Objective Financial Advice | |
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We hope this new year finds you well!
We know for those impacted by the fires in the Los Angeles area, this year began with tragedy and loss. Our thoughts and prayers go out to those residents and for those who are actively fighting those fires. If you've been affected by this disaster, please let us know how we might be able to help you.
While 2024 continued to be a good time to be an investor, we saw a pullback in December, and we've had some continued volatility so far this year - fresh reminders that markets don't move in straight lines and the importance of keeping your portfolio calibrated to your risk tolerance and goals. Keep reading for more investment insights peppered throughout this newsletter.
A recent federal court order is currently in force and reporting companies are not at this moment required to file beneficial ownership information (BOI) with FinCEN. However, if you own one of these reporting companies and have not yet filed, we recommend you follow the FinCEN government Website closely in case this status changes as the extensions are not very long and the current penalties in place for missing the deadline for filing are hefty.
If you have an Inherited IRA, you'll want to be sure sure you take your required minimum distribution (RMD) this year if this is required of you. The IRS had waived penalties for IRAs inherited in 2020 or later in recent years, but for 2025, most non-spouse beneficiaries will be looking at taking at least an annual required amount from these inherited accounts.
Do you live for that runner's high? If you're local to DFW, maybe we'll be seeing you at the Cowtown Marathon in Fort Worth next month! Quite a few of our KFP team members will be there participating in various distances. We wish all of our runners a safe and fun run!
Please read on for other actionable planning ideas. We will be closed for Martin Luther King Jr. Day (Monday, January 20th), Presidents' Day (Monday, February 17th), and Good Friday (Friday, April 18th). We plan to send the next newsletter out in mid-April. We'd love to hear from you on questions or suggestions for topics you’d like to see covered in the future.
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Super 401(k) Catch-Up Contributions | |
It's a bird! It's a plane! It's... super catch-up?
Cloaked as a "savings superhero," the new super 401(k) catch-up contribution allows individuals who attain age 60 - 63 by the end of the 2025 calendar year the opportunity for an enhanced catch-up contribution. This is an enhancement to the existing catch-up contribution ($7,500 for most plans in 2025; $3,500 for SIMPLE IRAs) for those who attain age 50 - 59 by the end of the 2025 calendar year.
Though this super catch-up applies to SIMPLE IRA, 401(k), 403(b) and governmental 457(b) plans, it does not apply to Roth or Traditional IRA contributions (catch-up contribution of $1,000). For 401(k), 403(b) and governmental 457(b) plans, the enhanced catch-up contribution limit is $11,250, and is $5,250 for SIMPLE IRAs. This allows for total employee contributions of $34,750 for 401(k), 403(b) and governmental 457(b) plans, and $21,750 to SIMPLE IRAs.
If you're wondering what happens when you turn 64, you're not alone. Oddly enough, this offering stops the year you turn 64 and you return to the age 50+ catch-up contribution amount.
This is not a mandatory offering for employer plans, but if you're in that small sliver of the population and it's available, this could offer that extra little savings boost as you near the end of your accumulator years. If this offering is available to you and you're interested to see how your participation would impact your plan, don't hesitate to reach out to us!
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2025 Retirement Plan Numbers | |
- Looking to max out your 401(k), 403(b), or 457 plan this year? Factor in an additional $500 for a total of $23,500
- Catch-up contributions are unchanged at $7,500
- Maximum Roth and Traditional IRA amounts are still $7,000
- Catch-up contributions remain the same at $1,000
- IRA deduction phaseout ranges
- Single? $79,000 - $89,000
- Married filing joint? $126,000 - $146,000
- Married filing joint but only one spouse participates in a retirement plan through work? $236,000 - $246,000
- Married filing separately? $0 - $10,000
- Roth IRA phaseout ranges
- Single? $150,000 - $165,000
- Married filing joint? $236,000 - $246,000
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Social Security Fairness Act | |
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Signed into law on January 5, 2025, Social Security benefit reductions from the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) have been repealed.
These reductions affected individuals who had sufficient Social Security credits of their own (or through a spouse) but were also receiving a public pension from work not covered by Social Security.
We are in the early days, but you may be entitled to a benefit for last year since this is retroactive to January 2024. Naturally, these changes will take time to implement. If you think you might be entitled to retroactive payment, remember that you could end up with 2 years of benefits in a single tax year, and up to 85% of Social Security can be taxable.
The social security Website says that those already receiving benefits that are being offset by WEP or GPO do not need to take action. However, if you didn't apply because you thought your benefits would be completely eliminated by the GPO, then it's time to submit an application. If you only applied for benefits on your own record but not spousal benefits, you may also need to apply for spousal benefits.
