With a new year comes new tax changes set forth by the IRS. As we get into tax season, we know the importance of staying on top of your financial plan. We work with our clients not as tax advisors, but to incorporate tax efficiencies into your plan, both while you are working and in retirement.

In 2024 there are five major changes you need to know:

1. Income Tax Brackets- the marginal tax brackets were adjusted for inflation. Here is the breakdown:
   1. 10% for an individual earning less than $11,600 or married couples earning less than $23,200
   2. 12% for an individual earning over $11,600 and married couples earning over $23,200
   3. 22% for an individual earning over $47,150 and married couples earning over $93,300
   4. 24% for an individual earning over $100,525 and married couples earning over $201,050
   5. 32% for an individual earning over $191,950 and married couples earning over $383,900
   6. 35% for an individual earning over $243,725 and married couples earning over $487,450
   7. 37% for an individual earning over $609,350 and married couples earning over $731,200
2. Standard Tax Deduction- The standard deduction was increased $1,500 to $29,200 for married couples filing jointly. Individual taxpayers and married couples filing individually can expect an increase of $750 for the standard deduction, or $14,600. Heads of households also had an increase of $1,100 for a total of $21,900
3. Gift Tax Limit- The annual exclusion amount for gifts rose to $18,000 in 2024
4. Contribution Limits for Retirement Plans- $23,000 is the new 401(k) plan max contribution in 2024. This also applies to 403(b) and most 457 plans. IRA contribution limits increased to $7,000 and the IRA catch-up contribution limits for people over the age of 50 were not changed
5. Tax Credits and Deductions- ranges were increased for phasing out IRA contributions, Roth IRA contributions and those qualifying for the Saver’s Credit. Here is the breakdown:
   1. IRA contribution deduction phase out
      1. Individual taxpayer covered by retirement plan phase out range is now $77,000-$87,000
      2. A married couple both covered by retirement plans phase out range is now $123,000-143,000
      3. Individual taxpayer not covered by a retirement plan, but married to someone who is phase out range is $230,000-$240,000
   2. Roth IRA contributions are subject to income-based phase-outs
      1. Single and Head of Household $146,000-$161,000
      2. Married filing jointly $230,000-$240,000
   3. Income limit for the Saver’s Credit
      1. Individual/Married filing separately- $38,250
      2. Married filing jointly- $76,500
      3. Head of Household- $57,375

Reach out to us to see how tax-efficient planning is a key part of a good financial plan.

Source: 2024 IRS Tax Changes: What You Need to Know | SmartAsset

This publication is not intended as legal or tax advice. Financial Representatives do not render tax advice. Consult with a tax professional for tax advice that is specific to your situation.

The SECURE 2.0 Act is legislation that was passed in 2022 that was designed to help Americans save for their future with provisions that are designed to expand access to retirement plans, streamline administration for employer-sponsored retirement plans such as 401(k)s, and increase savings opportunities for employees. The act’s provisions have some rolling effective dates. Here are the three most important that you need to know for 2024:

529 distributions to Roth IRAs (Effective 2024)

The SECURE 2.0 Act allows tax and penalty-free rollovers from established 529 accounts to the 529 beneficiary’s Roth IRA.

• The rollover is subject to the annual Roth IRA contribution limits ($7,000 for those under 50 and $8,000 for those 50+ in 2024), reduced by any other IRA contributions made by that individual during that tax year. The Roth IRA owner must have earned income in the year of the rollover at least equal to the amount rolled into the Roth that year.
• Recent 529 contributions (within five years of the rollover) and earnings on those contributions cannot be rolled over to the Roth IRA.
• The amount rolled from the 529 to the beneficiary's Roth cannot exceed the aggregate contributions (and earnings on those contributions) made at least 5 years prior to the rollover.
• The Roth IRA contribution limitation based on the taxpayer’s adjusted gross income is waived for the rollover.

Qualified Charitable Distributions (Effective 2024)

Beginning in 2024, QCDs permit a one-time, $53,000 distribution from an IRA to a charitable remainder unitrust, a charitable remainder annuity trust, or a charitable gift annuity. This amount counts toward the annual RMD. The IRA QCD limit is now indexed for inflation ($105,000 in 2024). There are specific requirements which must be adhered to, so please consult with your tax professional.

