Home Blog Page 3

Congress Builds on the Foundations of the SECURE Act


Congress is officially set to move forward with legislation that will alter the retirement saving landscape once again, more than a year after passing landmark legislation that rattled Americans in and near retirement as well as their retirement savings plans. Coined as the SECURE Act 2.0, the House Ways and Means Committee unanimously approved a markup of the legislation to be sent to the House floor for a full vote before it makes its way to the Senate Chambers. The legislation’s official title is,
Securing a Strong Retirement Act of 2021 and it looks to advance on much of the progress that was included in the original SECURE Act.

The original SECURE Act, titled Setting Every Community Up for Retirement Enhancement Act, was passed in December of 2019, and was signed into law by former President Donald Trump. At the time of its passing, the legislation was one of the biggest retirement reforms in recent years eliminating the stretch-IRA, raising the required minimum distribution age, and eliminating the age limit for retirement plan contributions, among other items. The new legislation looks to expand on some of these provisions such as increasing the required minimum distribution (RMD) age again, but incrementally over the next ten years.

By raising the RMD age, retirees will have more time to allow their accounts to grow before being mandated to make withdrawals. Prior to 2020, the RMD age was 70 and a half years old which was then raised to 72 in the first SECURE Act. Should the SECURE Act 2.0 pass through Congress and be signed into law by President Biden, the RMD age would immediately increase to 73 as of January 1, 2022. According to the current language of the proposed legislation, it would then take several more years for the RMD age to rise to age 74 on January 1, 2029, and then finally reaching 75 on January 1, 2032. If this legislation does become law, individuals who are 63 or younger in 2021 would be able to delay their RMDs to age 75 once the full increase is in place.

Ultimately, by raising the RMD age investors who have money in traditional IRA vehicles will have more time (if their age qualifies) to increase the total amount of their investment by not having to take withdrawals. Even just a few extra years can help a retiree build their nest egg, especially since traditional IRA accounts are tax deferred. The potential issues that could arise from these incremental increases is confusion among retirees about when to take their RMDs and making sure that they do so correctly to avoid penalties for withdrawing too early or late or simply not accepting their required payments because they have no guidance of when they should take them. If these provisions are rolled out for the public, it will be important for investors to ensure that they are receiving the proper advice to handle their retirement investments and take full advantage of the age increase.

Another important update in the proposed SECURE Act 2.0 is increasing the catch-up contribution which gives older workers over the age of 50 the ability to invest more money, above the limits set by the Internal Revenue Service (IRS), to bolster their nest egg in the years before they reach retirement. The additional benefit of making a catch-up contribution is that investors will also be lowering the amount of taxable income for that tax year, ultimately reducing the amount of money owed to the IRS. As of January 1, 2021, the catch-up contributions set by the IRS are $1,000 for IRA accounts, $6,500 for traditional 401(k) and other workplace retirement plans, and $3,000 for SIMPLE retirement plans. What legislators hope to achieve with the SECURE Act 2.0 is to raise those contribution limits from $6,500 to $10,000 starting at age 62 through 64 and from $3,000 to $5,000 for SIMPLE plans. The legislation would keep current contribution limits starting at age 50 with the additional increases coming into effect starting at age 62.

Legislators have stated that these proposed increases will also be indexed for inflation and will go into effect starting in 2023. It is unclear whether the additional increases will remain after age 65, or if the contribution limits will revert to the original contribution limits for individuals over the age of 50. Now, the language of the proposed legislation seems to indicate that the increases for catch-up contributions will only impact those who have reached the ages of 62 through 64 to provide a few brief years of extra support to strengthen their retirement nest egg.

The SECURE Act 2.0 legislation also looks to expand access to 401(k) plans by setting up automatic enrollment for employees in new company plans along with other provisions dealing with matched contributions to assist with student loan repayments. Currently, the language of this bill is subject to change as it was first sent to the House of Representatives on May 5, 2021 and must go through more legislative channels before it can finally be sent to the Senate and eventually to President Biden’s desk for signature. Proponents of this legislation are confident that the bill will be passed with overwhelming bipartisan support in the Congress, but with the current state of domestic political affairs, bipartisanship is never a given, especially with policy decisions involving economic issues.

Two of the foundational aspects of the SECURE Act 2.0 deals with the raising of the RMD age and the three-year period where investors will be able to contribute exponentially more in terms of a catch-up contribution. This combination will enable retirement investors to grow their nest egg for a longer period than previously allowed which may lessen some of the retirement strain that many Americans have and are currently experiencing. Delaying the RMD age to 75 over the next ten years will create larger income payments for retirees in tandem with their Social Security benefits and any other investments that they may have.

Sponsors of the legislation also anticipate that the SECURE Act 2.0 will help generate more than $27 billion in tax revenues over the next ten years. It is important to remember however that if this legislation is signed into law, individuals already receiving RMDs from their investments will continue as the provisions in the bill are not retroactive to include those who already had their RMDs delayed to age 72. If this legislation does become law, retirees and those nearing retirement should make sure they get educated about the changes that will directly impact their retirement goals to ensure their retirement strategy still aligns with their best interest and to take advantage of boosting their savings if applicable when the time comes.

President Biden Steps-Up on Taxes

President Biden Steps-Up on Taxes

Congress alongside first year President Biden are planning major tax overhauls that would create several issues for beneficiaries. Raising taxes on wealthy Americans has become a focal point of the majority party in Congress and for President Biden, as Democrats plan to increase taxes to address certain inequalities in the economy. At the top of the list is an elimination of the step-up in basis estate tax provision, which is considered by some economists and lawmakers to be a tax loophole that allows individuals to avoid paying taxes on inherited assets. Economists have cited that this provision has allowed billions of dollars each year, that would have otherwise been taxable, to be swept under the rug, exempt from capital gains tax. 

Under the previous administration, President Trump and Republicans in Congress passed the Tax Cuts and Jobs Act (TCJA, 2017), which increased the tax exemption on inherited assets to $11 million and is set to sunset in 2026 unless repealed by the Biden administration. President Biden has repeatedly stated that he would like to see estate tax exemptions reduced to their 2017 levels of $5 million or reduced further to $3.5 million. By reducing the tax exemption cap, more individuals would be subject to pay taxes on estates and gifts by the Internal Revenue Service (IRS), effectively bringing in more revenue for the Federal government to help pay for other initiatives. 

On top of reducing the tax exemption, Biden and Congressional Democrats have proposed the idea of eliminating the step-up in basis provision, which has commonly been used to pass on certain assets to a beneficiary, while avoiding massive capital gains tax burdens. If the basis were to be eliminated, inherited assets like property, equities, collectibles, and gifts would be subject to massive capital gains taxes if they are sold by the beneficiary. For example, a property purchased for $250,000 is passed on to a beneficiary who inherits the property with a current market value of $525,000. The stepped-up basis dictates that if the beneficiary sold the property, their capital gains would be taxed starting at the fair market value of $525,000 instead of the original purchase price — significantly reducing the capital gain tax burden for the beneficiary compared to a carry-over basis, which is applied when a beneficiary has an asset transferred to them before the death of the owner.

