Day: September 24, 2024

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I am 74 years old (I was born Feb 2, 1948). My wife and I both worked for Aetna, but have retired and have 401(k)s from work that are with Vanguard. I received her 401(k) as a spousal inheritance and maintain it in a separate account. I plan to take RMDs on her account but I’m not sure if I have the option to take the RMDs based upon her age or my age. She had not begun taking RMDs on her account because she was not 72. Can you confirm which age (hers or mine) I should use for the first RMD withdrawal, and by what date does that RMD need to be taken? I believe there is a provision in the law that indicates that with spousal inheritance you don’t have to begin taking RMDs from an inherited account for a year after the year of death.

– Gary

The date and amount of that first required minimum distribution (RMD) depend on what you decide to do with the inherited 401(k). The answer will vary based on whether you roll the funds into your own 401(k) or IRA; transfer the account to an inherited IRA and take RMDs from it; transfer the money into an inherited IRA and follow what’s called the 10-year rule; or do a Roth conversion. Here’s a closer look at those options and what they mean for RMDs. (And if you need more help planning for RMDs or taxes in retirement, speak with a financial advisor.)

Option #1: Roll Into Your Own 401(k) or IRA

As a surviving spouse, you have the option of rolling the inherited 401(k) into your own 401(k) or IRA. You could roll it into an existing account open open a new IRA to receive the rollover.

If you go this route, the money will be treated as yours and become subject to the same RMD requirements as if you had held it in your account all along. Since you are 74 and no longer working, you would need to take an RMD by Dec. 31 and the amount would be calculated using your age and the Uniform Lifetime Table. (But if you need more help calculating your RMDs, consider matching with a financial advisor.)

Option #2: Transfer Into an Inherited IRA and Take RMDs

Instead of rolling it into your own IRA, you could instead transfer it into an inherited IRA. This has the benefit of allowing you to delay RMDs until the later of two deadlines:

In your case, it sounds like this would allow you to wait a couple of years before taking RMDs. As long as you take your first RMD by Dec. 31 of the year your wife would have turned 73, you should avoid penalties.

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At that point, however, RMDs would still be calculated based on your age. You would not be able to use your wife’s age to reduce the RMD amount. (A financial advisor may be able to help you manage inherited retirement accounts and other assets.)

Option #3: Transfer Into an Inherited IRA and Follow the 10-Year Rule

Since RMDs had not already started, you could choose not to take RMDs at all as long as the entire account is distributed by Dec. 31 of the 10th year after your wife’s passing.

This would save you the hassle of calculating RMDs during those first nine years, and it would save you taxes in those years as well. However, it could lead to a much bigger tax bill in that 10th year, and the entire balance would have to be distributed much earlier than if you were taking RMDs according to the Uniform Lifetime Table. (And if you need help finding a financial advisor to guide you through this process, this tool can pair you with up to three advisors who serve your area.)

Option #4: Convert to a Roth IRA

Another option would be to convert some or all of the inherited 401(k) balance to a Roth IRA. This would eliminate the need for RMDs for the amount that’s converted since Roth IRAs aren’t subject to RMDs.

It would, however, subject the conversion amount to taxes during that year. That could benefit you if you’re likely to be in a higher tax bracket later in retirement. Otherwise, it may not be worth the cost.

Bottom Line

You’ll likely be best off with either the first or second option since they both allow you to spread those distributions out over your lifetime. The primary difference is when those RMDs have to begin. If you transfer the assets into your own account, they will be part of your RMD calculation for this year. If you keep the assets in an inherited IRA, you can wait until the year in which your spouse would have turned 73 before taking RMDs. The required distribution amounts will still be based on your age, but those extra tax-deferred years could be beneficial.

Tips for Finding a Financial Advisor

• Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Consider a few advisors before settling on one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.

• Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.

• Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.

Matt Becker, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.

Please note that Matt is not a participant in the SmartAsset AMP platform, nor is he an employee of SmartAsset, and he has been compensated for this article.

Photo credit: ©iStock.com/designer491, ©iStock.com/Cecilie_Arcurs

The post Ask an Advisor: When Do I Have to Take RMDs from the 401(k) That I Inherited from My Wife? She Hasn’t Turned 72 appeared first on SmartReads by SmartAsset.