You can follow updates on this through the Social Security website. And if you'd like to go over how this may affect your financial plan, please reach out.
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If you've received a postcard regarding the Vanguard Chester fund litigation, you may have thrown it out assuming it was junk. Fair enough, because you also probably threw away the final notice to extend the warranty on your vehicle. We did, too, but the Vanguard litigation could be worth another look as you may have a legitimate claim in a class action settlement.
Back in 2021, Vanguard Target Retirement Funds (TRFs) caused investors some unpleasant surprises on their taxes due to unusually large capital gains distributions. In a brokerage account, this is a taxable event that shows up on line 13 on your Schedule D. If this applies to you, you have until February 11, 2025 to file a claim. This can be done online here and will require some supporting documents like the tax form 1099 for 2021 showing the capital gain distribution.
Vanguard continues to be a leader in low-cost funds for the everyday investor. If you were affected by this, please consider filing a claim. If you currently hold TRFs, they can certainly have their place in a portfolio. If you are wondering if this is still the best option for you, we'd be happy to look at that with you.
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Good Year after Good Year | |
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If you can remember all the way back to the beginning of last year, you might recall economists worrying about the risk of a hard landing for the U.S. economy—loosely translated as a recession. The election year was likely to be turbulent, the Middle East and Ukraine loomed over the global political situation, and 2023 was such a great year for the stock market that it was hard to imagine it being followed by a better one. Yet here we are, with the S&P 500 up more than 20% for the second year in a row.*
There may be two lessons in last year’s market boom. The first is that nobody can accurately predict the markets, which means it’s generally better to tune out all the irrelevant chatter that tends to pick up around the start of a new year.
The second is that bull markets don’t last forever, and they are often a bit closer to ending whenever the irrelevant chatter that you are ignoring tends to get complacent. Complacent? Nearly 60% of consumers responding to the Conference Board survey expect stocks be higher over the coming years—and that is the highest percentage on record going back to the first survey in 1987.
We don’t know what’s coming, but it’s always better to have your seat belt buckled, especially when others seem to be expecting the roller coaster to keep rising forever.
Article adapted with permission of financial columnist, Bob Veres.
*Source for investment returns is Morningstar. S&P 500 TR USD for S&P 500.
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We closed out 2024 with the fourth quarter handing us a smaller gain or even a small loss depending on your portfolio mix. Even with this last quarter, 2024 rewarded investors with returns above expectations with U.S. stock outpacing other asset classes again.
The S&P 500 returned 2.41% in the fourth quarter. Small cap eked out a positive rate of return at .33% for the quarter while large cap value stocks lost -.56%.
Developed market stock really struggled with a -8.11% loss for the quarter but maintained a positive return for the year at 3.82%. Emerging market stock lost a slightly smaller percentage to close out the quarter at -8.01% and still managed to finish the year at a positive 7.5%.
The US aggregate bond index lost -3.06% for the quarter because of sharply increased interest rates and ended the year with a 1.25% return. Shorter-term bond funds had a minimal loss of -.09% but did 4.04% for the year.
With a quick skim of these investment returns, you may be wondering why we don't ditch international stocks with that kind of underperformance or why we might be suggesting that you buy more right now. While we favor what we call a "home bias" (weighting U.S. stock more heavily than international stock) in our portfolio recommendations, we don't want to exclude international stocks in our portfolios simply because of recent returns. International stocks have underperformed when compared to U.S. stocks recently. If you're wondering why it feels like a more extended period, the chart below may help validate this feeling.
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You can see that this has been the case for over 10 years now. While a decade is significant, when we think about stock market returns, it's actually not that long. As humans, we might be a little guilty of recency bias. It's perfectly normal as our brains try to draw conclusions from information, but perhaps a little reframing is in order. Consider that you might be buying international stock on sale and getting a good deal for when those two lines meet at the X-axis next.
If you've been meaning to take some profits and sell some of that U.S. stock position in your portfolio, we'd be happy to offer some recommendations on how to do that as tax-efficiently as possible.
*Source for investment returns is Morningstar. Quarterly returns are as of December 31, 2024. S&P 500 TR USD for S&P 500. Russell 2000 TR USD for small cap stock. Russell 1000 Value TR USD for large value stocks. MSCI EAFE NR USD for developed international markets. MSCI EM NR USD for emerging markets stock. Bloomberg US Agg Bond TR USD for the US aggregate bond index. Bloomberg US Government 1-3 Yr TR USD for short-term bonds.
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Address:
1692 Keller Parkway
Keller, TX 76248
Ph: 817-993-0401
Fax: 817-993-0002
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