Information abounds on why and when you should contribute to a tax-deferred savings plan such as an Individual Retirement Account (IRA). Less is known about what happens in retirement when you have to take money out of these plans. For those who turned 70 1/2 years or older in 2014, pay attention, because it's distribution time.

The original idea behind tax-deferred savings was to provide Americans a tax break in order to encourage us to save towards retirement. Individuals could stash away money tax-free while they were working and then take it out again once they retired, when they were presumably earning less and at a lower tax rate. The government determined that once you reached 70 1/2 you have until April 1 of the next tax year to take your first distribution.  If you are older than that, you only have until the end of the year.

Officially, it's called a Required Minimum Distribution (RMD) and applies to all employee sponsored retirement plans. That includes profit-sharing plans, 401(K) plans, Self Employed Persons IRAs (SEPS), SARSEPS and SIMPLE IRAs, as well as contributory or traditional IRAs. The individual owner of each plan is responsible for computing the MRD and taking it from their accounts. There are stiff IRS penalties (of up to 50 percent of the total MRD) levied on those who fail to comply.

The RMD is calculated by taking the total amount of money and securities in each IRA, or other tax-deferred plan, as of Dec. 31 of the prior year and dividing it by a life expectancy factor that the Internal Revenue Service publishes in tables. The document, Publication 590, Individual Retirement Arrangements, can be easily accessed over the internet. As an example, let's say at the end of last year your IRA was worth $100,000. You are 72 years old. Looking up the life expectancy ratio in the IRS table for that age, which is 15.5, you divide your $100,000 by 15.5. Your RMD for this year would be $6,451.61 (100,000/15.5 = 6,451.61).

Remember that you must compute your RMD for every tax-deferred account you own. However, you can withdraw your entire distribution from just one account if you like. You can always withdraw more than the MRD from your accounts, but remember that whatever you withdraw is taxed at your tax bracket. If you make an error and withdraw too much in one year, it cannot be applied to the following year. And before you ask, no, you can't roll the RMD over into another tax-deferred savings account.

What happens if you forget or for some reason you cannot take your RMD in the year it is required? You might be able to avoid the 50 percent penalty if you can establish that the shortfall in distributions was the result of a reasonable error and that you have taken steps to remedy the situation. You must fill out Form 5329 and attach a letter of explanation asking the IRS that the penalty be waived.

For those who have an Inherited IRA, you too may have to take a RMD before the end of the year. The calculations and rules are somewhat different. Generally, if you have received the inheritance this year, as the beneficiary, you have the choice of taking one lump sum, taking the entire amount within five years or spreading out the distributions over the course of your life expectancy, starting no later than one year following the former owner's death. The IRS produces a table for use by beneficiaries in Publication 590 as well.

Many retirees have a hard time remembering to take their MRD each year. It is a good idea to ask your money manager or your accountant to handle the distribution or at least to remind you each year when the RMD is due. The last thing you want to do is give back to the IRS half your hard-earned savings each year.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

"I know nothing in the world that has as much power as a word."  — Emily Dickinson

The Fed ended the stock market decline this week by simply changing a sentence or two. In the space of a few hours, global markets soared, creating billions of dollars in gains for investors worldwide. Don't ever doubt the power of words.

Rumor had it that on Wednesday, the Fed was going to remove "considerable time" from its guidance on when interest rates would rise. Investors worried that thanks to the gathering strength of the economy that FOMC members were becoming hawkish and might raise rates sooner than expected. Sure enough, the Fed removed "considerable" from their statement on the time period itself, but added that the Fed would be "patient" before raising rates. That's all it took to ignite a truly breath-taking rally in stocks.

"But, but, what about Russia and the slide in oil," sputtered a California client who was sure that the declining oil price was going to be the end of us all.

"The oil price," as Janet Yellen, the Fed chairwoman, said Thursday," is a transitory event."

For longer-term investors (anyone with more than a week's time horizon in this market) the decline in oil will at some point be over. Prices will rise once again as the world economies grow and demand more energy to fuel that growth.  I wrote last week that in the meantime, lower oil prices are great for our economy and all other oil-consuming nations. Japan, if you are interested, stands out as the greatest beneficiary of declining oil prices.

Until Wednesday's Fed meeting however, traders were using the oil price as an excuse to sell off the equity markets. That short-term maneuver only works until it doesn't. The Fed meeting blew that trade right out of the water and traders, happy to be short stocks, suddenly found themselves up a certain creek without a paddle. Since then short-covering has been the name of the game. And by the way, the oil price is still sliding, despite a 500-plus point move in the Dow over the last two days.

As for all the consternation concerning Russia, investors who read last week's column "Is the Russian bear back in its cave?" were not surprised at the ruble's decline this week, nor the spike in Russian interest rates to 17 percent. I have also noticed that several publications are coming around to my view that the oil price decline could have been engineered by the U.S. and Saudi Arabia in order to bring Putin to his knees, at least economically.

