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The Anatomy of an Index

Fri, 07 Feb 2025 17:33:00 GMT

Did you know that an estimated $13.5 trillion in assets are indexed or benchmarked to the Standard & Poor’s 500 Composite Index, including $5.4 trillion in index assets? (1,2)

The S&P 500 is ubiquitous – we see it on the news, read about it in the newspapers, and, very likely, see some of our own investments’ performance compared against it. For an index that represents approximately 80% of the value of the U.S. equity market, it may be worthwhile to gain a better understanding of how it works. (1)

Cap & Criteria

The index, as we know it today, was introduced in 1957 and is maintained by the Standard & Poor’s Index Committee. Contrary to popular belief, it is not comprised of the 500 largest companies in America, but is a collection of large-cap stocks representing a broad range of market sectors, including technology, energy, health care, and consumer staples, among others. (3)

There are a number of criteria a company must meet to be considered for inclusion in the index. Some of these criteria include the following: it must be a U.S. company, have an unadjusted market capitalization of $15.8 billion or more, have 50% of its stock available to the public, and have four consecutive quarters of positive earnings. (4)

Changes Over Time

Another common misconception is that the index is a static one. In fact, companies will be removed, from time to time, for reasons that include violation of one or more of the criteria used for adding companies or because of a merger, acquisition, or significant restructuring, including bankruptcy.

The turnover in the index’s constituent companies was 3.2% in 2021 (per the most recent data available). According to one projection, the average tenure of companies in the index is expected to fall to 15-20 years this decade, as compared to the 30-35 year average tenure in the late 1970s. (5)

Add and Subtract

When changes are made to the index, many mutual funds and exchange-traded funds that seek to replicate the index may have to sell stocks that are being removed and buy the stocks that are being added in order to track the index. Keep in mind that amounts in mutual funds and ETFs are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less than their original cost. (6)

Mutual funds and exchange-traded funds are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

Investors cannot invest in an index. Also, index performance is not indicative of the past performance of a particular investment, and past performance does not guarantee future results. Investment choices designed to replicate any index may not perfectly track it, and their returns will be reduced by fees and expenses.

1. US.Spindices.com, May 31, 2022 (most recent data available)
2. The S&P 500 Composite index (total return) is an unmanaged index that is generally considered representative of the U.S. stock market. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results.
3. Investopedia.com, June 21, 2023
4. SPGlobal.com, February 2024
5. Innosigh.com, 2021 (most recent data available)
6. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.

A Taxing Story: Capital Gains and Losses

Fri, 07 Feb 2025 17:12:51 GMT

Chris Rock once remarked, “You don’t pay taxes – they take taxes.” That applies not only to income but also to capital gains.

Capital gains result when an individual sells an investment for an amount greater than their purchase price. Capital gains are categorized as short-term gains (a gain realized on an asset held one year or less) or long-term gains (a gain realized on an asset held longer than one year).

Keep in mind that the information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Long-Term vs. Short-Term Gains

Short-term capital gains are taxed at ordinary income tax rates. Long-term capital gains are taxed according to different ranges (shown below). (1)

Long Term Capital Gains Tax Brackets (for 2024)

It should also be noted that taxpayers whose adjusted gross income is in excess of $200,000 (single filers or heads of household) or $250,000 (joint filers) may be subject to an additional 3.8% tax as a net investment income tax. (2)

Also, keep in mind that the long-term capital gains rate for collectibles and precious metals remains at a maximum of 28%. (3)

Rules for Capital Losses

Capital losses may be used to offset capital gains. If the losses exceed the gains, up to $3,000 of those losses may be used to offset the taxes on other kinds of income. Should you have more than $3,000 in such capital losses, you may be able to carry the losses forward. You can continue to carry forward these losses until such time that future realized gains exhaust them. Under current law, the ability to carry these losses forward is lost only on death.4

Finally, for some assets, the calculation of a capital gain or loss may not be as simple and straightforward as it sounds. As with any matter dealing with taxes, individuals are encouraged to seek the counsel of a tax professional before making any tax-related decisions.

1. IRS.gov, 2024
2. IRS.gov, 2024
3. Investopedia.com, November 28, 2023
4. IRS.gov, 2024

Getting a Headstart on College Savings

Fri, 07 Feb 2025 17:10:58 GMT

One study estimates the average cost of raising a child to the age of 17 for a middle-income family is about $310,605. As a point of comparison, the median home price in the U.S. was $417,700 at the end of 2023. (1,2)

If you want to add the cost of education to that number, you can expect to be paying an additional $24,030 a year for the cost of a public four-year in-state university. (3)

But before you throw your hands up in the air and send junior out looking for a job, you might consider a few strategies to help you prepare for the cost of higher education.

