Recession Time? | Stewardship Concepts Financial Advisors

My wife Jenny and I are heading to Lake Rosevelt for a wedding. Hopefully, we'll jump in the lake to cool off from this 100+ degree weather. Thank you for joining me today for two minutes on the economy, an interesting story, and a financial planning tip.

Economy

In July, the U.S. added 114,000 new jobs, indicating a slowdown in hiring as high interest rates weigh on the economy. This modest job growth represents a weakening labor market, with unemployment rising to 4.3%, the highest since October 2021. This week's stock market has had a pullback, anticipating a possible recession. We'll have to see if this trend continues. Our economy has had surprising resilience over the past few years. If this unemployment rises and lower inflation continues, the Federal Reserve might lower interest rates by September.

Interesting Story

Wall Street Journal reporter Evan Gershkovich returned to the U.S. on Thursday after being wrongfully detained and convicted of espionage in Russia. Gershkovich was part of the largest East-West prisoner swap since the Cold War, involving 24 prisoners and at least six countries. Russia released 16 prisoners, including Vladimir Kara-Murza.

Financial Planning Tip

A popular question we get as financial advisors is whether to make Roth or traditional contributions to someone's IRA or 401k. Roth contributions are made with after-tax money and grow tax-free, while traditional contributions are made with before-tax money, grow tax-deferred, and taxed when taken out.

When deciding between the two, a key factor is figuring out what your tax bracket is now and in retirement. The goal is to pay the tax when you are in the lowest tax bracket. Do Roth if you think you're in you're in a lower tax bracket now than in retirement. But if you feel you're in a higher tax bracket now than in retirement, do traditional and pay the tax later.

One common mistake is becoming overly excited about making Roth contributions regardless of their tax bracket. Some great tax planning strategies are available to large traditional IRAs or 401ks in retirement, like converting the money into Roth once you enter a lower tax bracket or avoiding tax completely through charitable distributions directly from the account at age 70.5.

I typically suggest Roth contributions if you're still in the 12% tax bracket and traditional contributions if you're in the 22% tax bracket. But it'll depend on each person's situation. Check out this article to learn more about Roth Vs traditional.

Another factor to consider contributing to Roth is if you believe we'll see legislation for significantly higher tax brackets across the board. This is a concern with the amount of debt we have outstanding. Check out this article I wrote about how much we'll pay in interest payments on our debt this year as a country.