Required Minimum Distributions (RMDs) (Effective 2024)

Changes the age to determine the Required Beginning Date for Required Minimum Distributions. There seems to be a drafting error in which those born in 1959 meet both the age 73 and age 75 definitions. This will need to be corrected in future legislation, although we do not know what form the correction may take.

• Born 1950 or earlier: April 1 of the year following the year in which the taxpayer turned age 72
• Born 1951 – 1959: April 1 of the year following the year in which the taxpayer turned age 73
• Born 1959 or later: April 1 of the year following the year in which the taxpayer turned age 75

This publication is not intended as legal or tax advice. Northwestern Mutual and its Financial Representatives do not give legal or tax advice. Taxpayers should seek advice regarding their particular circumstances from an independent tax advisor. Tax and other planning developments after the original date of publication may affect these discussions.

Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company (NM), Milwaukee, WI (life and disability insurance, annuities, and life insurance with long term care benefits) and its subsidiaries. 

Let’s rewind to December 2022. The S&P 500 finished the year with the biggest percentage decline since the financial crisis in 2008, down (-19%). The 100 largest growth-focused stocks in the Nasdaq plunged into a bear market, down (-32%) in 2022. The bond market experienced its worst year in history, down (-13%). Inflation remained stubbornly high at 6.5%. There was a sense of doomsday everywhere you looked. Consider some quotes from some of the biggest names on Wall Street:

“A recession is foretold; central banks are on course to overtighten policy as they seek to tame inflation. This keeps us tactically underweight developed market (DM) equities.”
— Blackrock 2023 Global Market Outlook

“Our core scenario sees developed markets falling into a mild recession in 2023 due to tighter financial conditions, less supportive fiscal policy in the US, geopolitical uncertainties, and the loss of purchasing power for households.”
— JPMorgan 2023 Investment Outlook

“The consensus view is that in 2023, earnings will collapse, bringing the stock market down with them.”
— Morgan Stanley 2023 Investment Outlook

“History is not on our side,” says Sébastien Page, head of Global Multi Asset and chief investment officer (CIO). “Fed hiking cycles don’t generally end well, especially when inflation is running high.”
— T Rowe Price 2023 Investment Outlook

These experts also recommended avoiding growth companies at all costs—the same experts who claimed inflation was only transitory in 2021.

First off, congratulations on not jumping off the ship in December 2022 and sticking to your financial plan. As of year-end 2023, the S&P 500 is up 26%. The Nasdaq that Wall Street said to avoid? It's up 55%. Inflation is down to 3.1%, there was no recession and those same Wall Street experts are suddenly feeling really optimistic about 2024...

We may sound like a broken record, but predicting the market's short-term direction is nearly impossible. Making giant tactical bets or overallocating to what has performed so well very recently can also completely derail your financial plan. No, you're not up 55% this year, but you also weren't down 32% last year.

We believe in active portfolio management with exposure to practically every asset class across public and private markets. Diversification is key in our practice. We want one part of your portfolio to zig, and the other part to zag, leading you to as smooth of a ride as possible in your financial plan. Remember, CNBC and Wall Street Experts are not fiduciaries focused on your individual, customized financial plan, but we are.

We thank you for being a client in 2023. We look forward to a prosperous 2024!

Sincerely,

Freund & Smith Advisors

The opinions expressed are those of Freund & Smith Advisors as of the date stated on this material and are subject to change. There is no guarantee that any forecasts made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment or security. Please remember that all investments carry some level of risk, including the potential loss of principal invested. Indexes and/or benchmarks are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance and are not indicative of any specific investment. Diversification and strategic asset allocation do not assure profit or protect against loss.

As we approach the end of the year, we start to reflect on what we have accomplished in the past 12 months, along with what the new year will bring. We set our goals and resolutions, draft our business plans and review our financial plans. But no plan is complete without an estate plan.