Given the action of the markets over the past two days, I would guess that we have put in a bottom for 2014. Next week traditionally has been a good one for the markets and I don't see any evidence that this year will be different. The bears could try once again to establish a link between a declining oil price and the stock market, but usually stocks only discount a maneuver like that once.

For me, I would buy any further dips in the market. This one amounted to about 5.4 percent, which is within the range of most of the pull-backs we have experienced so far this year.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

Last weekend Japan held "snap" elections, which gave Prime Minister Shinzo Abe the mandate to continue his pro-growth economic policies.  No one outside Japan seemed to care. The Nikkei stock market index fell 1.6 percent and traders moved on. That may prove to be a big mistake.

Granted, given the precipitous decline in the price of oil and the calamity it is causing in Russia (well-covered in last week's columns), investors may be forgiven for focusing on other more immediate concerns. Still, I believe that now that Abe has a clear mandate to continue his pro-reform, economic policies, Japan's prospects for next year have been elevated considerably. And don't forget that Japan is by far the greatest beneficiary of those falling oil prices.

Japan is technically in recession at the moment. GDP over the last two quarters was dismal. And the third quarter 1.9 percent decline shocked observers, who were actually expecting a rise. Economists pointed to a national sales tax hike that hurt economic growth. Back in April, the sales tax was increased from 5 percent to 8 percent, which hurt consumer spending.  After the election, Abe announced that another hike in the sales tax (to 10 percent) would be delayed, if not suspended.

Readers may recall the "three arrows" of Abe's plan. They are: radical monetary easing (well over a $1 trillion so far in asset purchases), extra public spending ($17 billion plus) and a much-needed program of structural reforms. The last arrow is probably the most difficult and yet to be accomplished. Abe will need all the support of a renewed voter mandate to accomplish these changes. It is the main reason the snap election was called in the first place.

Take unemployment, for example. Although unemployment is only 3.5 percent in Japan, those numbers can be deceiving. The country's labor structure is antiquated. A decades-old labor coalition between the government, unions and corporations shelter most workers from market forces. For example, there is a de facto ban on firing and dismissals can be thrown out of court if they do not meet with "social approval." Employment in Japan, in many ways is part and parcel of the country's welfare system.

Obviously, Japanese companies are at a severe disadvantage in this globally competitive environment. Corporations have resorted to hiring more low-paid workers with little job protection as an alternative. These "irregulars" now make up two-fifths of the labor market. They are not members of the unions and therefore fall outside the unions' ironclad agreements protecting their members. As a result of this system, even the most unproductive workers remain employed.

Reform would require Abe to scrap the old system and institute things like severance pay, equal pay for equal work and an overhaul of Japan's short duration, low unemployment compensation system.  In addition, the concept of free trade must be introduced. The end of Japan's post-WWII protectionism must be tackled. This won't make him popular among many domestic entities. Japanese farmers, for example, benefit from import duties that are so high that the Japanese consumer spends an average 14 percent of household budgets on food, compared to American consumers who pay 6 percent.

The battle to achieve these reforms will be formidable. Pressure groups that have gained economic and political power in postwar Japan will not give in easily. Although the general public agrees that reform is necessary to "save Japan from itself," the devil will be in the details.

Within Japan, there is an understandably cynical attitude over Abe's chances of successfully addressing these and other structural issues. Too many politicians in the past have tried and failed. What, they say, makes Abe any different?

It could be his heritage. He is the son and grandson of politicians and tradition counts in that country. On his mother's side, his grandfather was a war criminal, who later established Japan's Democratic Party. He served as prime minster from 1957-1960.

But it could also be his generation. He is both the first post-war candidate to hold office and the youngest Japanese leader in history. He appeals to both sides of the political spectrum and can inspire, motivate and lead. He has, in my opinion, the best chance to steer Japan in a new direction.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

Just three weeks to go before the end of the year, and stock markets should be celebrating. Instead, equity markets have been down as traders become increasingly spooked by the decline in oil prices. Granted, financial markets sometimes get it wrong, but the present atmosphere of fear is one for the books.

Investors are afraid that oil prices could go even lower. The question to ask is how low is too low? Someone somewhere came up with the price of $60 a barrel as a "fair" price for oil. This week it broke that price level and markets in Europe and the U.S. sold off. What are investors thinking?

For starters, some believe the decline in oil prices is indicative of slowing world demand for energy. If true, then maybe the global economy is growing even slower than investors thought. In which case, stocks are too high, despite all the central bank stimulus.

