Published: Mon, 23 Nov 2020 17:25:23 +0000
Economic Blog COVID-19 cases have been rising in several regions around the world, prompting many countries to implement new restrictions to curb the spread of the virus. Governments in a few European countries have rolled out what has been dubbed … Continue reading →
Published: Mon, 23 Nov 2020 15:58:20 +0000
Daily Insights Stocks opened higher. S&P 500 Index opened about 0.4% higher as market participants continued to weigh the COVID-19 threat against vaccine prospects. Stocks responded to positive COVID-19 trial results from AstraZeneca in partnership with Oxford University. Asian markets … Continue reading →
Published: Fri, 20 Nov 2020 21:16:05 +0000
Market Blog Index Performance US and International Equities This week, as some of the economic news was pointing to worries of a potential economic slowdown, some areas of the stock market are looking ahead to a potential economic recovery. … Continue reading →
Published: Fri, 20 Nov 2020 16:58:11 +0000
Economic Blog Leading economic indicators are confirming what high-frequency data has been telling us for weeks: The rate of the domestic economic recovery, while still positive, is slowing. On November 19, the Conference Board released its October report detailing … Continue reading →
Published: Fri, 20 Nov 2020 16:12:25 +0000
Daily Insights US markets open modestly mixed. US equities opened mixed this morning following Thursday’s afternoon rally. Investors bought equities Thursday on COVID-19 vaccine progress and an eventual economic turnaround, in spite of higher COVID-19 numbers and continued Washington gridlock … Continue reading →
Published: Thu, 19 Nov 2020 16:58:58 +0000
Economic Blog Real-time European COVID-19 and economic data provides an insight into how the pandemic is affecting economies around the world. We’re monitoring real-time data because traditional economic data is too slow to pick up the changes that are occurring. … Continue reading →
Published: Thu, 19 Nov 2020 15:58:35 +0000
Daily Insights Virus concerns mount. Stocks opened slightly lower this morning as COVID-19 spread has increased concerns that the economic recovery may be knocked off track by additional restrictions and changing consumer behavior. The S&P 500 Index is poised for … Continue reading →
Published: Wed, 18 Nov 2020 18:43:47 +0000
Market Blog First, the big economic data point this week was retail sales. Although the headline number was a little light at 0.3% versus an expected 0.5% gain month-over-month, it still hit another new all-time high along the way (source: … Continue reading →
Published: Wed, 18 Nov 2020 15:32:28 +0000
Daily Insights US Markets open higher. Investors are taking advantage of marked-down equity names, reversing course from Tuesday. On Tuesday market participants were focused on COVID-19 case spikes and potential effects on the economic recovery. Gridlock on fiscal stimulus added … Continue reading →
Published: Tue, 17 Nov 2020 15:58:39 +0000
Daily Insights S&P 500 Index opens lower following Monday rally Vaccine-driven gains may be increasingly priced in as the US rally fizzled in international markets overnight and US markets are giving back some of Monday’s gains in early Tuesday trading. … Continue reading →
Published: Tue, 17 Nov 2020 15:58:29 +0000
Market Blog Fixed income investors aren’t used to having to deal with the volatility of stocks, but in the year that is 2020, that is exactly what has happened thus far. Unfortunately, while we don’t see the volatility of … Continue reading →
Published: Mon, 16 Nov 2020 16:07:47 +0000
Daily Insights Stocks open higher S&P 500 Index opened about 0.7% higher at a fresh all-time high while the Nasdaq saw a more modest gain. European markets broadly are up more than 1.5% in midday trading. Asian markets rose broadly … Continue reading →
Published: Mon, 16 Nov 2020 15:58:28 +0000
Market Blog It took more than two years, but small caps finally broke out to new highs, as the Russell 2000 Index on Friday closed at its first new high since August 31, 2018. This capped off one of the … Continue reading →
Published: Fri, 13 Nov 2020 21:00:08 +0000
Market Blog Index performance US and International Equities Markets received positive vaccine news from Pfizer this week, a very positive sign for the industrials and other value-laden sectors that the end of the pandemic could be on the horizon. Value … Continue reading →
Published: Fri, 13 Nov 2020 15:57:57 +0000
Daily Insights US markets point to a higher open. Markets opened higher, reversing lower closes across the board Thursday after talks of potential new COVID-19 restrictions. Value sectors underperformed growth for the second day in a row Thursday. European equities … Continue reading →
Published: Fri, 13 Nov 2020 13:14:30 +0000
Economic Blog This year’s Masters Golf Tournament teed off Thursday at the Augusta National Course in Georgia. While there will be some familiar sights as the players compete for the coveted green jacket, it will also be a year unlike any … Continue reading →
