Insights

Commentary, insights and analysis from Cahaba Wealth Management

Year-End Tax Planning Items: What You Need to Know

12/2024

By Stetson Ponder

As we come to the end of 2024, many families and individuals find themselves reflecting on the year that was. A portion of this reflection certainly involves their financial health and ways to improve for the upcoming year. At Cahaba Wealth, here is an overview of tax-planning strategies that we use to ensure our clients are as tax-efficient as possible.

Tax Loss Harvesting

In taxable accounts, taking a capital loss can be a strategic way to offset other capital gains that may have occurred over the year.
Selling off long-term investments at a loss and reinvesting them in similar positions allows you to “harvest” the negative return while maintaining the integrity of the portfolio.
In general, we look for these opportunities during periods of market volatility.
We also look for areas where capital gains may be harvested for those in the 0% capital gains tax bracket (those in lower-income filings).

Required Minimum Distributions

Those who turn 73 or older this year must take required minimum distributions (RMDs) from their IRA accounts by April 1, 2025.
Donating to qualified charities by way of Qualified Charitable Distributions (QCDs) for those 70 ½ years or older is a way to lower your taxable income and maximize your charitable income.
At Cahaba Wealth, we work individually with our clients to strategize the best way to disperse each respective account’s RMD.

Roth Conversions

With a Roth IRA, contributions are made with after-tax dollars and earnings can grow tax-free. In addition, Roth IRAs do not have RMDs associated with them, allowing your investments a longer time horizon.
A Roth conversion involves transferring retirement assets from a traditional IRA, SEP IRA, or 401(k) plan into a Roth IRA.
Roth accounts can be beneficial if you expect to be in a higher tax bracket in retirement or if you want to reduce your taxable income in retirement.
Roth Conversions should be considered carefully, as these conversions are irreversible and have significant tax implications.
If you have questions about your specific situation and whether a Roth conversion may be for you, Cahaba Wealth would be more than happy to help you think through this process.

Retirement Account Contributions

Maximizing your contributions to tax-advantaged retirement accounts lowers your taxable income for the year.
Contribution limits to IRAs for those under 50 is $7,000 this year and an additional $1,000 for those over 50. This limit includes contributions to both a traditional and a Roth IRA.
Contribution limits to 401(k) plans are capped at $23,000 this year for those under 50. “Catch-up” contributions of up to $7,500 are available to those over 50.
The contribution limit to SIMPLE IRA plans is $16,000, with an additional $3,500 for those 50 and older.
Contributions that can be deducted from SEP IRA plans are limited to either 25% of the employee’s pay or $69,000, whichever is less.

Charitable Giving

Donations to qualified 501(c)(3) organizations can be deducted on a tax return.
Deciding on a donation amount and charity by year-end enables you to make the contribution and receive the associated tax benefits in the same year.
Consider donating appreciated securities to avoid capital gains on highly appreciated assets.

Stay Informed and Prepared

Effective end-of-year tax preparation involves multiple facets, and there is no “one size fits all” answer to any tax situation. Your unique financial situation, goals, and life stage will predicate which strategies are best for you.

Reach Out

At Cahaba, our strategy aims to wholly encompass everything that makes you and your family unique when creating a tailored financial plan. If any of these topics spark your interest or you generally would like more financial guidance, please contact our team.

Sources

Stetson Ponder is a Financial Planning Analyst in the Atlanta office of Cahaba Wealth Management, www.cahabawealth.com.

Cahaba Wealth Management is registered as an investment adviser with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser does not constitute an endorsement of the firm by the SEC nor does it indicate that the adviser has attained a particular level of skill or ability. Cahaba Wealth Management is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. Content should not be construed as personalized investment advice. The opinions in this materials are for general information, and not intended to provide specific investment advice or recommendations for an individual. Content should not be regarded as a complete analysis of the subjects discussed. To determine which investment(s) may be appropriate for you, consult your financial advisor.

Ep. 14 – Retirement Readiness (Part 2)

Financial considerations before you make the decision to retire

Key Medicare Changes for 2025: What You Need to Know

11/2024

By Charlotte Disley and Stetson Ponder

As we look ahead to 2025, some important changes are set to shake up Medicare. It’s crucial to understand how these updates might impact your coverage, costs, and access to healthcare. Here’s a straightforward overview of the upcoming changes that all beneficiaries should keep in mind.

Drug Benefits – Part D

$2,000 Out-of-Pocket Cap – One of the biggest changes in 2025 is the introduction of a $2,000 cap on out-of-pocket costs for Part D prescription drugs. Here’s how it breaks down:

Deductible Phase: If your plan has a deductible, you’ll need to spend up to $590 out of pocket before coinsurance kicks in.
Coinsurance Phase: After you hit that $590 threshold, you’ll pay 25% of the cost for covered drugs until your total out-of-pocket expenses reach $2,000.
Catastrophic Phase: Once you hit the $2,000 cap, you won’t have to pay anything else out of pocket for the rest of 2025.

Payment Plans – Starting in 2025, if you’re enrolled in a Medicare drug plan (or a Medicare Advantage plan with drug coverage), you can opt to spread your out-of-pocket drug payments throughout the year through the new Prescription and Copay Payment Schedule Option. There’s no cost to join, but keep in mind this option won’t lower your total drug costs—it just helps manage your payments better!

However, be aware that these changes might lead to some unexpected shifts. For instance, medications could be reclassified to tiers with higher copayments, or some might not be covered at all. It’s important to do your homework—check which prescriptions are included in your plan and get an estimate of their costs for 2025.