First, take advantage of time. The time value of money is the concept that the money in your pocket today is worth more than the same amount will be worth tomorrow because it has more earning potential. If you put $100 a month toward your child’s college education, after 17 years’ time, you would have saved $20,400. But that same $100 a month would be worth over $32,000 if it had generated a hypothetical 5-percent annual rate of return. The bottom line is: the earlier you start, the more time you give your money the potential to grow. (4)

Second, don’t panic . Every parent knows the feeling – one minute, you’re holding a little miracle in your arms, the next, you’re trying to figure out how to pay for braces, piano lessons, and summer camp. You may feel like saving for college is a pipe dream. But remember, many people get some sort of help in the form of financial aid and scholarships. Although it’s difficult to forecast how much help your student may get in aid and scholarships, these tools can provide a valuable supplement to what you have already saved.

Finally, weigh your choices. There are a number of federally and state-sponsored, tax-advantaged college savings programs available. Some offer prepaid tuition plans, and others offer tax-deferred savings. Many such plans are state-sponsored, so the details will vary from one state to the next. A number of private colleges and universities now also offer prepaid tuition plans for their institutions. It pays to do your homework to find the vehicle that may work best for you. (5)

As a parent, you teach your children to dream big and believe in their ability to overcome any obstacle. By investing wisely, you can help tackle the financial obstacles of funding their higher education – and smooth the way for them to pursue their dreams.

1. Investopedia.com, December 14, 2023
2. StLouisFed.org, 2024
3. CollegeBoard.com, 2023
4. The rate of return on investments will vary over time, particularly for longer-term investments. Investments that offer the potential for higher returns also carry a higher degree of risk. Actual results will fluctuate. Past performance does not guarantee future results.
5. The tax implications of education savings programs can vary significantly from state to state, and some plans may provide advantages and benefits exclusively for their residents. Please consult legal or tax professionals for specific information regarding your individual situation. Withdrawals from tax-advantaged education savings programs that are not used for education are subject to ordinary income taxes and may be subject to penalties.

Asset Allocation

Fri, 07 Feb 2025 17:07:06 GMT

If you live in or have visited a big city, you’ve probably run into street vendors – people who sell everything from hot dogs to umbrellas – on the streets and sidewalks. Many of these entrepreneurs sell completely unrelated products, such as coffee and ice cream.

At first glance, this approach seems a bit odd, but it turns out to be quite clever. When the weather is cold, it’s easier to sell hot cups of coffee. When the weather is hot, it’s easier to sell ice cream. By selling both, vendors reduce the risk of losing money on any given day.

Asset Allocation

Asset allocation applies this same concept to managing investment risk. Under this approach, investors divide their money among different asset classes, such as stocks, bonds, and cash alternatives, like money market accounts. These asset classes have different risk profiles and potential returns. (1)

The idea behind asset allocation is to offset any losses from one class with gains in another, and thus, reduce the overall risk of the portfolio. It’s important to remember that asset allocation is an approach to help manage investment risk. It does not guarantee against investment loss. (2)

Determining the Most Appropriate Mix

The most appropriate asset allocation will depend on an individual’s situation. Among other considerations, it may be determined by two broad factors.

Time. Investors with longer timeframes may be comfortable with investments that offer higher potential returns, but also carry a higher risk. A longer timeframe may allow individuals to ride out the market’s ups and downs. An investor with a shorter timeframe may need to consider market volatility when evaluating various investment choices.
Risk tolerance . An investor with higher risk tolerance may be more willing to accept greater market volatility in the pursuit of potential returns. An investor with a lower risk tolerance may be willing to forgo some potential return in favor of investments that attempt to limit price swings.

Asset allocation is a critical building block of investment portfolio creation. Having a strong knowledge of the concept may help you when considering which investments may be appropriate for your long-term strategy.

1. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. The market value of a bond will fluctuate with changes in interest rates. As rates rise, the value of existing bonds typically falls. If an investor sells a bond before maturity, it may be worth more or less than the initial purchase price. By holding a bond to maturity investors will receive the interest payments due plus their original principal, barring default by the issuer. Money market funds seek to preserve the value of your investment at $1.00 a share. Money held in money market funds is not insured or guaranteed by the FDIC or any other government agency. It’s possible to lose money by investing in a money market fund. Mutual funds are sold by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

2. Investments seeking to achieve higher potential returns also involve a higher degree of risk. Past performance does not guarantee future results. Actual results will vary.

