In this note we’re going to walk thru whether there is a ‘Bubble’ in the Artificial Intelligence Economy while also sharing some thoughts about what to expect from the markets in 2026.  We have been planning on sending this missive for a couple of weeks.  But let’s just say we’ve been a bit distracted by the Indiana Hoosiers football team during this unprecedented run.

Over the last year or so, as the economy & stock market(s) have continued to recover from the 2022 bear market, there has been never-ending speculation about whether the whole ‘AI Revolution’ is a Bubble.

First, let’s try and define what a Bubble is.  If we define ‘Bubble’ as a massive wave of investment in a new technology, or concept, that many speculate could change the course of the global economy forever…then, YES, unequivocally, there is an AI Bubble permeating the globe.  We do believe we’re in an AI Bubble.

The next two questions we would like to try and answer are, Are all Bubbles historically bad?  And, Will this Bubble end terribly?

Let’s back up and acknowledge most bubble talk goes back to the ‘Y2k Tech Wreck’.  The internet, as we know it, essentially ‘began’ in 1995 with Netscape’s IPO.  Netscape introduced the 1^st internet browser, which allowed us common folk to ‘surf the web’.  The internet boom was born and, for the 1^st time ever, the S&P500 went up at least +20% 4 calendar years in a row from 1996-1999.

Throw in the ridiculous fear of an Armageddon-Esque computer glitch that didn’t happen (12/31/99), even though corporate America pulled forward 2-3 years of tech spending to prepare for it…along with MASSIVE spending on telecommunication as we built the ‘plumbing’ for the global internet…and you get the Y2K Tech Wreck.

The buildout of the internet was most certainly a bubble.  The Nasdaq fell over 80% from the March 2000 highs thru the 2003 lows while the S&P500 fell 50%ish.  The S&P500 then had its 1^st ever 3 year losing streak from 2000-03.  Funny how that works:  when markets essentially go straight up, they tend to correct to go straight down for a short while.

There were many other issues markets were trying to discount over those 7-8 years:  geopolitical risks, hanging chads, 9/11, to name a few.  However, the Tech Bubble took most of the blame.

Since then, we’ve had a housing bubble, a banking-fear bubble (2008/09), a bond bubble (negative interest rates), and oil-fear bubble (oil prices were negative), a global health-fear bubble (Covid Pandemic), a seemingly never-ending political hatred bubble in this country, and now we’re arguably working thru the AI Bubble.

We would stack this AI Bubble against the internet revolution of the ‘90s & the personal computer revolution in the ‘80s.  Let’s also throw electricity and railroads into the conversation.  We admit the ‘value’ of those 4 incredibly life-altering revolutions seems very unequal.  However, they all took massive investment, played out over decades, and changed our lives tremendously.

How else do we know AI is a Bubble?  Stock market volatility.  Over the last year or two, there have been many, many individual stocks that have run 200-2000%+ as this AI buildout continues to take shape.  And, this past 4^th quarter, most of those stocks got smashed and fell by 40-70% during a vicious pullback.  The good news for most of you is that ‘AI correction’ barely affected your Funds.  The Nasdaq 100 (QQQ) fell by less than 9% & the S&P500 fell by about 5%.  Diversification works & not all volatility is reason to run for the hills and build a fort.

Will this bubble end terribly? Our answer is NO.  We would argue none of them have.  Innovation is at the heart of capitalism. Speculation, and the investment in new technologies, is part of that innovation. Speculators get hurt in ALL economic cycles and always will.  But, in general, at LJI, we are not intense speculators, and we never will be.  None of you likely even noticed the massive selloff in Q425 in those AI-specific stocks.

We tend to take advantage of bubbles.  And fear.  And greed.  All 3 show up via volatility in the markets.  Fear and/or greed tend to have peaks & valleys several times per year.  Bubbles seem more frequent these days but also lead to some of the greatest investment opportunities we’ll ever see.

Let’s switch gears and share our annual prediction for what we expect in the markets this year.  Just kidding.  We’ve never once published predictions for the markets and never will.  Predictions are mostly useless. And Wall Street always simply predicts the ‘trend’ to continue.  We won’t waste your time as there are countless 2026 predictions out there from a lot of people who try to sell you crystal ball polish.  We don’t have one of those, for the record.

Here’s what we ‘know’ about 2026: we’ll have some volatility.  At least we hope we get some.  Mid-term elections are this November.  Since 1950 the average S&P500 pullback during mid-term years is -18%, with the smallest being -8%.  Politics affect the markets in the very short-term.  We look forward to whatever volatility comes our way this year.  The good news is, since 1950, the average 12-month S&P500 return from that mid-term year low is +31%.

A few more thoughts.  Consumer sentiment is currently at an all-time low.  This market has a LOT of doubt behind it.  Historically, when the Michigan Consumer Sentiment Index is extremely low, six months later stocks are higher 80% of the time.  12mos’ later they’re higher 92% of the time.  Most fear is irrational and leads to higher prices.  This time is likely no different.

And let’s frame the U.S. AI Investment.  Right now, with just the AI data centers currently planning to be built, the estimates for the technology costs ‘inside’ the buildings will be $2 Trillion.  The buildings themselves are slated to cost another $2 Trillion.  That’s $4 Trillion on top of our typical economy. These #s are not bearish for the global economy.  And many believe AI investment is still in the early stages.  Some argue otherwise.  That’s what makes markets.

We often hear concerns about stocks being ‘too high’, or crashing.  The Dow was up 8 months in a row to finish 2025.  That has happened 8 other times since 1927 & 7 times the market was higher 12mo later by an average of almost +13% (-10% in 1961 was lone outlier).  The S&P500 has averaged a new all-time high every 3 weeks over the past 70 years.  Historically, the S&P500 is UP 85% of the years that don’t have recessions.  All things considered, we feel there is no imminent economic recession in the United States.

We believe in this market.  We believe in the AI movement.  We trust that the ‘hyper-scalers’, the companies leading the AI revolution (Microsoft, Google, Nvidia, Amazon, Facebook, etc.), are a lot smarter than we are.  We are not ‘afraid’ of this market and don’t believe you should be either.  There is a reason most of the global stock markets are hovering near all-time highs.  Things are mostly good out there.  Corporate earnings and corporate margins are near all-time highs and climbing.  Geo-political risk is arguably much lower than it has been in a long time.  This U.S. economy has taken a lot of hits (COVID, 10 interest rate hikes, elections, tariffs) but continues to chug along and GDP growth is accelerating.  Listen to markets – they’re smart.

We appreciate the opportunity to help you.  Please never hesitate to reach out with questions or concerns.

And please cheer for our Hoosiers on Monday night.  We need all the good mojo we can get!

Sincerely,

Your LJI Team

As we close the books on 2025, we are sending our annual Milestones Newsletter, highlighting contribution limits and age milestones which may present planning opportunities for 2026.

We realize there is a LOT of information below. Not everything will be relevant to each individual or family. We recommend giving it a read and highlighting items relevant to your personal situation. We have also created an online 2 page PDF with the majority of this information plus additional tax data you can access by clicking here: 2026 Key Financial Data

Common Contribution Limits:

Roth IRA’s – The annual contribution limit for IRA’s (Roth and Traditional) is increasing from $7,000 to $7,500. For those over 50 years old, the catch-up contribution limit is increasing from $1,000 to $1,100. You can make a full contribution if your adjusted gross income (AGI) is under $153,000 for a single tax filer and under $242,000 for married filers. Conversely, if you are a single filer and make more than $168,000 AGI, or married making more than $252,000, you cannot make contributions to a Roth IRA.

Traditional IRA’s – For Traditional IRA’s, the deductible amount from your income is complicated depending on whether you or your spouse are covered under an employer-sponsored plan, as well as your income level. Please reach out to us or your CPA if you have questions on how this pertains to your personal situation.

401(k) Plans – increasing from $23,500/yr to $24,500/yr for 2026 for employee deferrals. Catch-up contributions for those age 50 and older are increasing from $7,500/yr to $8,000/yr (same for Solo 401k, 403b, and governmental 457b plans). For those age 60-63, the catch-up amount increases to $11,250.

The combined employer and employee contribution limits are $72,000 for employees 49 or younger, $80,000 for employees 50-59 or 64 or older, and $83,250 for employees 60-63.

