fbpx window.dataLayer = window.dataLayer || []; function gtag(){dataLayer.push(arguments);} gtag('js', new Date()); gtag('config', 'UA-156569540-1');
Downsizing or Rightsizing: Finding the Right Fit for Your Future

Downsizing or Rightsizing: Finding the Right Fit for Your Future

If you’re thinking about downsizing or rightsizing your home prior to retirement, you’re not alone. This decision is not just about reducing space – it’s a significant financial decision that can benefit your lifestyle and financial health and many people are choosing to adjust their living spaces as they approach this new chapter in their lives. Learn more about the process of downsizing or rightsizing and how it can help you as you approach retirement.

Assessing Your Living Space

As homeowners age and children begin to move out, it’s common for individuals to assess their homes, finding that they primarily live in just three rooms: the family room, the bedroom, and the kitchen. Housing expenses can constitute a significant portion of a person’s budget in retirement. Naturally, many look to reduce their home size as a way to cut these expenses. However, it’s important to remember that reducing the size of your home doesn’t always equate to reducing your budget. 

Financial Planning: Pre- and Post-Downsizing

Before taking the leap to downsize, it’s crucial to complete both a pre-downsizing budget and a post-downsizing budget with your financial advisor. This will give you a clear picture of your financial situation and help you understand the potential impact on your finances. Additionally, when selling your home, be aware of the potential capital gains tax implications. Fortunately, couples can exclude up to $500,000 of capital gains from the sale of their primary residence. You might also reinvest what you owe into a new permanent home. 

Personal Considerations

While the financial benefits of downsizing are important, they are not the only factors to consider. Many people also think about the proximity to family, a warmer climate, or being closer to friends, all of which can significantly influence your decision. It is also essential to recognize that downsizing your home can impact your estate planning goal, retirement goals, and other financial situations in your life. Sit down with your financial advisor to see how downsizing would impact all areas of your financial plan before making a final decision. 

Consulting with Trusted Advisors

At Blakely Financial, we suggest contacting your most trusted advisors to discuss this important decision. They can provide you with clarity, insight, and guidance tailored to your unique situation. Everyone’s circumstances are different, and having the best information possible is key to making an informed choice.

Downsizing or rightsizing your home is a significant decision that can shape your future in many different ways. By considering all factors and seeking professional advice, you can make a choice that supports your financial well-being and personal happiness. Still on the fence? Contact Blakely Financial today to get started. 

 

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.
Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.
529 Plans Rethinking the Possibilities

529 Plans: Rethinking the Possibilities

529 plans are no longer solely reserved for college tuition. Today, these versatile accounts offer a broader spectrum of possibilities beyond saving for college, covering expenses like vocational schools and K-12 education. With their tax advantages and adaptability to diverse educational paths, 529 plans emerge as a strategic solution for families seeking flexibility and foresight in securing their children’s educational future. In this blog, we are rethinking the possibilities of 529 plans to explore their full potential and delving into how you can leverage these accounts to invest in your child’s future at every stage of their education journey.

529 Plans for College Tuition

Traditionally, 529 plans have been used to save for college tuition and related expenses. These accounts offer tax-deferred growth and tax-free withdrawals when funds are used for qualified higher education expenses. By contributing to a 529 plan, parents can build a dedicated fund to cover the cost of tuition, room and board, books, and other college-related expenses. Anyone can contribute to 529 plans, allowing family and friends to contribute to your child’s future education.

K-12 Tuition

In recent years, the scope of 529 plans has expanded to include K-12 education expenses. Families can now use a 529 plan to pay for up to $10,000 in tuition at elementary, middle, and high schools, including private and religious institutions. This flexibility allows parents to start saving for their child’s education from an early age and provides additional options for educational choices beyond the traditional public school system. 

Vocational Schools

Another exciting development in the possibilities of 529 plans is the ability to use funds for vocational schools and career training programs. If your child is interested in pursuing a trade or obtaining specialized certifications, a 529 plan can help cover the cost of tuition, fees, and supplies. This opens up new opportunities for students who may not have considered traditional four-year college programs, allowing them to pursue career paths aligned with their interests and goals. Eligible vocational schools, including many technical colleges, cosmetology schools, culinary schools, and more can be found using the Federal School Code Lookup Tool.

