Simplifying Giving with a Donor Advised Fund

By David Munn, CFP

Managing your finances can be complex, especially when it involves giving to multiple charitable organizations. In cases where donors are seeking to simplify their giving and maximize tax benefits, we frequently recommend utilizing a Donor Advised Fund (DAF).

A DAF is essentially a charitable investment account that allows you to contribute cash or other assets, receive an immediate tax deduction, and recommend grants from the fund over time. This process can simplify giving and mitigate taxes significantly, making it an attractive choice for individuals, families, or businesses that wish to make a substantial societal impact.

In essence, a DAF allows you to separate the act of claiming a tax deduction from the decision about which charities to support, providing both convenience and strategic advantages.

Donating to a DAF is relatively simple. An individual or entity makes an irrevocable contribution to the fund, which is then invested based on the donor's preferences. The assets within the fund have the potential to grow tax-free. Although the donor relinquishes ownership of the donated assets, they retain advisory privileges to direct how the contributions are distributed to charities.

DAFs offer several significant tax advantages. First, donors receive an immediate tax deduction in the year they contribute to their DAF. This feature can be especially useful in years when donors have higher-than-normal income, such as from selling a business or receiving a large bonus. They can offset this income by making a sizable contribution to their DAF, thus reducing their taxable income.

Secondly, DAFs can accept donations of various types of assets, including cash, stocks, bonds, real estate, and private business interests. If you donate appreciated assets held for more than one year – particularly stocks or real estate - to a DAF, you can avoid capital gains tax. This arrangement is usually more tax-efficient than selling the assets and donating the after-tax proceeds.

Finally, by bunching or front-loading charitable donations into one year, donors can exceed the standard deduction limit and itemize their deductions, potentially reducing their tax liability further. In subsequent years, they could take the standard deduction, all while recommending grants from their DAF.

Donors also appreciate the simplicity of DAFs. They make one large contribution and then recommend grants to their chosen charities over time without worrying about record-keeping for tax purposes. The administrative tasks are managed by the sponsoring organization that oversees the DAF. Moreover, donors have the freedom to be as involved as they want in their grantmaking decisions, and can involve their family in the process as well.

A Donor Advised Fund represents a simple yet effective strategy for charitable giving with significant tax benefits. By consolidating charitable donations into a DAF, donors can simplify the giving process, optimize their tax deductions, and create a lasting impact. 

This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client.  These materials are not intended as any form of substitute for individualized investment advice.  The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.  Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors. Munn Wealth Management, LLC, is registered as an investment adviser (RIA) with the United States Securities and Exchange Commission. Registration as an investment adviser does not imply any certain degree of skill or training.  1323GQS

What the Recent Bank Failures Mean For Investors

By David Munn, CFP

Over the past couple weeks, the Federal government intervened to take operational control of two banks, Silicon Valley Bank (SVB) and Signature Bank, NY (SBNY). SVB represents the second largest bank failure in US history and the largest since the 2008 financial crisis. 

What happened?

When banks receive deposits from customers, they pursue opportunities to earn a return on those funds. This can be done through giving out loans or a portfolio of investments. While Federal regulations restrict the types of investments banks can utilize and the amount of risk that can be taken, there is still risk. 

In the case of SVB, their portfolio of long-term government Treasuries–which are risk-free if held to maturity–experienced significant drops in market value over the last 18 months as the Federal Reserve aggressively raised interest rates.  

As new deposits slowed and customers withdrew funds recently, the bank was forced to liquidate these bonds at steep losses, which not only necessitated the bank raise more capital to sustain operations, but also scared customers who panicked and created a bank run.  As the bank did not have sufficient cash on hand to meet the massive withdrawal requests, the FDIC was forced to take over and has since insured that all customers will be made whole, including accounts that exceed the $250,000 FDIC limits.

Will there be more bank failures?

