10 Questions Retirees Often Get Wrong About Taxes in Retirement

You worked hard for your retirement nest egg, so the idea of paying taxes on those savings isn’t exactly appealing. If you know what you’re doing, you can avoid overpaying Uncle Sam as you start collecting Social Security and making withdrawals (including RMDs) from IRAs and 401(k)s. Unfortunately, though, retirees don’t always know all the tax code ins and outs and, as a result, end up paying more in taxes than is necessary. For example, here are 10 questions retirees often get wrong about taxes in retirement. Take a look and see how much you really understand about your own tax situation.

(And check out our State-by-State Guide to Taxes on Retirees to learn more about how you will be taxed by your state during retirement.)

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Tax Rates in Retirement

picture of tax rate arrow chart showing upward trendpicture of tax rate arrow chart showing upward trend

Question: When you retire, is your tax rate going to be higher or lower than it was when you were working?

Answer: It depends. Many people make their retirement plans with the assumption that they’ll fall into a lower tax bracket once they retire. But that’s often not the case, for the following three reasons.

1. Retirees typically no longer have all the tax deductions they once did. Their homes are paid off or close to it, so there’s no mortgage interest deduction. There are also no kids to claim as dependents, or annual tax-deferred 401(k) contributions to reduce income. So, almost all your income will be taxable during retirement.

2. Retirees want to have fun—which costs money. If you’re like many newly retired folks, you might want to travel and engage in the hobbies you didn’t have time for before, and that doesn’t come cheap. So, the income you set aside for yourself in retirement may not be much lower than what you were making in your job.

3. Future tax rates may be higher than they are today. Let’s face it…tax rates now are low when viewed in a historical context. The top tax rate of 37% in 2021 is a bargain compared with the 94% of the 1940s and even the 70% range as recently as the 1970s. And considering today’s political climate and growing national debt, future tax rates could end up much higher than they are today.

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Taxation of Social Security Benefits

picture of a Social Security card surrounded by stacks of coinspicture of a Social Security card surrounded by stacks of coins

Question: Are Social Security benefits taxable?

Answer: Yes. Depending on your “provisional income,” up to 85% of your Social Security benefits are subject to federal income taxes. To determine your provisional income, take your modified adjusted gross income, add half of your Social Security benefits and add all of your tax-exempt interest.

If you’re married and file taxes jointly, here’s what you’ll be looking at:

  • If your provisional income is less than $32,000 ($25,000 for singles), there’s no tax on your Social Security benefits.
  • If your income is between $32,000 and $44,000 ($25,000 to $34,000 for singles), then up to 50% of your Social Security benefits can be taxed.
  • If your income is more than $44,000 ($34,000 for singles), then up to 85% of your Social Security benefits are taxable.

The IRS has a handy calculator that can help you determine whether your benefits are taxable. You should also check out Calculating Taxes on Social Security Benefits.

And don’t forget state taxes. In most states (but not all!), Social Security benefits are tax-free.

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Withdrawals from Roth IRAs

picture of a jar labeled "Roth IRA" with money in itpicture of a jar labeled "Roth IRA" with money in it

Question: Are withdrawals from Roth IRAs tax-free once you retire?

Answer: Yes. Roth IRAs come with a big long-term tax advantage: Unlike their 401(k) and traditional IRA cousins—which are funded with pretax dollars—you pay the taxes on your contributions to Roths up front, so your withdrawals are tax-free once you retire. One important caveat is that you must have held your account for at least five years before you can take tax-free withdrawals. And while you can withdraw the amount you contributed at any time tax-free, you must be at least age 59½ to be able to withdraw the gains without facing a 10% early-withdrawal penalty.

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Taxation of Annuity Income

picture of an elderly couple discussing finances with an advisorpicture of an elderly couple discussing finances with an advisor

Question: Is the income you receive from an annuity you own taxable?

Answer: Probably (at least for some of it). If you purchased an annuity that provides income in retirement, the portion of the payment that represents your principal is tax-free; the rest is taxable. The insurance company that sold you the annuity is required to tell you what is taxable. Different rules apply if you bought the annuity with pretax funds (such as from a traditional IRA). In that case, 100% of your payment will be taxed as ordinary income. In addition, be aware that you’ll have to pay any taxes that you owe on the annuity at your ordinary income-tax rate, not the preferable capital gains rate.

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Age for Starting RMDs

picture of elderly man blowing out candles on a birthday cakepicture of elderly man blowing out candles on a birthday cake

Question: At what age must holders of traditional IRAs and 401(k)s start taking required minimum distributions (RMDs)?

Answer: Age 72. The SECURE Act raised the age for RMDs to 72, starting on January 1, 2020. It used to be 70½. (Note that, although the CARES Act waived RMDs for 2020, they’re back for 2021 and beyond.)

As for the amount that you are forced to withdraw: You’ll start out at about 3.65%, and that percentage goes up every year. At age 80, it’s 5.35%. At 90, it’s 8.77%. Figuring out the percentages might not be as hard as you think if you try our RMD calculator. (Note that, beginning in 2022, RMD calculations will be adjusted so that distributions are spread out over a longer period of time.)

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RMDs From Multiple IRAs and 401(k)s

picture of a spiral notebook with "Required Minimum Distributions" written on the front coverpicture of a spiral notebook with "Required Minimum Distributions" written on the front cover

Question: Are RMDs calculated the same way for distributions from multiple IRAs and multiple 401(k) plans?

Answer: No. There’s one important difference if you have multiple retirement accounts. If you have several traditional IRAs, the RMDs are calculated separately for each IRA but can be withdrawn from any of your accounts. On the other hand, if you have multiple 401(k) accounts, the amount must be calculated for each 401(k) and withdrawn separately from each account. For this reason, some 401(k) administrators calculate your required distribution and send it to you automatically if you haven’t withdrawn the money by a certain date, but IRA administrators may not automatically distribute the money from your IRAs.

