Meritage Periodical - January 2022

Advisor Perspective

Prompting critical thinking and conversations around issues in our industry. Not intended as personal financial advice.

What is normal market volatility?

It seems like a very good time for this topic, given the recent increase in market volatility. To help understand what is normal, we thought we could share two points for perspective:

• To many people, markets feel far more volatile than they remember. We believe this feeling is more associated with our never-ending news cycle than actual market realities. Between 1951 and 2020, the market has declined 10% or more 57 times. A 10% decline is the widely accepted definition of a “market correction.” The average frequency of market corrections has been once every 1.2 years.
• We feel markets are healthy when people are keeping them honest. What do we mean by this? We mean the market is safer when investors are always questioning the proper value of stocks. A healthy market involves people popping small bubbles before they become large enough to cause a market crash. Markets, like people, are emotional and prone to getting ahead of themselves. To get back to reality, the market needs corrections. These are normal and don’t indicate negative future results. Notably, intra-year declines in the S&P 500 have averaged 13.7% between 1951 and 2020, yet annual price returns have been positive in 51 of those 70 calendar years.

We believe that the most successful investors are those who embrace the market for what it is, not those who fight it. We hope the historical perspective we have provided helps you embrace our current volatility as both normal and healthy. Whenever markets go down, we remind ourselves to maintain a long-term view and remember that the odds are that investors in the stock market will make money in 5 out of 7 years.

Timely Topics

Updates and reminders that may impact your personal financial planning

Required Minimum Distribution (RMD) FAQs:

• Turning 72 in 2022? It’s likely that you must begin taking your RMD this year. The year in which you attain age 72 (formerly age 70½) is the year in which you must begin taking withdrawals from your qualified retirement accounts. You do not have to wait until your birthday to begin taking withdrawals for the year. 
  • This rule also applies to dollars in a Roth 401(k) or Roth 403(b) even though there is no tax due as a result of the withdrawal of this after-tax money. 

• How is my RMD calculated? The 12/31 account balance from the prior year (2021) is used to calculate your 2022 RMD. This year-end balance is then divided by the IRS life-expectancy factor based on your birthday in the current year. As you grow older, the factor increases, thus increasing the percentage of the account balance that must be withdrawn each year.
  • It is important to note, that as of 1/1/2022 the IRS has implemented new life expectancy tables. On average, we have seen the factors reduced by 7-8% compared to the prior life expectancy tables. 

2021 Tax Season is Here! A few reminders:

• For clients who held accounts at MML Investors Services in brokerage and/or managed formats, you will be receiving 1099s for those accounts as well as your brokerage and/or managed accounts held through Commonwealth.
  • Every year, NFS requests a 30-day extension from the IRS’s initial mailing deadline of February 15 to mail tax forms because some investment issuers are unable to submit final tax information in time. Therefore, you can expect NFS to issue your 1099 sometime between mid-February and mid-March. For more details on the NFS 1099 timing, please see the chart below.
    • Please note: In instances when tax reporting for an account occurs during the extension period, NFS will provide an online preliminary tax statement starting on February 12. This is viewable only in Investor360° or Wealthscape Investor and will provide a single view of current tax information to help you determine early tax liability.

• If you have signed up for electronic delivery of 1099s, watch for a notification from the account custodian to alert you of availability (i.e. NFS, Capital Group, Brinker Capital, etc.)
  • As a reminder, we recommend receiving tax documents via mail, even if you elect other documents via e-delivery, as you will still have access to the tax documents electronically.
    

• It is not uncommon to receive a corrected 1099. If this happens and you have already filed your return, contact your tax professional for guidance. In most cases, a corrected 1099 is not the result of an error.
  • Often, it happens because securities and investment companies do not have enough data to accurately classify and calculate gains and losses before the designated federal tax filing deadlines. Reclassifications that lead to revised 1099s commonly include qualified dividends, 13-month dividends, substitute payments, and tax-exempt interest.
  • In an effort to limit the number of corrected forms typically mailed each year, the IRS has granted an extension for the initial mailing of these tax documents. This occurrence is one reason we suggest delaying your tax filing until closer to the deadline.

• National Financial Services 1099 Information:
  • If you are enrolled in e-notification, you will receive an email notifying you that your tax forms are ready to view. If you are not enrolled in e-notification, your form will be mailed within five business days of online posting.
  • In both cases, once issued, you may access an electronic version of your tax forms:
    • For Commonwealth, visit Investor360°®: Statements & Documents > Tax Reporting > Most Recent.
    • For MML Investors Services, visit Wealthscape Investor MMLIS: Accounts > Details (by account) > Documents > Tax Documents > Tax Year 2021
      
      
      

• Tax Form Mailing Dates: Our partner, National Financial Services (NFS), will post and mail consolidated 1099 tax forms in four waves, outlined below. The dates below are when your tax form are estimated to be available online. They will be mailed five to seven days after they are posted online.
  • January 21, 2022: Form 5498 available online; for use with contributions to, and year-end market values of, retirement accounts
  • January 21, 2022: Form 1099-R available online; for distributions from retirement accounts
  • January 22, 2022: 1099 Consolidated Tax Form, mailing cycle 1, available online; Non-retirement accounts with holdings whose income doesn’t require reclassification or additional information from issuers (Generally, this includes accounts holding options, certain equities, and fixed income securities.)
  • February 12, 2022: 1099 Consolidated Tax Form, Mailing cycle 2, available online; Equities and fixed income securities, closed-end funds, and non-Fidelity mutual funds where issuer provided final tax information after first mailing; second mailing includes information-only 1099s issued for exempt accounts, including non-prototype and corporate accounts.
  • February 12, 2022: 1099 Preliminary Tax Statement available online only; Point-in-time snapshot of reporting activity for customers slated for a later mailing; includes symbols/CUSIPs for positions that lack final tax information as of February 15, 2022 (This is online only, is not reported to the IRS, and should not be used for tax reporting purposes.
  • February 12, 2022: 1099: Info Only (corporate) available online only; supplemental information for corporate and eligible exempt accounts
  • February 26, 2022: 1099 Consolidated Tax Form, Mailing cycle 3, available online; for accounts holding securities with income reclassifications to date.
  • March 5, 2022: 1099 Consolidated Tax Form, Mailing cycle 4, available online; for brokerage accounts holding later-issuer reclassifications (e.g., UITs, REITs)
  • May 12, 2022: Follow-up Form 5498 available online; for contributions made between January 1, 2022, and April 18, 2022. Not required for tax filing purposes.