Estimating the Cost of College

Fri, 07 Feb 2025 17:03:48 GMT

It doesn’t take a degree in finance to see that the cost of college continues to rise.

In its 2023 report, the College Board showed that in-state tuition and fees at private non-profit four-year institutions increased by 5% in inflation-adjusted dollars between the 2013-14 and 2023-24 school years. (1)

For many families, the lion’s share of education costs falls on the parents and, in some cases, the grandparents. Families rely on a combination of scholarships, grants, financial aid, part-time jobs, and parental contributions to help cover the cost. There are also a number of resources that can help individuals prepare for college, such as the College Board website and the government student aid website.

If your child is approaching college age, a good first step is estimating the potential costs. The accompanying chart can help you get a better idea about the cost of college.

1. CollegeBoard.org, November 2023

Mutual Funds vs. ETFs

Thu, 06 Feb 2025 22:14:30 GMT

The growth of exchange-traded funds (ETFs) has been explosive. In 2006, there were less than 1,000; by 2024, there over nearly 10,000 investing in a wide range of stocks, bonds, and other securities and instruments. (1)

At first glance, ETFs have a lot in common with mutual funds. Both offer shares in a pool of investments designed to pursue a specific investment goal. And both manage costs and may offer some degree of diversification, depending on their investment objective. Diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if security prices decline.

Structural Differences

Mutual funds accumulate a pool of money that is then invested to pursue the objectives stated in the fund's prospectus. The resulting collection of stocks, bonds, and other securities is professionally managed by an investment company.

ETFs work in reverse. An investment company creates a new company, into which it moves a block of shares to pursue a specific investment objective. For example, an investment company may move a block of shares to track the performance of the Standard & Poor's 500. The investment company then sells shares in this new company. (2)

ETFs trade like stocks and are listed on stock exchanges and sold by broker-dealers. Mutual funds, on the other hand, are not listed on stock exchanges and can be bought and sold through a variety of other channels — including financial professionals, brokerage firms, and directly from fund companies.

The price of an ETF is determined continuously throughout the day. It fluctuates based on investor interest in the security and may trade at a "premium" or a "discount" to the underlying assets that comprise the ETF. Most mutual funds are priced at the end of the trading day. So, no matter when you buy a share during the trading day, its price will be determined when most U.S. stock exchanges typically close.

Tax Differences

There are tax differences, as well. Since most mutual funds are allowed to trade securities, the fund may incur a capital gain or loss and generate dividend or interest income for its shareholders. With an ETF, you may only owe taxes on any capital gains when you sell the security. (An ETF also may distribute a capital gain if the makeup of the underlying assets is adjusted). (3)

Determining whether an ETF or a mutual fund is appropriate for your portfolio may require an in-depth knowledge of how both investments operate. In fact, you may benefit from including both investment tools in your portfolio.

Amounts in mutual funds and ETFs are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less than their original cost.

At a Glance

Mutual funds and exchange-traded funds have similarities — and many differences. The chart below gives a quick rundown.

1. ETFGI.com, July 17, 2024
2. The Standard & Poor's 500 Composite Index is an unmanaged index that is generally considered representative of the U.S. stock market. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index.
3. Investopedia.com, February 16, 2024

A Look at Diversification

Thu, 06 Feb 2025 22:05:23 GMT

Ancient Chinese merchants were said to have developed a unique way to manage their risk. They would divide their shipments among several different vessels. That way, if one ship were to sink or be attacked by pirates, the rest stood a good chance of getting through. Thus, the majority of the shipment could be saved.

Your investment portfolio may benefit from that same logic.

Diversification is an investment principle designed to manage risk. However, diversification does not guarantee against a loss. The key to diversification is to identify investments that may perform differently under various market conditions.

On one level, a diversified portfolio should be diversified between asset classes, such as stocks, bonds, and cash alternatives. On another level, a diversified portfolio also should be diversified within asset classes, such as a diverse basket of stocks.

A Diversified Approach

For example, let’s say a stock portfolio included a computer company, a software developer, and an internet service provider. Although the portfolio has spread its risk among three companies, it may not be considered well diversified, as all the firms are connected to the technology industry. A portfolio that includes a computer company, a drug manufacturer, and an oil service firm, however, may be considered more diversified.