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Due Date for Your First RMD

picture of a piggy bank with "RMD" written on the sidepicture of a piggy bank with "RMD" written on the side

Question: Do you have to take your first RMD by December 31 of the year you turn 72?

Answer: No. Normally, you have to take RMDs for each year after you turn age 72 by the end of the year. However, you don’t have to take your first RMD until April 1 of the year after you turn 72. But be careful—if you delay the first withdrawal, you’ll also have to take your second RMD by December 31 of the same year. Because you’ll have to pay taxes on both RMDs (minus any portion from nondeductible contributions), taking two RMDs in one year could bump you into a higher tax bracket.

It could also have other ripple effects, such as making you subject to the Medicare high-income surcharge if your adjusted gross income (plus tax-exempt interest income) rises above $88,000 if you’re single or $176,000 if married filing jointly. (Note: Those are the income thresholds for determining 2021 surcharges.)

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Taxation of Life Insurance Proceeds

picture of a life insurance contract with money laying on itpicture of a life insurance contract with money laying on it

Question: If your spouse dies and you get a big life insurance payout, will you have to pay tax on the money?

Answer: No. You have enough to deal with during such a difficult time, so it’s good to know that life insurance proceeds paid because of the insured person’s death are not taxable.

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Estate Tax Threshold

picture of the words "Estate Tax" next to a judge's gavel and moneypicture of the words "Estate Tax" next to a judge's gavel and money

Question: How valuable must an individual’s estate be at death to be hit by federal estate taxes in 2021?

Answer: $11.7 million ($23.4 million or more for a married couple). If the value of an estate is less than the threshold amount, then no federal estate tax is due. As a result, federal estate taxes aren’t a factor for very many people. However, that will change in the future. The 2017 tax reform law more than doubled the federal estate tax exemption threshold—but only temporarily. It’s schedule to drop back down to $5 million (plus adjustments for inflation) in 2026. Plus, during his 2020 campaign, President Biden called for a reduction of the exemption threshold sooner.

If your estate isn’t subject to federal taxes, it still might owe state taxes. Twelve states and the District of Columbia charge a state estate tax, and their exclusion limits can be much lower than the federal limit. In addition, six states impose inheritance taxes, which are paid by your heirs. (See 18 States With Scary Death Taxes for more details.)

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Standard Deduction Amounts

picture of a 1040 tax form with a pen laying on it next to the standard deduction linepicture of a 1040 tax form with a pen laying on it next to the standard deduction line

Question: If you’re over 65, can you take a higher standard deduction than other folks are allowed?

Answer: Yes. For 2021, to the standard deduction for most people is $12,550 if you’re single and $25,100 for married couples filing a joint tax return ($12,400 and $24,800, respectively, for 2020). However, those 65 and older get an extra $1,700 in 2021 if they’re filing as single or head of household ($1,650 for 2020). Married filing jointly? If one spouse is 65 or older and the other isn’t, the standard deduction increases by $1,350 ($1,300 for 2020). If both spouses are 65 or older, the increase for 2021 is $2,700 ($2,600 for 2020).

Source: kiplinger.com

The Potential Financial Silver Lining of the Pandemic

To say the last year has been unprecedented might be the understatement of the century. It is hard to imagine anyone who has not been impacted in some manner, some far more than others, by the pandemic. Personal finances are no exception as the volatility of the past year remains front and center for many despite recent market recovery.

However, something interesting is happening. Many people are doing what their financial professionals have been asking them to do since their first appointment! They are paying closer attention to their current and future finances. In fact, according to our 2021 Allianz Retirement Risk Readiness Study, two-thirds (65%) of those surveyed said they are paying more attention to what they are saving and spending, and nearly six-in-10 (58%) have cut back on their spending.

This is, no doubt, a step in the right direction. But — and there is always a “but”— risk readiness needs to be about much more than saving and spending. Although it’s understandably a good immediate approach, given the current environment, there is more to consider, specifically the long term. It might seem difficult to look at now, but retirement planning still needs to remain top of mind.

One area that is often overlooked in accumulating assets that deserves much more attention is income planning. Income planning is ensuring you have enough funds to support your lifestyle throughout your, and your spouse’s lifetime.  The value of income planning should never be underestimated. Without a written plan, which is regularly updated, your retirement dream is nothing but a work of fiction. However, a few simple steps now will set you up for future success. You’ll be much more confident when you reach the retirement reality and embark upon the next chapter of the story of your life.

Know your retirement risks

Significant events are often the triggers that convince people to take a more proactive approach. The pandemic is no exception. It exposed a whole new level of financial risks many people hadn’t recognized.

While it is fresh, use this same lens and think about risks in retirement: longevity, inflation, market volatility, the list goes on and on. We’re reminded of the day-to-day risks that pop up in retirement, such as increased health care needs and mobility issues. This “discovery” phase may be a painful reality check, but it is Step No. 1 in addressing your future income needs.

Review your expense categories

While it is sometimes difficult to predict your retirement spending, using your current expenses as a baseline is a great way to estimate expense categories. As a general rule, your essential expenses, such as food, clothing, shelter and health care costs, take priority over discretionary and legacy spending and require reliable guaranteed income. After all, you must cover essential expenses regardless of market conditions or other factors.

Identify your income sources

While retirement income can come from a variety of sources, most people immediately think Social Security. It is important to know all of the options when filing for Social Security benefits in order to get the most out of them. However, Social Security alone will not provide a complete source of retirement income.

Uncover any potential income gaps

Which brings me to the next point. If, by factoring in Social Security and pension income (if any) you discover that you don’t have sufficient guaranteed income to cover your essential expenses, you’ve uncovered a retirement income gap. This might be jarring, but it is actually good news, as you now know what needs to be done and can get ahead of the situation now rather than having an unpleasant surprise in retirement.

Develop a tailored solution

Working with your financial adviser, you can create a retirement income plan that could cover your essential expenses as well as potentially enhance your discretionary and legacy income. You will want to figure in things like travel, hobbies and other “fun” expenses in addition to the essentials. Retirement shouldn’t be something that is survived but something that is enjoyed.

