Trending Topics


This Month’s Trending Topics

Secure Act
On December 23, 2022, SECURE Act 2.0 was passed and signed into law. We wanted to point out some of the key provisions that may impact you.  
•    Required minimum distributions (RMDs) have been pushed back to age 73 in 2023.  If you turn 72 this year, you do not have to take your RMD until 2024.   After 2032, the age increases to 75.  
•    Roth contributions can now be made to SIMPLE and SEP IRA’s.  
•    Starting in 2024, catch up contributions to retirement plans will have to be made using a Roth option for individuals with wages in excess of $145,000.   
•    Ability to move 529 assets to a Roth IRA after certain criteria have been met, subject to multiple conditions.   
•    IRA catch up contributions will be indexed to inflation starting in 2024.  
•    Effective for 2025 and future years, individuals who are ages 60, 61, 62, and 63 will have increased catch up contributions above the current catch up amounts.  
•    Starting in 2024, qualified charitable distributions (QCDs) will be indexed for inflation.  This is the provision that allows someone to donate money from their IRA directly to a charity after age 70 ½.  The initial limit was set at $100,000 15 years ago and has never changed but will adjust upward starting in 2024.  
•    Creating numerous exceptions for the 10% early withdrawal penalty for taking money from an IRA before age 59 ½ .   

The bill contains many other provisions we will be sure to pass along individually if they apply to your situation.    

Markets
2022 may go down as a year many of us would like to forget when it comes to the markets.  Most major indexes finished with their worst year since 2008 with the S&P 500 down nearly 20% and the tech heavy NASDAQ down over 30%.   Bonds, typically the downside hedge during equity selloffs, suffered one of their worst years ever as the Federal Reserve increased interest rates much faster than expected in the face of higher inflation.  

Welcome to 2023 and forecast season on Wall Street, the time when everyone tells us what to expect for the new year.   Most forecast a recession and a rough year for financial markets. Looking back at 2022, most forecasted equities returning 6-10% and minimal positive returns for bonds.

Many forecasters tend to be overconfident in their forecasts even as research has shown the accuracy of “experts” has historically been little better than chance. Many forecasters, as well as investors, also tend to fall into the belief that currents conditions will continue into the future.   As 2021 finished strong, many predicted a strong 2022.  At the same time, a poor 2022 is leading many to predict a continuation of the trend into 2023.

Economist John Kenneth Galbraith summarized the problem this way: “There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.”

While research has shown market forecasts to be reliably wrong, we do find ourselves following a wide variety or economist and forecasters. We use this more as reference point in helping determine areas of higher risks in the market not as a tool to try to time the market.  

Like everyone else, we don’t know what 2023 holds for the markets.   We do believe that much is in the hands of the Federal Reserve and how they handle interest rates moving forward, but even knowing this information will not tell you how investors will react once it happens.  We also know that basing an investment strategy on a prediction or forecast will often times turn out to be detrimental to a portfolio.  

Happy New Year
So, what’s there to be positive about after such a bad year?  
•    With interest rates much higher, investors are finally able to make money on cash.
•    Most investors experienced much lower capital gains in 2022, or even a net loss in taxable accounts, thus reducing taxes when you file your return this year.  
•    With account values down, many will see a reduced required minimum distribution (RMD) for 2023 which could help reduce taxable income for the year.   
•    Increased retirement plan contributions limits as a result of higher inflation will allow additional savings and tax deferral moving forward.   
•    Expansion of tax brackets for 2023 due to inflation which will put more of your income in a lower tax bracket.
•    Significant increase in Social Security payments

We want to wish everyone a Happy New Year and prosperous 2023.   

Please reach out if you have questions, would like to review your current portfolio holdings, or need anything as we move into 2023.   

 


This material is meant for general illustration and/or informational purposes only.  Views expressed in this newsletter may not reflect the views of Royal Alliance Associates, Inc.  It is our goal to help investors by identifying changing market conditions.  However, investors should be aware that no financial advisor can accurately predict all of the changes that may occur in the market.   This material should not be relied upon as investment advice.  Investors should note that there are risks inherent in all investments, such as fluctuations in investment principal.   International investing involves special risks including greater economic and political instability, as well as currency fluctuation risks, which may be even greater in emerging markets.  There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. This article contains forward looking statements and projections.  Past performance is no guarantee of future results.  Neither Royal Alliance Associates, Inc nor its representatives provide tax or legal advice.  If you don’t wish to receive marketing emails from this sender, please reply to this email with the word REMOVE in the subject line.