Listen carefully, and you can almost hear the national (and international) sigh of relief as 2024 winds down to an end, leaving in its wake a pile of economic hardship and damage. Strangely, economic reports and statistics flowing constantly from our bureaucrats and media sycophants seem to want us all to believe that our economy is excellent, our lives tidy and unharried, and the future bright. As Alfred E. Neuman repeatedly asked in Mad Magazine, “What, me worry?”
In the 1980s, we were introduced by Ronald Reagan to the question that changed everything. “Are you better off now than you were four years ago?” That question is getting a second wind, due to the vast majority of Americans who can only answer it in the negative.
How did you fare during the past four years? Many Americans are better off financially, as our stock market has been on fire, with records being set frequently. Investors with significant account balances have added wealth and security to their lives. Unfortunately, these people represent a relatively small portion of American families.
Regardless of where you stand financially today, it is time to approach the future with an eye toward making your own situation better in 2025. Almost everyone can adopt a positive attitude and make some changes. As much as I detest the notion of New Year’s Resolutions, this may be the time for one.
For instance, participants in company-sponsored retirement plans, such as 401(k) and 403(b) Plans, should make an effort to increase contributions and learn more about asset diversification. IRA savers should attempt to max out contributions for 2024 and 2025. Remember that you have until April 15, 2025, to add to your 2024 IRA.
Due to rampant losses and inflation in the insurance industry, your policy renewals may be coming in with significant double-digit increases. You are not helpless against these jolts to your cash flow. Take some time to do a complete analysis of your insurances, and shop around for better deals. There is no better and quicker way to pad your income than by reducing the cost for necessities. We recommend a discussion with a local independent insurance agent.
Each of us can do a better job with our 2025 finances, but it requires some reflection and analysis of our recent situations. The Holidays are a perfect time to figure out where we have been hurt by the economy of past years, and then develop better alternatives.
Getting some professional help may be timely. We recommend a free consultation with a Certified Financial Planner®.
Every year since I can remember, I have prepared a Christmas Wish List for Congress, and every year the theme seems to be the same. Last year, I wrote (modified slightly): Once again, I am driven to perform an annual exercise in futility by itemizing my Wish List for this (the outgoing 118th) Congress. As always, there are many unresolved tax questions, unfinished “tweaks” to the Tax Code, and inconsistencies within the rules for Qualified Retirement Accounts. When contrasted with the few planned workdays left in the December Congressional schedule, it portends yet another “disaster of the undone.” As the remaining time for Congressional action wanes, it is largely discouraging to look back at the progress (or lack of same) made by the outgoing Congress toward last year’s list, starting with: Wish Number 1. Make the Trump Tax Cuts of 2018 permanent. In the Tax Cuts and Jobs Act of 2017 (TCJA), which took effect on January 1, 2018, both individual and corporate tax rates were dramatically lowered. Almost every taxpayer, every consumer, and scores of employees of large corporations benefitted greatly from more cash in their wallets. With the (re)election of Donald J. Trump, this is a near certainty. However, the usual group of elected lightweights in Congress are already explaining why this is not their #1 priority. The more things change, the more they stay the same, or so it seems. Wish Number 2. Inflation index tax items, including the SALT (State And Local Taxes) deduction limit, currently stuck at $10,000 per taxpayer (single or joint filers constitute one taxpayer). Prior to TCJA, taxpayers who itemize deductions could include 100% of their SALT expenses. Restrictions imposed by the 2018 Code changes restricted that amount to the current $10,000. Now, it is time to at least acknowledge the simple premise that a couple filing jointly should receive twice the benefit of the deduction, updated annually for inflation. Wish Number 3. Have some mercy on tax preparers, tax planners, and taxpayers by giving us next year’s rules earlier this year. This is especially important when planning items such as Roth IRA Conversions, where there is no longer a chance to correct unintended errors after December 31. Congress is so derelict in wrapping up loose ends (especially in an election year) that Tax Code changes can actually bleed over to the next year, when it’s too late. I could go on, but it is the Holiday season. Van Wie Financial is fee-only. For a reason.December is here, and if you are like most people, you are not quite sure how it snuck up on us so quickly. With Thanksgiving having occurred so late in November, remaining time is unusually short for planning and completing transactions prior to the New Year. Financially, we should all be tidying up what we can by planning for what we should do in the remaining days of 2024. We have compiled a short checklist of items that affect many Americans.