If you, indeed, have the dreaded income gap, there are several products, such as annuities, that can help you put in place an additional stream of guaranteed income to help cover your needs. (Remember that guarantees are backed by the issuing insurance company.)

There seems to be light coming at the end of the proverbial tunnel. While it might not be an easy mindset shift, getting back on track now with your long-term financial planning will serve you well in the years ahead. The wake-up call has arrived, so what better time than the present to look ahead to better days.

Vice President, Advanced Markets, Allianz Life

Kelly LaVigne is vice president of advanced markets for Allianz Life Insurance Co., where he is responsible for the development of programs that assist financial professionals in serving clients with retirement, estate planning and tax-related strategies.

Source: kiplinger.com

Can AI Beat the Market? 10 Stocks to Watch

Artificial intelligence isn’t new to the world of stock picking, but it hasn’t really been an option for retail investors. That is, until now.

Traditionally, powerful artificial intelligence systems – and the high-octane brainpower needed to develop and run them – that target stocks to watch have been available only to hedge funds, quant funds and a select group of asset management firms.

Danel Capital, a financial advice company, aims to change all that with a new analytics platform that harnesses the power of big data technology and machine learning. The idea is to help regular investors make smarter decisions with their tactical stock picks.

Here’s how it works:

The company’s AI algorithms analyze more than 900 fundamental, technical and sentiment data points per day for 1,000 U.S.-listed shares and 600 stocks listed in Europe. Danel says that in total, its AI predictive scoring capability churns through 10,000 daily indicators. The platform then analyzes that huge amount of data to predict the future performance of each stock, calculating the probability of beating the market over the next four months.

Once the algo determines which stocks to watch, it spits out a rating known as a Smart Score, which ranges from 1 to 10. Danel says that, on average, stocks with the highest Smart Scores of nine or 10 almost doubled the S&P 500’s annualized returns from January 2017 to July 2020.

And, indeed, the top 5 rankings Danel Capital firm released in January and February beat the S&P 500 by considerable margins. The firm has since switched to issuing top 10 rankings.

Note well that we’re talking about the probability of beating the market over the next few months or so, not days. That makes the platform useful for tactical investors, not day traders.

It’s an interesting system that makes some pretty counterintuitive stock picks. Whether it proves to be a useful tool for retail investors remains to be seen, but it’s worth keeping an eye on.

Here are 10 stocks to watch over the next few months, as Danel Capital’s AI platform gives them the highest probability of beating the market in that time. All have perfect Smart Scores of 10, but for good measure, we also took a look at some fundamentals, technicals and analyst research on these names.

Share prices and other data are courtesy of S&P Global Market Intelligence as of April 6, unless otherwise noted.

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10. Snowflake

Concept art for high-tech insuranceConcept art for high-tech insurance
  • Market value: $68.1 billion
  • Smart score: 10

Cloud infrastructure unicorn Snowflake (SNOW, $236.01) generated considerable hype when it went public in September 2020 at $120 a share, making it the largest software offering in history. 

It didn’t hurt that Berkshire Hathaway (BRK.B) – whose chairman and CEO Warren Buffett is notoriously averse to initial public offerings – got in on Snowflake’s ground floor, snapping up $250 million worth of SNOW in a private placement.

But mostly the excitement stemmed from Snowflake’s growth prospects in the rapidly expanding industry of cloud infrastructure software. Known as a cloud-data warehousing company, Snowflake lets enterprise customers run their software on various cloud platforms, be they provided by Amazon.com (AMZN), Microsoft (MSFT) or Google parent Alphabet (GOOGL), to name just three.

Investors have already included Snowflake among their stocks to watch thanks to the shares’ near-doubling since the IPO, but they’re off about 16% for the year-to-date amid a widespread selloff in the software sector. By Danel Capital’s reckoning, however, they’re poised for a rebound soon.

The firm’s proprietary AI assessment gives SNOW a Smart Score of 10, helped by strong – and rising – technical indicators and improving fundamental scores.

Wall Street likes SNOW’s prospects, too.

“Snowflake’s product architecture is superior to its rivals and that the market for cloud-hosted data analytics might be larger than investors believe,” writes UBS Global Research analyst Karl Keirstead, who rates the stock at Buy.

Of the 26 analysts covering the stock tracked by S&P Global Market Intelligence, nine rate it at Strong Buy, two say Buy and 15 have it at Hold. Their average target price of $289.92 gives SNOW implied upside of about 25% over the next 12 months or so.

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9. Palantir Technologies

concept art for big dataconcept art for big data
  • Market value: $42.4 billion
  • Smart score: 10

Palantir Technologies (PLTR, $23.27) gets a perfect 10 Smart Score, again, thanks predominantly to strong technical grades. AI’s assessments of PLTR’s fundamentals and sentiment are more middling, but stable. Interestingly, Palantir’s daily Smart Score has been in a strong uptrend recently, nearly doubling since the end of March.

Although a Smart Score of 10 suggests that shares in the big data analytics company are a good candidate for outperformance in the shorter to intermediate term, the Street is more cautious, at least in its longer term view.

Analysts’ consensus recommendation on the name stands at Hold, according to S&P Global Market Intelligence. One analyst rates PLTR at Strong Buy, one says Buy, three have it at Hold, one calls it a Sell and two slap a Strong Sell on the stock.

Shares in the company, which went public on Sept. 30, 2020 through a direct listing, opened at $10 on their first day of trading and closed at $9.50. Although PLTR is up about 145% ever since, what stands foremost in investors’ minds is that the stock is down 35% from its late-January all-time closing high.

William Blair equity research, which rates the stock at Underperform (the equivalent of Sell), is concerned that Palantir has struggled to deliver the same type of hyper-growth in its commercial division that many of its competitors have achieved. 

“Palantir offers a unique solution, which has the potential to support growth rates in line with some of the most successful providers of enterprise software,” writes William Blair analyst Kamil Mielczarek. “However, we believe there are several risks to achieving this growth rate that are not currently priced into the stock.”