Many of our clients choose to work with us because of the expertise that we bring and the plans we create for each and every one of them. None of those plans would be complete without an estate plan. Not just for the wealthy, having these essential documents is key for an estate of any size. These documents help you plan for your family when you cannot. They work hand in hand with your financial plan. If you die prematurely, they dictate where your dollars will go and when. The documents spell out whom we should work with if you were to suffer from diminished capacity, and estate planning can remove assets out of your estate for tax efficiency purposes.

There are many questions to ask to meet your individual objectives. We are here to be a resource. We work with many estate attorneys that we can recommend or have more cost-effective alternatives such as an online platform, Trust & Will. If you already have an estate plan, that is great! When was the last time you reviewed that plan or made modifications to it? No matter which way you choose to implement or review your estate plan, do it. Don’t let it be another failed New Year’s resolution.

Read more here.

In case you were unable to attend our November webinar, here are some of the highlights on where to park your money in a high interest rate environment:

1. Take a look at your bank savings accounts! Many big banks are still only paying .02% for cash. Many CDs, money markets, and savings accounts are paying 5% right now. It’s free money you are leaving on the table.
2. If you need the money in the short term (<2 years), just stay in cash/money markets. It is not worth taking on any extra risk of loss of principal when cash is paying 5%. If you have a more intermediate term goal, 3-5 years, you may want to put your cash to work in bonds. Bonds are typically less volatile than stocks and can cushion against stock market volatility and down-turns. 2022 was an exception to this, but if you look at trends you are likely to see better performance with bonds than with cash. Of course no one can say for certain, but the math tells us that the bond market can rebound very nicely, especially if rate cuts are on the horizon.
3. If you plan to stay invested for a long term goal, you will most likely get your best return in the stock market. This is a more volatile option, but market data shows that even with high and low swings the trend is typically upward. If you lean into higher quality stocks, stay invested for the long term and can tolerate some volatility, this can be a good option for you.

Diversification within stocks/bonds is key. The more you diversify, the smoother the swings in the market. Downside protection is equally, if not, more important than just high returns. Every situation is different so it’s best to work with a financial advisor to come up with the best plan for your individual portfolio and goals.

We take pride in the work we do for our clients. Our most successful client relationships come from those that have good behavioral economics and management. What is behavioral economics you ask? It’s the theory that examines the differences between what people “should” do, what they actually do, and the consequences of those actions.¹ We know we need to exercise, to save for our kid’s college education, retirement, and have a holistic financial plan. The consequences of not doing so include poor health both literally and financially.

Any relationship between client and advisor must be one built on trust and understanding of the client’s goals, habits and discipline. Our advice is an outside voice that removes emotions from our recommendations, helping you take a more neoclassical approach. As human beings, we are subject to impulsivity, and we tend to be influenced by our environment and circumstances. Having that objective outside voice encourages you better understand your economic behavior.

A nudge in behavioral economics is a way to encourage people’s choices to make specific decisions. For example, putting fruit near the check out at a cafeteria to get people to choose healthier options. The same can be said for creating a holistic financial plan. By reviewing your entire financial picture, you can run scenarios to illustrate the choices you make today and the impact they have on your future.

If you have not reviewed your financial plan in a while, or have yet to start, we encourage you to do so today.

¹ What is behavioral economics? | University of Chicago News (uchicago.edu)

As we hit the halfway point through the Summer, the look ahead to the start of school begins. For some, this includes getting a fresh box of crayons and scissors for your Kindergartener. For others, getting your plan in place to send your recent high school graduate off to college. While the nervous but excited feeling for parents may be similar in both cases, the cost for each varies quite a bit. Here are 5 ways to help pay for upcoming college costs:

1. Application to FAFSA
   The first step for every family looking to send a child to college is to complete the Free Application for Federal Student Aid. This application allows the student to receive federal aid like grants, work-study opportunities, and even federal student loans. You can also qualify for state-level and school-based aid. Make sure to submit the FAFSA as soon as possible as some colleges award both need- and merit-based money on a first-come, first-served basis.
   
