Monthly Archives: May 2016

OPEC’s Share of Annual Global Oil Production History vs. Present

Looking at global oil production over more than three decades.

Did you know that OPEC’s share of annual global oil production has decreased by approximately 22% since the early 1970’s (see the graph below, 1.1a)? In 2015, OPEC member countries accounted for 41% of global crude oil production, whereas in 1973 OPEC member countries accounted for 53% of global crude oil production, per the Energy Information Administration (EIA). During the 1970’s to mid-2000’s, production in the U.S. decreased significantly, but has since recovered to levels last seen in 1973, (see graph 1.1b). This is a testament to the expansion of oil production in shale plays and the utilization of new technologies. This production shift, coupled with the geopolitical tensions within OPEC, has led to a fundamental restructuring of the oil market.

As evidence of the effect of today’s oil prices, the U.S. rotary rig count was 1762 in March 2013, and as of May 13, 2016, the U.S. rotary rig count is 406. It will be interesting to see how much of the burden to reduce oil inventories will fall on U.S. oil and gas companies as compared to OPEC member nations.

Source: http://www.eia.gov/totalenergy/data/monthly/pdf/sec11_5.pdf
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1.1a
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1.1b

 

 

 

 

 

 

 

 

 

Jason Mishaw

Jason Mishaw

As a paraplanner at Willis Johnson & Associates, Jason Mishaw is actively involved in both the Financial Planning role and the Investment Management role. On the financial planning side, he helps to implement customized financial plans for WJA clients. On the Investment Management side, under the supervision of a Senior Wealth Manager, he assesses the financial goals of WJA clients and assists in creating a customized strategy to further those goals.

Jason received a B.A. in Economics, B.S. in Biochemistry and Cell Biology from Rice University and is currently pursuing a Master’s of Science in Finance at the University of Houston C.T. Bauer College of Business.

What Nick’s Reading | Saving Non-Roth After-Tax Contributions

Published: May 10, 2016

Why you should consider saving Non-Roth After-Tax Contributions into your 401(k)

The key to maximizing your returns after all taxes, fees, and expenses.

 

Tax mitigation is an important strategy in financial planning. In the article I wrote last month, you read a quote from Thornburg Investments on a hypothetical model that showed how taxes reduce returns on equities by 1.58%. (Click here to read last month’s article.) Thus, the goal we always have for our clients is to maximize their returns after all taxes, fees, and expenses. More often than not, the key to maximizing returns is using proper tax planning.

 

The easiest way to reduce the 1.58% tax drag on investment performance is to avoid the taxes altogether. Assuming a 401(k) plan allows for distributions of only after-tax money at any time and at any age, we can achieve that goal by ensuring all qualified retirement savings options are being utilized. When I discuss this with clients, their concern is that they are already maxing out their 401(k) contribution ($18,000 or $24,000 if over the age of 50) and they do not know where else to save tax-deferred. Previously, I discussed the Backdoor Roth savings strategy (click here to read) as a way to increase retirement savings. Today, I want to illustrate how after-tax 401(k) contributions, coupled with a Roth conversion, is an option for increasing retirement savings.

 

Many 401(k) plans allow employees to contribute non-Roth after-tax money to the plan over and above the $18,000 or $24,000 pre-tax limit. At first glance, non-Roth after-tax money in a 401(k) plan does not appear as beneficial as pre-tax money because the contribution is already taxed, grows tax-deferred, and the growth (over and above the contribution) is taxed at ordinary income rates when it is distributed. This is why we always encourage our clients to max out the $18,000 or $24,000 pre-tax limits before contributing non-Roth after-tax money to their 401(k) plan.

 

After maxing out the pre-tax limits, it is important to consider contributing non-Roth after-tax money to the 401(k) plan. It is also important not to invest the non-Roth after-tax money in the 401(k) plan since any growth in the account is taxed when distributed. The non-Roth after-tax contribution source can be converted to a Roth IRA while still employed by using an in-service distribution or in retirement by rollover. In a Roth IRA, both the contribution as well as all earnings grow tax-free and withdrawals will also eventually be tax-free. The 1.58% tax drag on performance is eliminated as long as the money is growing in a Roth IRA versus a taxable brokerage account. We base this under the assumption that the plan allows distributions of only after-tax money at any time and at any age.