If the beneficiary sold the house at the same price that it was inherited, they would not owe any capital gains taxes because the value of the sale would be equal to the inherited price. Therefore, the $275,000 increase in property value prior to being inherited would not be taxable to the beneficiary. Under the current law, if the beneficiary sold the property for $550,000, the stepped-up basis would calculate capital gains on a profit of $25,000 (since the property was inherited at a price of $525,000.) By eliminating the stepped-up basis estate tax law, the beneficiary would have to pay capital gains on any inherited asset that is sold using the original purchase price. As a result, a property that was purchased for $250,000, inherited at $525,000, and then sold by the beneficiary for $550,000 would have to pay capital gains taxes on what would be considered a $300,000 profit (current selling price minus original purchase price). 

When it comes to capital gains taxes, the majority of taxpayers would likely fall into the 15% capital gains tax bracket based on earned income with single and married filers falling in the 20% capital gains tax bracket if they earn more than $450,000 and $502,000 each year respectively. President Biden has also promoted the idea of raising capital gains taxes, specifically targeting filers who earn more than $1 million in income each year by placing a 39% capital gains tax on those individuals. Capital gains are also considered income, so an individual who makes $100,000 a year would have the profit of their capital gains for the year added to their income, which could send them into a higher income tax bracket and, in turn, a higher capital gains tax bracket. An income of $100,000 a year would have a capital gain of $25,000 taxed at a rate of 15%, resulting in capital gains tax of $3,750 and a net profit of $21,250 after selling the inherited asset. 

Purchase PriceFair Market ValueSelling PriceCapital Gains (Step-up)Capital Gain Tax RateTaxes Paid on Capital GainsNet Capital Gain

Single beneficiary inherits an asset using a stepped-up basis with $100,000 annual income. 

Should President Biden eliminate the stepped-up basis, that same individual making $100,000 a year would now be taxed at a rate of 15% on a profit of $300,000. 

Purchase PriceFair Market ValueSelling PriceCapital Gains (No Step-up)Capital Gain Tax RateTaxes Paid on Capital GainsNet Gain

Single beneficiary inherits an asset without a stepped-up basis with $100,000 annual income.  

If the taxpayer were married and jointly earned more than $225,000 for the year, the $300,000 profit added to their income would push the married couple into the 20% capital gains tax bracket resulting in a tax bill of $60,000. Should the Congress and President Biden increase the top capital gains rate from 20% to 39.6%, as they have proposed, the tax bill for this married couple would be a staggering $118,800 and nearly cut their net gain in half. 

Purchase PriceFair Market ValueSelling PriceCapital Gains (No Step-up)Capital Gain Tax RateTaxes Paid on Capital GainsNet Gain

Married beneficiary (filed jointly) inherits an asset without a stepped-up basis with joint annual income of $225,000. 

The step-up in basis provision saves more than $56,000 in taxes for married couples (filing jointly) who inherit assets in this scenario and more than $41,250 for single tax filers. Economists and lawmakers who have audited situations like this have concluded that billions of dollars of taxable income are voided because of the step-up in basis provision and have gone as far as alleging that the provision is a loophole rather than a tax strategy. Eliminating the provision however would cause an immense tax burden for all taxpayers, not just wealthy taxpayers as some lawmakers have purported.

In the previous Democratic administration, President Obama and then Vice President Biden attempted to eliminate the step-up in basis provision but were unsuccessful in large part due to a Republican controlled House and Senate. With a fully controlled legislature and executive branch, this initiative may have a better chance of making its way through Congress along with several other tax hikes and a partial or full repeal of the TCJA. These tax increases and changes are aimed to help finance other programs related to education and student loans, but they will impact how seniors plan to handle their assets and estates as they get older. Although the aim is to prevent mega-wealthy Americans from avoiding taxes, the elimination and reduction of certain provisions and exemption caps will have undue effects on the middle class — especially if step-up in basis is eliminated. 

With the filibuster rule still intact, Senators need more than a simple majority to pass major legislation, such as those dealing with overhauling taxes, making the elimination of the stepped-up basis unlikely — unless the rules are changed. If Democrats in the Senate move to change or dissolve the filibuster, a simple majority vote would pass most if not all of President Biden’s tax agenda, which could cause major tax burdens for seniors and their beneficiaries when passing on legacy assets. A change of this nature can potentially open other loopholes for retirees and those planning for retirement to take advantage of moving assets into other tax favorable accounts like a trust. Should these tax changes be made, many seniors across the country may benefit from updating their plans to pass along assets to their beneficiaries. 

Growing Retirement Concerns

Growing Retirement Concerns

As more data becomes available about the economic impact of the coronavirus on retirement planning, multiple studies have shown that retirees and individuals nearing retirement age were not as negatively impacted through their retirement plans as one might expect. While this is the good news, the bad news is that there still is a retirement crisis taking place in the United States. Prior to the pandemic, Americans nearing retirement were struggling to adequately save, forcing some to delay their retirement plans which has caused stress among individuals in the senior population. Although the pandemic continues to affect the country, mass vaccinations have put the country on a path to recovery and certain indicators have shown a healing economy. 

A 2021 retirement preparedness study found that during the pandemic, setting money aside for retirement was among the top priorities for savers. The lowest priority for respondents was focusing on their investment portfolios with 49% of respondents between the ages of 45 and 75 stating that they did not know how the assets in their investment portfolios were allocated. This statistic is concerning for individuals planning for retirement because it shows that nearly one half of investors nearing the end of their career do not have control over their investments or the knowledge to maintain their investments and are therefore leaving themselves at risk. 

Although saving money was a high priority for individuals in and nearing retirement, according to this study, 60% of respondents felt as if they did not have enough money saved. While the pandemic certainly slowed most working individuals’ ability to put money away for retirement, researchers found that although saving money was a high priority for Americans, not many savers had a retirement plan in place. More than 70% of respondents stated that they did not have enough assets to justify creating a retirement plan. While this data does seem contradictory to respondents saying that saving for retirement was a priority, it shows that there is a lot of confusion about where the economy is heading, what the future will hold for most retirees, and highlights how insecure the process of retiring has become for Americans. The data also lends credence to the importance of working with trusted financial advisors who specialize in retirement planning, which this study did not analyze. 

Furthermore, the same study underscored several retirement issues that respondents were worried about saving for, including higher healthcare costs bankrupting their nest egg, preserving their nest egg in retirement, and protecting themselves from a market crash. After collecting this data, the surveyor’s asked a broad question about living in retirement and 47% stated that they were comfortable, but less than 5% of those who said they were comfortable said that they were living the dream. This study was similarly aligned with data released from the Employee Benefit Research Institute (EBRI) which has conducted several studies throughout the course of the pandemic to analyze respondents’ feelings and preparedness for retirement. Interestingly however, EBRI’s study group was more content with their retirement situations and found that more respondents were staying true to the retirement plan that they had formulated during their working career. 

The EBRI research focused specifically on retirement age individuals between the ages of 62 and 75 and narrowed their focus on how people in this age group spend money during retirement. EBRI found that more than 45% of survey respondents felt that they had saved less money during their working career than the amount that they need to satisfy their retirement needs — 18% felt that they saved more than what they needed. The study also looked at what was most prioritized by the respondents in terms of safeguarding their nest egg in retirement. 81% of the respondents stated that their top priority was maintaining their health in retirement and having enough assets to cover healthcare related expenses. 