Apprenticeship Programs

529 plans can also be used to support apprenticeship programs that are certified and registered with the U.S. Department of Labor’s National Apprenticeships Act, providing financial assistance for on-the-job training and educational coursework. Apprenticeships offer a valuable alternative to traditional education pathways, allowing individuals to earn, while they learn and gain practical skills in a specific trade or industry. By using funds from a 529 plan, apprentices can offset the cost of program fees, books, supplies, equipment, and other related expenses, making these opportunities more accessible to aspiring professionals. The Department of Labor provides a search tool to determine whether your apprenticeship is eligible for 529 plan funds. 

As 529 Day approaches, it’s time to rethink the possibilities of 529 plans and explore the various ways you can use them to invest in your child’s education journey. Contact the Blakely Financial office today to learn how we can help you maximize the benefits of 529 plans and support your child’s goals every step of the way. 

 

The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that an education-funding goal will be met. In order to be federally tax free, earnings must be used to pay for qualified education expenses. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10 percent penalty. By investing in a plan outside your state of residence, you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses.
Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.
Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.

Key Updates on the Economy & Markets

Stocks continued their upward trajectory in early 2024. The S&P 500 returned more than 10% for a second consecutive quarter, setting multiple new all-time highs along the way. Notably, this quarter saw a significant shift in sentiment, as investors now only expect three interest rate cuts this year as compared to six at the start of the year. This change in expectations came as inflation progress slowed and the U.S. economy continued to expand despite higher interest rates, both of which signal a need for fewer rate cuts. This letter recaps the first quarter, discusses the stock market’s strong start to 2024, and looks ahead to the second quarter.

S&P 500 Sets 22 New All-Time Highs in Q1

The stock market is off to a strong start this year, with the S&P 500 Index gaining +10.4% in the first quarter. Figure 1 graphs the price of the S&P 500 Index since the end of 2021. The yellow dots mark new all-time closing highs. On the far-left side of the chart, the single yellow dot marks the previous all-time closing high set on January 3rd, 2022. Shortly after the January 2022 all-time high, the Federal Reserve started its campaign of aggressive interest rate hikes as inflation spiked to a 40-year high. The chart shows the 2022 stock market selloff as investors feared that higher interest rates would slow the economy.

The January 2022 all-time closing high held throughout all of 2022 and 2023, but it’s already been eclipsed multiple times in 2024. After trading below its prior all-time high for over two years, the S&P 500 Index has set 22 new all-time closing highs this year. The yellow dots on the far-right side of the chart mark these new highs and show the S&P 500’s steady climb higher in early 2024.

Inflation Progress Slowed in Q1

Inflation was on a steady downward trend heading into this year, and the market expected it to continue moving lower. However, recent data is causing investors to rethink that assumption. Figure 2 graphs the year-over-year change in the Consumer Price Index, which measures the change in price for a basket of consumer goods. The chart shows the inflation spike in 2021 and early 2022, followed by a period of easing inflation during the past two years. However, the yellow box shows that the pace of inflation progress has slowed recently. While inflation is still drifting lower, it’s not falling as quickly as investors or the Federal Reserve want.

The question is whether the slowing progress is the start of a new trend or a temporary break in the current trend. Seasonality may be contributing to the slowdown, as inflation tends to be higher earlier in the year and then lower later in the year. Is the early 2024 rise the result of previously agreed upon contractual price increases, or does it hint at something more under the surface? Federal Reserve Chair Jerome Powell believes the early 2024 inflation bump is seasonal and short-term in nature. The market is less certain and more divided.

The chart also demonstrates that getting back to the Fed’s 2% inflation target will be bumpy and uneven. The disinflation process won’t be a straight line. The latest risk is rising oil prices, with the price of a regular gallon of gasoline jumping by over +20% during Q1. Falling energy prices helped to ease inflation pressures during the past two years, but there is now a question about whether that trend can continue with gas prices rising.

Investors Expect Fewer Interest Rate Cuts This Year

One of the big debates heading into 2024 was how many times the Federal Reserve would cut interest rates. Figure 3 tracks the market’s rate cut forecast. Looking back to the start of Q4 2023, the market expected the Federal Reserve to cut interest rates by -0.75% this year. By the end of December, the market’s rate cut forecast for the entirety of 2024 had risen to -1.50%. Based on a typical rate cut increment of -0.25%, investors came into this year expecting six interest rate cuts (i.e., -1.50% in total cuts). In contrast, the Federal Reserve only expected three interest rate cuts at the start of this year, or half the market’s estimate. There was a debate over whose interest rate cut forecast was more accurate. As of the end of Q1, the central bank’s forecast appears more accurate. Investors now only expect three interest rate cuts this year, which is in line with the Fed’s initial forecast.