   
2. Search/Apply for Scholarships
   You would be very surprised to find that there are many scholarships available. Whether a few hundred dollars or more substantial, the opportunities are out there for the taking. Scholarships, unlike student loans, don’t have to be paid back. Thousands are available; use the Department of Labor’s Scholarships Finder to get started. While many scholarships require that you submit the FAFSA, most also have an additional application.
   
   
3. Grants
   If you submit the FAFSA application and renew it each year you are enrolled in school, you may receive Pell money if you’re eligible for it. In addition to the need-based Pell program, the federal government offers several other types of grants, which also don’t need to be paid back in most cases. Many states have grant programs, too. Use the Education Department's state education contacts and information locator to find the agencies in your state that administer college grants. Then look up and apply to state grant programs you may qualify for.
   
   
4. Work Study
   A work-study program provides part-time employment opportunities while you are in school. Available to undergraduate, graduate, and professional students, work-study helps those with financial need pay for tuition costs, fees, or other costs like room and board. The U.S. Department of Education reports that there are roughly 3,400 participating post-secondary institutions offering work-study on or off-campus. If you qualify, make sure you take advantage of it while you’re in school.
   
   
5. 529 Plans/Savings
   A 529 college savings account is a state sponsored and tax advantaged way to save and pay for college. To ensure favorable tax treatment and avoid a 10% penalty, all distributions from 529 plans must be for qualified expenses , such as tuition, books as well as room and board. Any other savings or investment accounts can also be used to fund a college education (depending on invested assets, some taxation could apply).
   
   
6. Federal and Private Student Loans
   Borrowing money through federal student loans is also one of the most common methods of paying for college. Federal loans, which are issued by the government, are categorized into two types for undergraduate students: direct subsidized (based on financial need) and direct unsubsidized loans (not based on financial need). They offer a low fixed interest rate and flexible repayment options. Federal student loans do have annual and lifetime limits, putting a cap on how much you can borrow through federal loans alone. Private student loans are provided by banks, credit unions, and other private lenders, and should be used to pay for college costs that are not covered by scholarships, grants, savings, or federal financial aid. With private student loans you can borrow up to 100% of your cost of attendance which can include tuition, fees, room & board, and other college costs. Private student loans offer variable or fixed interest rates, and you can pay them while you are in school or when you graduate.

As we reach the midway point of the year, we thought it would be a great time to reflect on the developments that have recently shaped the financial markets.

The year 2022 was an anomaly for investing, as both stocks and bonds experienced sharp declines. This was primarily due to inflation surging, prompting the Federal Reserve to take measures to curb it. It turned out to be the worst year EVER for bonds and the 7th worst year for US stocks. Consequently, it resulted in the 4th worst year ever for a 60/40 portfolio. The economy seemed to be caught in a no-win situation as we entered 2023. Either the Federal Reserve would tighten credit conditions excessively to suppress inflation, potentially leading us into a recession, or they would ease up, avoiding a recession but likely allowing inflation to persist.

Adding to this challenging situation, the first half of 2023 introduced three new and potentially critical uncertainties: the threat of a US debt default, a number of bank failures that posed a threat to the banking system itself, and renewed concerns about the dollar's status as the world's reserve currency.

Despite all these challenges and consumer sentiment nearing all-time lows, the US stock market has experienced a dramatic rally. The S&P 500 is up 17% year-to-date and is only 9% away from reaching an all-time high. The combination of the Federal Reserve pausing interest rate hikes (with the potential for cuts in the future) and the boom in Artificial Intelligence has propelled the Nasdaq up by almost 40%. However, it's important to note that these returns are largely driven by just seven stocks: Nvidia, Google, Amazon, Apple, Tesla, Microsoft, and Meta. These companies have seen their stock prices rise anywhere from 32% to 187% in just six months. These seven stocks collectively make up nearly 30% of the S&P 500. We believe that such returns in these names may not be sustainable, and it could be a good time to reduce some risk exposure in these high growth technology stocks.