For much of the last two years, Wall Street and investors have been fixated on the artificial intelligence (AI) revolution. But what they might not realize is how important stock-split euphoria has been for pushing Wall Street’s major indexes higher in 2024.

A stock split is a tool public companies have at their disposal that allows them to superficially adjust their share price and outstanding share count by the same factor. Splits are surface-scratching in the sense that they don’t alter a company’s market cap or in any way affect its underlying operating performance.

Splits come in two varieties, one of which is undeniably favored by investors. Reverse-stock splits aim to increase a company’s share price, often with the purpose of maintaining minimum listing standards for a major stock exchange. Since this is the type of split conducted by struggling businesses, it’s one that investors usually avoid.

On the other hand, forward-stock splits get investors excited. A forward split reduces a company’s share price to make it more nominally affordable for everyday investors who lack access to fractional-share purchases through their broker. This type of split is almost always conducted by companies with a rich history of outperforming their peers.

A little over a dozen high-profile stock splits have been announced or completed in 2024, all but one of which is a forward split.

Wall Street has flocked to AI stock-split stocks

With AI stocks in the spotlight, it’s no surprise to find that three of Wall Street’s most-prominent splits of the year are attached to this highly touted trend:

• Nvidia (NASDAQ: NVDA) completed a historic 10-for-1 forward split in June.

• Broadcom (NASDAQ: AVGO) closed a 10-for-1 split (its first ever) in mid-July.

• Super Micro Computer (NASDAQ: SMCI) will effect a 10-for-1 split after the close of trading on Sept. 30.

Nvidia has been the flagship of the rise of AI and is, arguably, the most-decorated of all stock-split stocks in 2024. Shares of the company have catapulted higher by more than 675% since the start of 2023 due to the dominance of its graphics processing units (GPUs) in AI-accelerated data centers — an estimated 98% share of GPUs shipped to data centers in 2022 and 2023, according to TechInsights. Demand for its H100 GPU is backlogged, leading to exceptional pricing power and a sizable uptick in the company’s gross margin.

Broadcom has quickly slid in as the preferred choice in networking solutions for high-compute data centers. Its solutions are responsible for reducing tail latency and maximizing the computing capacity of GPUs in enterprise data centers training large language models, running generative AI solutions, and making split-second decisions. Although Broadcom is much more than an AI stock, AI is the source of excitement surrounding the company right now.

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As for Super Micro Computer, it’s become one of the leading infrastructure providers of the AI revolution. Super Micro’s customizable rack servers, which incorporate Nvidia’s H100 GPUs, are in high demand — net sales for the company jumped 110% last year — as businesses look to establish first-mover advantages.

But while AI stocks have been the bee’s knees on Wall Street throughout much of 2024, another brand-name company is perfectly positioned to announce a stock split and steal the spotlight in the fourth quarter.

This may be the most-anticipated stock split of the fourth quarter

The stock in question that could set Wall Street abuzz if it announces a forward split later this week is none other than warehouse club Costco Wholesale (NASDAQ: COST).

Costco is set to report its fiscal fourth-quarter operating results after the closing bell on Sept. 26, which would be the perfect time to also announce a stock split.

As of the closing bell on Sept. 18, a single share of Costco was tipping the scales at north of $892. More importantly, the company has conducted only three splits since going public, the last of which occurred all the way back in January 2000. In other words, it looks to be long overdue to make shares more affordable for retail investors and its employees who want to participate in the company’s employee stock purchase plan.

The only logical reason Costco has likely avoided a split for so long — aside from a greater prevalence of fractional-share purchase capabilities through most online brokers — is the fact that roughly 72% of its shares are held by institutional investors that aren’t concerned about a high nominal share price. But at some point, a near-$900 share price becomes burdensome to its employees and/or everyday investors. I believe we’ve reached that point with Costco.

Furthermore, Costco’s valuation is historically rich. It’s currently trading at a multiple of 50 (yes, 50!) times forward-year earnings per share, which is pretty much unheard of for a retailer. The company is going to need some serious buzz if it’s to grow into its current valuation, and the first stock split in 24 years might just be what the doctor ordered.

