ long-term expectations for the economy are at their lowest level in the past decade.

New home sales declined by 4.5% in January from December’s level and were 19.3% lower than 12 months earlier.

But sales the three previous months were revised higher by significant amounts.

Pending home sales fell 5.7% in January, according to the National Association of Realtors (NAR). That is the third consecutive month of declines. Over 12 months, pending home sales declined 9.5%.

Durable goods orders increased 1.6% in January, and December’s report was revised substantially higher from a 0.9% decline to a 1.2% increase.

Core capital goods, considered a good measure of business investment, increased 0.9% in January. December’s total was revised higher from no change to a 0.4% increase.

The ISM Manufacturing Index increased to 58.6 in February from 57.6 in January.

The PMI Manufacturing index for February declined a little to 57.3 from 57.5 in January.

The Kansas City Fed Manufacturing Index increased to 29 in February from 24 in January. Both levels indicate strong growth in the sector.

The General Activity Index derived from the Dallas Fed Manufacturing Survey increased to 14.5 in February from 2.0 in January. The Production Index declined to 14.5 in February from 16.6 in January.

Manufacturing activity in the Chicago area declined in February, according to the Chicago PMI. The index fell to 56.3 from 65.2 in January.

New unemployment claims declined by 17,000 to 232,000 in the latest week.

Continuing claims declined by 112,000 to 1.48 million, their lowest total since March 14, 1970.

GDP for the fourth quarter of 2021 was revised slightly higher in the second estimate to a 7.0% annualized growth rate.

That estimate increases 2021 full-year growth rate to 5.7%, which is the highest full-year rate since 1984.

The ADP Employment Report continues its recent volatility. First, January’s change in the number of private sector jobs was revised from the 301,000 decline reported last month to a 509,000 increase.

The report said in February 475,000 new private sector jobs were created. That was well above estimates.

Companies that already had 500 or more workers accounted for almost all the increase, while businesses with less than 50 employees showed a decline in payrolls. The leisure and hospitality industry recorded the biggest gain in jobs.

The Markets

The S&P 500 rose 0.10% for the week ended with Tuesday’s close. The Dow Jones Industrial Average fell 0.85%. The Russell 2000 gained 1.44%. The All-Country World Index (excluding U.S. stocks) lost 3.51%. Emerging market equities declined 4.00%.

Long-term treasuries rose 2.09% for the week. Investment-grade bonds increased 1.38%. Treasury Inflation-Protected Securities (TIPS) added 2.87%. High-yield bonds gained 0.89%.

On the currency front, the U.S. dollar gained 1.36%.

Energy-based commodities increased 9.42%. Broader-based commodities rose 6.59%. Gold added 2.32%.

Bob’s News & Updates

My latest book is “Where’s My Money: Secrets to Getting the Most out of Your Social Security.” It tells you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on Amazon.com or Regnery.com.

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Series, click here.

A recent five-star review of my book on Amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check my Amazon.com author’s page.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.