We can't believe the 2025 is already upon us, but we sincerely hope your new year is off to a great start. We love to see you and your family living life to the fullest and are grateful we get to walk alongside you.
Another edition of The Inside Scoop is here and this one is packed full of more great content. In this quarter’s edition you will find timely pieces surrounding the market and family trusts. We have also included some photos of recent events our team has experienced.
We hope you enjoy.
Yaz, Justin, Karley, Ashley & Whitney
.
We would love for you to join us for the 3rd Annual CFRC Rodeo and the 14th Annual Special Kids Race!
.
.
Our team exists to come alongside you in your wealth journey as we do not believe in a one sized fits all approach when it comes to your future. In order for us to serve you to the best of our ability, we ask that you keep a few things updated along the way.
Taxes
After filing, send us your tax return. Every year. It's that easy. Our team will then do a thorough analysis.
We will discuss implications and scenario-based decisions personalized to you and your family.
Tax Planning Perspective VIDEO
Estate Documents
It is imperative that you update us when there are material changes to your will, power of attorney, and other directives. No one wants to think about the worst case scenario, however, keeping our team informed of any updates ensures a smooth transition if/when it were to happen.
Estate Planning Perspectives VIDEO
Insurance
Start the conversation and keep us updated on your current plan.
Whether it be a whole life policy review, health or property insurance referrals, we will review your current situation and connect you with the best resource to mitigate risk.
360 Wealth
Log in to the Baird Online app. At a minimum, link the basics. (mortgage, 401(k), loans and bank accounts).
Your accounts will auto-update and will feed into your financial plan for a 360 view & precise financial advice. It is important to keep us informed of any outside accounts as we periodically review your long-term goals.
.
Why Did the Stock Market Do So Well in 2024?
2024 has been, by all measures, a spectacular year for the stock market. Hot on the heels of a strong 2023 (+26%), 2024 will likely return another 20%+ return. Back-to-back 20% years are rare (it’s only happened 8 times since the end of WW2) so you might wonder if that’s bearish for the following year. Well, according to history, it’s not. Of the 8 times we saw back-to-back 20% gains in the stock market, the very next year was positive 6 times. A 75% win rate with an average return of 12.5%. Now we know past performance is no guarantee of future results, but when the stock market is doing well, it tends to continue to do well. Which raises the question, “Why is the stock market doing so well?” So let’s dig into that.
The main driver of US stocks over the long run is and always will be corporate earnings. How much money are companies making and what are investors willing to pay for those profits? From 2020 to 2024, the US stock market is up roughly 99% and earnings account for 60% of that (dividends account for 15% and multiple growth for 24%). The primary reason stocks continue to do so well is that forward measures of earnings have been growing for years now. In January 2023 we (consensus) thought the S&P 500 would do $225 per share in earnings in the following 12 months. In January 2024 we thought it would be $243. Now, at the end of 2024, we think it will be $270. It’s just that simple.
Why are earnings growing? Because our economy is benefiting from numerous tailwinds: strong consumer spending bolstered by rock solid balance sheets, a housing market that remains stable even as demand wanes, government spending, a massive generation in its prime (Millennials), and technological themes such as AI and GLP drugs (weight loss).
You might have heard that “it’s only a few stocks driving the market higher” but that’s not true. Equal Weight S&P 500 is at a new all-time high (as are numerous equal weight sector measures) and so are the small-cap and mid-cap indices. It’s not just a few tech names, period.
As a result of multiple years of gains, the stock market has become somewhat expensive (even with earnings growth), so that’s something we will continue to monitor. Valuation is historically a terrible timing tool so there’s not much we can do with this information other than to acknowledge it. If you always sold the stock market when it was expensive, your long-term returns would be horrific.
We will have a new administration in the White House in 2025 and all eyes are on the potential impact of tariffs, immigration reform, and tax code changes. It’s too early to draw any conclusions because we don’t know what can actually happen versus what’s being floated. President-elect Trump does tend to measure his success via the stock market so we will be watching its reaction to his various proposals in real time (we saw it had ZERO reaction to the latest tariff talk in November).
What could derail the market? Unfortunately, there’s no great answer to that because risk, TRUE RISK, is something none of us can see. Think about the three biggest risks of the past 24 years: COVID, the Financial Crisis, and 9/11. No one saw any of those coming. Which is why building durable portfolios to survive the shocks is the key to long-term success.
The United States continues to be the premier destination for investors, our dollar remains the world’s reserve currency, and the economy is as vibrant and electric as ever. While we will have our ups and downs, and the stock market will occasionally have bouts of volatility (including bear markets), there is still no better place to grow wealth than in the greatest nation the world has ever seen.
We share our lives with you because you are an extension of our family. Long-term relationships which encourage open and honest communication have been the cornerstone of our team's success for many years. Thank you for allowing us to walk alongside you and your family.
.
A Legacy of Trust: Essential Family Conversations
Family trusts are created for a reason – use this opportunity to open up the lines of communication. At their core, trusts are about the transfer of assets from one person – or, more often, one generation – to another. That’s why for a family trust to work eff ectively, all family members should understand the different aspects of a trust, including its purpose and the varying responsibilities of those involved. If your family has a trust, here are some important topics that should be discussed between the elder and younger generations.
Getting To Know the Trust
Why has a trust been established?
There are many reasons to create a trust, such as providing for future generations, facilitating the sale of a business, or protecting assets from creditors. The family should discuss the intent for the trust and if there’s a mission the younger generations can help advance.
What kind of trust is it?
Different trusts can achieve different goals. For example, someone looking to minimize gift taxes might choose a grantor retained annuity trust, while someone who is transferring real estate to their heirs might choose a qualified personal residence trust. As a family, it’s helpful to discuss the specific purpose the trust was created to serve.