Lessening our 2024 tax bills (due next April) should be a top priority for every taxpayer. While 2024 IRA deposits can be made up to April 15, 2025, anyone planning a first-time 2024 Roth IRA contribution should consider opening that account in December, even if only with a small contribution. The reason for this is the 5-year period required for all Roth funds to become penalty-free. One full year is credited to the five-year history regardless of how many days the account was actually funded. The balance of the 2024 deposit can be made in early 2025.
People ages 50 and up are allowed to make additional (“catch-up”) IRA contributions each year, up to the $1,000 statutory (fixed) limit. While we were disappointed that this number did not increase for next year, it is nonetheless available to help our tax bills for 2024. (Catch-up contributions are meant to make up for lost time for late-starting savers, and apply to anyone of age.
Participants in 401(k)-type Plans make deposits through salary reduction deferrals from payroll, which can only be applied to the year of the actual deferral. Some employees may be able to increase their deferrals before the end of December to decrease taxable income, but hurry, as it is a busy time for HR Departments across the country. The maximum 2024 deferral is $23,000, and rises to $23,500 for 2025. In both cases, participants ages 50 and over by year-end may add up to $7,500 annually for “catch-up” contributions.
We should also note that participants ages 60, 61, 62, and 63 at year-end may increase their Retirement Plan “catch-up” contributions to a maximum of $11,250 for each of these years. While this represents a short period of working time, the extra contributions can only help, once retirement becomes a reality. Again, the purpose of these higher limits is to help late starters increase retirement income.
Medical Expenses are deductible, but only in excess of 7.5% of the taxpayer’s Adjusted Gross Income (AGI, usually located on line 11 of your Form 1040 Tax Return). Managing the timing of payment of medical expenses can reduce tax bills for itemizers. Pay this year if you can itemize deductions in 2024, or delay payment until 2025 if you will have a better opportunity then.
Tax Planning is truly a year-round activity. The more you know, the less income tax you may have to pay. What a great Christmas gift to yourself.
Van Wie Financial is fee-only. For a reason.
Our recent Blogs have outlined financial changes coming from government-controlled entities (including the U.S. Tax Code, Social Security, and Medicare, especially as Cost-of-Living Adjustments (COLAs) are unequally applied to each. This past week brought further data releases, in the form of Medicare premium increases for both the Base Cost and IRMAA add-ons. IRMAA stands for Income-Related Monthly Adjustment Amounts, which are applied to many Medicare enrollees, based on their income.
Last week, we made a simple observation. Every year, the government demands a larger portion of our purchasing power.
This week, we are able to offer further evidence to support our viewpoint, using just-released adjustments (increases) to Medicare premiums. Instead of matching the 2.5% Social Security COLA, Medicare premiums are increasing about 5.9%, and deductibles paid out-of-pocket before benefits kick in are rising nearly 7.1%. Both erode our purchasing power on a monthly basis.
On the Income side of our primary Social Program, Social Security, we explained that the COLA for Social Security monthly benefit payments would be 2.5% for 2025. On the Expense side, Medicare Part B and Part D premiums for enrollees are usually extracted by automatic deduction from Social Security monthly benefits. For most people, these costs remain hidden, as relatively few Americans regularly visit the Social Security website.
Doing some simple math in our personal income/expense ledgers, we find that net benefits to our nation’s senior citizens have once again been diminished (with the difference going directly to Uncle Sam). So predictable, and so egregious.
COLAs have long been unfairly applied, in our opinion. However, among the most egregious mandates in this arena are IRMAA surcharges for Medicare Part D Prescription Drug Plans. Social Security recipients who do not even subscribe to Part D, but have incomes above government-prescribed limits, are assessed Part D IRMAA monthly surcharges. These taxpayers receive zero benefits from the Plan. In whose world does this sound fair and reasonable?
Once again, America’s “seasoned citizens” will experience a setback in their lifestyles. When costs to taxpayers are increased through clandestine transactions, such as IRMAA surcharges, our lifestyles quietly continue to ebb.
This message is hardly in the spirit of the Season, but our intent is always to provide current and accurate information, whether positive or negative.
Happy Thanksgiving to all.
Van Wie Financial is fee-only. For a reason.