Published: Thu, 12 Nov 2020 16:58:30 +0000
Market Blog Third quarter earnings season has been outstanding relative to expectations by many measures. Some of the highlights: S&P 500 Index earnings are tracking to a 7.5% year-over-year decline, as shown in the LPL Chart of the Day, more … Continue reading →
Published: Thu, 12 Nov 2020 15:59:14 +0000
Daily Insights S&P 500 Index opened lower. The market rotation toward cyclical value is taking a pause as the NASDAQ opened slightly higher. Jobless claims and consumer inflation highlight the economic calendar. European stocks are down nearly 1% overall in … Continue reading →
Published: Wed, 11 Nov 2020 21:26:17 +0000
Economic Blog Bond markets have had quite a ride since Election Day. The 10-year Treasury yield had been climbing very slowly in the months leading up to the election as the economy improved, but possibly also in anticipation of a … Continue reading →
Published: Wed, 11 Nov 2020 16:18:19 +0000
Daily Insights On this Veterans Day we say thank you to our men and women in uniform, past, present, and future. US markets open higher for Veteran’s Day. US markets open in the green after mixed market results Tuesday in which the … Continue reading →
Published: Wed, 11 Nov 2020 15:57:02 +0000
Market Blog In our recent Market Signals video, LPL Financial Chief Market Strategist Ryan Detrick, Equity Strategist Jeff Buchbinder, and Chief Investment Officer Burt White discussed the election, the economy, and more, including: Market calm amid gridlock in Washington The … Continue reading →
Published: Tue, 10 Nov 2020 15:57:27 +0000
Daily Insights S&P 500 Index opens near flat. Positive vaccine news sent the S&P 500 higher Monday, but the market seems to be pausing this morning. The S&P 500 Index finished a solid 1.2% higher on Monday, hitting its highest … Continue reading →
Published: Mon, 09 Nov 2020 16:58:09 +0000
Market Blog Stocks just had their best week since April, with the S&P 500 Index incredibly a chip shot away from new all-time highs. Joe Biden will be the next President of the United States, but markets are confident Republicans … Continue reading →
Published: Mon, 09 Nov 2020 15:59:13 +0000
Daily Insights Stocks are sharply higher. Futures were solidly higher on election clarity before today’s vaccine news, which has added to gains. The S&P 500 Index opened about 4% higher at a fresh all-time high. The small cap Russell 2000 … Continue reading →
Published: Fri, 06 Nov 2020 21:01:09 +0000
Market Blog View enlarged chart. US and International Equities US stocks staged one of their biggest election week rallies ever, with all major markets finishing up over 5% this week. Small caps had a particularly big week, with the Russell … Continue reading →
Published: Fri, 06 Nov 2020 17:16:22 +0000
Economic Blog The US labor market shrugged off election uncertainty and continued to add jobs in October. Despite the waning effects of fiscal stimulus and rising COVID-19 cases, per the US Bureau of Labor Statistics, the US economy added 638,000 … Continue reading →
Published: Fri, 06 Nov 2020 16:15:26 +0000
Daily Insights US markets pullback amid uncertainty. As ballots are still being tallied, equities opened little changed this morning. Investors appear to be in approval of a likely divided Congress outcome, offsetting concerns about a possible drawn-out battle for the … Continue reading →
Published: Thu, 05 Nov 2020 16:58:58 +0000
Market Blog As of Thursday morning, a winner to the 2020 presidential election has yet to be “officially” declared as several battleground states have yet to be called. Even as more clarity emerges from remaining votes being counted in … Continue reading →
Published: Thu, 05 Nov 2020 16:02:32 +0000
Daily Insights Stocks opened sharply higher. With the election still too close to call, US stocks opened sharply higher as market participants continue to express approval for a likely split Congress outcome. The potential benefits for corporate America are—at least … Continue reading →
Published: Wed, 04 Nov 2020 17:00:05 +0000
Market Blog The election is over, but the questions are mounting. We don’t know who will be the next president as of Wednesday morning, but we do know that stocks tend to do well the final two months of an … Continue reading →
Published: Wed, 04 Nov 2020 15:58:19 +0000
Daily Insights US markets opened sharply higher despite lack of winner. Following a solid close for US equities, the markets opened strongly in the green this morning. Investors appear to be pricing in increasing odds of a divided government, which … Continue reading →
Published: Tue, 03 Nov 2020 17:05:08 +0000
Economic Blog 2020 has certainly been a bizarre year, and perhaps we have finally arrived at the culminating event—the US presidential election. While every election may be characterized as a major turning point in our country’s history, the context of … Continue reading →
Published: Tue, 03 Nov 2020 16:28:10 +0000