SEP IRA’s – for self-employed individuals, the total amount you can contribute to a SEP IRA is limited to 25% of employee compensation up to $72,000 for 2026 (up from $70,000 in 2025).

SIMPLE IRA’s – The contribution limit on SIMPLE retirement accounts is increasing to $17,000 for 2026, up from the 2025 limit of $16,500. The SIMPLE catch-up limit is $4,000 for those reaching the age of 50 in 2026. For those age 60-63, the catch-up amount is $5,250.

HSA’s – The annual limit on deductible contributions for single individuals making HSA contributions is increasing from $4,300 to $4,400. The annual limit for families is also increasing from $8,550 to $8,750. For contributors aged 55 and above, a $1,000 catch-up is available.

To participate in an HSA an employee must be in a High-Deductible Health Plan (HDHP). Deductibles for qualifying HDHP’s for 2026: $1,700 for singles, and $3,400 for families. Out of pocket maximums for HDHP’s for 2026: $8,500 for singles, $17,000 for families. Check with your employer’s health plan to determine eligibility.

Indiana Tax Credit for 529’s – At this time, the maximum tax credit remains at 20% of annual contributions up to $7,500/yr or a $1,500 tax credit. For Married Filing Separate, the max tax credit is $750.

Legislation has been introduced to increase the tax credit to $2,500, BUT that legislation has not been passed at this time.

The criteria for qualified 529 expenses are also expanding in 2026: K-12 expenses aggregate limit increases to $20k, and expenses to attain or maintain eligible credentials are now included.

Additionally, for tax years 2023 and later you can now make 529 contributions up until the original due date of the return before extensions (i.e., April 15) and designate it as a prior year contribution. This added flexibility can add some additional state tax planning opportunities, so reach out to us or your CPA for additional information.

Trump Accounts – Any child under the age of 18 is eligible to open an account.  Contributions to this account are post-tax and limited to $5,000/yr. Funds cannot be withdrawn prior to 18, earnings are tax-deferred, and there is no earned income requirement.  Additionally, any child born between 2025 and 2028 can enroll and get a one-time $1,000 contribution from the federal government.  At this time accounts cannot be opened or funded until July 4, 2026, so stay tuned for more information.

Gifts – Each year, the IRS sets the annual gift tax exclusion, which allows a taxpayer to give a certain amount (in 2026, $19,000) per recipient tax-free without using any of the taxpayer’s lifetime gifting limit (gifts above the annual limit go against the Estate Tax Exemption of $15 million for single taxpayers and $30 million for married couples.). For married couples, this means that they can give $38,000/year per recipient tax-free without using any of their lifetime gift tax exemption.

If one gifts an amount that is above the annual gift tax exclusion, that individual will use a portion of his or her lifetime gift tax exemption ($15 million in 2026). The gift and estate tax exemption are linked, meaning that the use of one’s gift tax exemption will reduce the amount one may leave at death estate-tax-free. If one makes gifts more than the annual gift tax exclusion, one must file a gift tax return, due April 15 in the following year, to report the gift and track the amount of the lifetime exemption that has been used.

Social Security Max Taxable Wage – The maximum annual wage amount at which employees pay a Social Security tax is increasing from $176,100 to $184,500. The rate remains the same at 6.2%.

Social Security Cost-of-Living-Adjustment (COLA) – For 2026, the cost-of-living-adjustment for Social Security and Supplemental Social Security Income (SSI) is 2.8%. This is slightly more than last year (2.5%).

Standard Deduction – For married filing jointly, the standard deduction from AGI to reach taxable income is increasing from $30,000 to $32,200. Accordingly, it is increasing from $15,000 to $16,100 for single taxpayers, and from $22,500 to $24,150 for Heads of Household.

Those who are over 65 and/or blind receive an additional $1,650 standard deduction for each qualifying spouse. The additional deduction is $2,050 for single filers.

Retirement Plans/Small Business Owners may want to consider the following changes:

Pensions/Defined Benefit Plans – For 2025, the maximum annual benefit payable from a defined benefit plan is increasing from $280,000 to $290,000. Consult with an advisor for clarification of the eligibility rules to receive benefits found on the plan documents (typically begin as early as age 62 and no later than age 65).

Employer Match Compensation Limit – This amount is increasing from $350,000 to $360,000. This means that if an employer match is 4% of salary, and your salary is $400,000/yr, the match would be 4%*$360,000 = $14,400.

Highly Compensated Employees – The threshold that identifies an employee as highly compensated is increasing from $155,000 to $160,000. This means any employee who is paid more than $160,000 in 2025 is considered “highly compensated”. An unexpected increase in highly compensated employees may trigger compliance-testing issues within the company’s retirement plan and should be reviewed by the advisor running the plan.

Age Milestones

Age 50 – You may increase your annual contribution to your 401k by $8,000, while those contributing to a Roth or Traditional IRA can add an additional $1,100 annually. With retirement rapidly approaching, this offers a great opportunity to supercharge your savings. If you participate in a SIMPLE IRA, you can increase your contribution by $4,000.

Age 55 –If you are between ages 55 and 59 ½ and leave your job, the IRS rule of 55 may allow you to receive a distribution from your 401(k), 403(a), or 403(b) plan after reaching age 55 without triggering the 10% early withdrawal penalty if your plan provides for such distributions. Keep in mind you will still pay ordinary income tax on the withdrawals, but this could help you bridge the gap until you are eligible to draw from IRA’s or Social Security.

Also at age 55, you may contribute and deduct an extra $1,000 to your HSA.

Age 59 ½ – At this point, you may withdraw money from your IRA’s, or employer-sponsored plans without paying the 10% penalty for being under age 59 ½. While there is no penalty, the withdrawals will still be taxed as ordinary income (unless from a Roth 401(k) / Roth IRA or the basis from a non-deductible IRA). Keep in mind that no matter your age, a Roth must be open for at least 5 years to take tax and penalty free distributions on gains.

Age 60 – You may be eligible for Social Security Survivorship Benefits if you are a widow or widower. If you are eligible, be aware that taking SS at the soonest eligible date will reduce your benefit by as much as 28.5%.

Age 62 – You are eligible for reduced Social Security, however, like survivorship benefits mentioned above, the amount will be permanently reduced by up to 25%. You will want assistance analyzing whether taking Social Security early at a reduced benefit makes sense within the context of your overall financial plan, health, etc.

If you are still working and deciding if you should take Social Security before your full retirement age (FRA), it is worth knowing that your benefit may be reduced. We recommend consulting with your advisor and/or CPA to assist with that decision.

Age 60-63 – 401(k) catch-up contributions increase from $7,500 to $11,250, and SIMPLE IRA catch-up contributions increase from $4,000 to $5,250.

Age 65 – Medicare is now part of your overall health care decision. You are given a 7-month window to enroll (3 months prior to your 65th birthday, the month of your birthday, and 3 months following that month).

If you do not feel you have the expertise to make an informed decision, we can put you in contact with a trusted expert and/or resource who can assist you.

Aside from Medicare being an important milestone, any Disability Income policies should be reviewed if you are still working (or if you are collecting benefits). Many benefits will stop paying at age 65 and coverage generally ends at that time.

Age 67 – This is considered full retirement age (for individuals born after 1959) and you are entitled to your full Social Security Benefit at this point.

If you are still working, or do not need the income, it is worth analyzing whether you should begin taking benefits since taxation and increased benefits for waiting could be a factor in your decision.

For those who have not done so, we recommend reviewing your Social Security statement on an annual basis to determine if you were properly credited for social security wages and taxes paid. You can now create an online login at https://www.ssa.gov . Statements are now only mailed every 5yrs if you do not have an online login.

Age 70 – Even if you are still working, this is the age that will give you the maximum Social Security payout. Benefits no longer accumulate at 8% per year after this point.

Age 70 ½ – Qualified Charitable Distributions (QCDs) are permitted from IRAs only. This includes inherited IRAs, but QCDs are not allowed from 401(k)s. QCDs are tax free contributions to qualified charitable organizations made directly from your IRA. QCDs also count towards your annual RMD, so this can help reduce the tax consequences of RMDs. The amount that an individual can donate to charity directly from an IRA and NOT be taxed on that distribution, is increasing from $108,000 to $111,000. We recommend consulting with your advisor and CPA to see if QCDs make sense for your situation.