We do expect more banks to fail in the coming months, but believe the vast majority of banks are not exposed to the same level of portfolio mis-management. The government’s intervention and guarantee of all deposits will likely alleviate a panic that could have rapidly spread to other banks with weak balance sheets, and allow for a more controlled unwinding–or acquisition– of the failing banks’ operations, as we observed over this past weekend with Credit Suisse. 

Is my money in the bank safe?

While it is generally advisable to stay within FDIC limitations on bank deposits, there is no need to panic regarding the security of most banks. 

What is the impact on investment portfolios?

Clients of Munn Wealth Management have not had direct exposure to SVB, SBNY, or any of the regional banks which have experienced a sharp sell-off. The overall reaction of the stock and bond markets to the bank failures has been positive as investors are expecting the Federal Reserve to adjust their plans for continued interest rate increases in light of the recent events. 

Are my investments at risk if the custodian fails?

Client accounts are always held with a third-party custodian. While banks invest client deposits, custodians are prohibited from doing so with client assets, which is why custodians have other means of generating revenue. If a custodian were to experience a business “failure”, client assets would be preserved and unimpacted.

Munn Wealth Management is registered as an investment adviser with the United States Securities and Exchange Commission. This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client.  All readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors.  1323GQH

Outpacing Inflation on Your Cash Savings

By Robert Lange

An important constant in any financial plan is a stable allocation of cash, easily accessible and free from market fluctuations. Whether that’s an emergency fund, designated savings (vacations, vehicle purchase, home renovations, etc.), or just a cushion to help weather market volatility, there are alternatives to leaving it in a standard savings account at your local bank. While interest rates on savings accounts in the 80’s and 90’s reached upwards of 5%, now they’re lucky to breach 1%, hardly making a dent against currently elevated rates of inflation. 

However the recent rapid rise in interest rates has created better opportunities to generate yield with extremely low levels of risk, including options that may exceed what is being offered by your local bank. Many FDIC-protected, online-only money market and high-yield savings accounts are offering interest rates as high as 4-5% per year. These rates tend to outpace those offered by brick-and-mortar banks due to lower expenses of not having physical branches.

  • Popular Direct, for example, is offering 4.4% in an online high-yield savings account, requiring a $5000 minimum opening deposit. 

  • Bask Bank has no such minimum balance, but comes with a lower 4.25% APY. 

  • Sallie Mae’s money market is at 3.6%, but offers check writing, if that is something of value. 

One important consideration to note is that interest rates for high-yield savings and money markets are not locked in for any period of time. They fluctuate due to any number of factors, and as such, can go both rise and fall in the future, though the principal of your investment is protected. 

Another option that does have fixed interest rates is Certificates of Deposit (CDs). CDs are less liquid, however, as the investment principal is essentially locked away and subject to early withdrawal penalties until the end of the term, which can range from a few months to several years. This illiquidity can be addressed by creating a ‘ladder’, investing in multiple CDs with staggered maturity rates (ie: 1 year, 2 years, and 3 years), ensuring you’ll have access to some of your funds at regular intervals. Currently, CD rates with various online banks are in the 4-5% range for 12 month terms.

A third option to consider is money market mutual funds. Not to be confused with standard money market accounts offered by banks, these follow the same guidelines as other mutual funds, except at a much lower level of risk. Recently, rates have increased dramatically and in some cases now exceed 4.5%. Money market mutual funds can be purchased in most investment accounts and are completely liquid. 

There’s no telling if these higher interest rates are here to stay — they could fall or rise even higher — but it is a great opportunity for those with available cash to earn greater return without taking on market risk.  

Robert is our newest service advisor and is available to assist clients with account-related requests and questions. He has a background in logistics and warehouse management, using his history with administration to transition into the financial world. Robert and his wife, Christina, reside in the Old North End of Toledo and in his spare time you’ll find him at Rustbelt Coffee working on his latest novel.