 

A tough question one might ask is, how much non-Roth after-tax money can be contributed to a 401(k)? The only rule written out in IRS code states that contributions from all sources, including employer and employee, must be under $53,000 (or $59,000 if over the age of 50.) The problem arises when individual companies choose to restrict the amount allowed for contribution into the non-Roth after-tax source in the 401(k) plans. Some plans allow only $8,500 to be contributed per year, while other plans allow you to max out the IRS total contribution limits. Again, we base this under the assumption that the plan allows distributions of only after-tax money at any time and at any age.

 

To learn more about how to benefit from after-tax 401(k) contributions strategies, click to read the article on MarketWatch by Brian Vnak, or take a look at the IRS notice IRS Notice 2014-54.

*Please note that these numbers are based on the 2016 limits and have since been changed. 

 

The information provided is not intended to be a substitute for specific individualized tax, legal or estate planning advice. Individual situations will vary. We can assist you in making informed decisions. No single solution meets all investor’s needs. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
A Roth IRA conversion may place investors in a higher tax bracket than they are in now. Please discuss your individual situations with a qualified tax advisor before considering Roth IRA conversion.
Willis Johnson & Associates is a registered investment advisor. Insurance and investment advisory services offered through Willis Johnson & Associates.

 

 


nickNick Johnson, CFA®, CFP®

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Nick Johnson believes that financial planning is more than numbers on a balance sheet and a standardized process. People are unique and should be treated as such.

 

As Vice President and Wealth Manager at Willis Johnson & Associates, his goal is to really get to know his clients, all the while providing a proactive approach to comprehensive wealth management.


Happy Mother’s Day

Happy Mother’s Day!

We want to welcome back three of our associates that recently returned to WJA from maternity leave.

The three hard-working moms share their outlook on being both a full-time mother and an associate at our strategic wealth management firm.

 

Taylor Ireland 

Taylor Ireland_4


“Being a working mom has given me a balanced life. I have the opportunity to contribute to our household income and to fulfill my professional goals while being a full time mom to two amazing little boys. The greatest rewards are seeing their excitement when I come home, uncovering strengths I never knew I had, and to teach them that a balanced lifestyle is ideal to happiness.”

Taylor Ireland is an operations associate who handles all of the processing of new accounts, transfers of assets, and money movement. Taylor also maintains clients’ files to ensure that everything is current and compliant.


 

Alexis Long

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“Returning to work after a 12-week maternity leave was incredibly bittersweet as I found that I just started truly bonding with my son but I also found myself longing to be back at work and back into a routine. The first week back was filled with many tears, but I have come to realize that I am a better wife and mother when I am able to have time for myself to continue to pursue my career goals during the week. It makes our family time together in the evenings and on the weekend all the more special. It is very important to me to have a work-life balance and I believe working at WJA will provide me with the opportunity to work on my goals and contribute to the firm, but also to be involved in my son’s life.”

Alexis Long is an associate advisor and planner who prepares financial plans, assists with directing portfolio investment strategies and manages client relationships.


 

Carolina Tagtmeyer 

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“After coming back from maternity leave, I came to the realization that I now have two full-time jobs. Maternity comes with a lot of overtime, however, both jobs make me happy in different aspects; one as a professional and the other as a woman.”

Carolina Tagtmeyer is an investment operations associate. She is responsible for executing trades at the firm, sitting in on investment committee meetings, and making sure client accounts are weighted properly to their respective models. In addition, Carolina spends part of her time helping out on the compliance-side of the business.


 

 

As these associates enter this new stage of their lives, we want to remind you that at Willis Johnson & Associates, it is our mission to accompany you on your financial journey by continuously planning during the various stages of your corporate life and beyond. Our unique and tailored methodology allows us to craft a financial plan and investment approach to help shape a better future for you and your family.

 

 

Willis Johnson & Associates is a registered investment advisor. Insurance and investment advisory services offered through Willis Johnson & Associates.

The Markets (as of market close April 29, 2016)

Despite a poor close to the month, the indexes listed here improved in April (with the exception of the Nasdaq) compared to their March closing values–but not by much. The Dow gained a scant 88.55 points over the month, while the S&P 500 increased less than 0.3%. On the year, only the Russell 2000 and the Nasdaq remain below their year-end values.

Bond yields increased by the close of trading for April as prices fell, presumably due to investor money moving back to equities. The price of gold (COMEX) increased by month’s end, selling at $1,294.90–about $62 higher than March’s end-of-month price of $1,233.00.

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