Age 73 – Under Secure Act 2.0, a person that turns 73 in 2025 must begin taking Required Minimum Distributions (RMDs) from your retirement accounts such as IRA’s and 401K’s (no need to take from your Roth IRA). There is some flexibility with regards to your first distribution, but we recommend you talk with us and your tax advisor to make an informed decision. If you are charitably inclined, there are planning techniques that can be incorporated with this distribution as well.

If you were already taking your RMDs based on age 70.5 or 72 according to the old rules, this change does not apply to you. You will remain on your existing RMD schedule.

If you are still working for the company sponsoring the plan when you turn 73 and do not own more than 5% of the company, you may be eligible to delay RMDs on assets held in the company retirement plan as long as you are employed. However, once you leave that company, or roll the assets to an IRA, you must start taking RMDs.

Note on Beneficiary / Inherited IRA’s: Passed in late 2019, The Secure Act altered both the RMD age requirements (mentioned above) as well as newly inherited Beneficiary IRAs. This new law does not impact the ability of spouses to inherit an IRA and “stretch” that IRA over their lifetime. However, other than a spousal IRA, an IRA inherited from a grandparent, parent, etc. will now have different rules. Rather than allowing the individual to stretch that IRA over their lifetime, the government mandates it be taken in full within 10yrs. For those inheriting an IRA in which the previous owner had already begun taking RMDs, the new account owner may be required to continue that RMD in years 1-9 and completely liquidate the account by year 10. If the previous owner had not begun taking RMDs, the new account owner must liquidate the account by the 10^th year, but they may not be required to take distributions in years 1-9.

For a Roth IRA inherited after 2019, the same 10-year rule applies (account must be liquidated by the end of 10^th year after inheriting) but there are no annual RMD requirements, regardless of the original IRA owner’s age. Roth IRAs inherited before 2019 are treated the opposite – no 10-year rule but will have an annual RMD.

As always, should you or your loved ones have any questions, please do not hesitate to contact LJI.

Best wishes for a Happy Holiday season and a safe and prosperous new year!

Your LJI Team

Today is the 4-month anniversary of the April 7^th ‘Tariff Tantrum’ stock market low.  That day also happens to be the last time LJI shared any thoughts on the financial markets via “It’s Different This Time”.  While we try not to add to the never-ending noise in the financial media, we also don’t want to send commentary only when the markets are in a steep decline.

To revisit, the stock market was down roughly 10% heading into President Trump’s Liberation Day press conference the afternoon of April 2^nd.  The US markets essentially fell another 14% thru that 4/7 low, just 3 business days later.  The selling/panic was historic on several levels.

Our note in April was similar to prior messages during market panics: While the reasons are always different, fear-driven selling has literally NEVER been a smart decision.

Today, we want to cover a few ‘stats’/facts that help us stay objective during those very crazy, confusing and, yes, scary periods, when the markets decide to head south FAST.

Ultimately, there are really only two variables that move markets, or more specifically, make up prices in the markets: buyers and sellers.  When prices go up, there are more buyers than sellers.  When prices go down, the sellers outnumber buyers.  (Thanks, Master of the Obvious).

What drives buying and selling?  The answer to that question is Fear and Greed.  Buyers purchase assets to make money, and sellers generally sell to avoid losing it.  Simple stuff.  What we track on a daily basis is whether either of those two variables – fear or greed – gets too extreme.

We have cited this indicator before in these missives – and countless times during client conversations – but there is a public ‘Fear vs. Greed’ sentiment gauge at www.cnn.com .  It looks like an old-school fuel gauge and measures from 0 to 100.  When greed is high the gauge is closer to 100 and grabbing a large amount of equity exposure isn’t advised.  However, when ‘Fear’ approaches single digits, history is essentially undefeated as buyers, again, typically reap large rewards over time.

At that market low 4 months ago, the Fear vs. Greed gauge hit TWO.  Why are buyers rewarded in periods of massive selling?  There are many reasons, but the simple answer is b/c, at some point, all the sellers get done selling.  The news is terrible.  People are mad.  And/or scared.  Then buyers show up…Optimists…People who understand history and believe capitalism works.

There are many other indicators that line up during these panics, but that Fear vs. Greed gauge is the easiest one to view, explain and understand.  During our internal team meetings we often say, ‘Think like an Institution’.  Expounding on that concept is a note for another time, but institutions – buyers with no time frame – LOVE the panics/pullbacks/bear markets individual investors typically loathe.

As stated above we try hard NOT to add to the noise in the financial media.  However, we do have regular meetings to discuss the markets, various indicators, and arguably more importantly, we share statistics/facts/data that you’ll almost never see in the financial media.  They sell fear, which you already know.  We try and convey logic.  And we respect market history.  Examples since April:

4/25/25: The US Market experienced what is called a Zweig Breadth Thrust

5/6/25: The S&P500 had just been up six days in a row by more than 7% (over those 6 days) for the 8^th time ever.  The previous 7 times the S&P500 was positive 12 months later by an average of +19%.

6/17/25: Since 1950, the S&P500 has had 5 periods where it rallied at least 20% in 2 months (which had just happened).  After each of those 5 previous +20% rallies, the index was higher 3mo, 6mo, and 12mo later.  The average return over 12 months was +30%.

7/8/25: Future earnings estimates for the S&P500 were back to all-time highs.

8/5/25: S&P500 Companies’ capital expenditures so far this year on Artificial Intelligence (AI) enhancements alone are GREATER than YTD consumer spending in our entire country.

While the future returns mentioned above are not guaranteed, you can see there is much to be optimistic about.  Markets are very, very smart.  Much smarter than us humans.  Markets look far ahead.  Our job, to a degree, is to continue to try and keep your eye on the longer-term: outpacing inflation and achieving your financial goals.

We APPRECIATE our clients for not bailing out in April when, clearly, extreme fear and confusion were leading the headlines.  The rewards since then have been solid and, over time, thanks to capitalism, we expect those rewards to continue.  The Markets are undefeated over time – the next panic shouldn’t derail them for very long either.

Thank you very much.  Please never hesitate to reach out with questions or concerns.

Sincerely,

Your LJI Team

One of the many benefits of being a client of LJI Wealth Management is our commitment to keeping you informed and educating you about the many financial tools available to individual investors. With that in mind, what better topic to discuss on 5/29 than the 529 College Savings plan?

A 529 College Savings plan or “529” is an account that allows parents/grandparents to save for their child/grandchild’s education. Once funded, the money can be invested into the market, it grows tax-deferred and can be withdrawn tax free when used for qualified education expenses.  As of 2017, that includes up to $10,000 annually for K-12 tuition expenses as well.

Although there is no Federal income tax deduction for 529 contributions, many states offer income tax deductions or credits. For example, Indiana taxpayers can claim a state income tax CREDIT of 20% of their contributions, up to a maximum credit of $1,500 per year, per household. So, a married couple contributing $7,500/yr, will receive a $1,500 tax credit on their State of Indiana returns. If you reside in another state, please reach out and we can help determine the tax advantages with your state 529 plan.

At LJI, we hold the core belief of not charging clients for education planning. For that reason, we make sure our Indiana clients use the 529 Direct Savings plan vs the 529 Advisor plan, saving on up-front commission charges with each deposit.

If you are considering a 529 College Savings plan for a child, grandchild, or yourself, please do not hesitate to reach out to start that conversation.

Happy 5/29 Day.

Your LJI Team

Up until mid-February the financial markets were moving along a fairly solid path.  First quarter corporate earnings held up well and optimism was high.  Just two weeks ago our team discussed the fact that the US economy has never fallen into a recession with industrial production at an all-time high (recent levels).

Having just passed the 5-year anniversary of the March 2020 Covid ‘Market Crash’, we had planned to send a note revisiting some (financial) takeaways from that very scary time in world history.

Through mid-March the S&P500 had fallen 10%ish from the February all-time highs.  In our opinion, these corrections are welcome/healthy and usually solid opportunities.  In fact, the average annual market pullback is -14% so this one felt very normal, especially considering the market’s solid returns in 2023 & 2024.  Recent investor sentiment has been extremely negative, and we had begun to add equity exposure.