Medicare Advantage Plans – Part C

Increased cost of coverage – Medicare Advantage plans might also see higher costs or fewer coverage options due to expected decreases in government funding. Providers will take on more responsibility for prescription drug coverage under the new $2,000 cap, which could lead to changes in available plans.

Scrutiny of prior authorization policies – There is set to be more scrutiny of prior authorization policies by Medicare, which had seen a rise in denials for coverage in recent years. Medicare Advantage plans will need to assess how their prior authorization policies affect different groups and will be required to make this information publicly available on their websites. Responses to prior authorization requests must be given within seven days, down from the previous 14-day requirement.

Unused Benefits – Starting in July 2025, enrollees will receive notifications about any unused benefits in their plans. With an average of 23 supplemental benefits—like hearing aids, fitness programs, and dental services—available in many plans, it’s essential for participants to be aware of what’s offered. Last year, about 30% of Medicare Advantage plans had unused benefits, underscoring the importance of being proactive in managing your options.

Expanding Support in Other Areas

Enhanced Mental Health Services – The availability of licensed mental health professionals who are covered by Medicare is set to expand. This includes Licensed Mental Health Counselors (LMHCs) and Licensed Marriage and Family Therapists (LMFTs), and addiction counselors. This is a significant step toward improving access to mental health care for Medicare beneficiaries.

Family Caregiver Support – Earlier this year, a new program, Guiding an Improved Dementia Experience (GUIDE), was implemented to support patients with Dementia and their unpaid caregivers. GUIDE offers services including a 24/7 support line, a care navigator to help find medical and community-based services, caregiver training, and up to $2,500 per year for at-home, overnight, or adult day care respite services. Typically, patients and their caregivers won’t face copayments. In 2025, the GUIDE program is set to quadruple in size, serving far more of the population experiencing these challenges.

Stay Informed and Prepared

With these major changes on the horizon for Medicare in 2025, it’s vital for beneficiaries to review their prescriptions and healthcare needs to ensure continued coverage. Staying informed and proactive will empower you to navigate these updates and maximize your Medicare benefits.

Reach Out

If you have any specific questions about your situation or enrollment, please reach out to the Cahaba Team directly and we are happy to provide additional resources for Medicare related inquiries.

Sources

Charlotte Disley and Stetson Ponder are Financial Planning Analysts in the Atlanta office of Cahaba Wealth Management, www.cahabawealth.com.

Staying the Course: Why We Aren’t Afraid of the Economy

6/2024

By Crawford Asman

While we acknowledge the imperfections of surveys and how they are used, a recent Harris Poll taken exclusively for the Guardian revealed wide-spread pessimism regarding the economy. The results caught our attention not for the accuracy of the results but for how it demonstrates the power of a concentrated narrative on public opinion. The results showed that nearly 3/5 Americans believe the US is in the midst of an economic recession. The poll emphasized many misnomers about the economy, with the most notable being:

49% believe that unemployment is sitting at a 50-year high, however, the current rate has been below 4% since February of 2022.
49% believe that the S&P 500 is down for the year, though the index saw a 26% total return in 2023 and nearly 12% YTD.
55% believe the economy is shrinking and 56% believe the US is in the midst of a recession – we’ve now had 6 consecutive quarters of GDP growth.

Clearly, financial journalism has a role in creating this sentiment; after all, it’s difficult to think the economy is doing well while being bombarded by click-bait titles citing whatever global issue as the cause for the down markets that day. These headlines are meant to draw you in with borderline “fear-mongering” tactics, and it can lead to a great deal of confusion to the individual investor. However, the real “issue” here is not the election, nor is it the media. Rather, it’s us simply being human.

Humans are inherently very emotional, and there is especially no exception to that rule when it comes to the broader economy and markets. It’s normal to feel uncertain. That’s why, at Cahaba, it’s our job to provide our clients with a personalized financial plan that will give them a sense of security that they can accomplish their long-term goals. We don’t focus on the “apocalypse du jour”. Rather, we focus on the plan we originally agreed to, and stand by it. While it may not seem logical at first, long-term investors are more successful when they stick to their investment plan. In both bull and bear markets, the key is staying the course.

The chart above showcases the total return (including dividend reinvestment) of a $1,000 initial investment into the S&P 500 in 1926. You’ll notice that despite the countless recessionary periods and global crises, simply sticking to the long-term plan and allowing the investment to compound is incredibly powerful.

At this point, you may be asking yourself why you need an advisor in the first place if “staying the course” is all it takes to be successful. Well, the true benefit of an advisor is not how good they are at timing the market or their supposed “superior” abilities to pick undervalued stocks. It’s the guardrails they enact to prevent their clients from engaging in poor decisions that can significantly alter their financial futures.

We at Cahaba, like most people, are not capable of knowing what will happen later this year in the markets, or even later today! What we do know, however, is how to control the controllables. In essence, no matter what is going on in the world, it will not dictate your financial plan – your plan’s objectives and goals will always be the focus. I’ll conclude with one final thought from the well-respected behavioral finance expert, Daniel Crosby:

“Maybe we as a human race aren’t very well suited to help ourselves and listen to our own best advice. But we do seem equipped to help each other when times get tough – and that’s worth a whole lot.”

Sources:

https://www.theguardian.com/us-news/article/2024/may/22/poll-economy-recession-biden#:~:text=Nearly%20three%20in%20five%20Americans,as%20election%20day%20draws%20closer.
https://www.nickmurraynewsletters.com/members/login.cfm?hpage=June%2D2024%2Ecfm&loggedout=y
https://www.linkedin.com/pulse/you-need-financial-advisor-reason-think-daniel-crosby-ph-d-/

Crawford Asman is a Financial Planning Analyst in the Atlanta office of Cahaba Wealth Management, www.cahabawealth.com.