Similarly, a bond portfolio that invests exclusively in long-term U.S. Treasuries may have limited diversification. A bond fund that invests in short-term and long-term U.S. Treasuries, plus a variety of corporate bonds, may offer more diversification.

Mutual Funds and ETFs

The concept of diversification is one reason why mutual funds and Exchange Traded Funds (ETFs) are so popular among investors. Mutual funds accumulate a pool of money that is invested to pursue the objectives stated in the fund’s prospectus. The fund may have a narrow objective, such as the auto sector, or it may have a broader objective, such as large-cap stocks. ETFs also can have a narrow or broader investment objective. Keep in mind, though, the more narrow an investment objective, the more limited the diversification. Furthermore, a narrow investment objective may result in more volatility and additional risks associated with a particular industry or sector.

The concept of diversification is critical to understand when you are evaluating a portfolio. If you want more information on diversification or have questions about how your money is invested, please call us to review your situation.

Mutual funds and exchange-traded funds are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from Crown Financial. Read it carefully before you invest or send money. Shares, when redeemed, may be worth more or less than their original cost.

How the SECURE Act 2.0 Changed RMDS

Thu, 06 Feb 2025 22:01:39 GMT

In the final days of 2022, Congress passed the SECURE Act 2.0, a new set of rules designed to help investors who wanted to contribute to retirement plans. Many of these changes were intended to give investors more flexibility and new ways to enhance their retirement strategies. It was a follow-up to the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, which was also an important piece of legislation aimed at helping investors save more effectively.

Both the SECURE Act and SECURE Act 2.0 have dozens of provisions, including new rules that may impact retirement. Here are a few things you might want to know about how the SECURE Act 2.0 changed required minimum distribution (RMD) rules and how qualified charitable distributions (QCDs) may fit into how you choose to take these distributions.

Remember, this article is for informational purposes only and is not a replacement for real-life advice. We encourage you to consult your tax, legal, and accounting professionals before modifying your retirement income strategy.

The SECURE Act 2.0 and Required Minimum Distributions

RMDs are the amount of money that investors must withdraw each year from certain retirement accounts. These withdrawals are taxed as ordinary income. You can begin taking penalty-free withdrawals at 59½ or earlier in some cases if you have experienced a qualifying life event.

In the past, retirement distributions were required beginning at age 70½. Under SECURE Act legislation, investors can wait until age 72 or age 73 if they turn 72 after December 31st, 2022.1

Forgetting to take these required distributions can come with penalties! The penalty was previously a 50% excise tax. Still, the SECURE Act 2.0 reduced that penalty to 25%, or 10%, if the minimum distribution oversight is corrected within two years and the proper paperwork is filed. In some cases, that penalty may be waived altogether if the account owner made a “reasonable error” and took documented steps to correct the oversight. (1)

The Qualified Charitable Distributions (QCD) Approach to Required Minimum Distributions

QCDs can offer an opportunity to support your favorite causes and manage your retirement income. They allow those who are obligated to take RMDs to donate those funds directly from specific retirement accounts to qualified charities without recognizing the distribution as taxable income.

Here’s how it works: Individual retirement account (IRA) withdrawals are generally taxable, but QCDs are excluded from taxable income, meaning they do not increase your adjusted gross income. For some, this may be a strategy to consider when balancing supporting a charitable organization with managing taxes.

You must be at least 70½ years old to qualify for a QCD. The distribution can be made from an IRA. You can also donate from a SEP IRA or SIMPLE IRA as long as they are inactive, meaning that you’ve made no contributions to the account in the year the QCD is distributed. However, remember that 401(k)s and other non-IRA retirement vehicles do not qualify for QCDs.

To qualify for the tax- and penalty-free withdrawal of earnings, Roth IRA QCD distributions must meet a 5-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawals can also be taken under certain circumstances, such as the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.

The maximum annual limit for QCDs is currently set at $100,000 for 2024, an amount that adjusts annually for inflation. Therefore, staying updated on the annual cap is important, as it can influence your donation strategy.

It’s prudent to confirm the status of your chosen charity through the IRS Online Search Tool or by consulting a professional who can speak to the tax status of the organization. If you withdraw and then donate the funds, it does not count as a QCD and becomes taxable.

As with many financial strategies, your state may have specific rules impacting how QCDs are treated. It’s vital to check with a tax professional about state-specific regulations.

Crown Financial can help you take your RMDs or set up QCDs. In addition, if you have any questions or concerns about how the changes enacted by the SECURE Act or SECURE Act 2.0 might affect your retirement strategy, please don’t hesitate to reach out. We’re here to help you make the most of these updates and navigate your retirement strategy.