Then there are the oil patch companies themselves. We all know the big-name global players that pay good dividends and are (were) considered salt of the earth investments. Some of these names are down 20-30 percent so far this year. Then, too, there are the drillers and junior drillers, those high-flyers that led the fracking and oil shale boom. Those stocks are getting decimated.

The hurting that these companies are experiencing right now also brings into question the health of their finances, specifically the money borrowed from banks to fund their exploration and development.  Extrapolating from the oil price, the logic becomes: oil down, stocks down (due to worries over company solvency), which then spills over to what banks could or could not be in trouble due to energy loans. And so it goes.

What readers should immediately notice is that, with the exception of a declining oil price, none of the above has happened and there is less than a slight chance that it will. Why?

Energy's share of the business sector of GDP in the U.S. is 5.9 percent. Not much, and certainly not enough to take GDP down with it. Especially when consumer spending is 67 percent of GDP and declining oil boosts that kind of spending.

In the stock market, energy has less than a 10 percent weighting in the S&P 500 Index. Right now the sector is taking the entire index down with it, but the numbers tell you that it is an over-reaction. What about those big mega-cap companies with solid dividends? Exxon's CEO said his company would be okay with $40 oil. As for the supply/demand equation, I believe the new technology-driven increase in the supply of various forms of energy, especially in the U.S., is what is driving the price of oil lower, not decreasing demand.

I'm not disputing that if energy prices continue to slide, and they could, that some companies in that sector, especially the small aggressive kind, will have financial trouble. But that has been true since wildcatters have been wildcatters. It doesn't mean that the whole market should be carried down with them.

If we step back and look at the markets from a dispassionate point of view, we simply see that from the October sell-off, stocks have gone straight up with hardly a pause. What we are seeing today is simply a much-needed pull back from the highs. In my opinion, this decline has pretty much run its course.

Over time, the benefits of cheaper oil worldwide will have a beneficial impact on all energy-consuming companies and their financial markets. Wall Street would like to see those benefits show up immediately, but that is not the way of the world. It takes time to derive the benefits of this kind of price decline and it won't happen overnight. For those with a longer term view, this decline is a great opportunity.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

Ukraine had been the topic on everyone's lips for over six months. Today, nary a word is written about Russian's plan to annex that nation. You can thank declining oil prices for that.

While most of the West rejoices over the recent precipitous drop in the price of oil, the story is quite different for the largest producer of fossil fuel energy, Mother Russia. That's right, Russia, and not Saudi Arabia, leads the world in energy production. As such, Russia depends on energy for 16 percent of its gross domestic product, 52 percent of total federal revenues and 70 percent of all exports. And that was in 2012. Since then the numbers are even higher.

As the price of energy continues to decline, so does the Russian currency, the ruble. It has dropped by 26 percent in the last year and just today fell another 1.3 percent. In the first half of this year alone, the Russian economy contracted by over 10 percent and that was before the brunt of the oil decline occurred. Russian officials estimated they will lose $90-100 billion a year based on oil's decline.

Officially, the Russian Economic Ministry cut its forecast for GDP in 2015 from 1.2  percent to minus-0.8. The Russian people are going to feel that bite with real incomes falling by 2.8 percent. This will be the country's first recession since 2009. At the same time, the inflation rate is expected to rise from 7.5 percent to 9 percent. In an effort to combat rising inflation their central bank is hiking interest rates at the same time to almost 10.5 percent, further hurting economic growth.

 Earlier in the year, the prospects for the Russian economy were already looking fairly anemic, thanks to Putin's adventurism in Crimea. In retaliation, U.S. and European sanctions have now begun to bite. By Russian forecasts, those sanctions will cost the country $40 billion this year. They have also effectively closed off global capital markets to Russian banks and corporations. As a result, investment has dropped off a cliff as uncertainty, combined with a lack of security, has devastated corporate Russia

On Dec. 4, Putin addressed his government ministers and parliament with a mix of sophisticated economic plans to liberalize the economy and good old-fashioned nationalism that would have made Hitler proud. Of course, he blamed the West for everything from Russia's current economic woes to annexing Crimea and Ukraine.

It was interesting that he barely mentioned the continuing war in Eastern Ukraine. It appears that the declining oil price has damaged Putin's plans far more than the economic sanctions instituted by the West. Was it a fortuitous coincidence that energy prices started to decline this year just as Vladimir Putin began to marshal his forces for a move into Ukraine?

Readers should remember that the Kingdom of Saudi Arabia, which is getting the blame for not supporting oil prices, is a key U.S. ally. What better way to hamstring Russian adventurism than to hit them where it really hurts via oil? Notice, too, that both the administration and Congress has been silent about this recent energy rout, although theoretically, declining oil prices hurts our burgeoning shale industry and American efforts at energy independence.

I say let the oil price fall until it doesn't. Let the markets determine the fair value of energy and hopefully, in the meantime, bankrupt the Russian bear.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.