Market Performance
2024 was a year of unexpectedly strong market performance. The Federal Reserve, monetary policy and the U.S. presidential election dominated headlines and significantly contributed to equity market returns – and volatility – in 2024. After a strong 2023 and signs of normalizing rates of inflation, the market continued its advance in 2024 as the Federal Reserve pivoted from hike-and-hold to cautious cutting, delivering multiple interest rate reductions. The S&P 500 Index finished the year with a return of 25% – the second consecutive year of gains above 20%. The benchmark U.S. stock market index notched 57 record highs during 2024, powered by strength in technology and communications stocks. While stock investors continued to favor the ‘Magnificent Seven” and anything AI related, we did see some evidence of broadening market performance during the year, as small-cap and international stocks sought to close the gaps. But when all was said and done at year-end, momentum made a difference in the outperformance of large-cap stocks.
Pro-Business Policies
Once the uncertainty of the election outcome was behind us, stocks rallied on the hopes that the incoming Trump administration would promote pro-business and pro-growth policies. While it’s true that the stock market doesn’t favor one party over the other, the policies that different administrations put in place do matter in how they may impact the economy and business conditions. As an example, the tax picture is clearer now since it’s likely that most provisions of the 2017 Tax Cuts and Jobs Act will be extended. This affects individual income tax rates, corporate tax rates, estate taxes, and much more. Many investors also anticipate Trump will encourage deregulation across different industries, which should benefit companies in general and some sectors specifically. With trade, the new administration is expected to raise tariffs for many trading partners, especially China. That could re-ignite inflation. A crackdown on immigration could also have inflationary effects as labor markets tighten even more than they are, and companies pay higher wages to attract workers.
There is certainly no shortage of risks moving into 2025. Stock market valuations are well above average, the path of interest rates is uncertain, doubts about artificial intelligence are emerging, and geopolitical risks are escalating. History shows that investors who can maintain a disciplined long-term approach are better positioned to achieve financial success.
SECURE 2.0- EASIER TO ACCESS RETIREMENT FUND FOR MAJOR DISASTERS
Fires have been raging in California, but that’s only the latest instance of a major disaster for which individuals may have a need for funds they did not anticipate. Enter the SECURE 2.0 Act, which makes it easier for qualified individuals affected by a federally declared major disaster to access their retirement savings.
The Fundamentals
Eligibility. A taxpayer may be eligible for the expanded access to his or her retirement funds if their principal residence was in a major disaster area and they sustained an economic loss due to that disaster. For purposes of accessing retirement account funds for such a circumstance, an economic loss includes the following:
- Displacement from a principal residence;
- Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or another cause; and
- Lost income due to temporary or permanent job layoff.
Disaster Relief Rules. The SECURE 2.0 Act provides the following:
- Expanded distribution options and favorable tax treatment that allow up to $22,000 of qualified disaster recovery distributions from eligible retirement plans to qualified individuals, as well as special rollover and repayment rules regarding such distributions. This concerns certain employer-sponsored retirement plans, such as 401(k)s, 403(b)s, and IRAs. That $22,000 is exempt from the 10% early distribution tax, and a person who takes that distribution may have three years to repay it.
- An employer may also provide qualified individuals up to an additional year to repay their plan loans.
INCREASED CATCH-UP CONTRIBUTION LIMITS FOR 2025
Effective as of January 1, 2025, the SECURE 2.0 Act has modified the catch-up contribution level for those plan participants who will be ages 60 through 63 in 2025. The employee deferral catch-up contribution has increased from $7,500 to $11,250.
This is a fantastic way to supercharge your retirement savings. Contact us today to Get Started.