In the fixed-income landscape, most of the damage was incurred in 2022. A "bad" bond market typically sees a decline of around 3%. However, last year, the bond market experienced a 13% drop due to aggressive interest rate hikes. The good news is that we are now witnessing interest rates on bonds that haven't been seen in almost 20 years, and we are highly confident that bonds will rebound with continued patience. Our money market accounts are ranging from 3.25%-4.77%, while some of the bonds we are invested in offer yields over 10%.

The only area that hasn't performed well this year is commodities, which was one of the few positive performers in 2022 (up 16%). In 2023, commodities are down by 8%. Nevertheless, we still believe that "real assets" like commodities, real estate, and alternative investments can enhance diversification.

We are refraining from making predictions about the remainder of the year as predicting the markets over the short run is very difficult. We rely not only on guidance from Northwestern Mutual but also on insights from some of the brightest analysts on Wall Street. However, with a potential mild recession on the horizon and an upcoming election year, we do anticipate a return of volatility and will continue to mitigate risk across our clients’ portfolios through diversification. Diversification and a long-term perspective are key to navigating the market's ups and downs and keep you on pace towards achievement of your financial goals.

If you have any questions, please never hesitate to reach out.

The opinions expressed are those of Freund & Smith Advisors as of the date stated on this material and are subject to change. There is no guarantee that any forecasts made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment or security. Please remember that all investments carry some level of risk, including the potential loss of principal invested. Indexes and/or benchmarks are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance and are not indicative of any specific investment. Diversification and strategic asset allocation do not assure profit or protect against loss.

We’ve heard it for years now, scammers are out there. We are conscious of the stories depicting a stranded family member or friend in a foreign country who needs money wired immediately, the hacked email attempts to gain access to your accounts, or get rich quick schemes. However, in the 30 years since the internet was made available to the public, consumers are more vulnerable than ever.

According to the Federal Trade Commission (FTC), consumers reported losing more than $3.8 billion to investment scams in 2022. That amount more than doubled since 2021! Technology has advanced to such an extent that Artificial Intelligence (AI) is now being used to clone voices of your loved ones. The FTC is warning of scammers using cloning programs, along with short clips of audio posted online of family member’s voices. Consumers receive calls and it sounds exactly like their loved ones.

These scam attempts are targeting consumers of all ages. There was a story in the news recently of a 15-year-old girl kidnapped and a $1 million ransom demanded of her mother. When the mother called her husband, who was on a ski trip with their daughter at the time, he was able to confirm that she was indeed safe with him, despite the mother being convinced it was her daughter’s voice she heard on the phone.

So, what can you do to protect yourself? First, if it seems fishy, it probably is. Trust your instincts, not the voice. Call the friend or family member directly at a phone number you know is theirs. If they don’t answer, try other modes of contact, or get in touch with someone else who knows their whereabouts. Another safety measure is to create a code word or phrase that only you and your loved ones know about. If a call is ever suspicious, you can use this to help authenticate the caller.

The FTC states that most of the scammers are asking you to pay or send money in methods that make it difficult to recover the funds. This includes wire transfers, paying in cryptocurrency, or buying gift cards. 2 All of these should raise a red flag of caution.

As your trusted advisors, we are here to help. Our mission is to keep you informed, not just about your portfolio performance, but also news you can use to keep you and your family safe.

New FTC Data Show Consumers Reported Losing Nearly $8.8 Billion to Scams in 2022 | Federal Trade Commission 2/23/23

Scammers use AI to enhance their family emergency schemes | Consumer Advice (ftc.gov) 3/20/23

Fake Kidnapper Cloned Girl's Voice in AI Scam Call to Mother: Report (businessinsider.com) 4/13/23

You’ve fine tuned your resume, you’ve completed countless applications and interviews, and you’ve finally accepted your first job. Congratulations! You’ve done so much to get to this point, but now what? New college graduates have much to consider and plan for when starting their first job. Our firm focuses on helping our clients make sound financial decisions throughout a career with the goal of building generational wealth no matter the stage in your life.