It may be some time before economists and researchers have a full range of data to depict the true effects of the pandemic on retirees and their nest eggs, but recent studies have shown that the shutdowns and drop-in economic activity did not have as much of a drastic impact on saving for retirement. The data from both studies indicate that there are still complications with saving and peace of mind as most retirees still find themselves worrying about whether they have enough money to last their lifetime and cover certain expenses. Instead of focusing on traveling and spending time with families, retirees in the EBRI study were focusing on not spending down their assets so they have a high balance to cover unexpected expenses like the high cost of medical care. 

Younger savers like the ones depicted in the first study showed evidence of general confusion when it came to saving for retirement. Saving money was a high priority for respondents during the pandemic, but they did not pay much attention to where their assets were being allocated in their portfolio and did not feel as if having a retirement plan was justifiable if their assets did not reach a certain level. This raises the question about having a financial advisor which neither study covered but could certainly help savers in and near retirement develop a plan regardless of the size of their assets. Retirement preparedness was a large issue for the United States prior to the pandemic of 2020 and going forward it looks like it will continue to be an issue for retirees and those preparing for retirement.

Federal Debt and Your Retirement

Debt and Retirement

Personal debt plays a large role when it comes to saving for retirement and living as a retiree. Soaring debt resulting from increasing medical costs, credit cards, loans, and more limit the amount that workers can save and how much retirees can use in their golden years. Government deficits on the other hand are an elusive form of debt that occurs when annual government expenditures are larger than their yearly revenues. While deficits can have an impact on the short-term outlook of retirement security, the long-term effects of deficits building up over time can be much more damaging, especially if lawmakers continue to ignore the growing problem.

Some politicians and economists have sounded the alarm on the insurmountable level of debt that has been accumulated over the last twenty years, but no significant action has been taken. Since 2009, the national debt has increased $17 trillion dollars and increased rapidly in 2020 as the government spent more than $6 trillion in response to the coronavirus. As a result, the national debt has ballooned to more than $28 trillion and has the potential of reaching $30 trillion before the end of 2021. Not to be confused with the deficit however, which is the yearly amount of debt assumed by the country, the national debt is the accumulation of deficits year after year representing the grand total of money owed by the country. Most Americans pay no mind to how fast the nation’s debt is increasing, while others worry that it could cause the eventual downfall of the United States on the world stage. 

While the thought that the national debt could lead to the eventual downfall of the United States is unlikely to occur, the long-term impact of skyrocketing debt will eventually lead to higher taxes, inflation, and an extremely volatile economy for investors — 2020 highlighted this volatility. As debt substantially increased, the government issued more Treasuries to cover new spending deficits being added from large stimulus packages to keep the economy afloat. Following the basics of supply and demand, as the volume of Treasuries in the market increases, the interest rates paid on those treasuries naturally decreases, ultimately hurting the interest rate environment in the long run. When the interest rate environment takes this kind of a hit, bonds, certificates of deposit, and savings accounts become less attractive for investors. 

Since the onset of the COVID pandemic, banks have offered less than 1% on many of their investment vehicles, such as CDs. This has made it difficult for investors to grow their retirement savings, let alone keep up with inflation especially when the stock market initially crashed in March of 2020. Furthermore, when the interest rate environment struggles, investors turn to the stock market, exposing themselves to market risk and fees while jeopardizing their principal in the process. 2020 and 2021 have been prime examples of how short-term debt obligations can damage and bring uncertainty to the field of retirement investing. 

Although low interest rates have caused the stock market to reach record highs, stocks eventually must come back down. The gradual shift that has taken place on the stock market in recent weeks is a window to the eventual long-term impact of rising debt. Stimulus bills have been the largest expense adding to the massive annual deficit created in responding to the pandemic, but temporary one-time stipends paid to eligible taxpayers has some economists fearing that pent up demand will explode into the market as the country reopens which could cause the economy to overheat. A sudden rise in economic activity could trigger inflation and cause interest rates to rise to reflect stronger economic activity. Recently, Treasuries have risen by a couple basis points which have jolted the stock market into a turbulent selloff. While increasing interest rates would be welcomed news to risk adverse investors with money in bonds and CDs, this shift would correspond with a gradual or rapid decline in the stock market, hurting investors who stayed on board a sinking ship. 

If interest rates increase substantially, consumers would feel the sting in other sectors of the economy as well, specifically relating back to paying down personal debts. Mortgages and student loans would become more expensive with increasing interest rates forcing consumers to focus more of their funds to pay down their own personal debt; this leaves less income available to invest in retirement accounts. Although interest rates and stock market volatility are seen as short-term effects of deficit spending, the long-term effects are dependent on how the debt is addressed by lawmakers. At the end of the day however, the national debt plays a silent but potentially deadly role in the realm of retirement investing.   

Finally, aside from the constant threat of inflation decreasing economic output, consumers could lose purchasing power if the government decides to raise taxes. The largest portion of revenue collected by the federal government is by way of taxes and considering lawmakers are generally reluctant to cut spending, the other avenue frequented by policymakers to address the nation’s debt crisis is to increase revenue. Similarly, to how inflation reduces how far a consumer can stretch a dollar, higher taxes mean less income in the pocketbooks of Americans, which creates a similar ripple effect that limits how much consumers are able to save and spend in their retirement. 

Ultimately, these basic examples highlight how deficits, and the total national debt are more interconnected to retirement saving than many investors realize, and it is a problem that has gone unchecked for far too long. It would be impossible to condense all the nuances of the national debt and how it impacts short term and long-term retirement saving, but it is important for investors to have a general understanding of what dangers potentially lie ahead as the country recovers from the coronavirus pandemic, especially if their retirement funds are left at risk on the volatile stock market. 

The Safety of the Financial Life Insurance Industry

The Safety of the Financial Life Insurance Industry

A spike in annuity sales from the fourth and final quarter of 2020 suggests that there is an increasing trend of investors looking for safer investment alternatives to high-risk stocks, bonds, and mutual funds. Overall annuity sales were up 2% compared to the final quarter of 2019, with certain principal protecting annuities like fixed deferred vehicles skyrocketing 41% in the fourth quarter of 2020 — 8% for the entire year. Companies like American Equity witnessed steady growth in their financially secured instruments, increasing sales of fixed index annuities by 23% at the end of 2020 compared to the final quarter of 2019. One potential explanation for the increase in annuity sales is the safety of the financial life insurance industry and the benefits of guaranteed principal protection, especially for investors who are looking for avenues to secure their retirement funds.

The financial life insurance industry is highly regulated by each individual state throughout the country, as opposed to securities investments, which are governed and regulated by the federal government. Each state elects or appoints an insurance commissioner who is in charge of overseeing the insurance companies in their respective state. If an insurance company fails or cannot meet their financial obligations to policyholders, state guaranty associations step in to protect the invested assets of the policyholders by taking over the insolvent insurance company in a process called receivership. Prior to liquidating the insurance company’s assets, the state insurance commissioner may attempt to revitalize the failing insurer, this is known as rehabilitation. During this process, policyholder’s accounts are kept whole and secure in their investments, which is a stark contrast to Wall Street when the market crashes or a stock loses value.