Analysts’ average price target of $25.57 gives PLTR implied upside of roughly 10% over the next year or so. So, put Palantir among your stocks to watch over the next few months to see whether the more bullish algos, or more bearish humans, are right.

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8. Nio

Nio vehiclesNio vehicles
  • Market value: $65.5 billion
  • Smart score: 10

If you thought Tesla (TSLA) stock was a hot and volatile way to play the explosive growth in electric vehicles, take a look at shares in NIO (NIO, $40.00).

The Chinese electric-vehicle maker’s stock has outperformed TSLA by a stunning margin over the past 52 weeks – and has done so in even more volatile fashion than we’ve come to expect from the leading EV stock. 

Shares in NIO have gained more than 1,519% over the past year vs. an increase of 675% for TSLA. Of course, when comparing performance, it depends on how you draw the chart. For the year-to-date, for example, NIO is off 18% vs. a 2% drop in TSLA. 

Either way, with a perfect Smart Score of 10, Danel Capital’s AI expects NIO to return to its market-beating ways soon. Strong scores for technical and sentiment factors – and high marks for the fundamental factor of high expected revenue growth – all help propel NIO to the top of the AI list.

Investors certainly have to be pleased with some recent catalysts. Among them, NIO delivered a record number of vehicles in March. Most notably, the EV maker achieved the feat despite a global shortage of semiconductors that has forced other automakers to suspend or reduce production. 

The Street is likewise bullish on the premium EV start-up company. Of the 18 analysts covering NIO tracked by S&P Global Market Intelligence, six rate the stock at Strong Buy, five say Buy and seven call it a Hold. Their consensus recommendation comes to Buy.

UBS Global Research analyst Paul Gong isn’t quite so enthusiastic. He rates NIO at Neutral (Hold), citing risks such as weaker-than-expected demand; fierce competition, including the local production of Tesla; and a potential decline in government subsidies for the EV industry.

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7. Albemarle

Lithium-ion batteryLithium-ion battery
  • Market value: $17.8 billion
  • Smart score: 10

Albemarle’s (ALB, $152.89) specialty chemicals products work entirely behind the scenes, from clean-fuel technologies to pharmaceuticals to fire safety. But what puts Albemarle among the market’s top stocks to watch right now is lithium.

The world’s need for higher-capacity rechargeable batteries was already insatiable. And now that electric vehicles have entered the scene? Forget about it.

That’s why it makes perfect sense that Albemarle’s top Smart Score is driven by a blemish-free rating of its fundamentals. Danel Capital’s AI also assigns it a near-perfect score on the stock’s technical considerations.

The algo’s reading on sentiment, however, is relatively low, scoring only a three out of 10. That helps explain the Street’s mixed view on the stock and its consensus recommendation of at Hold.

Although the accelerating pace of global EV sales bodes well for lithium demand, some analysts think ALB stock may have gotten ahead of itself at current levels. 

“Our lithium outlook is improving, and we think ALB will be well positioned for growth through capacity expansions,” writes CFRA Research analyst Richard Wolfe. “However, we think shares’ lofty valuation captures much of this benefit, so we stay at Hold.”

Danel Capital’s AI suggests that ALB is a good current stock pick for tactical investors. But it also happens to be worth a closer look if you’re a longer term dividend growth investor. Indeed, ALB is a member of the S&P Dividend Aristocrats, an elite list of S&P 500 companies that have raised their dividends for at least 25 consecutive years. Albemarle last hiked its payout in February 2021, by 1.3% to a quarterly 39 cents a share. The move represented the firm’s 27th consecutive annual increase.

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6. Ebix

image of man with charts and graphsimage of man with charts and graphs
  • Market value: $987.7 million
  • Smart score: 10

Artificial intelligence – and its forerunner of quantitative analysis – in a sense puts blinders on. Data, not headlines, drives decisions. Whether that’s the best approach to take with a company like Ebix (EBIX, $31.90) is a matter of debate.

Ebix, which specializes in software and services to the insurance, health care and financial industries, saw its shares tumble by more than 50% over two sessions in late February after its auditor resigned.

The whiff of accounting issues has yet to be resolved, but shares have clawed back some of their losses. EBIX is now off about 16% for the year-to-date and, by some measures, trading at bargain-basement levels.

Interestingly, EBIX scores high in all three categories of Danel Capital AI’s Smart Score system, garnering sevens (out of 10) for fundamentals and sentiment, and an almost-perfect nine in technicals.

As for the fundamentals, the algo gives Ebix high marks for free cash flow, or money available to shareholders if the company decides to distribute it. And, indeed, the company generated free cash flow (after debt payments) of $59.5 million for the 12 months ended Sept. 30, 2020. That’s a notable figure given that the company generated net income of $94.5 million over the same 12-month period.

Valuation is another plus – shares are trading at less than 10 times at estimated earnings for 2021.

While Danel Capital has EBIX among its stocks to watch right now, it’s barely a blip on most analysts’ radar. The lone pro covering the stock tracked by S&P Global Market Intelligence is likewise bullish, giving it a Strong Buy recommendation.

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5. American Airlines

American Airlines planeAmerican Airlines plane
  • Market value: $15.4 billion
  • Smart score: 10

American Airlines (AAL, $24.06) – and indeed much of the rest of the air carrier industry – is considered by the Street to be among the ultimate recovery plays.

Danel Capital’s algo certainly thinks so, giving it a perfect Smart Score with strength across the board. AAL gets a 10 for fundamentals and ratings of nine on both sentiment and technicals. 

Notably, daily sentiment scores on the name have been in a steep uptrend since the end of March, while fundamental readings have remained perfect on a daily basis for even longer. Readings on technicals have likewise bounced higher in April.

The Street, however, is less sanguine on AAL, with a consensus recommendation of Sell. Of the 22 analysts covering the stock tracked by S&P Global Market Intelligence, two rate it at Strong Buy, eight say Hold, four call it a Sell and seven say Strong Sell. One has no opinion on the name.