1. IRS.gov

Understanding the SECURE Act 2.0

Thu, 06 Feb 2025 21:58:19 GMT

Unsure about what the SECURE Act 2.0 means for you? Here's a quick breakdown of the key changes and how they might impact your retirement planning.

SECURE Act 2.0: An Overview

Thu, 06 Feb 2025 21:53:03 GMT

In the final days of 2022, Congress passed a new set of retirement rules designed to facilitate contribution to retirement plans and access to those funds earmarked for retirement.

The law is called SECURE 2.0, and it is a follow-up to the Setting Every Community Up for Retirement Enhancement (SECURE) Act passed in 2019.

The sweeping legislation has dozens of significant provisions; here are the major provisions of the new law.

New Distribution Rules

Required minimum distribution (RMD) age will rise to 73 years in 2023. By far, one of the most critical changes was increasing the age at which owners of retirement accounts must begin taking RMDs. Further, starting in 2033, RMDs may begin at age 75. If you have already turned 72, you must continue taking distributions. However, if you are turning 72 this year and have already scheduled your withdrawal, we may want to revisit your approach. (1)

Access to funds . Plan participants can use retirement funds in an emergency without penalty or fees. For example, 2024 onward, an employee can take up to $1,000 from a retirement account for personal or family emergencies. Other emergency provisions exist for terminal illnesses and survivors of domestic abuse. (2)

Reduced penalty . Starting in 2023, if you miss an RMD for some reason, the penalty tax drops to 25 percent from 50 percent. If you promptly fix the mistake, the penalty may drop to 10 percent. (3)

New Accumulation Rules

Catch-up contributions. From January 1, 2025, investors aged 60 through 63 years can make annual catch-up contributions of up to $10,000 to workplace retirement plans. The catch-up amount for people aged 50 and older in 2023 is $7,500. However, the law applies certain stipulations to individuals with annual earnings more than $145,000.4

Automatic enrollment . In 2025, the Act requires employers to automatically enroll employees into workplace plans. However, employees can choose to opt-out. (5)

Student loan matching. In 2024, companies can match employee student loan payments with retirement contributions. The rule change offers workers an extra incentive to save for retirement while paying off student loans. (6)

Revised Roth Rules

529 to a Roth. Starting in 2024, pending certain conditions, individuals can roll a 529 education savings plan into a Roth individual retirement account (IRA). Therefore, if your child receives a scholarship, goes to a less expensive school, or does not go to school, the money can get repositioned into a retirement account. However, rollovers are subject to the annual Roth IRA contribution limit. Roth IRA distributions must meet a five-year holding requirement and occur after age 59½ to qualify for the tax-free and penalty-free withdrawal of earnings. Tax-free and penalty-free withdrawals are also allowed under certain other circumstances, such as the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals. (7)

SIMPLE and SEP. 2023 onward, employers can make Roth contributions to savings incentive match plans for employees (SIMPLE) or simplified employee pension (SEP). (8)

Roth 401(k)s and Roth 403(b)s. The new legislation aligns the rules for Roth 401(k)s and Roth 403(b)s with Roth IRA rules. From 2024, the legislation no longer requires minimum distributions from Roth accounts in employer retirement plans. (9)

More Highlights

Support for small businesses. In 2023, the new law will increase the credit to help with the administrative costs of setting up a retirement plan. The credit increases to 100 percent from 50 percent for businesses with less than 50 employees. By boosting the credit, lawmakers hope to remove one of the most significant barriers for small businesses offering a workplace plan. (10)

Qualified charitable donations (QCDs). 2023 onward, QCDs will adjust for inflation. The limit applies on an individual basis; therefore, for a married couple, each person who is 70½ years and older can make a QCD as long as it remains under the limit. (11)

The change in retirement rules does not mean adjusting your current strategy is appropriate. Each of your retirement assets plays a specific role in your overall financial strategy, so a change to one may require changes to another.

Moreover, retirement rules can change without notice, and there is no guarantee that the treatment of specific rules will remain the same. This article intends to give you a broad overview of SECURE 2.0. It is not intended as a substitute for real-life advice. If changes are appropriate, your trusted financial professional can outline an approach and work with your tax and legal professionals, if applicable.