As an American taxpayer, financial planner, and part-time radio host, one of my self-appointed responsibilities has been to enlighten our audience as to upcoming financial changes that will impact nearly everyone. This time of year, Congress and certain Departments of the Administration are busily preparing annual changes to taxes and our massive Social Programs, including Social Security and Medicare. My objective, one that I have been pursuing for years, is to disseminate information as soon as it is made available to the public.
Before I summarize changes that were released this week, I will render my long-held opinion, and I expect few will be surprised with my conclusion.
Every year, the government demands a larger portion of our purchasing power.
One of the main tools used by government to fleece the public is the annual Cost-of-Living Adjustment, or COLA. Understating the COLA, as it gets applied to Social Security benefits, reduces purchasing power for the 70+ million recipients of monthly Social Security benefits. This practice has been so pervasive that Americans have lost 30% of Social Security Benefits’ purchasing power since the year 2000. The paltry 2.5% increase in Social Security benefits is a ridiculous understatement of the actual cost of living we all experienced over the past year. We consider misuse of the COLA.
COLAs can also be used to increase our costs, providing a double whammy for taxpayers. This week, we were treated to another data set exemplifying this form of financial manipulation. The subject is Medicare premiums, which are rising by 5.9% (the government stated Medicare COLA), more than double our Social Security monthly benefit increases. Since Social Security recipients have Medicare premiums deducted from their monthly benefits, our net benefits suffer. Adding insult to injury, the Medicare Part B deductible will increase a whopping 7.1% for 2025, further reducing our purchasing power.
Once again, America’s “seasoned citizens” will experience a setback in their lifestyles.
Van Wie Financial takes great pride in our willingness and ability to keep our audience informed of changes as soon as they are released. We take no pleasure, however, in our analyses when they lead to inevitable conclusions.
On a positive note, there is a pinpoint of light coming in 2025. Tax brackets have been broadened by about 2.8%. Lower tax brackets will apply to more of our income next year. Also, President-elect Trump has proposed elimination of taxes on Social Security benefits. Fun to imagine, but don’t hold your breath.
Van Wie Financial is fee-only. For a reason.
Uncertainty is the bane of the stock market, as well as tax planners and investors everywhere. Throughout the 2024 Presidential Election Cycle, prognostication became increasingly difficult as proposals, trial balloons, polls, and candidate swaps supplied a plethora of conflicting concerns. Nothing was certain, planning was difficult, and markets were understandably volatile.
Fortunately, the election is (virtually) over, giving markets and people time to assess results and refine financial planning prior to year-end. In the 2024 election, one of the main uncertainties revolved around the future of the 2017 “Trump Tax Cuts.” Due to arcane Senate rules, our current low rates are set to sunset after 2025, at which time Personal Income Tax Rates would automatically rise.
For purely political reasons, election results would pave the way for either continuing lower rates or the expiration of those rates with the resultant tax increase. With election results now known, tax rates will most likely not rise in 2026. This opens up a new discussion regarding tax planning, and especially the viability of Roth IRA Conversions. Here’s a look at our thought process.
Following introduction of the Roth IRA in the 1997 Taxpayer Relief Act, Roths have been helpful for many American taxpayers, due to forever-untaxed withdrawals offered to account owners who follow simple rules. People in low tax brackets could save for a future in which tax rates would be higher, and their withdrawals would remain tax-free.
Converting Traditional Retirement funds to Roth status creates a 1-time taxable event, but the long-term tax-free status can be very valuable. This is especially true in the face of impending higher tax rates, which would have been the case if our election results were different. Our clients have been very interested in the concept, as they should be. However, the immediacy of the discussion has been reduced because of the steadiness of tax rates. In fact, Trump (47) has expressed a willingness to cut rates even further.
Tax and Investment Planning shrouded by uncertainty can lead to expensive (and irreversible) actions by investors. As we settle into year-end planning, pressure to take some actions is reduced, or even eliminated. Most of us are relieved and feeling less pressured.
Naturally, Tax Planning is a complex and multi-faceted process. As more decisions are made and published, we face reduced uncertainty, making planning considerably less complex. We are watching for any and all details of further changes coming to the Tax Code. After all, the only thing certain about taxes is change.
All in all, early data presents a mixed bag. We’ll keep you updated.
Van Wie Financial is fee-only. For a reason.
During the closing weeks of each calendar year, our Federal Government trickles out tax changes that will affect savers and investors in the coming New Year. The process has started for 2025, and we are bringing you what we know so far, with some analysis and comments included.