While investors may be limited in their ability to add or subtract funds from their annuities when an insurance company falls into rehabilitation, they can rest assured that their money is safe. Their assets will be protected up to the state guaranty association’s protection cap, similar to how the Federal Deposit Insurance Corporation (FDIC) insures up to a certain amount of funds invested in a bank. Each state’s guaranty association determines what level of benefits will be protected in the event of an insurer falling into receivership.

Should the state commissioner determine that the failing insurance company cannot be rehabilitated, the company would be declared insolvent, and the assets of the company liquidated. This triggers the state guaranty associations to kick in and provide continued benefits to policyholders until their assets can be successfully transferred to a solvent insurer. In the event of a multi-state insolvency process, the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) will coordinate with the participating state commissioners to facilitate the multi-state liquidation process.

Overall, the role of the state insurance commissioner, the state’s guaranty associations, and the NOLHGA is to protect consumers. They do this by ensuring that policyholders continue to receive their policy benefits when an insurance company becomes financially unstable, and to successfully transfer liquidated assets to solvent insurers so that the consumer can continue receiving their invested benefits without hesitation or delay. Unlike the securities industry where investors risk losing all their principal, the financial life insurance industry actively looks to protect their consumers even when there is an issue of insolvency, or failure to meet certain financial obligations to policyholders.

The level of protection and care for the consumer in the financial life insurance industry is unequivocally unmatched and lends reason to why safe annuities — financial life insurance investments — are gaining more attention in the overarching financial industry. It is important for investors to remember that although annuities come from the financial life insurance industry, not all annuities are principal protecting vehicles that guarantee security during a catastrophic economic event, such as a stock market crash. Variable annuities, for example, are insurance products that also happen to be high-risk securities. They are tied to mutual fund portfolios that can leave an investor’s money at risk of losing principal. Furthermore, these vehicles come with costly brokerage fees that erode the value of the investment over time, even more so during down market trends. As a result of their ties to the stock market, these vehicles are regulated by the Securities and Exchange Commission (SEC) and not recommended for retirement planning.

Safer instruments in the financial life insurance industry, like fixed and fixed index annuities, are recommended for retirement planning because they protect investor’s principal. Not only do the vehicles themselves protect the consumer, but they are backed by an industry that has an immense state-by-state safety net that ensures the financial peace of mind of the annuitant policyholders. As a result, these investments are sometimes referred to as Crash Proof Vehicles™ by licensed retirement phase experts in the industry. The reason for this designation is due to the fact that these vehicles are insulated from the volatility of Wall Street and have survived every major stock market crash since the creation of the life insurance industry during the 18th century.

Furthermore, the financial life insurance industry witnessed another major economic event in 2020, surviving the pandemic-induced stock market crash while keeping investors safe, as opposed to individuals who lost significant portions of their retirement nest egg; upwards of 30% at the peak of the market crash. Many investors learned that there is not a safety net for security investments, and in response, protected portions of their assets with Crash Proof® alternatives. These vehicles have security, income guarantees, and are backed by an industry that has the consumer’s well-being in mind to ensure their retirement investments are on solid ground.

The protection of assets is one potential explanation for the increase in annuity sales at the end of the 2020 calendar year. Eliminating market risk and costly fees can expand retirement investing and the spike in sales indicates a shared sentiment among investors to secure their nest egg and have opportunities for growth. The benefits of the financial life insurance industry extend beyond the principal protecting Crash Proof Vehicles™ that are available for investors, and spans across the entire industry which has never gone bankrupt or left consumers at risk. Compared to the stock market, the financial life insurance industry is set up in the best interest of their consumers, whereas the stock market is constructed for the brokers, the money managers, the hedge funds, and more — anything but the individual investors. In the end, when planning for retirement, investors can choose a financial industry riddled with volatility, risk, and corruption, or a financial path of security in an industry with safety nets and guarantees.

IRA Contribution Rules

Woman putting money into piggy bank at table indoors, closeup

When saving for retirement, investors have a multitude of options to save their money. Two popular types of investments for retirement savers are traditional and Roth IRAs. Both traditional and Roth IRAs offer tax-free growth for the life of these vehicles and have unique attributes that can assist investors in achieving retirement security and peace of mind. Each year the rules regulating IRA contributions for both traditional and Roth accounts are updated and play a major role in how investors save. While some of the newer changes are rather minor compared to previous years, some changes can have a significant impact on the IRA environment, specifically by way of taxes.

Most recently in 2020, IRA regulations received a significant overhaul with the passage of the SECURE Act, which ultimately ended the Stretch IRA for designated beneficiaries. In terms of contributions, however, the SECURE Act eliminated the maximum age that an account owner can contribute to an IRA, meaning that as long as an account owner has taxable earned income, they can continue to invest in their IRA, even if they are taking required minimum distributions. While there were not as many changes from 2020 to 2021, it is important that investors in or planning for retirement are aware of the limits and regulations for making contributions to their traditional or Roth IRA accounts.

Traditional and Roth IRAs have similar but unique rules when it comes to contributions, and staying up-to-date with changes puts investors in the best position possible to fully take advantage of the retirement vehicles and avoid any potential pitfalls. Traditional IRAs were introduced to investors in 1975 and offer a tax-deductible contribution that grows tax-deferred for the life of the vehicle with the stipulation that when the investor reaches age 72 they will be mandated by the IRS to take required minimum distributions. This vehicle is popular among working investors saving for retirement because the contributions made to a traditional IRA not only have the benefit of being funded with pre-tax dollars, but also have favorable tax implications that could reduce an investor’s income tax liability in the present date when filing their taxes each year.

When it comes to filing income taxes, investors have to be wary of whether or not they can take a full deduction, limited deduction, or no deduction from their IRA contributions. If the IRA owner is an active participant in a workplace retirement plan — 401(k), 403(b), pension, or a SIMPLE IRA — the amount of income that is filed by the participant will determine whether or not the investor will be able to deduct their traditional IRA contributions when they file their taxes. An IRA owner who is not an active participant in a workplace retirement plan has the ability to deduct their entire IRA contribution for the year. In other cases where the IRA owner does participate in a workplace retirement plan, then they would have to check their tax filing status, which is determined by filing as a single individual, filing jointly with a spouse, or filing separately from a spouse.

Each of these categories contains certain income limits that the filer cannot exceed if they wish to make a full or partial deduction. The traditional IRA income limits and modified adjusted gross income (MAGI) must be examined based on any of the three aforementioned categories to determine the deduction status of an investor’s IRA contributions. Single filing active participants may take a full deduction of their IRA contributions in 2021 if they make less than $66,000. A limited deduction can be made if they make between $66,000 and $76,000 in 2021. Anything above $76,000 would result in the single filer being denied any deductions from their IRA contributions.

Married filers where one or both spouses are active participants in a workplace retirement plan also have income limits that determine if they can make a full traditional IRA deduction or not. In 2021, if both spouses are active participants they would have to jointly earn less than $105,000 a year to take advantage of a full deduction. Anything between $105,000 and $125,000 for joint filers who are both participants would result in a limited contribution, while earned income that is more than $125,000 would disqualify any deductions. On the other hand, if only one spouse is an active participant in 2021, then their income limit for a full deduction would be less than $198,000. To make a limited deduction they will have to make between $198,000 and $208,000; no deduction may be made if their earned income exceeds $208,0000. Active participants who are married but file separately generally do not qualify for any deductions unless they make less than $10,000 — in which case they can make a limited deduction.

