April is Financial Literacy Month – our favorite month of the year. Plus we think everyone could use a bit of fun right now.

1. How are contributions to an IRA taxed?

a. They aren’t.
b. What is an IRA?
c. It depends on what type of IRA. Roth IRA contributions are made after taxes are paid and Traditional IRA contributions are made before taxes are paid
d. It depends on what type of IRA. Traditional IRA contributions are made after taxes are paid and Roth IRA contributions are made before taxes are paid.
e. No idea. I need to call LFS. Marci and Lori are there answering the phone as usual and I want to confirm that anyway.

2. Which is better for me? A Roth 401K or a Traditional 401K?

a. A Roth 401K of course because it helps my cash flow every month now.
b. A Traditional 401K of course because it helps my cash flow every month now.
c. What’s a 401K?
d. Both are good and I can have both.
e. Not sure. I need to call LFS. Marci and Lori are there answering the phone as usual and I want to confirm that anyway.

3. What is a bear market?

a. A market of high volatility
b. Who cares? We never have this anyway.
c. A market of decreasing stock prices
d. A market of decreasing bond prices
e. Not sure. I need to call LFS. Marci and Lori are there answering the phone as usual and I want to confirm that anyway.

4. What is the difference between a mutual fund and an ETF?

a. Mutual funds are traded on a stock exchange while ETF’s are not.
b. Why does it matter?
c. Mutual funds are generally actively managed and ETF’s are generally not actively managed.
d. Mutual funds are more liquid because they have higher fees.
e. Not sure. I need to call LFS. Marci and Lori say they are there answering the phone as usual and want to confirm that anyway.

5. What generally happens to bond prices when interest rates go up?

a. They stay the same.
b. They go down.
c. They go up.
d. Interest rates never go up, so not sure why this matters.
e. Not sure. I need to call LFS. Marci and Lori say they are there answering the phone as usual and I want to confirm that anyway.

• When should I start taking social security?
• Do I need a trust? Do my parents need a trust? What about my kids?
• Can I pay less income tax?
• Should I do a Roth conversion now to reduce my RMDs when I have to start taking them?
• How do I start spending the money I have worked decades to accumulate without worrying all the time that I will run out of money?
• If I have different types of accounts, in what order should I withdraw money when I need it?
• Can I afford to retire?
• How much should I really be saving every month?
• If I don’t have children, what do I need to do to ensure my financial and healthcare wishes are met? If I do have children, what do I need to do to ensure my financial and healthcare wishes are met?

Watch your mail in the next few weeks for an exciting announcement from LFS!

Can’t wait for our letter?? Feel free to call us now!

Happy 2025!

For 2025, there are plenty of changes which impact IRA’s and 401K’s so we will just cover the major ones here. There could be additional changes later in the year of course.

For 401K/403B/457:

• The maximum employee contribution has been increased from $23,000 to $23,500. The catch-up contribution for employees age 50 and over remains at $7,500 for a total of $31,000. New for 2025 is a total catch up limit of $11,250 for active participants who are between 60 and 63 years of age. This brings the total employer plan contribution to $34,750 for these employees.

For Traditional IRA’s:

• Contribution limit stays at $7,000 for 2025. The catch-up contribution for those age 50 and over is still $1,000 for a total of $8,000. The income tax deductibility level has been increased. We will review with you individually as needed.

For ROTH IRA’s:

• Contribution limit stays at lower of earned income or $7,000 for each spouse. Catch-up contribution of additional $1,000 for age 50 and over.
• Contribution eligibility has increased:
  • Full contribution with Adjusted Gross Income (AGI) increased to $150,000 for a single taxpayer. Phase-out between $150,000 and $165,000. We can help with the phase-out math.
  • Full contribution for each with total Adjusted Gross Income (AGI) less than $236,000 for married/filing jointly taxpayers. Phase-out between $236,000 and $246,000. We can help with the phase-out math.
• 2024 contributions (of $7,000 or $8,000 if age 50 or over) can be made until April 15, 2025. Let us know if you plan to do this so we can ensure the deposit gets applied to the correct year.