Fast forward to President Trump’s ‘Liberation Day’ press conference last Wednesday.  Wall Street was expecting clarity on tariffs & trade policy.  Considering the rhetoric over the last many months ‘some’ tariffs were to be expected.  What we received, instead, were plans to essentially halt global trade.  Or at least that is how the financial markets and most economists have perceived it.  In two days, the stock market fell over 10% on record volume as confusion and fear permeated the global financial markets.  Panic has certainly set in.

Unlike most in the news who suddenly act like tariff experts, we do not profess to be said experts.  The good news is we – nor you – need to be.  We do know a thing or two about market panics, but we’ll discuss those later.

The bullish argument on President Trump’s ‘Plan’ is centered around (a) this is the first ‘shot’ in a long negotiation process, (b) the world needs American trade dollars, (c) many countries will ‘fall in line’, and (d) the Administration is not interested in dropping us into a ‘Recession by Tariff’.

The bearish argument is akin to (a) China will take over and fill in our trade gap, (b) the U.S. can never recover from this, (c) economically speaking, Armageddon is coming.

There have been many ‘the world is coming to an end’ scenarios/arguments over the last 95+ years and, so far, those have never happened.  Most of you won’t be surprised to find out, this time around, we won’t be subscribing to that line of thinking either.  That is not to say we don’t have major concerns.  However, we are big believers in capitalism.  And market history.  And the fact that usually, when it comes to the financial markets, the worst-case scenario does not play out.  Markets loathe uncertainty.  Markets overshoot, both to the upside and downside.  Emotions run high when uncertainty sets in. Many investors decide to sell now, and think later, believing “It’s Different This Time”.  That certainly happened last week and could continue in the near-term.

Let’s review prior market panics:

• Since 1950, the S&P500 has fallen by 10%+ in 2 days only five times. The average return 6 months later was +15.8%, with the worst period being +.5%.  The average return 12 months later was 32% (worst +18%)
• The American Association of Individual Investors weekly sentiment poll has been around for 37 years. This past week was the 3^rd time more than 50% of investors have been bearish for 5 weeks in a row.  The last two times marked the market bottom in 1990 and 2022.
• The Russell 2000 (U.S. Small Cap Index) is not as old as the S&P500. The prior four times it fell by over 4% on consecutive days, the average return 6 months later was +18% (worst -.6%).  The average return 12 months out was +54% (worst +11%)

We are not pretending the above returns are guaranteed 6 or 12 months from now.  We are not calling Friday’s market levels the ‘bottom’ of this panic cycle – this market could certainly go lower this week and beyond.  We are however, trying to convey there is A LOT of fear out there.  There is A LOT of ‘bad’ baked in right here, right now.    Prices have dropped very quickly and accordingly – if history is any guide – this is a time to be opportunistic.

Does being fearful make sense?  Sure.  There is always plenty to be a bit scared of.  But ‘scared’ is not an investment strategy, nor a plan.  And not all emotions are actionable, especially in the financial markets.

In hindsight, most market corrections and bear markets look the same. They’re not.  Major pullbacks have all happened for very different reasons.   The key during each was to not get caught up in the madness of the moment and to try and maintain a long-term perspective.

It was beyond scary when three planes crashed into the World Trade Center and the Pentagon on 9/11/01.  The market closed for a full week but selling out was not the answer.  Markets recovered over time.

You didn’t need to be a banking expert when the entire global banking system lent against worthless mortgages in 2008/09.   Those losses were temporary too.  You didn’t need to be a pandemic expert in 2020 when COVID hit.  Panic selling when the world shut down was a major mistake.  It wasn’t necessary to be an interest rate expert in 2022 when bonds fell 20% b/c the Fed raised rates 10 times.  The markets adjusted and we got through an S&P500 decline of 25%, while the Nasdaq fell over 35%.  That’s how capitalism and markets work.  Patience, however painful, paid off again.

It IS different this time.  But only because this time the market is very panicked about tariffs and what may be coming.  This is a bit scary – pullbacks always are.  The next few months may be filled with more uncertainty and volatility.  They may create a lot of doubt.  But staying the course – tuning down the news/noise – and understanding market history & the opportunities panics provide is vital.

Four weeks ago, there was very little evidence of a potential recession.  Despite a healthy economy, the financial news media mentions a recession every single day.  The fact is the U.S. economy has been in a recession for 2 months in the last 15 years…during COVID.

Our economy is strong over time.  That said, the world markets are VERY nervous.  There is a famous quote about volatility: “The stock market is the only market where things go on sale and all the customers run out of the store”.  For the record, we have no intention of doing that, ever.

Again, we plan to take advantage of this extreme volatility.  We believe it is an opportunity.  We believe you should too.

Thank you.  Please do not ever hesitate to reach out with questions or concerns.

Sincerely,

Your LJI Team

As we close the books on 2024, we are sending our annual Milestones Newsletter, highlighting contribution limits and age milestones which may present planning opportunities for 2025.

We realize there is a LOT of information below. Not everything will be relevant to each individual or family. We recommend giving it a read and highlighting items relevant to your personal situation.

Common Contribution Limits:

Roth IRA’s – The contribution limit for IRA’s (Roth and Traditional) remains unchanged: $7,000 plus $1,000 catch-up contribution for those over 50. You can make a full contribution if your adjusted gross income (AGI) is under $150,000 for a single tax filer and under $236,000 for married filers. Conversely, if you are a single filer and make more than $165,000 AGI, or married making more than $246,000, you cannot make contributions to a Roth IRA.

Traditional IRA’s – For Traditional IRA’s, the deductible amount from your income is complicated depending on whether you or your spouse are covered under an employer-sponsored plan, as well as your income level. Please reach out to us or your CPA if you have questions on how this pertains to your personal situation.

401(k) Plans – increasing from $23,000/yr to $23,500/yr for 2025 for employee deferrals. Catch-up contributions for those age 50 and older are still $7,500/yr (same for Solo 401k, 403b, and governmental 457b plans). For those age 60-63, the catch-up amount increases to $11,250.

The combined employer and employee contribution limits are $70,000 for employees 49 or younger, $77,500 for employees 50-59 or 64 or older, and $81,250 for employees 60-63.

SEP IRA’s – for self-employed individuals, the total amount you can contribute to a SEP IRA is limited to 25% of employee compensation up to $70,000 for 2025 (up from $69,000 in 2024).

Solo 401k’s – The same contribution limit that applies to SEP IRAs applies to the Solo 401(k) ($70,000) but the Solo 401(k) includes a catch-up contribution for those age 50 and above, in the amount of $7,500/yr. For those age 60-63, the catch-up amount increases to $11,250.

SIMPLE IRA’s – The contribution limit on SIMPLE retirement accounts is increasing to $16,500 for 2025, up from the 2024 limit of $16,000. The SIMPLE catch-up limit is still $3,500 for those reaching the age of 50 in 2025. For those age 60-63, the catch-up amount increases to $5,250.

HSA’s – The annual limit on deductible contributions for single individuals making HSA contributions is increasing from $4,150 to $4,300. The annual limit for families is also increasing from $8,300 to $8,550. For contributors aged 55 and above, a $1,000 catch-up is available. To participate in an HSA an employee must be in a High Deductible Health Plan (HDHP). Deductibles for qualifying HDHP’s for 2025: $1,650 for singles, and $3,300 for families. Out of pocket maximums for HDHP’s for 2025: $8,300 for singles, $16,600 for families. Check with your employer’s health plan to determine eligibility.

Indiana Tax Credit for 529’s – The maximum tax credit is 20% of annual contributions up to a maximum credit of $1,500. Therefore, you would have to contribute $7,500 to receive the max tax credit of $1,500 ($7,500*20%=$1,500). For Married Filing Separate, the max tax credit is $750.

Additionally, for tax years 2023 and later you can now make 529 contributions up until the original due date of the return before extensions (i.e., April 15) and designate it as a prior year contribution. This added flexibility can add some additional state tax planning opportunities, so reach out to us or your CPA for additional information.

Gifts – Each year, the IRS sets the annual gift tax exclusion, which allows a taxpayer to give a certain amount (in 2025, $19,000) per recipient tax-free without using any of the taxpayer’s lifetime gift and estate tax exemption (in 2025, $13.99 million). For married couples, this means that they can give $38,000/year per recipient tax-free without using any of their lifetime gift tax exemption.

