Happy New Year!
We hope the final weeks of 2022 were full of rest and joy for you. It was, and this is a
theme of the 2020s, quite the year. A major global superpower brutally invaded a neighboring country, Covid-19 was a continued presence, inflation spiked to 9%, stock and bond markets experienced broad declines, mortgage rates increased from 3% to over 7%, and the Federal Reserve raised the federal funds rate from 0.00% to 4.25%.
SECURE ACT 2.0
To end the year, Congress passed the SECURE Act 2.0, with broad implications for retirement planning, inside a 4,100-page omnibus bill. The original SECURE Act was passed in December 2019 and included significant updates like increasing required minimum distributions (RMDs) from age 70 ½ to age 72 and making dramatic changes to inherited IRAs. The 2.0 version was no less impactful but is more acute in its implications. Here are a few key highlights:
- Starting in 2023, the age at which RMD requirements begin is 73 for individuals born between 1951-1959.
- For those born in 1960 or later, the new RMD age is 75.
- A new mechanism to convert unused college funds in 529s to Roth IRAs for longstanding beneficiaries of the 529.
- IRA catch-up contributions for savers age 50 and over, currently set at $1,000, will be indexed for inflation starting in 2024.
- New Increased catch-up contributions for employer-sponsored retirement plans for workers aged 60-63.
The implications of SECURE Act 2.0 are most impactful to certain financial situations. Therefore, as a part of our proactive planning approach, we will review your financial plan considering these new rules to search for new and additional planning opportunities.
2023 Retirement Plan Contributions Limits
In addition to expanding the tax brackets, the IRS has issued the 2023 retirement plan contribution limits, and with the impact of inflation, there are significant increases.
| 401(k) | $22,500 |
| Over 50 401(k) | $30,000 |
| IRA/ROTH | $6,500 |
| Simple IRA | $15,500 |
| Over 50 Simple IRA | $19,000 |
| SEP IRA | $66,000 |
TAKE ACTION TODAY – UPDATE your annual deferral percentage to maximize your retirement contributions/
2022 Financial Markets
From an investment perspective, 2022 was a different animal. Markets slipped up early in the year and never seemed to catch their feet.
Here is how major markets ended 2022:
- S&P 500: -19.44%
- International Stocks: -16.15%i
- Nasdaq Composite: -33.10%
- Barclays Aggregate Bond Index: -13.01%ii
Diversification is a basic skill
John Wooden, who famously coached UCLA to nine national college basketball championships from 1964 to 1975, was known to take the first day of practice not to input complex offensive schemes or work on fastbreak layups but to teach his players how to tie their shoes. The proper tying of your shoe diminishes the risk of blisters and sprained ankles. Diversification is like that. It decreases the risk of investment-related blisters, sprained ankles, and other more severe ailments. A ‘first things first’ approach to financial planning checks off investment diversification and other essential tasks, like creating an emergency fund or saving in your 401k.
Unfortunately, diversification is not fun.
Performance chasing does not just play out in stock picking but also in asset allocation. For example, after a decade of underperformance, small-cap value stocks were largely ignored by investors who instead favored the trillion-dollar tech companies, like Google, Amazon, Tesla, and Microsoft, that led the Nasdaq Composite. Yet, US Small Cap Value has compounded by 7.64% annually over the last three years versus the Nasdaq’s 5.37% annual rate.
Notably, in a year of poor performance, US Small Cap Value only declined by 6.6%, dramatically outpacing most other asset classes. Similarly, Europe has largely been written off as dead money by many American investors. According to our financial news, Europe has too little innovation, too much socialism, concerning population declines, and now a war, spiking inflation, and untenable energy costs that are hurting consumers and destroying the local industry.
And yet, European shares rose 19.75% over the last three months of 2022 versus a 7.56% increase in the S&P 500 total return index. So, should we put all our money in European shares?
Of course not!
But the diversified and principled investor should not ignore a sizeable global market segment simply because of prevailing sentiment or recent underperformance. Successful investing is simple, but it is not easy. 2022 was full of lessons affirming this fact. 2023 is a year to focus on tying our shoes, and we are looking forward to collaborating with you to update, maintain and implement your financial plan throughout the year.
Because I am not a regular CPA
Michael Tannery CPA CDFA® AIF® ● CEO
Registered Principal | Tannery & Company
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The opinions expressed in this material are for general informational purposes only and are not a substitute for professional advice. Individual circumstances do vary. Independent Financial Group (IFG) does not give tax advice. IFG Registered Representatives (RR) do not give tax advice while acting as a RR. These matters should be discussed with your tax professional.