Call with questions or if we can help get these changes made for you.

As promised earlier in the month, we are now going to re-introduce you to Roth IRA’s, but this time, as great financial gifts for your lucky and hard-working children or grandchildren. As I said earlier, there are very few investments which grow tax free, but 529 plans and Roth IRA’s do just that!

Many of you are familiar with Roth IRA’s, but for those of you that are not, here is a brief overview:

Roth IRA’s were created by the Taxpayer Relief Act of 1997 to help Americans save for retirement. These IRA’s have become enormously popular in the last 20 years but there are some important considerations:

• The dollar contribution limits are the same for Roth IRA’s and traditional IRA’s. Eligibility for a Roth IRA requires “earned income,” subject to an income cap which is not present for traditional IRA’s.
• Contributions are made with after-tax dollars, unlike those in traditional IRA’s or most company sponsored retirement plans.
• Because the contributions are made with after-tax dollars, the contributions can be withdrawn at any time, without tax or penalty. This might be important for young investors like your children or grandchildren who might need the money they invested before retirement.
• Unlike traditional retirement plans, the earnings can also be withdrawn tax-free, subject to owner age and account duration rules, and there is no requirement for distributions to begin at any age.

As I said above, there is a requirement for the Roth IRA account holder to have “earned income” in order to be able to contribute BUT the actual contribution can be funded by anyone (YOU in this case) as long as the dollar amount of the contribution does not exceed the owner’s earned income or annual maximum allowed.

Head spinning? How about an example? You have a 19 year old grandson who worked over the summer stocking shelves in the middle of the night for Kroger. He earned $2000 and will receive a W-2 from Kroger. I am guessing he probably can’t invest this $2000 in a Roth IRA because he is saving every penny for college, BUT you can fund it for him. You have until April 2025 to make this 2024 Roth contribution. We will help you understand eligibility requirements and then help you actually pull this off.

Want to read more about Roth IRA’s? See attached link. https://www.investopedia.com/terms/r/rothira.asp

Back by popular demand, the next two Bernie’s BLOG posts will provide info on some great financial holiday gifts for you, your children, or grandchildren. This blog will cover 529 educational plans and the next one will re-introduce many of you to Roth IRA’s. By the way, we are not suggesting that you forego fun gifts for your offspring, but we really like the idea of longer term not nearly as “fun” gifts to help secure the financial futures of your lucky family members.

As many of you know, there are very few investments which grow tax-free, but 529 plans and Roth IRA’s do just that, at least for now.

529 plans are state run educational savings plans which can be used for very broadly defined educational expenses for adults or children. These funds can be used for pre-college, trade school or college tuition/fees. The investments in a 529 plan can be made by anyone, subject to gift tax requirements, and are made with after-tax dollars although some states offer a state tax credit to parents who contribute in their state of residence (North Carolina does not offer this credit at this time). The funds in a 529 plan can be moved to another child and the funds do not have to be used in the state in which the plan was funded. Unlike other investments, 529 plans are controlled by the account “owner”, not by the child. Taxes and penalties are due if money is not used for educational expenses, but again, the definition of educational expenses is quite broad and usually includes computers, books, and room and board. There has also been an important change to 529 plans – up to $35,000 of unused funds can now be rolled over to a Roth IRA for the child, subject to lots of rules of course.

These plans carry low management fees because they tend to be “target date” funds where the investment mix is automatically rebalanced as the child gets closer to college age.

Although 529 plans are not LFS managed assets, we would be happy to assist you in starting one for your children or grandchildren, or even yourself! There is no minimum dollar requirement to open an account and dollars can be added throughout the year.

If you want to read up, see link below, or feel free to call us to talk more.

https://www.investopedia.com/terms/1/529plan.asp

Congratulations to Jordan and Matt, Lori and Charles, and Grandmother Toby! Photos from last weekend’s beautiful event in Orange, Virginia are attached.

We are so happy to welcome Matt to our family!