Stifel equity research, which rates AAL at Hold, says it has reservations based on the company’s ability to navigate a challenging post-pandemic landscape. 

“American Airlines faces significant earnings pressure and uncertainty related to COVID-19, the pace of a recovery, and its ability to solve the margin challenges it faced pre-COVID,” writes Stifel analyst Joseph DeNardi in a note to clients. 

Argus Research also remains cautious on the stock.

“We are maintaining our Hold rating on AAL, which had been hurt by the 737 MAX groundings, is now wrestling with COVID-19 and high debt levels,” writes analyst John Staszak. “With air travel demand remaining weak, we think that lower operating expenses and a low interest rate environment will provide only partial relief to American and other airlines.”

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4. Zoom Video Communications

A person using video conferencingA person using video conferencing
  • Market value: $96.9 billion
  • Smart score: 10

Zoom Video Communications (ZM, $329.79) has been among the Street’s top stocks to watch ever since the pandemic. Few companies have benefited from the work-from-home economy as much as Zoom – and Danel Capital’s algos think there is more upside ahead.

The video conferencing company’s perfect Smart Score is driven by high marks for technicals and sentiment, which offset a somewhat more middling rating in fundamentals.

The Street likes what it sees, too. Analysts consensus recommendation works out to a Buy, according to S&P Global Market Intelligence. The breakdown comes to eight Strong Buy recommendations, three Buys, 14 Hold calls, one Sell and one Strong Sell.

Although shares in Zoom are up about 170% over the past 52 weeks, they’ve been trending lower since October. And as for the year-to-date? ZM is off 2.2% vs. a gain of 6% for the tech-heavy Nasdaq Composite index.

An accelerating vaccination campaign against COVID-19 and the green shoots of a return to pre-pandemic routines doesn’t necessarily bode well for ZM, but bulls say any pessimism over the stock’s prospects is overdone.

William Blair equity research, for example, expects Zoom’s momentum to continue in 2021 after posting “blowout” quarterly results to cap off an “incredible” year.

“We continue to believe that Zoom is benefiting from strong secular tailwinds in a large and underpenetrated market and expect that the company can continue to show strong growth for years to come,” analyst Matt Stotler, who rates the stock at Outperform (Buy), writes in a client note.

With an average target price of $462.72, analysts give ZM stock implied upside of about 40% in the next 12 months or so. They expect the company to generate average annual EPS growth of 15.6% over the next three to five years, according to S&P Global Market Intelligence.

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3. Bluebird Bio

image of man with charts and graphsimage of man with charts and graphs
  • Market value: $2.0 billion
  • Smart score: 10

Bluebird Bio (BLUE, $30.16), a biotechnology company that develops gene therapies for both severe genetic diseases and cancer, gets high ratings in all three of Danel Capital’s major rating categories. It also gets high marks from the Street.

The algo gives it scores of seven, eight and seven for fundamentals, technicals, and sentiment, respectively. At the same time, the human consensus recommendation stands at Buy. 

Complicating matters is that following a series of setbacks, the company in January said it will split into two separate entities, with one focusing on cancer and the other on rare diseases.

The problem, as Raymond James analyst Dane Leone puts it, is what is the value of Bluebird Bio with the split looming later this year? As a result, the analyst rates BLUE at Hold.

Another challenge stems from regulatory uncertainty surrounding the company’s development of LentiGlobin. The Food and Drug Administration in February put trials of the gene therapy on clinical hold.

Although the consensus recommendation stands at Buy, analysts are pretty closely split on the name amid all the uncertainty. Of the 24 analysts covering BLUE tracked by S&P Global Market Intelligence, nine rate it at Strong Buy, one says Buy and 14 call it a Hold.

Their average target price of $47.89 gives BLUE implied upside of nearly 60% over the next 12 months or so. Keep in mind that the stock is off 30% so far in 2021.

As with Ebix above, Bluebird Bio appears to be one of the more speculative bets on the AI list.

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2. TechnipFMC

oil services workeroil services worker
  • Market value: $3.5 billion
  • Smart score: 10

The energy sector is loaded with recovery plays. TechnipFMC (FTI, $7.65), an oil and gas services company, could be one of the better ones, according to Danel Capital’s AI.

FTI’s perfect Smart Score is based on a rating of nine for fundamentals, and 10s for both technicals and sentiment. 

The Street is mostly bullish too, with a consensus recommendation of Buy. Of the 25 analysts covering FTI tracked by S&P Global Market Intelligence, 11 call it a Strong Buy, two say Buy, 11 rate it at Hold and one has it at Sell. Their average price target of $10.89 gives the stock implied upside of about 40% in the next 12 months or so. 

The slow reopening of the global economy is bullish for oil prices, and the market has been rewarding the sector handsomely. Indeed, energy has been the S&P 500’s best-performing sector so far this year, with a gain of 29% through April 6. 

FTI, down about 18% for the year-to-date, hasn’t participated in the rally. But it’s among Wall Street’s best stocks to watch right now because the bulls – and the algos – say it’s only a matter of time. 

“In the Surface Technologies segment, we expect higher international activity to offset modest-to-lower North American activity in 2021,” writes CFRA Research analyst Andrzej Tomczyk, who rates shares at Buy. “The Subsea segment should also see growth, given renewed operator confidence amid the improved macro environment and higher oil prices.”

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1. Alaska Air

An Alaska Air planeAn Alaska Air plane
  • Market value: $9.2 billion
  • Smart score: 10

Alaska Air (ALK, $73.74) is set to benefit disproportionately from a recovery in the air travel sector, analysts say. And Danel Capital AI’s assessment suggests shares will take off soon.

ALK gets perfect scores of 10 on fundamentals, technicals and sentiment. With shares up nearly 42% for the year-to-date, it’s fair to say the market and Danel’s AI are of the same mind.

