Monthly Archives: July 2018

Financial Fact | Top 4 U.S. Trade Partners and Trump’s Tariff Talk : What You Need to Know

July 23, 2018

Did you know the United States’ network of major international trade relationships extends significantly beyond its partnership with China?

Given the recent headlines around trade tariffs, retaliatory tariffs, and potential trade wars, it is even more important for Americans to know which countries comprise our network of major trade partners and monitor these relationships.


According to a 2017 examination of data compiled by the U.S. Bureau of Economic Analysis, the European Union trading block is the largest source of U.S. exports, followed by Canada, Mexico, and China sequentially.


When looking at the dollar value of trade imports and exports, we found Canada and Mexico to be the United States’ two most prominent trading partners. Given their neighboring proximity to the U.S., this comes as no surprise.


Current Market Context: U.S. Trade Relations with the European Union, Canada, Mexico, and China


In 2017, the United States exported roughly $341 billion of goods and services to Canada, $276 billion of goods and services to Mexico, but only $188 billion in exports to China. Compared to China, Canada and Mexico are significantly more important markets for U.S. exports and these partners should be taken into account when assessing current trade news and market activity.


China is considered the bogeyman of U.S. trade, due to the fact that China imports more than $523 billion of goods and services to the U.S., a deficit of over $335 billion dollars in 2017.


This extreme trade imbalance is unique to the United States’ trade relationship with China and is not mirrored by U.S. relations with its other major trade partners.


Trump’s Tariff Talk and the Tension Around Trade Negotiations


During his presidential campaign, President Trump made aggressive trade threats to China but withheld a majority of this bold rhetoric when addressing Canada, Mexico, and the EU. Today, however, this reserve has been cast aside as the President continues to use harsh trade rhetoric when addressing the nation’s European and North American trading partners.


The first round of U.S. tariffs imposed $10 to $15 billion worth of tariffs on imported steel and aluminum. In response to the steel and aluminum tariffs imposed by the U.S., Canada introduced $13 billion in Canadian tariffs on American exports. Yes, tensions are high, but industry experts do not believe the tariffs between the U.S. and Canada will dramatically affect the economy of either country as they make up less than 5% of total U.S. exports.


As the scope of these tariffs continues to expand, they could potentially trigger a significant disruption in the global supply chain network. Therefore, as negotiations progress, it is crucial to monitor international trade discussions to better anticipate how they will impact the financial markets.


If you have any questions or concerns, please contact your advisor or a member of the Willis Johnson & Associates team for more information.


Jason Mishaw, Associate Wealth Managers,Jason Mishaw, MSF


As an associate wealth manager 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 Master of Science in Finance at the University of Houston C.T. Bauer College of Business, a B.A. in economics and a B.S. in biochemistry and cell biology from Rice University.


Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Insurance products and services are offered or sold through individually licensed and appointed agents in various jurisdictions.



What Nick’s Reading | How Waiting 15 Days to Retire May Save You $50,000 in Taxes on Your BRP Payouts

July 19, 2018

I was recently working with a Shell executive client, let’s call her Lynn, who had been putting in long hours on a challenging assignment and was ready to retire by September 30, 2018.


I worked with her to optimize a number of items in her financial plan, but the election that made the biggest difference to her — a difference of more than $50,000 in tax savings — was persuading Lynn to retire on October 15th, only 15 days later than her original September 30th retirement date.


Lynn came to see me for a second opinion. She wanted to be sure that her finances were properly set up for success and that she had everything in place to be financially independent in retirement. She told me how she planned to enjoy the Thanksgiving holiday with her family at her mother’s house on the East Coast, and take her husband and grown children to Prague for Christmas.


She had been with Shell for the entirety of her career, working her way up to an executive role, but had not been able to spend as much time with her family as she would have liked, for a number of years. Our goal in assisting Lynn was to grant her wish of retiring in time to spend the holidays with her loved ones, while optimizing her retirement income via strategic tax-saving moves.


Understanding Excess Benefit Plans and BRP Payout Rules

Lynn was an exceptional saver throughout her career. Her disciplined saving, combined with Shell’s contributions to her Shell Pension BRP and Shell Provident Fund BRP, put her in great financial shape for retirement.


If Lynn retired on September 30th, her annual income would be $600,000, a summation of her base salary, bonus, and Shell Performance Shares that vested earlier in 2018.
Between her Shell Provident Fund BRP and Shell Pension BRP, Lynn had an excess of $1,000,000 in Benefit Restoration Plans (BRPs).



Tax-Saving Retirement Strategy:  Timing Your Shell Provident Fund BRP and Pension BRP Payout

The Shell Provident Fund Benefit Restoration Plan (BRP) is a type of non-qualified excess benefit plan that is all pre-tax money. At Shell, the BRP pays out 90 days after retirement.*
*Note: There is an exception if you are designated a key executive at Shell. If that is the case, the BRPs are distributed six months after termination.

Why is this important? Because if you retire 90 days or more from December 31st, your BRP funds will be paid out that same year, the tax year in which you retired. However, by retiring less than 90 days from December 31st, you can retire one year, and have your BRP funds paid out the following tax year.

In the year the BRPs are distributed, they are taxed at earned income tax rates. Thus, the higher your taxable annual income when BRPs are paid out, the higher the marginal tax bracket you will fall into for that year, and the higher percentage of taxes you will pay on the Benefit Restoration Plan funds you receive.