Unlike traditional IRAs, Roth accounts came into existence in 1998. Investors with a Roth account do not have the option to make tax deductions because Roth IRAs are funded with after-tax contributions and grow tax-free for the life of the vehicle. Roth IRAs do not mandate required minimum distributions because the invested principal was already taxed. These vehicles operate slightly differently than traditional IRAs when it comes to contributions. Instead of placing deduction limits on investors participating in a workplace retirement plan, Roth accounts have contribution limits that are dependent on the income status of the tax filer.

Similar to traditional IRAs, the income categories for Roth accounts are broken down between single filers, spouses filing jointly, and spouses filing separately. Rather than limiting how much of the contributions can be deducted from their taxes, Roth accounts limit how much can be contributed based on the amount of earned income in these three categories. In order to make a full contribution to a Roth IRA in 2021, a single filer would have to earn less than $125,000. A single filer could make a limited contribution if they earn between $125,000 and $140,000, but if more than $140,000 is earned no contribution can be made. For a married couple filing jointly in 2021, to make a full contribution to their Roth IRA they would have to earn less than $198,000. Furthermore, if they file between $198,000 and $208,000 they can make a limited contribution, but they would not be able to make any contributions if they jointly earned more than $208,000 in 2021. Just like a traditional IRA, however, filing separately from a spouse hinders the investor’s ability to contribute to a Roth IRA, although they can make a limited contribution if less than $10,000 is earned.

For both traditional and Roth IRA contributions the limits are the same. An investor can put up to $6,000 in one or both of these types of vehicles in 2021; however, an investor who has both a traditional and Roth account cannot invest $6,000 into each of the IRAs. Therefore, an investor can split the $6,000 limit between the two accounts, but cannot exceed that limit. Investors over the age of 50 have the ability to add an extra $1,000 into their accounts each year, raising the yearly limit to $7,000 in what is known as a catch-up contribution. Catch-up contributions are important for investors over the age of 50 because it allows them to save more money for retirement in a traditional IRA, Roth, or split between both. On top of catch-up contributions every couple of years to maintain pace with inflation, the IRS will increase the contribution limit by $500 in what is known as a cost of living adjustment (COLA). A COLA has not been applied for 2021 and it is not yet known if an adjustment will be made in 2022.

Another important rule about IRA contributions is that investors have until April 15, 2021, to make a 2020 contribution if they haven’t already exceeded the $6,000 investment threshold — $7,000 if the investor is over the age of 50. Making a contribution before taxes are due on April 15 of any year has financial benefits for those making a contribution into a traditional IRA. Not only can an investor make a tax-deductible contribution to a traditional IRA, but that contribution would also decrease the amount of taxable income for the current tax year, resulting in potentially paying fewer taxes.

Although most of the major IRA changes occurred in 2020 when the SECURE Act went into effect, IRA rules and regulations are updated each and every year. It is important for investors saving for retirement and living in retirement with these vehicles to stay up-to-date with all of the yearly changes that could impact their IRA accounts to ensure that they are taking full advantage of contribution increases and other changes.

The GameStop Incident Explained and What It Means for Your Retirement

gamestop stock

During January 2021, the stock price of video game retailer GameStop rose at an unprecedented pace. GameStop stock closed at just $17.25 per share at the beginning of January and proceeded to shoot up to more than $347 per share by January 27th. While this may seem like a normal market movement at first glance, many investors believed GameStop’s stock price did not actually reflect the true value of the company. Their concerns proved to be well-founded, as a closer look revealed a “pump and dump” scheme conducted by members of a popular message board on Reddit who were targeting hedge funds for taking short positions. While investors who got in early on the scheme were able to realize significant profits, late-comers were left holding the bag, and the hedge funds who had taken a short position on GameStop, and others lost an estimated $70 billion according to Ortex data.

Investors who were not familiar with GameStop or Reddit may not have realized the significance of this incident, but it tells us a lot about stock market investing and whether it is safe for people in or near retirement. If you are wondering how the GameStop incident relates to your retirement investments, keep reading.

What is Short Selling?
You may remember hearing about stocks being shorted during the 2008 financial crisis, and it is also at the core of the GameStop incident. When an investor or hedge fund sells short, it means that they are making a bet that the price of a security will go down. If the price goes down, the short seller makes a profit; if the price of the stock goes up, the investor or hedge fund loses money on their investment.

As online shopping has become more popular, brick-and-mortar retailers like GameStop have seen the volume of their business decrease, and the price of their stocks fall. Hedge funds picked up on this trend and began taking a short position on these companies. GameStop was heavily shorted, with 140% of their public shares being shorted on January 22nd, 2021. While some may debate the ethics of shorting stocks, it is a legal and normal part of the way Wall Street conducts business. If Reddit investors had not targeted hedge funds who were shorting stocks like GameStop, those hedge funds would have made billions.

Reddit and Robinhood
As GameStop and a handful of other companies became heavily shorted, some “retail” investors saw potential to upset the established order. They gathered in an online community on Reddit known as “WallStreetBets” where they discussed a plan to buy up heavily shorted stocks like GameStop, Blackberry, and AMC Theaters, which became known as “meme stocks.” As more and more investors jumped on board, the price of these stocks rose rapidly, surpassing even the most optimistic expectations. This sharp rise attracted attention from the media and from public figures like Elon Musk, whose January 26th tweet about GameStop corresponded with a spike in the company’s stock price. While this was good news for investors who purchased GameStop stock, hedge funds who had shorted the company realized they were poised to lose billions.

Many of GameStop’s new investors were young people who had never owned stock before and were using mobile apps like Robinhood to make their trades. In response to the increased trading volume on their platforms, Charles Schwab, TD Ameritrade, and Robinhood all placed purchase limits on the “meme stocks”, preventing small-scale retail investors from buying any more shares. At the same time however, they allowed institutional investors on Wall Street to close out their short positions before they lost too much money. Many involved saw this as an unfair advantage that would not be extended to small-scale investors who lost money on these trading platforms, or had their accounts cashed out and closed without their authorization.

Thanks in part to Robinhood’s trading restrictions, GameStop’s stock price plunged at the beginning of February, closing below $100 dollars by February 2nd. Investors who closed out their positions early made millions, while those who were late to the game lost significant portions of their investments. Because they could close out their short positions before the crash, many of the hedge funds involved were able to minimize their losses. Executives at companies like GameStop, Blackberry, and AMC also made millions selling stock in their own companies before the crash, prompting accusations of insider trading. Some have also accused Robinhood and Reddit of market manipulation, an accusation that is currently under investigation by the Securities and Exchange Commission (SEC) as well as the United States Congress. Although, this would not be the first time that the trading app Robinhood was scrutinized for not putting the best interest of their consumers first.