Top Story: What to Watch Election Night Florida, Georgia, and North Carolina are key swing states that can count or process ballots before Election Day and whose polls close relatively early. They’ll be the bellwethers and should have most of … Continue reading →
Published: Mon, 02 Nov 2020 17:51:18 +0000
Market Blog Index Performance View expanded table. View expanded table. View expanded table. US and International Equities The major market indices, as denoted by the S&P 500 and Nasdaq, gave back ground again in October with almost all sectors … Continue reading →
Published: Mon, 02 Nov 2020 15:56:37 +0000
Daily Insights Stocks sharply higher on Election Day eve. Market participants appear to be looking past rising COVID-19 cases and election uncertainty this morning and finding buying opportunities after last week’s losses. The S&P 500 Index opened more than 1% … Continue reading →
Published: Fri, 30 Oct 2020 20:06:12 +0000
Market Blog Index Performance US and International Equities An increase in COVID-19 cases in the United States and Europe and what they could mean for the economic outlook has caused turbulence in this week’s markets. Moreover, Washington gridlock over much-needed … Continue reading →
Published: Fri, 30 Oct 2020 15:59:36 +0000
Economic Blog With Election Day a mere five days away, we at LPL Research thought we would add one last election forecaster to the mix of what we’ve presented over the last several months—as much because of what it might … Continue reading →
Published: Fri, 30 Oct 2020 14:58:15 +0000
Daily Insights Stocks sell off amid Thursday’s rally The market shrugged off COVID-19 new case numbers and ended Thursday higher. This followed Wednesday’s decline in which the S&P 500 Index pulled back the most since June of this year. US … Continue reading →
Published: Thu, 29 Oct 2020 16:06:34 +0000
Economic Blog The outbreak of COVID-19 and the subsequent lockdowns triggered the largest quarter over-quarter decline in gross domestic product (GDP) since WWII, so perhaps it comes as no surprise that the following quarter tallied the sharpest rebound in that … Continue reading →
Published: Thu, 29 Oct 2020 15:25:51 +0000
Daily Insights Stocks were lower Wednesday, October 28—historically the best day of the year for the stock market—as the latest COVID-19 outbreak and election uncertainty weighed. Today market participants will take cues from the GDP report, jobless claims, and earnings … Continue reading →
An individual retirement arrangement (IRA) is a personal savings plan that offers specific tax benefits. IRAs are one of the most powerful retirement savings tools available to you. Even if you're contributing to a 401(k) or other plan at work, you may want to consider investing in an IRA.
The two major types of IRAs are traditional IRAs and Roth IRAs. Both allow you to contribute as much as $6,000 in 2020 (unchanged from 2019), but you must have at least as much taxable compensation as the amount of your IRA contribution. If you are married filing jointly, your spouse can also contribute to an IRA, even if he or she does not have taxable compensation. The law also allows taxpayers age 50 and older to make additional "catch-up" contributions. These folks can contribute an additional $1,000 in 2020 (unchanged from 2019).
Both traditional and Roth IRAs feature tax-sheltered growth of earnings. And both give you a wide range of investment choices. However, there are important differences between these two types of IRAs. Understanding these differences is key to choosing the type of IRA that may be appropriate for you.
Note: Special rules apply to certain reservists and national guardsmen called to active duty after September 11, 2001..
Practically anyone can open and contribute to a traditional IRA. The only requirement is that you must have taxable compensation (prior to December 31, 2019, you also had to be under age 70½). You can contribute the maximum allowed each year as long as your taxable compensation for the year is at least that amount. If your taxable compensation for the year is below the maximum contribution allowed, you can contribute only up to the amount that you earned.
Your contributions to a traditional IRA may be tax deductible on your federal income tax return. This is important because tax-deductible (pre-tax) contributions lower your taxable income for the year, saving you money in taxes. If neither you nor your spouse is covered by a 401(k) or other employer-sponsored plan, you can generally deduct the full amount of your annual contribution. If one of you is covered by such a plan, your ability to deduct your contributions depends on your annual income (modified adjusted gross income, or MAGI) and your income tax filing status.
For 2020, if you are covered by a retirement plan at work and:
For 2020, if you are not covered by a retirement plan at work, but your spouse is, and you file a joint tax return, your traditional IRA contribution is fully deductible if your MAGI is $196,000 or less. Your deduction is reduced if your MAGI is more than $196,000 and less than $206,000, and you can't deduct your contribution at all if your MAGI is $206,000 or more.