On the Street, analysts emphasize the air carrier’s unusually strong fundamentals in an otherwise battered industry. 

“We believe ALK’s combination of a conservative balance sheet and its historically high cash generation per plane will make it among the first U.S. airlines to recover profitability this year,” writes CFRA analyst Colin Scarola, who has a Buy recommendation on the stock. “ALK also has modest equipment purchase commitments for 2021-2022, in our view, with 2022 commitments equating to only 32% of 2019 operating cash flow.”

At Stifel, analyst Joseph DeNardi, who rates ALK at Buy, believes the airline’s geographic service area lowers the risk that it emerges from the pandemic facing significantly lower structural demand.

But Alaska Air also is among the best stocks to watch right now for its M&A potential. For example, what if the pandemic and its aftermath trigger a painful reckoning in the industry, leading to consolidation?

In that case, “Alaska would be a highly valued asset,” DeNardi writes.

The bulk of the Street sides with the bulls on ALK, with nine Strong Buy calls, three Buys and two Hold recommendations. Add it all up and the consensus recommendation comes to Buy, according to S&P Global Market Intelligence.

Source: kiplinger.com

Stock Market Today: Markets Settle Down, But Backdrop Remains Rosy

Monday’s blowout session that sent the Dow Jones Industrial Average and S&P 500 to new heights was followed by much calmer, more horizontal, trading on Tuesday.

But it wasn’t for a lack of additional positive ammunition following Friday’s blockbuster jobs report.

This morning’s Job Openings and Labor Turnover Survey (JOLTS) was another window into an improving employment situation, showing that U.S. job openings hit a two-year high in February. Also, the International Monetary Fund (IMF) upgraded its 2021 outlook for both U.S. economic growth (from 5.1% to 6.4%), and global economic expansion (from 5.5% to 6.0%).

Still, the major indices spent Tuesday digesting the prior session’s gains; the Dow slipped 0.3% to 33,430, the S&P 500 was off 0.1% to 4,073, and the Nasdaq Composite was marginally off to 13,698.

Recovery-oriented stocks were among the day’s individual winners, especially those in the restaurant industry. Yum Brands (YUM, +3.1%), Domino’s Pizza (DPZ, +2.4%) and Chipotle Mexican Grill (CMG, +2.4%) all finished solidly in the black.

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Other action in the stock market today:

  • The small-cap Russell 2000 declined by 0.3% to 2,259.
  • U.S. crude oil futures improved by 1.2% to $59.33 per barrel.
  • Gold futures also were higher, by 0.8%, to $1,743 per ounce.
  • Bitcoin prices closed 1.3% lower to $58,242. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
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E-Commerce Can Still Get It Done

As great as “reopening plays” have been of late, don’t fall into the trap of thinking that all of 2020’s COVID-assisted trends are duds.

Take e-commerce, for instance.

While you might imagine a vaccinated America abandoning its keyboards for the malls, the smart money recognizes that COVID only further entrenched the already growing digital-spending trend, and they see further promise even as more people get ready to go out.

“The convenience offered by eCommerce will continue to be an important consideration to consumers as they return to travel and social activities, and those people who tried shopping online for the first time during COVID are likely to continue using these services with greater frequency moving forward,” says a team of Canaccord Genuity analysts.

Many of the best individual plays are the very same stocks that enjoyed a COVID lift, and some are considered among the market’s most innovative companies — an important quality that can drive outsized long-term returns.

But if you’re hesitant to put all your chips on one or two individual names that could get choppy over the short term, we don’t blame you, and we have a solution: e-commerce funds. Read on as we highlight nine e-commerce ETFs that leverage the growth in digital spending in a variety of ways, and explain how each one might suit different individual investors’ tastes.

Source: kiplinger.com

Stock Market Today: Stocks (and the Fed) Stay the Course

The market flipped between minor gains and losses throughout a fairly mundane Wednesday that the Federal Reserve failed to spice up.

This afternoon, the Fed released its minutes from the Federal Open Market Committee meeting in March, and officials expressed patience in keeping its easy monetary policy in place, believing it will be “some time” until its economic and price-stability goals are met.

“Without doubt, the March FOMC meeting minutes point to a desire to maintain a highly accommodative stance of monetary policy for the foreseeable future,” says Bob Miller, BlackRock’s head of Americas Fundamental Fixed Income. But he adds that “the March meeting also saw seven of 18 participants who did not think keeping the target policy range unchanged for three more years was appropriate.

“That’s now becoming too many voices to squelch. … We think this debate will unfold further as the economy (and inflation) strengthen in the coming months.”

There were individual pockets of motion across today’s market – larger tech-related stocks such as Twitter (TWTR, +3.0%) and Nvidia (NVDA, +2.0%) headed higher, as did recovery plays such as retailer L Brands (LB, +3.6%) and cruise line operator Carnival (CCL, +1.4%).

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But the broader indexes hardly moved. The Dow improved marginally to 33,446.26. The S&P 500 gained just 0.2% to 4,079, but that was enough to mark a new all-time high.

Other action in the stock market today:

  • The Nasdaq Composite was off marginally to 13,688.
  • The small-cap Russell 2000 had a much rougher go at things, dropping 1.6% to 2,223.
  • U.S. crude oil futures headed higher again, up a modest 0.4% to $59.55 per barrel.
  • Gold futures slipped a mere 0.1% to $1,741.60 per ounce.
  • Bitcoin prices took a tumble, falling 3.6% to $56,136. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
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Which Stocks Should You Watch? Here’s What a Machine Had to Say.

Over the past few years, we’ve frequently touted the potential of artificial intelligence (AI). This technology’s ability to revolutionize everything, from industrial logistics to toasting your bread, has made the companies who enable artificial intelligence, or best utilize it, into many of the market’s top returners.

Several AI-focused funds have come to life as a result, and some of today’s most innovative companies have AI flowing through their business.

But artificial intelligence can do more than power profitable stocks – apparently, it can pick ’em, too.