Munn Wealth Management is registered as an investment adviser with the United States Securities and Exchange Commission. This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client.  All readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors.  1323GQE

Recent Changes to Student Loans and 529 Plans

By Moe Moubarak, CRPC

Federal student loans have undergone multiple changes in the last few years, with a handful of proposals being discussed and others working their way through the legal system. When was the last time you reviewed your federal student loan account? Last month? Last year? Three years ago at the start of the payment pause? Let’s be honest, managing student loans is a task best described as a thief of joy. If it has been a while since you logged in to check your balance, now is as good a time as any to refamiliarize yourself with your account (and that dreaded number that never seems to get any smaller). 

The last required payment to federal student loans was February 2020. The CARES Act of 2020 was signed into law in March 2020 which paused payments and froze accumulating interest. Borrowers in Income-Driven Repayment (IDR) plans are required to recertify their status annually, but that has not been necessary since the pause began. 

Recertification involves updating your marital status, family size, and using the IRS Retriever tool to automatically upload your tax return. Something to consider if you’re married, do you file your taxes jointly or separately? While filing jointly delivers taxable benefits such as eligibility to several tax deductions and credits, it may be worth comparing a return filed separately if only one spouse has student loans. Consult a tax professional to determine what would be the most optimal filing method for your situation.

President Biden announced the final forbearance extension when he shared the One-Time Student Debt Relief Plan this past August. Under this plan, a one-time credit up to $10,000 was to be issued to all federal student loan borrowers, up to $20,000 for borrowers that received Pell Grants, and student loans were set to resume January 2023.

Challengers blocked the order, bringing the matter up to the Supreme Court which is set to hear arguments on February 28th, 2023. Payments are set to resume 60 days after June 30th (end of August) OR once the Supreme Court has made a final decision, whichever occurs first. If you are on an IDR plan, log in to your account to see if you have been given a recertification date. 

While we wait for the Court’s decision, the passing of the SECURE Act 2.0 brought two noteworthy changes to loans and future college planning:

  1. Starting in 2024, qualified student loan payments will count as a salary deferral for qualified work plans (401k, 403b, 457b, Simple IRA, etc.) 

    1. Addresses an issue for employees with student loans having to pick between saving for retirement or pay off student loans.

    2. Employees can count student loan payments as retirement contributions to receive matching employer contributions to their retirement plan.

    3. Check with your retirement plan administrator to determine eligibility.

  2. 529 College Savings Accounts can now be rolled over to Roth IRAs for the Beneficiary (Section 126 H.R. 2617)

    1. Addresses fear of putting too much money into 529 accounts by creating a tax and penalty-free alternative for unused funds

    2. The 529 College Savings Account must have been opened for 15 years.

    3. $35,000 lifetime rollover limit.

    4. Subject to Roth IRA annual contribution limits ($6,500 for 2023)

If student loans are something that have been stressing you out, take a moment to review your account or reach out to our team for a consultation.

Munn Wealth Management is registered as an investment adviser with the United States Securities and Exchange Commission. This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client.  All readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors.  1323GPW

Get Your (SECURE 2.0) Act Together

by Dan Acheson, CFP, EA

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) was signed into law in December 2019 and brought with it greater attention to retirement savings via many provisions for employer-sponsored retirement plans and other retirement savings vehicles/allowances. Fast forward three years, almost to the day, and a new version of the act, aptly named the SECURE 2.0 Act of 2022, was signed into law as part of the Consolidated Appropriations Act (CAA) of 2023. 

The SECURE Act 2.0 uses its predecessor as a foundation and expands/improves upon the retirement savings elements. The 2.0 Act itself has over 90 new provisions to promote savings for individuals, incentives for businesses to offer retirement savings opportunities, and more flexibility when it comes to accessing funds from retirement accounts. Below will highlight some of the features of the SECURE 2.0 Act that will have the greatest impact on our clients at Munn Wealth Management.