Why do investors expect fewer interest rate cuts this year? One reason is that inflation progress is slowing. Another reason is that the U.S. economy remains resilient despite higher rates. Figure 4 graphs three data points that underscore this resilience. The top chart graphs the number of new homes for sale by stage of construction: not started; under construction; and completed. The chart shows home construction activity is at levels not seen since before the 2008 financial crisis, despite the average 30-year fixed-rate mortgage sitting near a 15-year high of 7%. The middle section shows consumer sentiment rose to a 2.5-year high in March after setting a record low in June 2022. Multiple factors are contributing to the improved sentiment, including a tight labor market, rising stock prices and home values, expectations for a continued decline in inflation, and a solid economic backdrop. The bottom chart tracks the price of a barrel of West Text Intermediate crude. Crude oil prices have risen from approximately $70 per barrel at the start of the year to $83 per barrel at the end of Q1, an increase of roughly +18.5%. Oil is a cyclical commodity, so rising oil prices suggest demand is strong and may hint at underlying strength in the U.S. economy.

Equity Market Recap – Stocks Post a Second Consecutive Quarter of Strong Gains

The opening section discussed the stock market’s strong start to the year. Following an impressive +11.6% gain in Q4, the S&P 500 returned +10.4% in Q1. Small cap stocks underperformed during the quarter, as the Russell 2000 Index returned +5.0%. Ten of the eleven S&P 500 sectors posted gains, with cyclical sectors outperforming their defensive counterparts. The energy, financial, and industrial sectors each outperformed the broader S&P 500 Index, while the real estate, utility, and consumer staple sectors underperformed as the stock market rallied.

International stocks underperformed U.S. stocks for a fourth consecutive quarter during Q1. Over the past twelve months, the MSCI EAFE Index of developed market stocks has returned +14.8%, or roughly half of the S&P 500’s +29.4% return. The MSCI Emerging Market Index has returned only +6.8%, or approximately one-fourth of the S&P 500. A few themes may explain why international stocks continue to underperform. First, international stock market indices lack exposure to leading artificial intelligence companies like Microsoft, Nvidia, and Super Micro Computer. Second, as discussed above, the U.S. economy continues to expand despite higher rates. In contrast, some countries and regions outside the U.S. are already feeling the impact of higher interest rates. Investors have been attracted to the U.S. for both its AI exposure and relative economic strength.

Credit Market Recap – Bonds Trade Lower After a Strong Fourth Quarter

While stocks started the year off with strong gains, bonds traded lower during Q1. The losses came as investors realized that the continued resilience of the U.S. economy meant the Federal Reserve may not need to cut interest rates as much, which caused Treasury yields to rise. The Bloomberg U.S. Bond Aggregate Index, which tracks a broad index of investment-grade rated bonds, posted a total return of -0.7%. It was a sharp reversal from Q4, when the index posted its first quarterly gain since Q1 2023 and its biggest quarterly gain since 1989.

In the corporate bond category, investment-grade bonds underperformed high-yield bonds during Q1. Over the past twelve months, high-yield corporate bonds have generated a total return of +8.8%, which factors in the interest payments received. Investment-grade corporate bonds generated a +3.5% total return over the same period. The high-yield bond universe continues to benefit from multiple themes. First, the group yields 7.83% at the end of Q1, which is 2.45% higher than investment-grade bonds. This extra yield helps boost high-yield’s total return. Second, as Figure 4 highlights, the U.S. economy has remained resilient despite higher interest rates. With the U.S. economy expanding at a solid pace, high-yield bonds’ credit risk has remained stable, limiting the number of defaults.

Second Quarter Outlook – Themes to Watch

The big investment themes were mostly unchanged during the first quarter. Stocks continued to trade higher, and the U.S. economy remained in expansion mode. While the market now expects fewer interest rate cuts this year, the primary reason is that investors and the Fed believe the U.S. economy can handle higher interest rates. Economic theory suggests that higher interest rates should slow economic activity as the cost of capital increases, but the data tells a different story this cycle. Home construction activity is the strongest since before 2008, consumer sentiment recently hit a 2.5-year high, and unemployment remains below 4%.