1. Fidelity.com, December 23, 2022
2. CNBC.com, December 22, 2022
3. Fidelity.com, December 22, 2022
4. Fidelity.com, December 22, 2022
5. Paychex.com, December 30, 2022
6. PlanSponsor.com, December 27, 2022
7. CNBC.com, December 23, 2022
8. Forbes.com, January 5, 2023
9. Forbes.com, January 5, 2023
10. Paychex.com, December 30, 2022
11. FidelityCharitable.org, December 29, 2022

Social Security Benefits: How Much Will I Recieve?

Thu, 06 Feb 2025 21:43:35 GMT

Next to “When should I claim Social Security benefits?”, one of the more common questions people have is “How much will I receive?”

Calculating your potential Social Security benefit is a three-step process:

1. Calculate Your Average Indexed Monthly Earnings (AIME): The highest 35 years of indexed earnings is added together. It is then divided by the number of months in 35 years to arrive at your AIME. (“Indexed earnings” is an adjustment made to historical earnings so that they reflect a current standard of living.)

2. Determine Your Primary Insurance Amount (PIA): AIME is subjected to a formula based on the year of first eligibility (age 62).

3. Application Age: The final calculation will be based on the age you apply for Social Security retirement benefits. For instance, if you apply at full retirement age, you will receive 100% of your PIA. If you apply for early benefits, your benefit will be less, and if you wait until after full retirement age, your retirement benefit will exceed your PIA.

If this all sounds complicated, that’s because it is. However, the Social Security Administration allows you to calculate your personal benefits without you having to do any of the math.

Social Security is a complex retirement decision that requires careful preparation in order to maximize its value to you and your spouse in retirement. You should consider working with us at Crown Financial as well as accessing the information resources at the Social Security Administration, to help you make the decisions that are most appropriate to your needs.

Traditional vs. Roth IRA

Thu, 06 Feb 2025 21:39:20 GMT

Traditional Individual Retirement Accounts (IRAs), which were created in 1974, are owned by roughly 41 million U.S. households. And Roth IRAs, created as part of the Taxpayer Relief Act in 1997, are owned by nearly 32 million households. (1)

Both are IRAs. And yet, each is quite different.

Up to certain limits, traditional IRAs allow individuals to make tax-deductible contributions to their account(s). Distributions from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 73, you must begin taking required minimum distributions. (2,3)

For individuals covered by a retirement plan at work, the deduction for a traditional IRA in 2025 is phased out for incomes between $126,000 and $146,000 for married couples filing jointly and between $79,000 and $89,000 for single filers. (4)

Also, within certain limits, individuals can make contributions to a Roth IRA with after-tax dollars. To qualify for a tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½.

Like a traditional IRA, contributions to a Roth IRA are limited based on income. For 2025, contributions to a Roth IRA are phased out between $236,000 and $246,000 for married couples filing jointly and between $150,000 and $165,000 for single filers. (4)

In addition to contribution and distribution rules, there are limits on how much can be contributed each year to either IRA. In fact, these limits apply to any combination of IRAs; that is, workers cannot put more than $7,000 per year into their Roth and traditional IRAs combined. So, if a worker contributed $4,000 in a given year into a traditional IRA, contributions to a Roth IRA would be limited to $3,000 in that same year. (4)

Individuals who reach age 50 or older by the end of the tax year can qualify for “catch-up” contributions. The combined limit for these is $8,000. (4)

Both traditional and Roth IRAs can play a part in your retirement plans. And once you’ve figured out which will work better for you, only one task remains: open an account. (5)

* Up to certain limits

** Distributions from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 73, you must begin taking required minimum distributions.

*** To qualify, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½.

1. ICI.org, February 2024
2. IRS.gov, 2025. In most circumstances, once you reach age 73, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA). You may continue to contribute to a Traditional IRA past age 70½ as long as you meet the earned-income requirement.
3. Up to certain limits, traditional IRAs allow individuals to make tax-deductible contributions into their account(s). Distributions from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 73, you must begin taking required minimum distributions.
4. IRS.gov, 2025
5. The Tax Cuts and Jobs Act of 2017 eliminated the ability to "undo" a Roth conversion.

When Should You Take Social Security?

Thu, 06 Feb 2025 21:31:57 GMT

The Social Security program allows you to start receiving benefits as soon as you reach age 62. The question is, should you?

Monthly payments differ substantially depending on when you start receiving benefits. The longer you wait (up to age 70), the larger each monthly check will be. The sooner you start receiving benefits, the smaller the check.

From the Social Security Administration’s point of view, it’s simple: if a person lives to the average life expectancy, the person will eventually receive roughly the same amount in lifetime benefits, no matter when they choose to start receiving them. In actual practice, it’s not quite that straightforward, but the principle holds.