Increasing the Required Minimum Distribution (RMD) Age, Decreasing the Penalties on Neglecting to Take RMDs 

Starting January 1st, 2023, the age to begin taking RMDs from tax-deferred retirement accounts has gone up to 73. This primarily affects individuals who are turning 72 this year as they will no longer be required to take a minimum distribution for 2023. This is an update to the SECURE Act of 2019 that raised the age from 70½ to 72.  SECURE Act 2.0 includes an additional provision that raises the age limit for the first RMD to 75 starting in 2033.

Version 2.0 of the legislation implements a reduction of the penalty taxpayers are forced to pay, should they neglect to take a RMD, from 50% to 25%. The penalty is further reduced to 10% if the failure is corrected in a “timely manner.” Timely manner, while explicitly defined in the annals of the act itself, leaves plenty of room for interpretation. The bottom line is if the failure is found and corrected as soon as possible, the penalty for negligence will be reduced to 10%.  

The measures of delaying the age of RMDs and reducing the penalties are an attempt to keep taxpayers’ retirement savings in a tax-deferred vehicle longer in order to further assist with covering their expenses. This delay in the RMD age brings a plethora of planning opportunities with it, which your advisor would love to speak with you about.

Qualified Charitable Distributions One-Time Gift Provision

Effective immediately, those who are 70½ and older may elect, as part of their Annual Qualified Charitable Distribution (QCD) limit, a one-time gift up to $50,000 to a Charitable Remainder Trust (CRT) or charitable gift annuity from an IRA. This provision expands the definition of a qualified charity to entities without a 501(c)3 designation; however, contributions to donor advised funds and private foundations still do not count for QCD treatment and benefits. The $50,000 limit will be indexed for inflation each year moving forward.

Other Important Anecdotes from the Secure Act 2.0 slated to begin in future years

Beginning in 2024

  • Roth Accounts in employer retirement plans will be exempt from RMDs.

  • The $1,000 catch-up contribution limit in IRAs for people age 50 and older will be indexed for inflation. 

  • Employers will be able to “match” employee student loan payments with contributions to their retirement account, giving workers more incentive to save for retirement while paying off educational debt.

  • After 15 years, 529 plan assets can be rolled into a Roth IRA. This will be subject to annual contribution limits and a lifetime limit of $35,000

  • A $1,000 withdrawal from retirement savings for emergency expenses will be allowed without the 10% early withdrawal penalty, once per year

Beginning in 2025

  • Individuals ages 60 through 63 will be able to make catch-up contributions up to $10,000 to an employer retirement plan. The $10,000 will be indexed for inflation. One item to keep in mind is for those earning over $145,000 in the prior calendar year – all catch-up contributions for those 50 and older will need to be made to a Roth account. 

  • Most new 401(k) and 403(b) plans adopted after 12/29/2022 must automatically enroll participants in the employer retirement plan.

These few items are just a small assortment of what the SECURE 2.0 Act has to offer, but those that I feel could have the greatest impact on our clients as they continue their journeys to living lives of significance. 


Munn Wealth Management is registered as an investment adviser with the United States Securities and Exchange Commission. This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client.  All readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors. 1323 GPW

What does a recession mean for investors?

By David Munn, CFP

President

Munn Wealth Management

Coming into 2022, the US economy appeared to be on solid footing. Gross Domestic Product (GDP) increased 6.9% in the fourth quarter of 2021, more than double its long-term average rate.

Now just six months later, the word “recession” is in more and more economic forecasts,  analyses, and news coverage. 

So what does recession mean? And more importantly, what does recession mean for investors?

During the vast majority of modern American history the economy has been growing. Technological advances and population growth are two main drivers of the consistent increase in production and overall economic activity (buying and selling goods and services).

However, from time to time, the economy contracts, meaning that for a period of time, less is bought and sold than the previous year. When this contraction occurs over two consecutive quarters (GDP is measured quarterly), it is labeled a recession. Since 1945 there have been 13 recessions, which averages out to about one every 6 years.

A recession can be triggered by any number of factors: the 2001 recession was the popping of the tech bubble; the 2007-2009 “Great Recession” was the popping of the real estate bubble; the 2020 recession was COVID and subsequent global shutdowns.