Near the start of 2021, we explored an AI-powered analytics platform and some of its selections, and, since then, those stocks have clobbered the market. Naturally, we’re curious whether this “robo-picker” can continue to outperform, so we’ve taken a fresh (and expanded) look at this system’s top stocks to watch right now. You should, too.

Kyle Woodley was long NVDA as of this writing.

Source: kiplinger.com

Getting the Best of Both Worlds from an Irrevocable Trust

The seeming finality of an irrevocable trust can sound scary to a lot of people. The whole idea that you are tying up large pools of your assets in a trust, and then giving control of that trust to someone else just doesn’t sit well with them. However, irrevocable trusts have a little more leeway to retain some control than you might realize.

Before we get into the details, we should talk about the two different types of trusts: revocable and irrevocable. The revocable trust, or living trust, is an agreement between the client (commonly called the settlor, grantor or trustor in the document) and the trustee (usually also the client), until his or her death. The living trust is designed to hold assets that remain fully available to the settlor but are excluded from the public probate process at death. These trusts can be fairly simple or very complex. A simple version may only organize the estate for outright distribution at the settlor’s death. A complex version may include several trusts to shelter the settlor’s assets from estate and generation-skipping taxes using available lifetime exemptions. The trust may hold concentrations in family businesses and real property or administer a family office that will provide essential investment and financial services for future generations. 

All domestic trusts, whether for a small estate (under $500,000) or a massive one (worth billions), are governed by the same trust laws, under one state or another. And the Trustee’s adherence to the formalities of those trust statutes is essential to the success of the estate plan. But the settlor’s power to modify the trust is equally essential, because tax and trust laws change, as do the family’s circumstances, and that flexibility ensures that the trust will provide the benefits intended.

Why Have an Irrevocable Trust?

However, for most tax-related trust strategies to go into effect, a trust must be irrevocable when funded, and an independent trustee must be appointed. Many people are apprehensive about using an irrevocable trust in their estate plan. They fear having an unrelated trustee control the legacy for their children under a document filled with legal terms that defy plain English definition.

So, what does it mean today for a trust — any trust — to be “irrevocable,” and why might that be both good and bad?

The first thing to understand is that a trust must have a trustee: one or more institutions with trust powers or qualified individuals who act as fiduciaries. A fiduciary, as it pertains to trusts, must at a minimum act in good faith, within the scope of the authority granted, and solely in the interests of the trust’s beneficiaries.

In recent years, the trend has been to employ family members in trust committees to manage specific assets, make certain tax elections and/or approve or direct distributions for the beneficiaries. In these cases, the trustee is not the sole fiduciary. In fact, for many complex trusts, the trustee is selected mostly to ensure that the laws of a certain state will control the trust’s taxation and administration while the family exercises trust discretion over investments and distributions.

State Codes Define Many Trust Provisions

The courts in the state where the Trust is created determine just how flexible an “irrevocable trust” can be. Most states have adopted a version of the Uniform Trust Code (UTC), a model legislative act to manage trusts in the state. The adopted version of the trust code in any state includes definitions and default and mandatory terms for trust instruments. 

For our purposes, the UTC provides a definition for the term “revocable”: “As applied to a trust, [revocable] means revocable by the settlor without the consent of the trustee or a person holding an adverse interest” and “unless the terms of a trust expressly provide that the trust is irrevocable, the settlor may revoke or amend the trust.” Therefore, irrevocable means that the settlor may not retain an exclusive power to “revoke or amend the trust.”

But many state trust codes explicitly allow for the modification of a trust by the trustee and beneficiaries, subject to the settlor’s consent, if living, without court approval. Some state laws also allow a person to be appointed who may amend the trust, completely restate the trust, add or remove beneficiaries, and even pour the trust assets over into a completely new trust without the approval of any court, the consent of the settlor, or the agreement of the beneficiaries.

Make a Trust Easy to Change or Not?

There are good reasons that a settlor may want a trust to be easy to amend while he or she is living. As children grow into adulthood, many of the assumptions and expectations that may have determined the original trust’s terms and purposes can change in light of actual life events. But why would the settlor want the trust to be so easily modified by the beneficiaries after his or her death?

Simply put, the settlor might not. Clearly, there are many tax and financial reasons why a power to modify a trust that may last several generations is beneficial. But state trust laws have always included a process for a beneficiary to petition the court with jurisdiction to approve a modification, if necessary, to achieve or preserve an important trust purpose. 

The courts have great experience and legal precedent to follow when balancing the preservation of the grantor’s intent — sometimes described as a material purpose of the trust — and elevating the interests of the beneficiaries, which may be contradictory or incongruent. And the court’s power to modify or revoke the trust and distribute the assets outright among the beneficiaries is subject to review by courts of appeal. This system is designed to protect the rights of all parties to the trust, including the deceased settlor, who speaks primarily through the trust instrument itself.

The trend toward ceding greater control to the trust beneficiaries and avoiding the use of state courts may be based on several factors. One is likely rooted in a distrust of the formal judicial system. This distrust may be based on anecdotes describing incompetence, unjustified delay, high legal costs, and unfair or insufficient court orders. This distrust does not stop at the courts but includes institutional trustees, too — primarily because they diligently follow the terms and limitations of the trust instrument, much to the chagrin of beneficiaries who resent the controls authorized by the settlor.

The second factor is that settlors and beneficiaries today are more likely to view the trust relationship as a purely financial strategy to reduce taxes and provide a means for family governance. This perspective does not value fiduciary expertise and services as much as it values family control and discretion.

Getting the Best of Both Worlds with Your Trust

For most settlors, the modern trust laws are a vast improvement, which is why states are trending toward adoption of a uniform trust code that supports almost unlimited beneficiary control, when the settlor consents to such control.

 But what if the settlor wants the best of both worlds: the flexibility and control inherent in the use of family members as fiduciaries who can modify the trust and the protection of the settlor’s intent, evidenced by explicit and enumerated limitations that cannot be modified?