The key phrase is “if the person lives to average life expectancy.” If a person exceeds the average life expectancy and has opted to wait to receive benefits, they will start to accumulate more from Social Security.

The chart shows how Social Security benefits accumulate for individuals who started to receive at ages 62, 67, and 70. The person who started to receive benefits at age 62 would accumulate $384,451 by the age of 85. Conversely, the person who started to receive benefits at age 70 would accumulate $454,019 by the age of 85. The example assumes a retirement benefit of $1,907 at age 67. It does not assume COLA.

Source: Social Security Administration, 2024

There is no single “right” answer to the question of when to start benefits. Many base their decision on family considerations, economic circumstances, and personal preferences.

If you have a spouse, the decision about when to start benefits gets more complicated – particularly if one person’s earnings are considerably higher than the other's. The timing of spousal benefits should be factored into your decision.

When considering at what age to start Social Security benefits, it may be a good idea to review all the assets you have gathered for retirement. Some may want the money sooner based on how assets are positioned, while others may benefit by waiting. So, as you near a decision point, it may be best to consider all your options before moving forward.

Healthcare Costs in Retirement

Thu, 06 Feb 2025 21:25:43 GMT

In a 2023 survey, 37% of all workers reported they were either “not too” or “not at all” confident that they would have enough money to pay for their medical expenses in retirement. Regardless of your confidence, however, being aware of potential healthcare costs during retirement may allow you to understand what you can pay for and what you can’t. (1)

Healthcare breakdown

A retired household faces three types of healthcare expenses.

The premiums for Medicare Part B (which covers physician and outpatient services) and Part D (which covers drug-related expenses). Typically, Part B and Part D are taken out of a person’s Social Security check before it is mailed, so the premium cost is often overlooked by retirement-minded individuals.
Copayments related to Medicare-covered services that are not paid by Medicare Supplement Insurance plans (also known as “Medigap”) or other health insurance.
Costs associated with dental care, eyeglasses, and hearing aids – which are typically not covered by Medicare or other insurance programs.

It all adds up.

According to one study, the average 65-year-old couple can expect to need $315,000 saved to cover healthcare expenses in retirement. (2)

Should you expect to pay this amount? Possibly. Seeing the results of one study may help you make some critical decisions when creating a strategy for retirement. Without a solid approach, healthcare expenses may add up quickly and alter your retirement spending.

Prepared for the future?

Workers were asked how much they have saved and invested for retirement – excluding their residence and defined benefit plans.

Source: EBRI.org, 2023

1. EBRI.org, 2023
2. Investopedia.com, October 23, 2023

The Cost of Procrastination

Thu, 06 Feb 2025 18:38:36 GMT

Things you may not know about Social Security

Some of us share a common experience. You're driving along when a police cruiser pulls up behind you with its lights flashing. You pull over, the officer gets out, and your heart drops.

“Are you aware the registration on your car has expired?”

You've experienced one of the costs of procrastination.

"Procrastination can cause missed deadlines, missed opportunities, and just plain missing out."

Procrastination is avoiding a task that needs to be done—postponing until tomorrow what could be done today. Procrastinators can sabotage themselves. They often put obstacles in their own path. They may choose paths that hurt their performance.

Though Mark Twain famously quipped, “Never put off until tomorrow what you can do the day after tomorrow,” we know that procrastination can be detrimental, both in our personal and professional lives. Problems with procrastination in the business world have led to a sizable industry in books, articles, workshops, videos, and other products created to deal with the issue. There are a number of theories about why people procrastinate, but whatever the psychology behind it, procrastination may cost money—particularly when investments and financial decisions are put off.

As the illustration below shows, putting off investing may put off potential returns.

If you have been meaning to get around to addressing some part of your financial future, maybe it's time to develop a strategy. Don't let procrastination keep you from pursuing your financial goals.

The Impact of early bird savings

Let's look at the case of Cindy and Charlie, who each invest $100,000.

Charlie immediately begins depositing $10,000 a year in an account that earns a 6% rate of return. Then, after 10 years, he stops making deposits.

Cindy waits 10 years before getting started. She then starts to invest $10,000 a year for 10 years into an account that also earns a 6% rate of return.

Cindy and Charlie have both invested the same $100,000. However, Charlie's balance is higher at the end of 20 years because his account has more time for the investment returns to compound.