Foundational to annual changes is the inflation incurred over the past Government fiscal year, which ends on September 30. At that point in time, price levels are compared to the same date last year, and the overall change is deemed the official annual inflation rate. Logic would dictate that tax-related items would be applied consistently, but (as I have railed against in the past) that would be too easy for America’s massive bureaucracy. Therefore, we must break down actual changes by category to judge the effects on tax bills.
First, we stipulate that the inflation numbers provided to us are clearly designed to understate the actual level of price increases. Seldom in my decades on the planet has this been more evident than over the past 4 years.
Acknowledging the true rate of inflation would cause the massive annual budget deficit to (further) explode. We are powerless to change the process, so we simply report and comment. Read it and weep, as they say.
Initially, we are treated to the “official rate of inflation,” which is +2.4% for the year ended 09/30/2024. This is down slightly from the prior year, which was stated as +2.5%. For the record, my experience during those 24 months is considerably higher than the collective 5%. You probably agree.
First to be announced was the Social Security Benefit COLA (Cost-of-Living Adjustment), which for 2025 will be 2.5%. Medicare recipients who also collect Social Security monthly benefits will have to wait longer to discover their monthly Medicare increases. My guess is that the Medicare increase will be higher than the 2.5% Social Security COLA, rendering 70+ Million Americans worse off than they are today. We will report as soon as increases are announced.
Income Tax Brackets were revised for 2025, with the brackets broadened about 2.8%, a little better than the inflation rate. Score one for taxpayers.
Retirement Plan contributors were losers from data released so far. IRA contributions were not increased, and Employer-sponsored Plan participants received a paltry 2.17% contribution increase. Deductible limits for Traditional IRAs, and income limitations for Roth IRA contributions, were raised in a mixture of percentages that makes no sense. Some are a little higher, and some a little lower, than the stated inflation rate.
For Tax Filers, the Standard Deduction increased by 2.74%, but the FICA and Medicare taxation limits were increased sharply, all in excess of 4%, a mixed bag.
All in all, early data is a hodgepodge. We’ll keep you up-to-date.
Van Wie Financial is fee-only. For a reason.
Last week, we began a discussion that emanated from a radio listener’s inquiry. The general topic was preparing Americans for Retirement Planning and the need for an early start with education, saving, and investing. Dreaming of retirement is not enough, and in the 21st Century, no one else will be looking out for you. That is a stark reality.
Prior generations relied on traditional pensions and Social Security for lifetime income in retirement. Things are different today, as pensions are almost extinct, and Social Security payments have not kept pace with inflation. Recent estimates show a 36% decline in purchasing power of Social Security retirement benefits since the year 2000. Ouch!
For many, difficult changes such as working longer and saving more, will be necessary. Knowing this many years in advance allows a working person time to adjust saving and investing habits, but being confronted with this data late in life can be devastating, without time to adjust to reality.
Successfully achieving a desired retirement income stream requires time and careful planning. This is due to the principle of compounding, whereby earnings are continually reinvested over time. Future earnings are enhanced as the account grows. Over time, compounding becomes a powerful source of wealth accumulation.
Invested money earns more money, whether from interest, dividends, or capital gains. Slow at first, the effects of compounding multiply over time, as growth gets applied to an ever-increasing pool of money. The process may seem slow, but over time it accelerates. We often explain compounding using a simple example. Earning 10% on $1,000 begets an increase of $100. Each successive year applies growth to a larger number. Earning the same rate on $100,000 increases the account by $10,000, and the pattern continues. Imagine at the $1 Million level!
To a young worker who is faced with conflicting demands on income, saving can be burdensome and difficult. Looking out 30 years or so may seem unreasonably long, and a host of other excuses can interfere with investing scarce dollars. With a good financial education, these obstacles can be seen in their proper perspective, providing needed incentives to prepare for “someday.”
Young people may look to their parents and derive incorrect assumptions as to how they got where they are. Some parents have (or had) substantial pensions, and others were successful in their IRAs and 401(k) Plans. These people are enjoying comfortable retirements. Others, however, failed to understand their own roles in preparation for the future, and are not in the best financial condition.
It is not necessary to be judgmental of others while taking hold of your own situation by planning for the future. Your future is up to you.
Van Wie Financial is fee-only. For a reason.