Well, that is the newest discussion point in the trust profession: How to draft an irrevocable trust that includes certain specific, unalterable instructions while giving authority to family members, as beneficiaries, to modify the rest of the trust as needed when laws and circumstances change. 

Most of the rules in the modern UTC are simply default rules that may be excluded or modified by the settlor in the trust instrument. The UTC provides definitions and enumerated powers, duties and standards that allow the trust instrument to incorporate well-understood conventions and context, so the settlor need not execute a hundred-page trust document. But the settlor can pick and choose among the UTC provisions, not including certain mandatory rules essential to public policy and the purpose of trusts under state law.

Likewise, the settlor may provide that certain terms and limitations cannot be modified, even if the trust is poured over, decanted to a new trust instrument. The settlor could require court approval for certain trust modifications or trust termination to ensure that the settlor’s intent is not frustrated. These provisions would essentially opt out of the parts of the UTC that allow the beneficiaries to modify those trust terms and even include a penalty for any attempt. 

An Example of How It Could Work

For instance, a settlor may want the trust to never develop a family farm transferred to the trust, now a family retreat. The trust may include a provision that the farm must be subject to a conservation easement with dedicated funding and supervision. But it may allow the beneficiaries to approve the partition of certain acreage for a limited number of homes for their use, or to sell off some or all the land, subject to that easement, after a specified term of years has passed. 

A settlor would be advised not to limit an appointed trust protector from modifying the trust to, for instance, preserve assets from increased taxation or waste, to add new protections from creditors, or to shelter trust assets for supplemental needs so a beneficiary may qualify for useful public entitlement programs, among other circumstances that may arise.

In fact, no settlor in 1970 would have imagined the economy we have today with the marked decrease in full-time employment with benefits, historically low income tax rates, consistently low inflation, almost zero depository and federal bond yields, the elimination of defined-benefit pension plans, online investment brokerage, and the creation of cryptocurrency, among many other developments.

But a settlor today is making gifts to a trust for their grandchildren, intending to meet the financial needs of a group of preteens to last through their retirement. He or she may want to limit their ability to modify some terms of the trust but should take care not to hobble the trust for lack of flexibility.

Senior Vice President, Argent Trust Company

Timothy Barrett is a senior vice president and trust counsel with Argent Trust Company. Timothy is a graduate of the Louis D. Brandeis School of Law, 2016 Bingham Fellow, a board member of the Metro Louisville Estate Planning Council, and is a member of the Louisville, Kentucky and Indiana Bar Associations, and the University of Kentucky Estate Planning Institute Program Planning Committee.

Source: kiplinger.com

Social Security Recipients to Get Third Stimulus Check This Week

Millions of seniors who didn’t file a 2019 or 2020 tax return could receive a third stimulus check this week. After receiving data from the Social Security Administration (SSA) on March 25, the IRS was able to start processing third stimulus payments for approximately 30 million seniors. These people will generally get their stimulus payment in the same way they get their regular Social Security benefits. Since most of these payments will be paid electronically through direct deposits or to existing Direct Express debit cards, the funds should be available on April 7 for many seniors.

Third stimulus payments are generally based on information found on your 2019 or 2020 tax return. That’s why many people who receive Social Security benefits who filed a 2019 or 2020 return, or who used the IRS’s Non-Filers tool last year, already received a third stimulus check. However, since some Social Security recipients don’t file tax returns, the IRS didn’t have the necessary information in its computer systems to process third-round stimulus payments for them. That’s why the tax agency needed data from the SSA to send out checks to seniors who haven’t file a recent tax return.

In addition to seniors receiving Social Security retirement benefits, payments will also be arriving on April 7 for some people receiving Social Security disability (SSDI), Supplemental Security Income (SSI), or Railroad Retirement Board (RRB) benefits who didn’t file a 2019 or 2020 tax return or didn’t use the Non-Filers tool. The IRS is still reviewing data received from the Department of Veterans Affairs for people who receive VA benefits, so payments to them will come later (probably in mid-April).

Most Social Security, SSDI, SSI, and RRB beneficiaries who are eligible for a third stimulus check don’t need to take any action to receive a payment (not everyone is eligible). However, as with previous stimulus payments, some beneficiaries may need to file a 2020 tax return – even if they don’t usually file – to provide the IRS the information it needs to send an additional $1,400 for any dependents. The deadline for filing a 2020 tax return has been pushed back from April 15 to May 17, 2021.

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Amount of Your Third Stimulus Check

Every eligible American will receive a $1,400 third stimulus check “base amount.” The base amount jumps to $2,800 for married couples filing a joint tax return. You also get an extra $1,400 for each dependent in your family (regardless of the dependent’s age).

Not everyone will receive the full amount, though. As with the first two stimulus payments, third-round stimulus checks will be reduced – potentially to zero – for people reporting an adjusted gross income (AGI) above a certain amount on their latest tax return. If you filed your most recent tax return as a single filer, your third stimulus check will be phased-out if your AGI is $75,000 or more. That threshold jumps to $112,500 for head-of-household filers, and to $150,000 for married couples filing a joint return. Third-round stimulus checks will be completely phased out for single filers with an AGI above $80,000, head-of-household filers with an AGI over $120,000, and joint filers with an AGI exceeding $160,000.

You can use our handy Third Stimulus Check Calculator to get a customized estimated payment amount. All you have to do is answer three easy questions.

How to Track the Status of Your Third Stimulus Check

The IRS’s “Get My Payment” tool lets you track your third stimulus check payment. The online portal lets you:

  • Check the status of your stimulus payment;
  • Confirm your payment type (paper check or direct deposit); and
  • Get a projected direct deposit or paper check delivery date (or find out if a payment hasn’t been scheduled).

Payments for Social Security recipients and other federal beneficiaries with an official payment date of April 7 may show up in the portal before that date as “pending” or “provisional” payments.

For more information about the tool, see Where’s My Stimulus Check? Use the IRS’s “Get My Payment” Tool to Get an Answer.

Source: kiplinger.com