How are the trust’s funds to be dispersed?
How money moves within and out of the trust is important. Was the trust created to provide regular income? Can distributions be made from the trust’s principal? What expenses can be paid for by the trust? Who is responsible for paying taxes on trust income?
Getting To Know the People
Who else is involved in the trust?
A trust will be overseen by a trustee, which can be either a person or a corporate entity like Baird Trust. Knowing who has control over the trust assets and how this trustee was selected is important, as that may affect relationships between the trustee and the beneficiaries.
Who advises on financial matters?
It may be helpful for the whole family to know the professionals involved in creating and maintaining the trust, like a family financial advisor, attorney, accountant or insurance specialist.
Getting To Know the Planning Decisions
Are there estate planning decisions elders want to talk through with their heirs?
Maybe this conversation can lead to others, such as choosing a power of attorney or addressing life insurance options.
Do older family members want help cataloging their assets and going through documents?
Especially for those who are older, keeping track of the trust’s assets and managing the paperwork can be daunting. Initiating conversations with young adult family members about the trust may usher in more beneficial management of the family’s assets.
Having family-wide discussions regarding the structure and implications of your trust can foster understanding and open dialogue about the family’s overall financial health. For younger family members, engaging with your parents and grandparents about the workings of the trust and their own financial decisions can lead to broader conversations about their personal financial well-being, from credit card usage to long-term care plans and philanthropic intentions. While there might be some initial awkwardness, this conversation could provide an opportunity to make decisions as a family that bring you closer together.
.
1/15/25 All That Matters in 2025
JoinMike AntonelliandRoss Mayfieldas they discuss exactly what you need to know to invest in 2025. They will talk about key things they're watching in the stock market, how changes to tariff and immigration policy might impact the economic outlook, and what investors need to know after back-to-back years of 20%+ in the stock market. You won't want to miss this one!
3/19/25 Business Owners
6/18/25 Social Security
7/16/25 Estate Planning
8/20/25 Cybersecurity/Identity Theft
9/17/25 Charitable Giving
10/15/25 Medicare
11/19/25 Year-End Planning Strategies
.
The Internal Revenue Service income tax brackets, standard deduction, and retirement contribution limits for the 2025 tax year are below.
With a new administration taking over in Washington in January, along with the potential sunsetting of many aspects of the Tax Cuts & Jobs Act, there is an expectation that significant tax legislation will be introduced in 2025. While it’s possible there will be tax law changes that affect these numbers, it’s more likely that any changes will be effective in 2026. As always, Baird will continue to monitor any legislation and be ready with any updates as they happen.
Standard Deduction
The new standard deductions for 2025:
- Married filing jointly: $30,000, up $800 from 2024
- Single taxpayers and married individuals filing separately: $15,000, up $400
- Heads of households: $22,500, up $600
- Additionally, retired married couples receive an additional standard deduction of $1,600 for each spouse age 65+. Single individuals receive an additional $2,000.
Takeaway: This increase will make it more difficult to itemize your deductions in 2025, which means your tax payments, mortgage interest and charitable contributions are less likely to provide you a tax benefit. With the standard deduction potentially falling significantly in 2026, you may want to consider a “bunching” strategy, such as deferring charitable contributions from 2025 to 2026 where they may provide greater tax savings.
Retirement Savings Contributions
The 401(k) contribution limit is rising by $500, to $23,500. The overall savings limit, referred to as the 415 limit, is also increasing $1,000 to $70,000. This includes your own savings plus any matching or profit-sharing contributions from your employer. While catch-up contributions for participants aged 50 and up will remain at $7,500, the IRS is introducing a new “super catch-up” contribution limit for older employees. Beginning in 2025, individuals aged 60-63 can contribute an additional $3,750 to their employer-sponsored retirement plans, for a total catch-up amount of $11,250.
Traditional and Roth IRA contribution limits will hold at $7,000, though who can qualify for a Roth contribution will change: Married couples with income below $236,000 will be able to make a full Roth contribution next year, as will singles below $150,000. Those are up from $230,000 and $146,000, respectively, in 2024.
Takeaway: Make sure you assess your retirement contributions to ensure you’re maximizing your benefits. Keep in mind the phaseout ranges have changed; couples with income over $246,000 (and singles over $165,000) will not be eligible to contribute to a Roth IRA next year. Barring any legislative or other changes, remains an option for those over the applicable income levels.
Gift Tax
The gift tax annual exclusion is increasing from $18,000 to $19,000 for 2025 – the fourth consecutive year the gift limit has increased. Individuals can gift up to this amount to any number of individuals in 2025 without incurring gift tax or using any of the taxpayer’s lifetime exemption. Married couples can each use this exemption, allowing them to gift up to $38,000 annually to each recipient in 2025.
In addition, the lifetime exemption amount increased $380,000 per person, up to $13.99 million per individual. This increase means that a married couple can shield a total of $27.98 million from federal estate or gift tax. Those individuals who used their full exemption in recent years will now be able to make an additional tax-free gift to family members or others.
Takeaway: Note that the exemption is still set to sunset back by more than 50% at the beginning of 2026. Your Baird Financial Advisor can be a resource for tax planning strategies to effectively transfer this wealth to maximize this exemption.
Social Security
Social Security and Supplemental Security Income (SSI) benefits will increase 2.5% in 2025, an average increase of almost $48 per month. This adjustment is notably smaller when compared to the recent years’ 5-8% increases that were in response to high inflation.
Takeaway: While inflation has slowed compared to the start of 2024, prices continue to be higher than previous years and may require you to review your cash flow strategy for the year to come.
As always, retirees have many factors to consider when choosing their start date for benefits – including how your start date could impact the surviving spouse – so it’s best to weigh all your options with your Baird Financial Advisor before deciding when to begin benefits.
.