The CEO of Robinhood, as well as executives from Reddit, Melvin Capital, and Citadel were brought before Congress to testify about the incident on February 18th. Robinhood CEO Vlad Tenev denied that he colluded with hedge funds to lower the price of GameStop when the trading app was limiting GameStop trades. Although a second hearing has been scheduled, it looks like none of those involved will face any immediate consequences for their actions. Furthermore, while Congress and the SEC continue to investigate the situation, it seems unlikely that any significant changes will occur on Wall Street in the foreseeable future.

What Does the GameStop Incident Mean for Your Retirement?
A story this complex and convoluted seems like something Hollywood might dream up. So how does it relate to your retirement savings? In short, the GameStop incident is strong evidence that investing in the stock market or any securities-based investment is a tremendous risk for anyone in or near retirement. While the young investors and hedge funds who lost money during this saga have the time and resources to recoup their losses, seniors preparing for, or living in retirement do not. The restrictions placed on retail investors by Robinhood and other trading platforms also show that the stock market is not as free or as fair as you might think. While small-scale investors lost millions, hedge funds were afforded the opportunity to mitigate their losses, and executives who made profitable trades based on information gathered on Reddit are unlikely to face any criminal charges. It is not entirely clear who the winners and losers were in this scenario, but one thing is certain: the stock market can be easily manipulated, making investing in the stock market a risky proposition, especially for people approaching retirement age.

What Are Required Minimum Distributions?

What are Required Minimum Distributions

When preparing for retirement it is essential that investors transitioning into the retirement phase of their lives have a financial plan in place to ensure that their assets are protected and are not outlived. One of these preparations includes the process of taking required minimum distributions from a traditional IRA or 401(k) after reaching age 72. In essence, a required minimum distribution is defined as a yearly withdrawal that must be taken from retirement accounts — such as a traditional IRA — as mandated by the Internal Revenue Service (IRS). Not following these distribution rules would result in significant fines or penalties that are associated with the value of the assets in the eligible account or accounts.

Traditional IRA and 401(k) retirement accounts are required to have a portion of the funds withdrawn on a yearly basis because they are funded with income that has not been taxed. Although the money invested in these accounts grows tax-deferred, when the owner reaches age 72, they must begin taking their required minimum distributions. Depending on what the IRA or 401(k) is invested in, or if the account owner has eligible funds to continue contributing to their accounts, an IRA or 401(k) may continue to grow while taking withdrawals each year. Roth accounts are not required to take these distributions because taxes were already paid on the income that funded the accounts — thus Roth accounts grow tax-deferred with after-tax money.

Prior to the SECURE Act going into effect in 2020, the required minimum distribution age was 70 ½ years old; however, the legislation raised the age for new retirees to 72. Individuals who were already taking distributions from their eligible retirement accounts were not impacted by the age increase. Furthermore, individuals who invested in a Roth IRA or Roth 401(k) account were also not impacted by the changes set forth in the SECURE Act, since required minimum distributions are not mandated for those types of retirement accounts. Effective January 1, 2022, the distribution factors used to calculate required minimum distributions for traditional IRA and 401(k) accounts will be updated and impact all eligible account owners.

Required minimum distributions are calculated using one of three life expectancy tables, depending on the status of the individual receiving the distributions. First, there is the Single Life Expectancy Table which is used by designated beneficiaries who inherited an IRA or 401(k) before 2020 and are stretching the inherited account using their own life expectancy. The SECURE Act put an end to the “Stretch IRA” which allowed an inheritor to take distributions over the course of their lifetime and instead replaced that with a 10-year rule mandating that all funds be withdrawn from the account while also paying taxes on the inherited money. Most IRA owners will use the Uniform Lifetime Table unless the sole beneficiary of the account is a spouse who is more than 10 years younger than the account owner — in which case the Joint Life Expectancy Table would be implemented.

In 2018, former President Trump issued an executive order instructing the IRS to update the life expectancy tables to reflect longer lifespans among Americans living in retirement. As of November 2020, the IRS released their official updates to the life expectancy tables which are set to go into effect starting in January of 2022. This means that all required minimum distributions after December 2021 must be calculated using the new tables and as a result, yearly distributions will be moderately reduced across the board. The following are examples of the changes being made to the life expectancy tables and how that will impact IRA owners and beneficiaries.

A designated beneficiary who inherited an IRA prior to 2020 would have the option to stretch the account over the course of their lifetime using the Single Life Expectancy Table; beneficiaries who inherit an IRA after 2020 must withdraw all the funds from the account within 10 years following the year of death of the account owner. In the case of stretching the IRA, however, if a designated beneficiary received an account at age 53 in 2019, they would start taking their yearly withdrawals in 2020 — one year after the death of the owner.

RMD = IRA Balance ➗Distribution Factor (Life Expectancy)

In table 1 below, the beneficiary would be 54 years old and under the current Single Life Expectancy Table, they would calculate their distribution using a factor of 30.5 years. In 2020, and in each of the following years, that factor would be reduced by 1 until the funds were depleted or the beneficiary passed; therefore, the distribution factor for 2020 would be 29.5 years for this designated beneficiary.

When the new tables go into effect in January of 2022, the beneficiary will have to find the original age that they began receiving distributions. In this example, at 54 years old the new Single Life Expectancy Table would have been calculated using a distribution factor of 32.5 years. Since the beneficiary would be 56 in 2022, they would subtract 1 for each year that they have taken a withdrawal until they reach their current age, which would result in a distribution factor of 30.5 years to calculate their 2022 distribution.

The Uniform Lifetime Table is for IRA owners taking distributions after reaching age 72, or IRA owners who were taking distributions prior to the 2020 age increase. An IRA owner who was 73 in 2019 and already taking distributions would have calculated their withdrawal using a factor of 24.7 years (Table 2). At 74 in 2020, that distribution factor would have reduced to 23.8 years and again to 22.9 years in 2021 at age 75.

When this owner turns 76 in 2022, their calculations will switch to the new Uniform Lifetime Table and use a distribution factor of 23.7 years (instead of 22.0 years) indicating a reduction in their overall required minimum distribution for the year. Compared to the previous table their withdrawal would be increased by a factor of 1.7 years, which would indicate a reduction in the total cash distribution when switching to the new table.

The third and final distribution table used by IRA owners is the Joint and Last Survivor Expectancy Table and is used only if their spouse beneficiary is more than 10 years younger than the IRA owner. If the owner of an IRA were 73 years old in 2019 and their spouse was 60 years old (Table 3) they would use a joint distribution factor of 26.8 years. In 2020 that factor would be reduced to 25.9 years when the IRA owner turned 74 and their spouse 61. The following year in 2021, when the IRA owner turns 75 and their spouse 62, they would use a distribution factor of 25 years.

Just like the other life expectancy tables, when the calendar changes to 2022 the new tables will go into effect, and a new joint distribution factor will be used to calculate their required withdrawals. When this IRA owner turns 76 and their spouse 63, the distribution will be 25.9 years according to updates made by the IRS. As a result, their required withdrawal for the year would be reduced by a factor of 1.8 years compared to what would have been their distribution if they had used the previous life expectancy table.

Although these changes are set to go into effect in 2022, it is imperative to prepare for these changes by meeting with a licensed retirement phase expert to ensure that you are taking the correct amount of money for your yearly required minimum distributions. By taking more than the required amount from a traditional IRA or 401(k) you could be on the hook to pay more in taxes. To avoid this, a licensed retirement phase expert can assist you in staying up-to-date with the newest regulation in the continually changing IRA investing environment and help you maintain peace of mind throughout retirement.