What happens when you start taking money from your traditional IRA? Any portion of a distribution that represents deductible contributions is subject to income tax because those contributions were not taxed when you made them. Any portion that represents investment earnings is also subject to income tax because those earnings were not previously taxed either. Only the portion that represents nondeductible, after-tax contributions (if any) is not subject to income tax. In addition to income tax, you may have to pay a 10% early withdrawal penalty if you're under age 59½, unless you meet one of the exceptions.
If you wish to defer taxes, you can leave your 1 of the year following the year you reach age 72. That's when you have to take your first required minimum distribution from the IRA. After that, you must take a distribution by the end of every calendar year until you die or your funds are exhausted. The annual distribution amounts are based on a standard life expectancy table and your previous year-end combined account balances. You can always withdraw more than you're required to in any year. However, if you withdraw less, you'll be hit with a 50% penalty on the difference between the required minimum and the amount you actually withdrew. (Note: if you reached age 70½ in 2019, you must begin taking required minimum distributions by April 1, 2020.)
If you are covered by an employer-sponsored retirement plan and your MAGI exceeds certain
established thresholds, your deduction for your traditional IRA contribution is reduced or
eliminated as follows:
* If you're not covered by an employer plan, but your spouse is, your deduction is limited if your MAGI is $193,000 to $203,000, and eliminated if your MAGI exceeds $203,000.
Not everyone can set up a Roth IRA. Even if you can, you may not qualify to take full advantage of it. The first requirement is that you must have taxable compensation. If your taxable compensation in 2020 is at least $6,000, you may be able to contribute the full amount. But it gets more complicated. Your ability to contribute to a Roth IRA in any year depends on your MAGI and your income tax filing status.
Qualified distributions will also avoid the 10% early withdrawal penalty. This ability to withdraw your funds with no taxes or penalties is a key strength of the Roth IRA. And remember, even nonqualified distributions will be taxed (and possibly penalized) only on the investment earnings portion of the distribution, and then only to the extent that your distribution exceeds the total amount of all contributions that you have made.
Another advantage of the Roth IRA is that there are no required distributions after age 72 or at any time during your life. You can put off taking distributions until you really need the income. Or, you can leave the entire balance to your beneficiary without ever taking a single distribution.*
These income ranges (other than married filing separately) are indexed for inflation each year.
Assuming you qualify to use both, which type of IRA is best for you? Sometimes the choice is easy. The Roth IRA will probably be a more effective tool if you don't qualify for tax deductible contributions to a traditional IRA. However, if you can deduct your traditional IRA contributions, the choice is more difficult. Most professionals believe that a Roth IRA will still give you more bang for your dollars in the long run, but it depends on your personal goals and circumstances. The Roth IRA may very well make more sense if you want to minimize taxes during retirement and preserve assets for your beneficiaries. But a traditional deductible IRA may be a better tool if you want to lower your yearly tax bill while you're still working (and probably in a higher tax bracket than you'll be in after you retire). A financial professional or tax advisor can help you pick the right type of IRA for you.
Note: You can have both a traditional IRA and a Roth IRA, but your total annual contribution to all of the IRAs that you own cannot be more than $6,000 in 2020 ($7,000 if you're age 50 or older).
You can move funds from an IRA to the same type of IRA with a different institution (e.g., traditional to traditional, Roth to Roth). No taxes or penalty will be imposed if you arrange for the old IRA trustee to transfer your funds directly to the new IRA trustee. The other option is to have your funds distributed to you first and then roll them over to the new IRA trustee yourself. You'll still avoid taxes and penalty as long as you complete the rollover within 60 days from the date you receive the funds.
You may also be able to convert funds from a traditional IRA to a Roth IRA. This decision is complicated, however, so be sure to consult a tax advisor. He or she can help you weigh the benefits of shifting funds against the tax consequences and other drawbacks.
Note: The IRS has the authority to waive the 60-day rule for rollovers under certain limited circumstances, such as proven hardship.
To claim the credit, you must be at least 18 years old and not a full-time student or a dependent
on another taxpayer's return. The credit is in addition to any income tax deduction you might
qualify for with respect to your IRA contribution. The amount of the credit is 50%, 20%, or 10% of
your IRA or retirement plan contributions up to $2,000 ($4,000 if married filing jointly), depending
on your MAGI. Here are the credit rates based on 2020 MAGI limits:
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