If one gifts an amount that is above the annual gift tax exclusion, that individual will use a portion of his or her lifetime gift tax exemption ($13.99 million in 2025). The gift and estate tax exemption are linked, meaning that the use of one’s gift tax exemption will reduce the amount one may leave at death estate-tax-free. If one makes gifts more than the annual gift tax exclusion, one must file a gift tax return, due April 15 in the following year, to report the gift and track the amount of the lifetime exemption that has been used.

*Note that although the IRS has announced the lifetime estate and gift tax exemption will increase to $13.61 million in 2025, that amount is set to be cut in half at the start of 2026.

Social Security Max Taxable Wage – The maximum annual wage amount at which employees pay a Social Security tax increased from $168,600 to $176,100. The rate remains the same at 6.2%.

Social Security Cost-of-Living-Adjustment (COLA) – For 2025, the cost-of-living-adjustment for Social Security and Supplemental Social Security Income (SSI) is 2.5%. This is not as big of an increase as last year (3.2%), but it still may cause you to pay additional income taxes. For now, single filers who have combined income (AGI + tax-free interest and half of Social Security benefits) between $25,000 and $34,000 may pay taxes on up to 50% of their Social Security benefit, and for those above $34,000, up to 85%. Married filers who have combined income between $32,000 and $44,000 may pay taxes on up to 50% of their benefit, and for those above $44,000, up to 85%.

Standard Deduction – For married filing jointly, the standard deduction from AGI to reach taxable income is increasing from $29,200 to $30,000. Accordingly, it is increasing from $14,600 to $15,000 for single taxpayers, and from $21,900 to $22,500 for Heads of Household.

Retirement Plans/Small Business Owners may want to consider the following changes:

Pensions/Defined Benefit Plans – For 2025, the maximum annual benefit payable from a defined benefit plan is increasing from $275,000 to $280,000. Consult with an advisor for clarification of the eligibility rules to receive benefits found on the plan documents (typically begin as early as age 62 and no later than age 65).

Employer Match Compensation Limit – This amount is increasing from $345,000 to $350,000. This means that if an employer match is 4% of salary, and your salary is $400,000/yr, the match would be 4%*$350,000 = $14,000.

Highly Compensated Employees – The threshold that identifies an employee as highly compensated is increasing from $155,000 to $160,000. This means any employee who is paid more than $160,000 per year is considered “highly compensated”. An unexpected increase in highly compensated employees may trigger compliance-testing issues within the company’s retirement plan and should be reviewed by the advisor running the plan.

Age Milestones

Age 50 – You may increase your annual contribution to your 401k by $7,500, while those contributing to a Roth or Traditional IRA can add an additional $1,000 annually. With retirement rapidly approaching, this offers a great opportunity to supercharge your savings. If you participate in a SIMPLE IRA, you can increase your contributions by $3,500.

Age 55 –If you are between ages 55 and 59 ½ and leave your job, the IRS rule of 55 may allow you to receive a distribution from your 401(k), 403(a), or 403(b) plan after reaching age 55 without triggering the 10% early withdrawal penalty if your plan provides for such distributions. Keep in mind you will still pay ordinary income tax on the withdrawals, but this could help you bridge the gap until you are eligible to draw from IRA’s or Social Security.

Also at age 55, you may contribute and deduct an extra $1,000 to your HSA.

Age 59 ½ – At this point, you may withdraw money from your IRA’s, or employer-sponsored plans without paying the 10% penalty for being under age 59 ½. While there is no penalty, the withdrawals will still be taxed as ordinary income (unless from a Roth 401(k) / Roth IRA or the basis from a non-deductible IRA). Keep in mind that no matter your age, a Roth must be open for at least 5 years to take tax and penalty free distributions on gains.

Age 60 – You may be eligible for Social Security Survivorship Benefits if you are a widow or widower. If you are eligible, be aware that taking SS at the soonest eligible date will reduce your benefit by as much as 28.5%.

Age 62 – You are eligible for reduced Social Security, however, like survivorship benefits mentioned above, the amount will be permanently reduced by up to 25%. You will want assistance analyzing whether taking Social Security early at a reduced benefit makes sense within the context of your overall financial plan, health, etc.

If you are still working and deciding if you should take Social Security before your full retirement age (FRA), it is worth knowing that your benefit may be reduced. We recommend consulting with your advisor and/or CPA to assist with that decision.

Age 65 – Medicare is now part of your overall health care decision. You are given a 7-month window to enroll (3 months prior to your 65th birthday, the month of your birthday, and 3 months following that month).

If you do not feel you have the expertise to make an informed decision, we can put you in contact with a trusted expert and/or resource who can assist you.

Aside from Medicare being an important milestone, any Disability Income policies should be reviewed if you are still working (or if you are collecting benefits). Many benefits will stop paying at age 65 and coverage generally ends at that time.

Age 67 – This is considered full retirement age (for individuals born after 1959) and you are entitled to your full Social Security Benefit at this point.

If you are still working, or do not need the income, it is worth analyzing whether you should begin taking benefits since taxation and increased benefits for waiting could be a factor in your decision.

For those who have not done so, we recommend reviewing your Social Security statement on an annual basis to determine if you were properly credited for social security wages and taxes paid. You can now create an online login at https://www.ssa.gov . Statements are now only mailed every 5yrs if you do not have an online login.

Age 70 – Even if you are still working, this is the age that will give you the maximum Social Security payout. Benefits no longer accumulate at 8% per year after this point.

Age 70 ½ – Qualified Charitable Distributions (QCDs) are permitted from IRAs only. This includes inherited IRAs, but QCDs are not allowed from 401(k)s. QCDs are tax free contributions to qualified charitable organizations made directly from your IRA. QCDs also count towards your annual RMD, so this can help reduce the tax consequences of RMDs. We recommend consulting with your advisor and CPA to see if QCDs make sense for your situation.

Age 73 – Under Secure Act 2.0, a person that turns 73 in 2024 must begin taking Required Minimum Distributions (RMDs) from your retirement accounts such as IRA’s and 401K’s (no need to take from your Roth IRA). There is some flexibility with regards to your first distribution, but we recommend you talk with us and your tax advisor to make an informed decision. If you are charitably inclined, there are some planning techniques that can be incorporated with this distribution as well.

If you were already taking your RMDs based on age 70.5 or 72 according to the old rules, this change does not apply to you. You will remain on your existing RMD schedule.

If you are still working for the company sponsoring the plan when you turn 73 and do not own more than 5% of the company, you may be eligible to delay RMDs as long as you are employed. However, once you leave that company, you must start taking RMDs.

Note on Beneficiary / Inherited IRA’s: Passed in late 2019, The Secure Act altered both the RMD age requirements (mentioned above) as well as newly inherited Beneficiary IRA’s. This new law does not impact the ability of spouses to inherit an IRA and “stretch” that IRA over their lifetime. However, other than a spousal IRA, an IRA inherited from a grandparent, parent, etc. will now have different rules. Rather than allowing the individual to stretch that IRA over their lifetime, the government mandates it be taken in full within 10yrs. For those inheriting an IRA in which the previous owner had already begun taking RMDs, the new account owner may be required to continue that RMD in years 1-9, and completely liquidate the account by year 10. If the previous owner had not begun taking RMDs, the new account owner must liquidate the account by the 10^th year, but they may not be required to take distributions in years 1-9.

As always, should you or your loved ones have any questions, please do not hesitate to contact LJI.

Best wishes for a Happy Holiday season and a safe and prosperous new year!

Your LJI Team

However, based on many of our conversations of late, there is definitely a lot of concern out there.  And there should be – Presidential elections are important.  While we provide some financial commentary below, we encourage all clients to read our newsletter from 4yrs ago as it is applicable now just as it was then and every 4yrs prior. Presidential Election 2020

The most common client conversation eventually goes something like: “If he/she wins, the world is going to fall apart – should we go to cash?” Most of you who have read our past communications and/or have been a client for a while probably know ‘selling everything’ is NEVER going to be something we advise or agree on.

Selling everything because of a known event is never sensible.  Markets are smart – smarter than investors.  Markets don’t really care about elections.  People do.  People are emotional.  But if we let our emotions control our investment decisions we lose over time.