Truth Tracker: Mad Money Manipulation


Journalists, regulators, politicians and more have joined the discussion of market manipulation since the popular trading application Robinhood temporarily barred Reddit investors from trading shares of GameStop stock after driving up the price in spite of hedge funds that had taken short positions. Short selling is the process of borrowing shares of a particular stock that is anticipated to decrease in value and selling them to available buyers with the intention of purchasing the stock at a lower price to make a profit before returning the borrowed shares. Taking a short position is common among hedge funds, but the strategy has recently been scrutinized for actions deemed as allegedly manipulating the stock market. Personalities like Jim Cramer, host of the CNBC show Mad Money, have frequently weighed in on the Reddit investments, and despite his support of individual investors, an interview from 2006 resurfaced and put his ethics in question as he discussed ways to manipulate the stock market during his time as a hedge fund manager.

Before Cramer became the host of Mad Money on CNBC, he started and managed the hedge fund Cramer, Berkowitz & Company. While managing the hedge fund, Cramer was also a writer for multiple financial news sources like Worth and Slate and appeared on TheStreet.com — where the unscrupulous 2006 interview took place. During the interview, Cramer revealed anecdotal examples of how hedge funds manipulate the stock market should they need a stock to rise or fall. While discussing the volatility of the stock market futures, Cramer stated that certain actions would be necessary in order to get the future price of a stock to fall. “A lot of times when I was short at my hedge fund and I was positioned short, meaning I needed it down, I would create a level of activity beforehand that would drive the futures — it doesn’t take much money,” Cramer expressed. Cramer described these actions as a game that is fun and lucrative if the hedge fund knows what it is doing.

At the time of the interview, the financial industry was nearing the end of a financial quarter, which prompted Cramer to suggest that it is imperative that hedge funds — whether they are positioned long or short — control the market in order to hit their marks. To do this, Cramer proposed fomenting the market, which is creating a sentiment or instigating a course of action to achieve a desired result by feeding fake news to brokerages and reporters to try and control the direction of a stock. In the case of short selling the market, Cramer encouraged creating an impression that a stock is down. “You can’t create — yourself — an impression that a stock’s down, but you do it anyway because the SEC doesn’t understand it.” According to their website, the U.S. Securities and Exchange Commission (SEC) is an independent federal government regulatory agency responsible for protecting investors, maintaining fair and orderly functioning of the securities markets, and facilitating capital formation. Despite Cramer acknowledging that fomenting is a questionable activity that is not allowed, Cramer forged ahead with this endorsement of the action. “This is actually just blatantly illegal, but when you have six days and your company may be in doubt because you’re down, I think it’s really important to foment.” Hedge funds that weren’t willing to manipulate the market using this strategy, he said, should not be in the business of short selling stocks.

Furthermore, given the example of Apple preparing to release their first phone, Cramer explained that the stock was in a perfect position to short and gave a detailed explanation of how he would do it at his hedge fund. By spreading rumors to brokerage contacts that the major phone carriers — Verizon and AT&T — are not interested in picking up the Apple phone. He argued that this is an effective strategy to short the stock and push the price down. Cramer continued to describe that, to keep the stock down, his strategy would also include purchasing puts — a contract to sell a stock at a specified price — to create a sentiment that there might be activity on the horizon for a company’s stock which would benefit the hedge funds positioning by creating anxiety in the market. “These are all what’s really going on under the market that you don’t see,” Cramer stated. The most striking quote from the Cramer interview however came after describing how to manipulate the market. “What’s important when you’re in that hedge fund mode is to not do anything remotely truthful, because the truth is so against your view that it’s important to create a new truth, to develop a fiction and the fiction is developed by almost anybody who’s down.” This interview has recently been removed from TheStreet’s YouTube channel in light of Reddit investors short squeezing hedge funds that were trying to short sell stocks of GameStop and American Multi-Cinema (AMC).

“No One else in the world would ever admit that, but I could care…I’m not going to say it on TV.”

Jim Cramer, Circa 2006 via thestreet.com

In the wake of the 2008 financial crisis, Comedy Central commentator Jon Stewart lambasted Cramer for the 2006 interview, claiming in large part that the ethically questionable tactics that were anecdotally described by Cramer were related to the hidden side bets being made on Wall Street that cost millions of Americans their retirement savings. Stewart highlighted that Wall Street was viewed as having two separate markets — one that is for long-term investors and one that is behind closed doors that has a much larger impact on the financial stability of the markets. While frequently referring to the 2006 interview, Stewart contended that Cramer and CNBC knew about the market manipulation that was taking place behind the scenes and argued that the network did nothing to expose the issues until it was too late and investors lost billions.

Click play below to watch.

Stewart raised the concern that Cramer and the media at large, but specifically CNBC, were protecting companies like AIG, Bear Stearns, and more, and not making a bigger issue about the manipulative activities that were taking place which ultimately played a role in the stock market crash. Years later in 2021, market manipulation continued to be on full display with certain brokerages restricting trades of certain stocks because individual investors were short squeezing hedge funds. Robinhood, a popular trading app that has expanded access to the market to individual investors, was at the center of the manipulation as they restricted users from trading shares of GameStop and AMC after the stock skyrocketed in January of 2021. Cramer commented on the situation by sticking up for the individual investors in another interview appearing on TheStreet.com stating that individual investors must be protected from being restricted in their investment decisions.

Robinhood had already been in the spotlight of regulatory investigations after settling with the SEC to pay a fine for not providing investors with the best stock prices and not disclosing important information to traders. Similarly to his calls for investigations into companies like AIG in 2009 when speaking with Jon Stewart, Cramer’s calls for investigations into the manipulations of Robinhood were overshadowed by his willful actions to manipulate the market with his hedge funds and encouraging other investment groups to do the same. This kind of activity fetters investors’ confidence in the stock market and despite Cramer’s role as a financial journalist, the fundamentals of financial reporting have been replaced with glamour and entertainment — a concern that Stewart expressed during their 2009 interview.

Whether it is the securities industry, regulators, the federal government, media personalities, or brokers themselves, market manipulation has run rampant for decades. Large hidden transactional forces control sectors of the market for short-term profit, oftentimes at the expense of the individual investor and this was made apparent in the way Jim Cramer flippantly discussed strategies to manipulate the stock market to advantage his and others hedge funds. Arguably, Cramer is first and foremost a cheerleader for the securities industry, rather than a watchdog for the average investor in an industry riddled with fraud and deceit.

In essence, the topical conversation surrounding market manipulation is not new, but attempts to control the market one way or another are becoming increasingly apparent. Despite his fame and knowledge of the intricacies of the stock market, the ethically enigmatic decision-making of Jim Cramer while working as a manager of a hedge fund illuminates just one part of the dishonesty and corruption of the securities industry. Whether hyperbolic or anecdotal, Cramer encouraged that when a broker is in the hedge fund business, it’s important to never do anything remotely truthful or ethical. In order to achieve success while short selling, he indicated that a fiction must be created and spread in order to reach a desired outcome with the stock that is being hedged.