Unmasking Costco’s recipe for success

While the stage is undeniably set for Costco Wholesale to wow Wall Street with a stock split, the company’s underlying operations continue to fire on all cylinders.

Costco’s recipe for success begins with the advantage it possesses from its sheer size. Being able to purchase products in bulk helps to lower the per-unit cost of each item. Ultimately, this allows the company to undercut local shops and national grocery chains on price and provide a value proposition to consumers that keeps them coming back.

Costco is also a consumer staples stock. This is to say that it sells a variety of basic need goods that consumers are going to buy regardless of how well or poorly the U.S. economy is performing, such as food, beverages, and household cleaning/sanitary products. It has a lure to drive traffic into its stores in any economic climate.

Another key ingredient to Costco’s success story is its membership-based operating model. The $65 and $130 annual fees Costco collects from its members is high margin and flows straight to its bottom line. These fees provide an even firmer margin buffer that allows the company to undercut its peers on price to drive membership growth.

Last but not least, paying for an annual membership tends to incent loyalty in shoppers. Consumers will want to get the most out of their membership and are, therefore, more likely to head to Costco for their big-dollar purchases. Getting consumers into its stores is half the battle — and it’s one that Costco has been winning for decades.

Should you invest $1,000 in Costco Wholesale right now?

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

Wall Street’s Most Anticipated Stock Split of the 4th Quarter May Be Announced This Week was originally published by The Motley Fool

Shares of Trump Media & Technology Group (DJT) dropped more than 10% on Monday to trade at their lowest level since the social media company went public in March. The moves come after DJT’s lockup period officially expired last week.

Stakeholders, including former President Donald Trump, were subject to a six-month lockup period before being able to sell or transfer shares. That lockup period expired last Thursday, although Trump has said he would not sell his stake.

“I have absolutely no intention of selling,” the former president told reporters at a press conference prior to the lockup period expiration. “I love it. I use it as a method of getting out my word.”

As Yahoo Finance’s Ben Werschkul detailed, the purpose of a lockup period is to protect a newly public company’s interests and allow it to preserve stability before its founders can cash out.

“If I sell, it wouldn’t be the same, and I can understand that,” Trump said at the time, adding that he knows his stake has been “whittled down” in recent months.

Shares are down about 20% since Thursday and remain far off their record high of just over $79 a share.

Trump maintains a roughly 60% interest in DJT. At current levels, Trump Media boasts a market cap of about $2.5 billion, giving the former president a stake worth around $1.5 billion. Right after the company’s public debut, Trump’s stake was worth just over $4.5 billion.

Trump Media went public on the Nasdaq in late March after merging with special purpose acquisition company Digital World Acquisition Corp. But the stock has been on a bumpy ride since, with shares oscillating between highs and lows as the moves have typically been tied to a volatile news cycle.

In June, the stock popped (then fell) after current commander in chief Joe Biden stumbled in his first presidential debate of 2024 with Trump. Biden dropped out of the presidential race one month later.

Since Biden’s announcement, shares have remained under pressure as Vice President Kamala Harris, the Democratic presidential nominee, tracks ahead of Trump in the latest polling.

In May, Trump was found guilty on all 34 counts of falsifying business records intended to influence the 2016 presidential campaign — a verdict that sent shares down 5% the day after the conviction. His sentencing was recently delayed until Nov. 26.

Shares have fallen about 65% since the company’s public debut.

Trump founded Truth Social after he was kicked off major social media apps like Facebook (META) and Twitter, the platform now known as X, following the Jan. 6, 2021, Capitol riots. Trump has since been reinstated on those platforms. He officially returned to X in mid-August after about a year’s hiatus.

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But as Truth Social attempts to take on the social media incumbents, the fundamentals of the company have long been in question.

Last month, DJT reported second quarter results that revealed a net loss of $16.4 million, about half of which was tied to expenses related to the company’s SPAC deal. The company also reported revenue of just under $837,000 for the quarter ending June 30, a 30% year-over-year drop.

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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