We’re not going to predict who will win.  Nor what will happen to the markets if he/she wins.  Nor which sectors/stocks will rise/fall based on the election results.  There are countless (mostly worthless) opinions/articles/etc. floating around with that type of drivel in it. 99% of these pieces are about eyeballs/clicks/ratings…not facts or hard market analysis.

At LJI we are going to continue to believe in capitalism.  And, yes, democracy.  And optimism.  And history.  History has proven again & again – through decades of Presidential election issues/scandals/controversies – the US Economy & Capitalism win.  We want to own those long-term…essentially forever.  That won’t change on November 6^th.

Many articles and studies opine on what the markets do, or have done, if a Republican vs. a Democrat wins.  And we’re confident you may have specific opinions on that too.  From a stock market perspective, the following history lesson is one of our favorites:

Since 1950 (the S&P500 was created in 1949), if you only owned the S&P500 during Democratic administrations, and you started with $10,000, you now have $421,450 (thru 6/28/24).  Had you invested that same $10k during only Republican administrations, you’d now have $77,720.  The same $10k invest throughout ALL administrations since 1950?  $3,280,000…please read that final figure again.

Again, over time, the stock market does not care about politics.  People do.  And caring about politics is more than OK.  Our goal/role here is to prevent our clients from getting too distracted by short-term uncertainty, or emotions.

Will there be volatility in the next few weeks?  Probably.  There typically are some wild swings surrounding the 1^st Tuesday of November every 4 years.  Does it make sense to ‘bet’ on that volatility? We don’t believe so, and certainly not via a major ‘all or nothing’ move in your portfolio.

2022 was a brutal year for global stock and bond markets (worst on record).  The recovery since has been very welcome.  Recently we reduced exposure to equities in most of our portfolios.  Why?  One reason is an expectation of election driven volatility.  A bigger reason was because it is time to rebalance portfolios closer to long-term targets.  We’re positioned well for volatility (for any reason) and we look forward to taking advantage of it.

And let’s not forget, economically-speaking, things are strong in the U.S.  We have, in general, recovered from the interest rate shocks of 2022.  Unemployment is very low.  Inflation has come down to a great degree.  Housing is strong.  The stock market is hovering near all-time highs.  One of two election results are known.  The debates didn’t move the needle relative to the markets.  We will likely still have a grid-locked Congress on November 6^th (which financial markets like).

That said, there are certainly major issues out there.  There always will be and we’re very aware of that fact.  Election cycle-driven financial markets fear is temporary and always will be. Every 4yrs the concerns are different, but the fear always rhymes.

One last historical fact:  Since 1960, aside from the obvious, what do John F. Kennedy, Lyndon Johnson, Richard Nixon, Jimmy Carter, Ronald Reagan, George H. W. Bush, Bill Clinton, George W. Bush, Barack Obama, Donald Trump, and Joe Biden all have in common (sorry Gerald Ford)?  While in the Oval Office, the stock market hit an all-time high.  Capitalism wins.  We don’t envision that changing anytime in the coming decades.

Thank you.  Please never hesitate to reach out to us with any questions or concerns.

Sincerely,

Your LJI Team

It has been a while since we shared our thoughts on the markets so, all things considered, we felt it was time to reach out.

Our last note was in the middle of the ‘Regional Bank Crisis’ last March as several banks were melting down, for various reasons.  Since then, the Regional Bank Index is +20%ish while the ‘Big Bank’ index is +25%.  Buying in the middle of those types of ‘storms’ is historically a smart move.

As a team we spend time on a weekly basis sharing economic, market, sentiment, and technical news/facts/history.  Accordingly, we’ve stayed bullish over the last year (+) and continue to stay fully invested.  Today we’d like to share a few reasons why we are still optimistic.

First, it’s worth noting 2022 was an outright disaster in the financial markets.  At one point, the S&P500 was down over 25% with the Nasdaq down 33%.  Bonds had their worst year EVER, by far, as the Fed was trying to fight the inflationary pressures brought on by the COVID pandemic, and the monetary policy that came with it.

We bring up 2022 simply to recognize how difficult it can be to stay invested and believe in the markets while the news is still fairly terrible, and the ‘sting’ of a bear market is fresh.  Coming out of the 2009 bear market (S&P500 -55%) the economic news really didn’t turn until the Summer of 2010.  By then the S&P500 was +65% from the March 2009 lows.  The market lost 35% in 5 weeks when COVID hit in March of 2020.  Few believed the markets would fully recover by late summer, just 5 months later, as the pandemic lasted well into 2021.

The past 18 months have been similar to those previous bear markets.  After going thru a very extended period of (mostly) 0% interest rates (2008-2021), the market reaction to the Fed raising short-term rates to over 5% was understandably extreme.  Banks didn’t hedge properly.  Immense pressure in the Real Estate market scared many.  However, scared is not an investment strategy.  And the U.S. economy has stayed remarkably strong and seems to be in solid shape.

Speaking of economic strength, something we’ve discussed many times over the last year is ‘soft’ data vs. ‘hard’ data.  When it comes to the economy, things like surveys, opinions, attitudes, and polls are referred to as soft data.  Soft data reflect what humans think, expect, believe, and/or are scared of.  It is often driven by emotions and/or unknowns.  Soft data has been WEAK for the better part of the last 24 months.

On the other hand, hard data is factual.  Hard data reflects the actual results of what is really happening in the U.S. economy.  For over a year, the hard data from our economy has slowly gotten better. Manufacturing is up and continues to climb.  Real income continues to outpace inflation.  Gross margins are strong.  Corporate earnings are rising.  And the financial markets reflect those facts, as they should.

Meanwhile – and this is very normal – we continually receive emails/texts/calls voicing concern about a market crash, “what’s coming”, “the recession”, etc.  Again, this is normal.  But we just don’t see it.  The data doesn’t point in that direction.  And, most certainly, the markets don’t either.  A recession seems unlikely – we basically had one in the 1^st half of 2022.  The bank sector is healthy.  Construction spending is keeping pace.  Housing is incredibly strong, although for different reasons than in the past.  Unemployment is very low.

Are we surprised by all of this?  Sure, we’re human too.  Interest rates had us spooked.  But capitalism works.  And market history matters.  Markets usually go up.  We get smacked around every few years, but markets are undefeated over time.  This time is not different.

Speaking of this time is not different, we all know there is a Presidential election in 8 months.  The entire globe is fully aware of this.  It isn’t news.  Half of the country will be mad when it’s over.  Many will be scared leading up to it.  We’ll discuss previous election cycles in future correspondence but trust us, we’ll get thru November 2024.  The markets care very little about politics.

Another reason to stay positive in 2024?  You guessed it: The Presidential Election.  Going back to the 1950s, in year 4 of every sitting President’s first term, US stock market returns have been positive.  Said another way, every administration has pulled out all the stops, economically-speaking, to try and get re-elected.  We like those odds for 2024.

Two more thoughts on market history.  First – and this gets nerdy/technical – but there is something called a ‘Zweig Breadth Thrust’ (ZBT).  Think:  a VERY Powerful, VERY Positive UP move in the stock market where almost ALL stocks rise in a BIG way.  These Thrusts usually happen at very surprising times.  We have had 17 ZBTs since World War II &, so far, we’re 16-0.  #16 was on November 3^rd of 2022.  Each of the previous 16 times, the market has been positive 6 months later (avg +15%) AND positive 12 months later (avg +23%).  The last one (#17) was on 3/31/23 and is looking very solid as well.

One more:  Going back to 1936, when December, January, and February are all positive months in the U.S. Stock markets, that year’s return has been positive.  25-0 over the last 25 occurrences, with an average return of 16% for the year.  We like those odds too.

We’re optimistic.  Always concerned but never scared.  The above are the types of conversations we’re constantly having (monitoring) amongst ourselves.  We don’t share all of it because we don’t want to add to the never-ending noise that already fills our lives.

To be clear, just because good things have happened historically does not mean this year will be a joy ride, or there are any ‘certainties’.  We know that and you should too.  2024 has gotten off to a solid start but we are expecting typical Spring/Summer volatility and we’re more comfortable putting cash to work during inevitable pullbacks.

Thank you and please don’t ever hesitate to reach out with questions/concerns.

Sincerely,

Your LJI Team

As we close the books on 2023, we are sending our annual milestones newsletter, highlighting contribution limits and age milestones which may present planning opportunities for 2024.