Here are some important tips for you as you start your first job:

1. Understand your Benefits- This consists of traditional benefits such as 401(k) options, healthcare, and paid time off. Your compensation is more than just your salary so be sure to have a full understanding of what your options are and how to best choose what works for you. Some benefits to think about:
   • Roth or Traditional 401(k)
   • Investment Selection
   • HSA Enrollment
   • HMO vs. PPO
   • Stock Plan Enrollment
   • Paid Time Off
2. Make a Budget- Once you know your net monthly income (your salary minus benefits and income taxes), make a budget. We have templates to help. Consider the following items in your monthly budget:
   • Rent/Mortgage
   • Renter’s or Homeowner’s insurance
   • Utilities
   • Health care costs
   • Groceries
   • Car expenses (car payments, insurance, maintenance)
   • Transportation costs (gas, public transportation, parking)
   • Debt repayment (student loans, credit cards, etc.)
   • Miscellaneous (travel, TV streaming subscriptions, entertainment, cell phone, gym memberships, etc.)
3. Establish a Savings Plan- Your goal should be to save 20% of your gross income. Creating a plan with intentionality and purpose early on in your working career will lead to healthy habits as you get older and your income increases. A basic template for savings shown below:
   • Short-term (0-3 years)
   • Mid-term (3-10 years)
   • Long-term (10+ years)
4. Understand your Student Loan Repayment Options- The average student loan borrower pays between $200 to $299 per month* on student loan debt. Most loans offer a six-month grace period post-graduation before payments begin. Make sure to know what you owe and what the minimum payment will be. Federal student loans offer benefits that private student loans don’t including income-driven repayment plans, deferment periods, potential student loan forgiveness, etc. Refinancing is also an option that could be considered with many factors such as interest rates that should be taken into account.
5. Your 3/5/10 Year Vision- You manifest success with proper planning and positivity. Set your goals for three, five and ten years post-graduation. By taking the time to do this and being strategic with your career moves based on these goals, you will be years ahead of your peers. If you don’t have a plan or a path to where you are going, odds are you will end up somewhere else!

We are here to help. Schedule a complimentary consultation with a member of our team to create a plan that is right for you.

*U.S News March 10, 2023 https://money.usnews.com/loans/student-loans/articles/average-student-loan-payment

We spend a lot of time working with clients to save for their short-term and long-term goals. One of the most common concerns our clients have is saving enough for retirement. Our clients want to have a plan to retire when they want and have confidence in their plan even during market down turns. This article does a great job of laying out some of the major milestones our clients reach toward retirement and some of the changes to expect now that the SECURE Act has gone into effect.

NORTHBROOK (March 20, 2023) – Freund & Smith Advisors, a member of Northwestern Mutual’s Private Client Group, celebrated its grand opening with a ribbon cutting ceremony at its newly designed office space located at 1464 Techny Rd in Northbrook. The new office space will allow Freund & Smith Advisors to help meet increasing demand for comprehensive financial guidance among the growing population in Northbrook and surrounding suburbs.

Principal and Financial Advisor Alex Freund along with Principal and Wealth Management Advisor Kyle Smith were on hand to help kick off the festivities. “We are committed to helping our clients live their lives by design and not default,” said Freund. “It is important that we have a prominent location that offers a convenient space to work with our clients. We are here to help people balance the act of living for today while saving for tomorrow.”

Freund & Smith Advisors is a financial planning firm that helps clients turn hope and ideas into actionable reality. They provide structured, efficient financial solutions for families and businesses so they have a clear path to accomplish their greatest goals. Their mission is to help others mitigate risk, maximize tax strategies, and create impactful legacies as they secure ultimate financial freedom.

Most parents don’t feel that they have enough resources needed to teach their kids about money and they don’t know to approach the topic with kids among different ages. Robin Taub, award-winning author of the best-selling book, The Wisest Investment: Teaching Your Kids to Be Responsible, Independent and Money-Smart for Life, was kind enough to sit down with Northwestern Mutual in an interview and provided some fantastic strategies for parents to teach their kids about money. Her approach includes teaching about the Five Pillars of Money: Earn, Save, Spend, Share and Invest. We encourage you to read the interview here: Raising Money-Smart Kids: A Q&A With Robin Taub | Northwestern Mutual. It’s never too late (or early) to help our kids learn financial literacy!