This is a hypothetical example of mathematical compounding. It’s used for comparison purposes only and is not intended to represent the past or future performance of any investment. Taxes and investment costs were not considered in this example. The results are not a guarantee of performance or specific investment advice. The rate of return on investments will vary over time, particularly for long-term investments. Investments that offer the potential for high returns also carry a high degree of risk. Actual returns will fluctuate. The type of strategies illustrated may not be suitable for everyone.

9 Facts About Social Security

Thu, 06 Feb 2025 18:30:59 GMT

Things you may not know about Social Security

Social Security has been a fact of retirement life ever since it was established in 1935. We all think we know how it works, but how much do you really know? Here are nine things that might surprise you.

The Social Security trust fund is huge. It was $2.8 trillion at the end of 2022. (1)
Most workers are eligible for Social Security benefits, but not all. For example, until 1984, federal government employees were part of the Civil Service Retirement System and were not covered by Social Security. (2)
You don't have to work long to be eligible. If you were born in 1929 or later, you need to work for 10 or more years to be eligible for benefits. (3)
Benefits are based on an individual's average earnings during a lifetime of work under the Social Security system. The calculation is based on the 35 highest years of earnings. If an individual has years of low or no earnings, Social Security may count those years to bring the total years to 35. (4)
There haven't always been cost-of-living adjustments (COLA) in Social Security benefits. Before 1975, increasing benefits required an act of Congress; now, increases happen automatically, based on the Consumer Price Index. There was a COLA increase of 3.2% for 2024, but there was an increase of 8.7% in 2023. (5)
Social Security is a major source of retirement income for 67% of current retirees. (6)
Social Security benefits are subject to federal income taxes – but it wasn't always that way. In 1983, Amendments to the Social Security Act made benefits taxable, starting with the 1984 tax year. (7)
Social Security recipients received a single lump-sum payment from 1937 until 1940. One-time payments were considered "payback" to those people who contributed to the program. Social Security administrators believed these people would not participate long enough to be vested for monthly benefits. (8)
In January 1937, Earnest Ackerman became the first person in the U.S. to receive a Social Security benefit – a lump sum of 17 cents. (8)

1. SSA.gov, 2023
2. Investopedia.com, September 18, 2023
3. SSA.gov, 2023
4. SSA.gov, 2023
5. SSA.gov, 2023
6. EBRI.org, 2023
7. SSA.gov, 2023
8. SSA.gov, 2023

9 Facts About Retirement

Thu, 06 Feb 2025 18:18:41 GMT

Things you may not know about retirement

Retirement can have many meanings. For some, it will be a time to travel and spend time with family members. For others, it will be a time to start a new business or begin a charitable endeavor. Regardless of what approach you intend to take, here are nine things about retirement that might surprise you.

Many consider the standard retirement age to be 65. One of the key influencers in arriving at that age was Germany, which initially set its retirement age at 70 and then lowered it to age 65. (1)
Every day between now and the end of the next decade, another 10,000 baby boomers are expected to turn 65. That’s roughly one person every eight seconds. (2)
The 65-and-older population is one of the fastest-growing demographics in the United States. In 2022, there were 58 million Americans aged 65 and older. That number is expected to increase to 82 million by 2050. (3)
Ernest Ackerman was the first person to receive a Social Security benefit. In March 1937, the Cleveland streetcar motorman received a one-time, lump-sum payment of 17¢. Ackerman worked one day under Social Security. He earned $5 for the day and paid a nickel in payroll taxes. His lump-sum payout was equal to 3.5% of his wages. (4)
Seventy-three percent of retirees say they are confident about having enough money to live comfortably throughout their retirement years. (5)
The monthly median cost of an assisted living facility is nearly $5,000, and seven out of ten people will require extended care in their lifetime. (2)
Sixty-four percent of retirees depend on Social Security as a major source of their income. The average monthly Social Security retirement benefit as of January 2024 was $1,907. (6)
Centenarians – there are 108,000 of them as of 2024. By 2053, this number is expected to increase to 513,000. (7)
Seniors aged 65 and over spend over four hours a day, on average, watching TV. (8)

Conclusion

These stats and trends point to one conclusion: The 65-and-older age group is expected to become larger and more influential in the future. Have you made arrangements for health care? Are you comfortable with your investment decisions? If you are unsure about your decisions, maybe it’s time to develop a solid strategy for the future.

1. SSA.gov, 2024

2. Genworth.com, 2024

3. PRB.org, 2024

4. Social Security Administration, 2024

5. EBRI.org, 2023

6. SSA.gov, 2024

7. PewResearch.org, January 9, 2024

8. BLS.gov, 2024