We realize there is a LOT of information below. Not everything will be relevant to each individual or family. We recommend giving it a read and highlighting items relevant to your personal situation.

Common Contribution Limits:

Traditional & Roth IRA’s – increasing to $7,000/yr; catch up contribution of $1,000/yr for those age 50 and older. The income ranges that determine whether you can contribute, how much you can contribute, and in the case of Traditional IRA’s, how much you can deduct, is increasing for 2024.

Roth IRA’s – For Roth IRA’s, you can make a full contribution if your adjusted gross income (AGI) is under $146,000 for a single tax filer and under $230,000 for married filers. Conversely, if you are a single filer and make more than $161,000 AGI, or married making more than $240,000, you cannot make contributions to a Roth IRA.

Traditional IRA’s – For Traditional IRA’s, the deductible amount from your income is complicated depending on whether you or your spouse are covered under an employer-sponsored plan, as well as your income level. Please reach out to us or your CPA if you have questions on how this pertains to your personal situation.

401(k) Plans – increasing from $22,500/yr to $23,000/yr for 2024. Catch-up contributions for those age 50 and older are still $7,500/yr (same for Solo 401k, 403b, and governmental 457b plans).

SEP IRA’s – for self-employed individuals, the total amount you can contribute to a SEP IRA is limited to 25% of employee compensation up to $69,000 for 2024 (up from $66,000 in 2023).

Solo 401k’s – The same contribution limit that applies to SEP IRAs applies to the Solo 401(k) but the Solo 401(k) includes a catch-up contribution for those age 50 and above, in the amount of $7,500/yr.

SIMPLE IRA’s – The contribution limit on SIMPLE retirement accounts is increasing to $16,000 for 2024, up from the 2023 limit of $15,500. The SIMPLE catch-up limit is still $3,500 for those reaching the age of 50 in 2024.

HSA’s – The annual limit on deductible contributions for individuals making HSA contributions is increasing from $3,850 to $4,150. The annual limit for families is also increasing from $7,750 to $8,300. For contributors aged 55 and above, a $1,000 catch-up is available. To participate in an HSA an employee must be in a High Deductible Health Plan (HDHP). Deductibles for qualifying HDHP’s for 2024: $1,600 for singles, and $3,200 for families. Out of pocket maximums for HDHP’s for 2024: $8,050 for singles, $16,100 for families. Check with your employer’s health plan to determine eligibility.

Indiana Tax Credit for 529’s – The % of 529 contributions that may be used as a tax credit is staying the same at 20%. However, the maximum tax credit is increasing to $1,500 starting with tax year 2023(tax returns filed in 2024). Therefore, you would have to contribute $7,500 to receive the max tax credit of $1,500 ($7,500*20%=$1,500). For Married Filing Separate, the max tax credit is $750.

Additionally, for tax years 2023 and later you can now make 529 contributions up until the original due date of the return before extensions (i.e. April 15) and designate it as a prior year contribution.  The requirements to designate the contribution to the prior year are that you will have to make the following elections:

1. irrevocably elect to treat the contribution as being made in the previous tax year, and
2. irrevocably elect to treat the contribution as not being eligible for credit for the current tax year.

This added flexibility can add some additional state tax planning opportunities, so reach out to us or your CPA for additional information.

Gifts – Each year, the IRS sets the annual gift tax exclusion, which allows a taxpayer to give a certain amount (in 2024, $18,000) per recipient tax-free without using any of the taxpayer’s lifetime gift and estate tax exemption (in 2024, $13.61 million). For married couples, this means that they can give $36,000/year per recipient tax-free without using any of their lifetime gift tax exemption.

If one gifts an amount that is above the annual gift tax exclusion, that individual will use a portion of his or her lifetime gift tax exemption ($13.61 million in 2024). The gift and estate tax exemption are linked, meaning that the use of one’s gift tax exemption will reduce the amount one may leave at death estate-tax-free. If one makes gifts more than the annual gift tax exclusion, one must file a gift tax return, due April 15 in the following year, to report the gift and track the amount of the lifetime exemption that has been used.

*Note that although the IRS has announced the lifetime estate and gift tax exemption will increase to $13.61 million in 2024, that amount is set to be cut in half at the start of 2026.

Social Security Max Taxable Wage – The maximum annual wage amount at which employees pay a Social Security tax increased from $160,200 to $168,600. The rate remains the same at 6.2%.

Social Security Cost-of-Living-Adjustment (COLA) – For 2024, the cost-of-living-adjustment for Social Security and Supplemental Social Security Income (SSI) is 3.2%. This is not as big of an increase as last year (8.7%), but it still may cause you to owe additional income taxes. For now, single filers who have combined income (AGI + tax-free interest and half of Social Security benefits) between $25,000 and $34,000 may pay taxes on up to 50% of their Social Security benefit, and for those above $34,000, up to 85%. Married filers who have combined income between $32,000 and $44,000 may pay taxes on up to 50% of their benefit, and for those above $44,000, up to 85%.

Standard Deduction – For married filing jointly, the standard deduction from AGI to reach taxable income is increasing from $27,700 to $29,200. Accordingly, it is increasing from $13,850 to $14,600 for single taxpayers, and from $20,800 to $21,900 for Heads of Household.

Retirement Plans/Small Business Owners may want to consider the following changes:

Pensions/Defined Benefit Plans – For 2024, the maximum annual benefit payable from a defined benefit plan is increasing from $265,000 to $275,000. Consult with an advisor for clarification of the eligibility rules to receive benefits found on the plan documents (typically begin as early as age 62 and no later than age 65).

Employer Match Compensation Limit – This amount is increasing from $330,000 to $345,000. This means that if an employer match is 4% of salary, and your salary is $400,000/yr, the match would be 4%*$345,000 = $13,800.

Highly Compensated Employees – The threshold that identifies an employee as highly compensated is increasing from $150,000 to $155,000. This means any employee who is paid more than $155,000 per year is considered “highly compensated”. An unexpected increase in highly compensated employees may trigger compliance-testing issues within the company’s retirement plan and should be reviewed by the advisor running the plan.

Age Milestones

Age 50 – You may increase your annual contribution to your 401k by $7,500, while those contributing to a Roth or Traditional IRA can add an additional $1,000 annually.  With retirement rapidly approaching, this offers a great opportunity to supercharge your savings. If you participate in a SIMPLE IRA, you can increase your contributions by $3,500.

Age 55 –If you are between ages 55 and 59 ½ and leave your job, the IRS rule of 55 may allow you to receive a distribution from your 401(k), 403(a), or 403(b) plan after reaching age 55 without triggering the 10% early withdrawal penalty if your plan provides for such distributions. Keep in mind you will still pay ordinary income tax on the withdrawals, but this could help you bridge the gap until you are eligible to draw from IRA’s or Social Security.

Also at age 55, you may contribute and deduct an extra $1,000 to your HSA.

Age 59 ½ – At this point, you may withdraw money from your IRA’s, or employer-sponsored plans without paying the 10% penalty for being under age 59 ½.  While there is no penalty, the withdrawals will still be taxed as ordinary income (unless from a Roth 401(k) / Roth IRA or the basis from a non-deductible IRA). Keep in mind that no matter your age, a Roth must be open for at least 5 years to take tax and penalty free distributions on gains.

Age 60 – You may be eligible for Social Security Survivorship Benefits if you are a widow or widower.  If you are eligible, be aware that taking SS at the soonest eligible date will reduce your benefit by as much as 28.5%.

Age 62 – You are eligible for reduced Social Security, however, like survivorship benefits mentioned above, the amount will be permanently reduced by up to 25%. You will likely want assistance analyzing whether taking Social Security early at a reduced benefit makes sense within the context of your overall financial plan, health, etc.

If you choose to take Social Security while still working before your full retirement age (FRA), you can earn up to $22,320 a year without impacting your benefit. For every $2 you earn over that amount, your Social Security benefit will be reduced by $1. In the year you reach your FRA you can earn up to $59,520 without any impact to your benefits.  For every $3 earned over $59,250, your Social Security benefit will be reduced by $1. However, your benefit is not completely lost. The money they withhold gets calculated for future benefits.  It is also worth noting that once you attain FRA there are no limits on your earnings.

Age 65 – Medicare is now part of your overall health care decision.  You are given a 7-month window to enroll (3 months prior to your 65th birthday, the month of your birthday, and 3 months following that month).