It’s difficult to overstate the uniqueness of this economic cycle. There was unprecedented monetary and fiscal stimulus in 2020 and 2021, followed by a rapid rise in interest rates in 2022 and 2023 as inflation reached levels not seen since the 1970s. In the housing market, many homeowners locked in low mortgage rates during the past few years, which has effectively limited the impact of rising interest rates. The labor market remains relatively tight after five million workers left the labor force during the pandemic and didn’t return, which has not been seen before. These themes won’t reverse quickly and will have long-lasting impacts, which both the Federal Reserve and markets must navigate. We will continue to monitor financial markets and the economy, provide timely updates to you, and adjust portfolios as needed.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.
Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation
All indices are unmanaged, and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results.

 

Advanced Tax Planning Tips for 2024

Advanced Tax Planning Tips for 2024

As the tax season draws near, it presents a perfect opportunity for both business owners and employees to refine their financial strategies and ensure a brighter, more efficient fiscal future. Whether it’s exploring advanced tax planning, making the most of employee benefits, or simply understanding the wealth of options at your disposal, being informed is the first step toward financial empowerment. In this article, we dive into some key tax planning insights, aiming to navigate this tax season with ease and set the stage for a year filled with prosperity and informed financial decisions.

For Business Owners:

Surround yourself with a team of professionals, including a tax professional and financial advisor, to explore tax deductions, credits, and strategies to fit your business into your overall financial picture.

Consider retirement savings options like SEP IRAs for self-employed individuals or SIMPLE or 401(k) plans if you have employees. Consult with your professional team to choose the best option for your situation.

Restricted Stock Units (RSUs) for Employees:

Restricted Stock Units (RSUs) are a form of stock compensation given by employers, which vest over time. Understanding your RSUs’ vesting schedule is critical, as it dictates when you can sell or hold your shares. Deciding whether to keep vested shares or sell them involves assessing the company’s potential growth against immediate financial gains and considering the tax implications of each choice.

Due to the complexities of RSUs, including their potential impact on your taxes and investment portfolio, consulting with a financial professional is highly recommended. An advisor can guide you through the intricacies of your RSUs, helping you to integrate them into your overall financial strategy effectively. This way, you can make informed decisions that balance immediate benefits with your long-term financial objectives, optimizing the value of your RSUs in alignment with your personal goals.

Employee Stock Purchase Plan (ESPP):

An Employee Stock Purchase Plan (ESPP) allows you to buy company stock, typically at a discounted rate, which can be a great financial opportunity. Key considerations include the discount rate, its fit within your financial plan, and its effect on your investment diversity. Before participating, assess how the plan impacts your financial goals and risk tolerance. Consulting a financial professional is beneficial for navigating ESPPs’ tax implications and integrating this investment into your overall strategy efficiently. Deciding on ESPP participation should align with your broader financial health, and professional advice can ensure it complements your portfolio effectively.

Rollovers: Combining Retirement Accounts:

Consider consolidating multiple 401(k) or 403(b) accounts from past jobs into one account for easier management and to simplify future required minimum distributions. Though not mandatory, consolidation can streamline your financial management.

If you are considering rolling over money from an employer-sponsored plan, you often have the following options: leave the money in the current employer-sponsored plan, move it into a new employer-sponsored plan, roll it over to an IRA, or cash out the account value. Leaving money in a plan may provide special benefits including access to lower-cost investment options; educational services; potential for penalty-free withdrawals; protection from creditors and legal judgments; and the ability to postpone required minimum distributions. If your plan account holds appreciated employer stock, there may be negative tax implications of transferring the stock to an IRA. Whether to roll over your plan account should be discussed with your financial advisor and your tax professional.

Pension Plans:

If you’re entitled to a pension plan, explore all payout options carefully to choose the best option for your financial situation. Discuss with your financial advisor to fully understand how your choice integrates with your broader financial goals.

Engaging with knowledgeable professionals and staying informed about your financial options allows for informed, strategic decisions that support your long-term financial success. Proactive planning is key. For personalized advice and to integrate these tax planning tips into your financial strategy, consider reaching out to financial professionals like the Blakely Financial team.

If you are considering rolling over money from an employer-sponsored plan, you often have the following options: leave the money in the current employer-sponsored plan, move it into a new employer-sponsored plan, roll it over to an IRA, or cash out the account value. Leaving money in a plan may provide special benefits including access to lower-cost investment options; educational services; potential for penalty-free withdrawals; protection from creditors and legal judgments; and the ability to postpone required minimum distributions. If your plan account holds appreciated employer stock, there may be negative tax implications of transferring the stock to an IRA. Whether to roll over your plan account should be discussed with your financial advisor and your tax professional.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.
Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.