With inflation subsiding and the economy cooling, the Fed cut interest rates by 0.5% last month. This action confirmed the feds commitment to navigating a “soft landing”, the process of slowing the growth of the economy (and inflation) while avoiding a recession.
The widely anticipated action lifted the major stock indices and stimulated the bond and real estate markets, with almost all asset classes and sectors providing positive returns.
In a change from recent quarters, small company stocks outperformed large companies, value outperformed growth, and international outperformed the US.
Category | Index | QTR | YTD |
---|---|---|---|
Bonds | Bloomberg US Aggregate Bond | 5.2% | 4.5% |
US Large Stocks | S&P 500 | 5.9% | 22.1% |
US Small Stocks | Russell 2000 | 9.3% | 11.2% |
International Stocks | MSCI World Ex US | 7.8% | 13.1% |
Emerging Markets | MSCI Emerging Markets | 8.7% | 16.9% |
Real Estate | Dow Jones US REIT | 15.6% | 14.9% |
An additional rate cut is anticipated before year end, with several potential cuts in 2025. If this holds true and you have been holding above average cash holdings in low-interest rate bank accounts, now would be a good time to move to higher yielding target date bond funds to lock in today’s higher interest rates.
Year End Information
Social Security
Benefits are expected to increase by about 2.5% in 2025
Medicare
Standard part B premiums will increase to $174.70 per month. Your premium may be higher based on your income in 2023.
If you want to change your prescription drug plan, the open enrollment window is October 15 to December 7.
IRA Minimum Distributions
IRA owners aged 73 or older, are required to take minimum distributions from their IRA each year or face substantial penalties. We will be contacting all affected clients who hold their IRA through our firm. If you have additional retirement plans outside our firm, please contact our office to ensure that the correct distributions are made from all accounts.
Charitable Giving
Although many retirees no longer itemize their deductions on their tax return, there are still two methods of giving to charity which can provide tax benefits:
Qualified Charitable Donations from an IRA: Individuals who have reached age 70 ½ and hold assets in an IRA can make donations of up to $100,000 per year directly from the IRA. These distributions will be counted toward your Required Minimum Distribution and are not treated as taxable income.
Appreciated Securities: Shares of stock or mutual funds can be donated to a charity without having to be sold. The donor is still entitled to take the tax deduction for the full value of the gift without being required to realize the gain on the sale.
If you are considering making donations from your IRA or investment account, please contact our office before December 1 to discuss which option is best for you.
Student Aid
Depending on your state of residence, you may be eligible for a state tax deduction or tax credit for contributions to 529 education savings accounts for your children or grandchildren.
Tax Lost Harvesting
Securities with tax losses can be sold with the losses used to offset gains on other securities plus up to $3,000 of ordinary income. We will handle this for accounts under our management.
Roth Conversions
With the Tax Cuts and Jobs act expiring in 2025, investors may want to take advantage of today’s tax brackets and convert a portion of your IRA to a Roth IRA. This can reduce your taxable income in retirement which can affect your Medicare premiums and taxation of your social security benefits.
Flexible Spending Account
If you have funds in an FSA, remember that balances in excess of $500 will be forfeited if not used by March 15th. Be sure to spend your account down to this limit.
If you would like additional information on any of these topics, please contact our office. We encourage you to act early in the quarter as some transactions take time to process, particularly around the holiday season.
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