Following a recent episode of The Van Wie Financial Hour, a listener hit the nail squarely on the head with his observation that learning about retirement only when it is staring you in the face is not only dysfunctional but can also be discouraging. We wholeheartedly agree. Imagine being within a short number of months or years to retirement, only to find out that you will not be financially capable of actually leaving the workplace on your preferred basis.
Absolute rules about money are simple, they are few, and once stated, they are pretty much obvious. Number One is, “More money is better than less money.” Number Two is, “Money sooner is better than money later.” Together, these two simple rules help provide a framework for Retirement Planning.
In our day jobs as Certified Financial Planners®, we guide new clients through the process of Goal Setting. Retiring Early, or Retiring Comfortably, or Getting Rich are not goals. At least not yet. Initially, they are dreams, desires, or motivators, but they are insufficient to be labeled goals.
Workable goals require actual numbers. Unfortunately, most Americans are weak in understanding pertinent numbers regarding their own future. It is not their fault. Personal finance has long been neglected in our worsening educational system, which is hopefully now reversing course. This is the crux of our listener’s recent inquiry.
Starting with the most basic, and as referenced by our listener, we need to instill in the skeptical public a simple concept: accumulating $1 Million is not insurmountable. That magical number is decades old and used to be beyond the grasp of most Americans. Going to the movies and buying a soft drink with a Quarter (as I did in the 50s) made a $1 Million goal seem impossible. Today, that $1 Million is becoming more of a necessity. Try a movie night out with a $20 bill these days. To the average ticket price of $11.75, add transportation costs, and try to buy popcorn with the remainder. Good luck.
Perceptions have not changed as much as reality. Amassing $1 Million may still seem difficult, but the sheer number of “401(k) Millionaires” indicates that this goal is no longer the hurdle it used to be. According to Fidelity Investments, 401(k) Millionaires recently reached a new high of 497,000 (just at Fidelity) and those are in addition to their $1 Million IRA owners. While that $1 Million number is not magic, and won’t apply to everyone, it is a mental milestone ingrained in most Americans.
Next week, we pick up the basics of amassing your own million(s).
Van Wie Financial is fee-only. For a reason.
What a difference a degree or two can make, as we all learned this past week from Hurricane Milton. This strange disturbance deep in the Southwestern Gulf of Mexico did the unthinkable, moving eastward and multiplying its force. I can’t remember a pattern like that, and if I never see it again, I’ll be better than fine.
Looking back on the week, having watched the various options for landfall and destruction, the Cone of Uncertainty appeared to spell out a cataclysmic result for Tampa, supposedly the nation’s 49th-largest city. In reality, the Greater Tampa Bay area is comprised of a multitude of smaller cities and towns, with a total population in the millions. Situated on a huge bay, and with a shallow Gulf floor near the harbor entrance, a storm surge could devastate countless people and properties.
And that was exactly what the forecast was showing, with a tidal surge estimated at up to 15 feet, with waves likely doubled in height by the geography of the region. Losses would be some form of catastrophic, defying words.
Slowly, the path seemed to be shifting a degree or two southward. That trend continued, and landfall eventually occurred south of the City on the Bay. This bit of serendipity resulted in a negative storm surge in the high-density population area, saving countless devastation of lives and property.
Of course, wherever a huge storm goes, there are winners and losers, and horrible losses further South will be examined over the next few days. Applying the term “good news” to any part of this seems heartless and even reckless, but of all the possible outcomes, this was probably the least awful.
Life in the area (and generally throughout the State) will not return to normal for many months and even years. Following on the heels of Helene, we should take heed of my last week’s Blog regarding insurable risks. Don’t wait any longer to begin your disaster planning. Start with buying Flood Insurance.
I have no doubt that many Floridians will decide to abandon Florida in the aftermath of our back-to-back storms. However, more will come to replace them, and the population will continue to grow. We should expect no less in our Tropical Paradise.
Overall, various reports show that residents in the Cone of Milton were acting responsibly in abandoning the Coastline area for higher ground. Countless lives were saved because of their actions. The rest of us need to view their misfortune and self-reliance as providing role models for life in Florida.
Many years may pass with very little “excitement” regarding Hurricanes and Tropical Storms, but that is not cause for complacency. Protect yourselves and your possessions, while enjoying your stay in the Sunshine State.
Van Wie Financial is fee-only. For a reason.