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Market Viewpoints

by Keith Bonjour, Portfolio Manager

After a strong start in January, the stock market experienced its first correction in two years recording a roughly 11% drop from the peak in the market which began at the end of January. Stocks began to rebound off their lows in February, but volatility has increased due to several factors including worries about rising inflation, monetary policy and interest rates, and more recently trade tariffs. We have also seen bonds start off 2018 on a weak note due to higher interest rates, fears of inflation, and expectations for the Federal Reserve to hike interest rates three times this year, with the possibility of a fourth rate hike discussed. Stocks are now in neutral territory for the year after finishing 2017 on a strong note.

We will be closely monitoring several things this year in terms of economic performance. The first will be in terms of consumer spending which should provide a short-term stimulus after many workers are seeing an increase in their take-home pay with the implementation of the new tax withholding tables in February. The second will be on the corporate front from the new corporate tax rates. The new corporate tax cut reduced rates from 35% to 21%. We will be monitoring how the corporate tax cuts effect stock buybacks, business spending, and company earnings. The effects of these changes will not be apparent until later this year as companies report second and third quarter earnings. Finally, the Federal Reserve projected that they will hike interest rates three times this year, which would be the same amount of hikes they did in 2017. It will be important to monitor both interest rates and inflation numbers throughout the year since they will have an effect on the Fed’s decision for how many times they choose to raise rates. The Fed has indicated that they want to maintain a slow and steady approach based on incoming data when deciding rates going forward.

Speculation of a rise in inflation was one of the reasons that sparked the stock market pullback in February. However, March readings on employment tallied a stronger than expected 313,000 new jobs in February, which exceeded expectations, and wage growth moderated easing fears about a strong pick-up in inflation from the previous month’s increase. The Consumer Price Index (CPI) showed a 2.2% year-over-year gain in February, which was in line with expectations, and shows inflation remains subdued. While core inflation in the U.S. continues to remain stuck at around 1.5%.

The economy continues to remain on strong footing with unemployment holding around 4.1% and corporate profitability continuing to remain strong. Fourth-quarter economic growth was revised down slightly to 2.5%, after reporting 3% or above growth for the 2nd and 3rd quarters of 2017, led by strong consumer spending. We will continue to monitor the U.S. government’s decision to impose tariffs on imported steel and aluminum along with the recent retaliatory tariffs imposed on certain U.S. goods by China and any effects this may have on inflation and economic growth. As of now, these tariffs should not have a large impact on either inflation or economic growth unless things continue to escalate. We continue to maintain a neutral stance on equities and recommend maintaining an appropriate risk tolerance throughout the current market cycle.

Will the Kids Pay Taxes on my Traditional IRA After I Pass Away?

By Cody Allen, Senior Vice President 

The Employee Benefit Research Institute estimates that across the nation there is $2.76 trillion in Individual Retirement Accounts (IRAs). That is a massive amount of savings that Americans have put away to enjoy in their golden years. As many IRA investors progress through those golden years, they come to realize they have not only saved enough to live comfortably but they will have a balance left in their IRA after they are gone. Therefore, the need to include IRAs in their estate plans has become a significant part of the estate planning discussions. 

As our Investment Management Group manages these estate planning discussions with our clients, we are finding with more regularity that IRA investors want to understand, “Once my spouse and I have passed away will the kids pay taxes on our Traditional IRAs?”  As usual, a taxation question can take many different twists and turns. 

First, it’s critical for everyone to understand whatever you have elected on the IRA Beneficiary Form will dictate who will receive your IRA. This means, no matter how much time and energy you placed into creating a Will or Trust, the IRA Beneficiary Form trumps all of it. That is why our Investment Management Group feel it’s so important to review your IRA beneficiary each year during our Annual Review Meeting with you.  

Next, assuming you have named the kids as directed beneficiaries of your IRAs it is just as important for them to understand, when mom and dad are gone, they just can’t “take the money and run.”  They should establish an “Inherited IRA.”  This is a tax-deferred asset transfer, which means no taxes will be paid at that time. We have established numerous Inherited IRAs in recent years for our clients’ children and there are several important items that need to be considered in the on-going management of an Inherited IRA. 

Taxes have been deferred. We have not avoided taxes. 

Each year the kids will need to take a distribution (starting 12/31 of the year following death) based on their life expectancy (not your life expectancy). Our staff will help calculate that distribution each year using the tables provided by the IRS. 

The annual distribution will be taxed at their ordinary tax rate (not a reduced capital gains rate), however, the annual distribution is not an extremely large amount so the tax impact should be less painful to one’s taxable consequences each year rather than a one-time lump sum distribution. (Example: Assuming mom passes away (age 75) and daughter (age 50) inherited mom’s $100,000 Traditional IRA. The first distribution would be approximately $2,924.)  Thus if the Inherited IRA is producing a reasonable rate of return it will last for years to come. In fact, we have seen Inherited IRAs pass through several generations. 

To discuss your beneficiary designations, or learn more about the details of the conversation we have with the next generation please give us a call. We would be happy to help.

In the Community - Our Non-Profit Spotlight

The Family Museum is a hands-on children’s museum in our community that provides life-long learning experiences and environments for children and families. The Family Museum prides itself on inspiring children, young people and families to play and learn together through intergenerational learning. The Family Museum’s learning experiences and environments spark curiosity, and quite often give parents and care providers a platform to play, teach and grow with the young people that are important in their lives. 

Over 10,000 square feet of interactive exhibits greet visitors when they visit the Family Museum. In addition, drop-in arts, science and movement based programs take place at the Museum daily. Additionally, the Family Museum offers a wonderful comprehensive dance program, and pre-school alternative classes during the school year. There is something for every child and family at the Family Museum. For a complete listing of programs and exhibits, visit 

 The Family Museum and its non-profit foundation depend on community support to offer its programming and hands-on exhibits. Without the support from our community, the Museum would be limited in its ability to best serve the children of our community. Northwest Bank’s Investment Management Group have provided the Family Museum Foundation with expert advice and endowment support that is both efficient and lucrative. Their advisors and investment options are always supportive and best established to support the Family Museum’s needs.

The Family Museum is an amenity that strengthens the quality of life in the region and one of only five children’s museums in the United States that is accredited by the American Association of Museums. Our community is what makes the Family Museum great, and the exhibits and programming at the Museum are a reflection of our rich and thriving community.

Meet Melanie Hamerlinck

Northwest Bank & Trust Company welcomes Melanie Hamerlinck to the Investment Management Group as an Investment Administrator.

“I look forward to coming to work every day. I really enjoy being a part of the team and knowing I am a part of its success,” stated Melanie. Melanie’s primary responsibilities includes daily administration, organizing meeting materials and scheduling Annual Investment Review meetings. 

Melanie has a passion for great customer service. She has over 12 years of experience working with clients in various roles and industries. When asked about her experience, Melanie said this, “I’ve learned that customer service is key. With great customer service, we can build lifelong relationships with our clients.”

With that outlook, we know Melanie is a great addition to the Investment Management Group team. 

Contact Melanie by phone at 563.388.2568 or email at 

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• May lose value