If Lynn would have received the $1,000,000 of compensation at the end of the year, the funds would have been stacked on top of the $600,000 of compensation she had already received. The entirety of the $1,600,000 funds would have been taxed at the max ordinary income bracket of 37% for 2018, in addition to the 0.9% Additional Medicare Tax stacked on top of the Medicare Rate of 1.45%.

Since Lynn’s income is over the Social Security Wage Base of $128,400, in this scenario her $1,000,000 BRP distribution would not be subject to social security tax rates as the 6.43% tax is only applied to the first $128,400 of earned income.



BRP Payout Taxes and the Timing of Distributions: How Postponing Your Retirement Date Can Reduce Taxes on Excess Compensation Plans

Lynn’s decision to wait until October 15th to retire enabled her to push her Shell Provident Fund BRP and Pension BRP distributions from 2018 to the 2019 tax year. Postponing retirement allowed Lynn to utilize lower marginal rates for the first $600,000 of the BRP distributions and save a substantial amount in taxes as a result.

The only downside for Lynn is that she would be required to pay Social Security taxes of 6.45% up to the Social Security Wage Base, which is currently $128,400 on her 2018 earned income of $633,000 and her 2019 BRP payout of $1,000,000. Despite paying the additional Social Security tax on her BRP distribution, pushing the Provident Fund BRP and Pension BRP payout out to the following tax year would result in substantial tax savings for Lynn—totaling an excess of $50,000.


If Lynn decided to retire on September 30, 2018, her Shell BRP funds would be subject to the 37% ordinary income tax rate when distributed in 2018, as her total taxable annual income would exceed the $600,000 limit for married couples filing a joint tax return. Lynn’s Shell Provident Fund and Shell Pension BRP would be paid out in the 2018 year, given Lynn’s retirement date is more than 90 days before the year’s end.

Remember, at Shell, the BRPs pay out 90 days after retirement.*

As a result, her annual income would be a summation of her $600,000 in existing compensation for 2018 and her $1,000,000 Shell Provident Fund and Pension BRP payout, totaling $1,600,000 in annual taxable income. Thus, Lynn’s total annual income tax for 2018 would be $565,810.

If Lynn chose to retire just 15 days later, on October 15th, her Shell BRP payout would be distributed in 2019 and the funds would be taxed at a lower marginal rate. Her income for 2018 would be $633,000, the extra $33,000 due to the fact she worked one more pay period than she would if she retired in September. Lynn’s taxable income for 2019 would be the $1,000,000 payout from her Shell Provident Fund and Pension BRP. Thus, her income tax for 2018 would be $185,426 and her income tax for 2019 would be $327,460, totaling $512,886 of income tax for the 2018 and 2019 tax years.

Lynn would pay $52,924 less income tax if she chose to delay her retirement date only 15 days, and she can still enjoy the holiday vacations she planned for her family.

While it’s important to understand your company’s compensation plans and benefits, it’s also important to understand how your retirement savings options can be utilized in the most tax-efficient way. As we have demonstrated using Lynn’s situation, something as simple as the date you retire can open the door to tax-advantaged saving opportunities.

If you’re uneasy and think you may be missing something in your current plan, consult with your financial advisor, or contact a member of the Willis Johnson & Associates team to learn more about how to create a financial road-map that maximizes your retirement savings by strategically aligning your company benefits with your long-term financial plan.


Related Articles:

What Nick’s Reading | How Restricted Stock Works & What You Should Consider for Your Financial Plan

What Nick’s Reading | What You Need to Know When Contributing to Your Company’s 401(k) Plan

Financial Fact | Non-Qualified Retirement Plan Tax Risks the Corporate Professional Should Avoid

Thoughts From Willis | What it Means to Have a Proactive Versus a Reactive Advisor

What Nick’s Reading | Sequence of Return Risk

What Nick’s Reading | Withdrawing Money During Your Retirement Years in the Most Tax-Efficient Way



nickNick Johnson, CFA®, CFP®



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.


Willis Johnson & Associates is a registered investment advisor. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Insurance products and services are offered or sold through individually licensed and appointed agents in various jurisdictions. 

Market Update | Quarterly Market Review for Q2 (as of market close June 30, 2018)

July 6, 2018

Quarterly Market Review: April-June 2018

The second quarter of the year can be called a lot of things, but boring isn’t one of them.

The potential for a trade war between the United States and China heated up in April as China responded to the threat of U.S. tariffs on Chinese imports by warning of the same magnitude of tariffs on American exports.


Favorable corporate earnings reports helped calm some of the global economic angst investors may have felt. The indexes listed here ended the month ahead of their March closing values — but only barely. The Global Dow (1.16%) and the Russell 2000 (0.81%) posted the largest monthly gains, followed by marginal upticks in the S&P 500 (0.27%), the Dow (0.25%), and the Nasdaq (0.04%). Despite expanding trade tensions between the United States, China, Canada, Mexico, and the European Union, equities enjoyed a better month in May, riding surging energy stocks. For most of the month, oil prices hit multi-year highs before falling at the end of May.


Quarterly Market Review April-June 2018
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Robust first-quarter earnings reports also helped push stock markets higher. In fact, each of the indexes listed here posted strong end-of-month gains. The small caps of the Russell 2000 (5.95%) and the tech-heavy Nasdaq (5.32%) enjoyed the largest gains, followed by the S&P 500 (2.16%) and the Dow (1.05%). Of the indexes in this report, only the Global Dow lost value, falling 1.95% by the end of May… Click Here to Read the Full Article.

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