If you happen to be contributing to a Health Savings Account, you are no longer able to do so.  The upside is that you can take money from the Health Savings Account for any reason without penalty.  Distributions from HSAs used for eligible medical expenses will be tax-free including things such as Medicare premiums, nursing home, etc. HSA funds cannot be used to pay for Medigap premiums. Taxes may apply if distributions are used for other reasons.

It is also important to consider the numerous Medicare Supplement plans that are available.  While choice is generally a good thing, there can be a lot of confusion as to the type of coverage you need, and the costs involved.  If you do not feel you have the expertise to make an informed decision, we can put you in contact with a trusted expert and/or resource who can assist you.

Aside from Medicare being an important milestone, any Disability Income policies should be reviewed if you are still working (or if you are collecting benefits).  Many benefits will stop paying at age 65 and coverage generally ends at that time.

Age 67 – This is considered full retirement age (for individuals born after 1959) and you are entitled to your full Social Security Benefit at this point.

If you are still working, or do not need the income, it’s worth analyzing whether you should begin taking benefits since taxation and increased benefits for waiting could be a factor in your decision.

For those who have not done so, we recommend reviewing your Social Security statement on an annual basis to determine if you were properly credited for social security wages and taxes paid. You can now create an online login at https://www.ssa.gov . Statements are now only mailed every 5yrs if you do not have an online login.

Age 70 – Even if you are still working, this is the age that will give you the maximum Social Security payout.  Benefits no longer accumulate at 8% per year after this point.

Age 70 ½ – Qualified Charitable Distributions (QCDs) are permitted from IRAs only (includes inherited IRAs, not 401(k)s). This means that you can make a direct rollover from your IRA to a qualified charitable organization tax and penalty free. This can ease the tax consequences of RMDs at age 73, so we recommend consulting with your advisor and CPA to make sure available opportunities are taken advantage of.

Age 73 – Under Secure Act 2.0, a person that turns 73 in 2023 must begin taking Required Minimum Distributions (RMDs) from your retirement accounts such as IRA’s and 401K’s (no need to take from your Roth IRA).  There is some flexibility with regards to your first distribution, but we recommend you talk with us and your tax advisor to make an informed decision.  If you are charitably inclined, there are some planning techniques that can be incorporated with this distribution as well.

If you were already taking your RMDs based on age 70.5 or 72 according to the old rules, this change does not apply to you. You will remain on your existing RMD schedule.

If you are still working for the company sponsoring the plan when you turn 73 and do not own more than 5% of the company, you may be eligible to delay RMDs as long as you are employed. However, once you leave that company, you must start taking RMDs.

Note on Beneficiary / Inherited IRA’s: Passed in late 2019, The Secure Act altered both the RMD age requirements (mentioned above) as well as newly inherited Beneficiary IRA’s. This new law does not impact the ability of spouses to inherit an IRA and “stretch” that IRA over their lifetime. However, other than a spousal IRA, an IRA inherited from a grandparent, parent, etc. will now have different rules. Rather than allowing the individual to stretch that IRA over their lifetime, the government mandates it be taken in full within 10yrs.  For those inheriting an IRA in which the previous owner had already begun taking RMDs, the new account owner may be required to continue that RMD in years 1-9, and completely liquidate the account by year 10. If the previous owner had not begun taking RMDs, the new account owner must liquidate the account by the 10^th year, but they may not be required to take distributions in years 1-9.

As always, should you or your loved ones have any questions, please do not hesitate to contact LJI.

Best wishes for a Happy Holiday season and a safe and prosperous new year!

Your LJI Team

Over the last week, seemingly out of nowhere, we had three bank failures here in the U.S.  And, based on calls, emails, texts over the last few days, we felt we should send out a brief note to help explain what is going on.

Silvergate Capital (Symbol: SI), holding company for Silvergate Bank.  Silvergate Bank has received less publicity but on Friday, March 3^rd, the FDIC showed up at this bank near San Diego and, last Wednesday, shut it down.  Silvergate is deeply embedded in lending to the ‘institutions’ and major global players in the world of Cryptocurrency.  That extremely speculative corner of finance has been decimated over the last 24 months.

SVB Financial Group (SIVB), holding company for Silicon Valley Bank.  Located in the heart of the U.S. Tech world, SIVB was the 16^th largest bank in United States.  They have basically been the ‘go to’ lender for most technology companies, venture capitalists, and biotech firms, among others, for decades.  They lend to the companies, founders, executives, etc.  And they’ve done that across 100s and 100s of companies.  It is no secret the dramatic rise in interest rates have hit Silicon Valley especially hard.

Two other aspects of SIVB are very specific to this bank.   First, 87% of SIVB’s assets were invested in securities (think stocks/bonds).  The average bank has 24% (JP Morgan Chase = 19%).  The US bank with the 2^nd highest % is at 42%.  Second, unlike most larger, responsible banks, for some reason, SIVB did not hedge interest rate risk.  In other words, as the Fed has raised rates, SIVB’s management was asleep at the wheel.

As word got out last week there was a bank run on SIVB as customers yanked $42B on Thursday.  The FDIC shut them down Friday.  Figures have varied but less than 13% of SIVB’s deposit base was covered by FDIC Insurance ($250k).

SIVB is the 2^nd largest bank failure in US History.  The largest, Washington Mutual, failed during the 2008 Crisis before ultimately getting taken over by JP Morgan Chase.

Signature Bank (SBNY).  Based in New York, Signature Bank is a member of the S&P500.  Before 2020 SBNY was a traditional bank.  Since late 2020, like Silvergate Bank, SBNY made the unfortunate decision to also go ‘all in’ on Cryptocurrency.  They created an exchange to facilitate major transactions amongst institutional players in the Crypto world.  There is much speculation that both SBNY & SI helped create one of the largest money-laundering operations on the planet (via Cryptocurrency transactions).

Like Silicon Valley Bank on Thursday, Friday there was a bit of a bank run on SBNY.  Accordingly, yesterday, the FDIC stepped in and shut Signature Bank down.   Now we have the 3^rd largest bank failure in US history.

It’s been a heckuva week in the banking sector, to say the least.

The bad news?  The Federal Reserve has raised rates at a record speed over the last year.  Their stated goal was to slow down the economy and stem inflation.  Along the way, they’ve wrung out some excessive risk and exposed some really horrible banks.  Three failed over the last seven days.

The good news?  Last night, the Federal Reserve, the FDIC, and the Treasury Department announced a plan to take measures to ensure all depositors at SIVB & SBNY will be made whole, even if accounts held more than $250k (the current FDIC insurance limit).

And please keep in mind this action is VERY different than the bank bailouts in 2008/09.  Back then stockholders and most bondholders were also bailed out.  That is NOT the case today.  Over time, the stock of SIVB & SBNY will go to $0.  Most of their bonds will too.  But all the customers, corporations, etc. with money in the banks will be made whole.

Should you be worried about YOUR money in your bank?  In a word, no.  The average bank has 24% of its assets in securities.  SIVB had 87%.  SIVB also had a VERY concentrated corporate & personal customer base – mostly tied to the technology sector. Silvergate & Signature Bank were the de facto lenders to Cryptocurrency at an institutional level.  It is our opinion that over 99% of all cryptocurrency will go to $0.  The management of these banks are idiots, frankly, and acted extremely irresponsible.

Will these recent actions shake up the banking/financial sector?  Yes.  Things have been very volatile and that will likely continue as we collectively work thru this.  However, most banks are in very good shape.  Most banks are NOT anchored in Silicon Valley and actually hedge their portfolios to a rise in interest rates.  Most banks do NOT invest over 85% of their assets in stocks.  Most all banks do NOT get in bed with the world of Cryptocurrency.

There are a lot of scared people out there.  Especially shareholders, retail customers, and corporate customers of the 3 banks mentioned in this note.  When people are scared, they sell what they can, and stocks are easy to sell.  Friday was a rough day in the markets.  This week will be volatile.  All of this should give the Fed pause on future rate hikes – a lot of damage has been done.  We’re not scared right here, right now, in this market.  The S&P500 is down over 7% since the February highs.  We’re looking to take advantage of lower prices, stabilizing interest rates, and better banking regulations.

Please reach out with any questions or concerns.

Thank you,

Your LJI Team