These actions may have made Cramer a billionaire, but for many average investors, market manipulation has jeopardized or put into question millions of retirement futures. Today, Cramer is a media personality — a financial journalist — who recommends strategies and stocks to buy and sell while investors continue to get fleeced by market manipulations that are out of their control and similar to the actions taken by Cramer’s hedge fund and from thousands of other brokers and investment groups.

Decades of Suspicious Banking Exposed


For a period of 18 years, some of the largest United States and global banks allegedly moved trillions of dollars despite flagging transactions that were suspicious or potentially criminal. This came to light due to leaked documents according to the International Consortium of Investigative Journalists (ICIJ), Buzzfeed News, and others contributing to the FinCEN Files. The leak of confidential documents from the United States Treasury shows thousands of Suspicious Activity Reports (SARs) that were filed by major U.S. Banks. While SARs do not indicate wrongdoing, nor are they evidence of a crime, SARs are sent to federal authorities when potential illicit activity is witnessed.

Banks have 60 days (30 days with the ability to extend another 30 days) to file a SARs report to the United States Treasury Department Intelligence Unit: The Financial Crimes Enforcement Network, also known as FinCEN. At which time FinCEN would look into the suspicious activity as their mission is to protect the United States financial system from money laundering, terrorism, and other forms of illegal conduct dealing with finances. The nature of SARs are so confidential that banks can not legally discuss publicly any report, and regulators and law enforcement rarely comment on their existence. Curated by Buzzfeed News and the ICIJ, thousands of SARs documents were leaked, many of which detailed that SARs reports were filed years after witnessing alarming transactions — and not within the required 60 days.

The documents revealed that more than $2 trillion dollars from 1999 – 2017 were allegedly funneled through United States banks from suspicious individuals and corporations in more than 150 countries, with Deutsche Bank moving more than $1.2 trillion of those dollars. JPMorgan Chase moved more than $500 billion. Other major banks include HSBC, Standard Chartered Bank, Bank of New York Mellon, Barclays, Wells Fargo, Western Union, and more. So far, the leaked FinCEN files have exposed several high-profile figures worldwide, including Paul Manafort who was the former head of President Trump’s campaign during the Summer of 2016. According to the documents from 2003 – 2017, Manafort made over 600 transactions for more than $100 million dollars while being cited in 33 separate suspicious activity reports.

Despite many of these banks receiving fines and other types of regulatory actions against them by U.S. regulators for their failures to root out corruption and dirty money, the FinCEN documents show that the banks continued to overlook, or turn the other way as illicit funds were passed through their channels. Reportedly, banks like JPMorgan helped move the funds of corrupt companies and individuals including $1 billion for a fugitive caught up in a political scandal in Malaysia. In some cases, the banks were not even aware of who was effectuating a transaction, but would approve and move funds, sometimes into offshore accounts without hesitance.

JPMorgan was also linked to maneuvering funds, which ultimately assisted North Korea in evading many of the sanctions placed on their country by the Obama and Trump administrations from 2008 to 2017. Nearly $175 million dollars in laundered money passed through banks like JPMorgan and Bank of New York Mellon using shell companies in China, Cambodia, the United States and Singapore and was documented through suspicious activity reports. One of the perpetrators, Dandong Hongxiang Industrial Development Corp, run by Ma Xiohong was indicted in 2016 and again in 2019 for their role in laundering money through these shell companies, using U.S. banks in order to abet North Korea’s efforts to skirt U.S. sanctions.

In many of these cases, federal regulators were aware of the activity that was taking place in these banks through previous SARs, and have fined certain banks in the past for their role in failing to protect their financial institution from corruptors, mobsters, and gangs. In 2015, Deutsche Bank was fined $258 million dollars because they maintained working operations with countries that the United States was sanctioning, including Iran, Syria, Libya and several others. This however did not stop the bank from continuing those working relations as documents show persistent transactions following the regulatory fine. Similarly, HSBC reportedly continued their movement of billions of dollars that were tied to a ponzi scheme despite paying record fines for working with murderers and cartels in the early 2010s. Despite these egregious decisions made by major banks to continue working with shady figures, authorities that are responsible for prosecuting this type of activity rarely ever take up the goliath task of bringing criminal charges to these banks — opting instead to threaten criminal prosecution should the illicit activity persist.

What the FinCEN documents show is that despite these threats of prosecution and levied fines, monies linked to ponzi schemes, fraud, drugs, and other forms of corruption have passed through these banks without much enforcement. FinCEN has stated that this flow of illegal funds is harmful to ordinary citizens of countries around the world as it fuels drug cartels, corrupt oligarchs, and other criminal enterprises which in return diminishes the trust consumers have in these financial institutions; as well as, the transparency these banks have with federal and financial regulators. This decline was highlighted when the FinCEN Files became public in late September of 2020 and the Dow lost 800 points, along with bank stocks dropping significantly. Deutsche Bank, who was labeled as the largest offender of the major banks for processing illicit funds saw their stock drop 8% on the day, followed by 5.5% at HSBC. Bank of New York Mellon lost 4.1% in trading and JPMorgan fell 3.1%.

It is unclear what will result from the FinCEN Files leak as the spotlight shines on thousands of suspicious activity reports that barely scratch the surface according to the ICIJ. How federal regulators and law enforcement will respond to the relevant information presented in these leaks may also indicate if any action will be taken to address this problem. What is clear however, is that the trillions of dollars that are funneled through well-known financial institutions worldwide and in the United States are connected to criminal organizations, corrupt government regimes, drug cartels, and more.

Recent Posts

retirees returning to work

Study: 40% of Retirees Plan to Return to the Workforce in 2024

In today's society, a significant amount of retirees are finding themselves living at or below the poverty level. This phenomenon is largely...

THIS WILL CHANGE EVERYTHING Crash Proof Retirement has announced that they have taken...
The Investment Gender Gap: Women Feel Ignored by Financial Advisors

The Investment Gender Gap: Women Feel Ignored by Financial Advisors

In March, we observe Women’s History Month to recognize and celebrate the vital role that women have played in shaping American history....

Adjusting Your Investment Strategy as You Age

There are three phases that every investor goes through as they make investment decisions during their life. While it would seem logical...

How Our Government’s Spending Addiction Will Trigger A “Day Of Reckoning”

The United States is facing a growing crisis - a $100 trillion federal deficit and exploding debt totaling $17 trillion amongst everyday...

Most Popular

retirees returning to work

Study: 40% of Retirees Plan to Return to the Workforce in 2024

In today's society, a significant amount of retirees are finding themselves living at or below the poverty level. This phenomenon is largely...

THIS WILL CHANGE EVERYTHING Crash Proof Retirement has announced that they have taken...
The Investment Gender Gap: Women Feel Ignored by Financial Advisors

The Investment Gender Gap: Women Feel Ignored by Financial Advisors

In March, we observe Women’s History Month to recognize and celebrate the vital role that women have played in shaping American history....

Adjusting Your Investment Strategy as You Age

There are three phases that every investor goes through as they make investment decisions during their life. While it would seem logical...

How Our Government’s Spending Addiction Will Trigger A “Day Of Reckoning”

The United States is facing a growing crisis - a $100 trillion federal deficit and exploding debt totaling $17 trillion amongst everyday...