So a recession is a normal part of an economic cycle and simply means the economy stops growing for a period of time.

As you would imagine, the stock market does not like recessions.  Stock prices are based on an expectation of future profit growth, and while some select companies may continue to grow profit during a recession, most do not. 

However, the stock market is forward looking and constantly pricing in available information.  Many times the market will price in a current or future recession, even before the GDP data indicating a recession is available.  Consequently, as the chart below shows, more often than not the stock market has actually produced positive returns during recessionary periods, though that has not been the case with the last three. 

Earlier this year it was announced that GDP in the first quarter of 2022 decreased at a rate of 1.5%. That means if Q2 data also shows contraction, we will have experienced–or be in the midst of–a recession. 

The data could also show growth in Q2, meaning we avoided a recession–for now.  In either case, the market will likely not react, as it doesn’t care what happened in the past, and is focused on future economic conditions (which humans are very poor at predicting). 

This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client.  These materials are not intended as any form of substitute for individualized investment advice.  The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.  Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors.  Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the adviser), will be profitable or equal to past performance levels. The S&P 500 is an unmanaged index used as a general measure of market performance.  You cannot invest directly in an index. Accordingly, performance results for investment indexes do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. Munn Wealth Management is registered as an investment adviser with the United States Securities and Exchange Commission. 1323GKC

Does A Bear Market Have Teeth?

Investors watching the financial markets or news reports recently have likely heard there-emergence of the term, “bear market”, in reference to recent stock market volatility. Naturally, this has prompted questions about what exactly the term means, and what the implications could be for investment portfolios.

A bear market is defined as a drop of 20% or more from an index’s most recent high. Conversely, a bull market is when an index rises 20% or more from an index’s recent low. So by those definitions– as there is some variance in the industry as to when the terms are used– a particular index is always in either a bear or bull market.

However, because the use of either bear or bull is based solely on past market activity, it is important to note that it indicates nothing about the future market direction. Granted, the emotional impact of a falling or rising market could generally lead investors to believe the current trend will continue, and the “talking heads” in the news will lean in to these emotions and reinforce the fear or greed investors are feeling at the time.

But the volatility the markets are currently experiencing is not unexpected, or even unusual. The third and fourth quarter of 2018 saw similar market activity, driven by concerns over actions of the Federal Reserve and geopolitical relations with China (sound familiar?). The first quarter of 2020 saw much more significant market drops as concerns mounted around a mysterious virus that was rapidly spreading around the globe.

In both cases, the volatility passed and the market had surpassed its previous highs in less than1 year. So should we expect the same outcome this time around?

Not necessarily. Stocks could keep falling . . . or the recovery may have already begun. The markets could take a while to recover . . . or the recovery could happen rapidly, as was the case in the previously mentioned scenarios. The reality is that no one knows what the market will do over the coming months and years, which is why attempting to time the market ups and downs generally proves counterproductive.

Our advice to clients is to always maintain a diversified allocation that supports your long-term objectives and allows you to stay the course and ride out the volatility, without panicking or losing sleep. For retirees, having at least 5-7 years of cash needs set aside in conservative investments is the preferred course of action, as this allows plenty of time for stocks to recover, and avoids the need to liquidate investments at an inopportune time.

We also believe volatility creates opportunities. For those with available cash, it is a much more favorable buying opportunity than we have seen in some time. For those with non-qualified investments, we will be evaluating opportunities for tax loss harvesting, selling investments that have lost value and dropped below their cost basis and deploying the proceeds into investments with similar or greater upside potential. And our investment team is diligently evaluating changes that may be merited in our clients’ portfolio in light of the rapidly changing market conditions.

We value the trust you have placed in our team and welcome your questions or concerns. Please do not hesitate to reach out.

Article written by:

David Munn, CFP®

President

Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the adviser), will be profitable or equal to past performance levels. This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors. Munn Wealth Management can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein. 1323GLX

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