Q3 2024 Newsletter

Market Recap

Despite some increased volatility early in the third quarter of 2024, most major asset classes finished the quarter with positive returns (see chart below). Here in the U.S., equity markets continued to surge with the S&P 500 index reaching new highs and posting it’s fourth consecutive quarter of gains, even as weaker than expected employment data fueled recession concerns early on. From a style perspective, large growth stocks still advanced and have outperformed by a wide margin year-to-date, but other sections of the equity market such as value and small-cap stocks delivered superior returns during the quarter. This recent shift in performance was likely triggered by interest rate cuts and more attractive valuations within these market segments. Outside the U.S., developed and emerging market equities enjoyed similarly strong quarters. Positive news regarding interest rate policy in Japan and economic stimulus in China were some of the primary performance drivers.

Over in fixed income markets, returns were positive across the board in the third quarter. The first Federal Reserve rate cut since early 2020 and cooling inflation data drove prices higher on more interest rate sensitive assets, such as government and investment grade corporate bonds. Meanwhile, more speculative areas of fixed income such as high-yield and emerging market debt performed even better, as recession concerns faded and economies across the globe continued to show resilience.

2025 Retirement Account Contribution Limits

Each year the IRS updates the annual contribution limits for all tax-advantaged retirement accounts based off cost-of-living adjustments. Here are some of the recently announced changes that will help you save more during the 2025 tax year:

1) 401(k), 403(b), and Most 457 Plans

The annual contribution limit for participants covered by these plans will increase to $23,500, up from $23,000. Meanwhile, the additional “catch-up contribution” limit will remain the same at $7,500 for participants that are age 50 or older in 2025. However, under SECURE 2.0, participants who are 60, 61, 62 or 63 at the end of 2025 are eligible for an increased “catch-up contribution” amount of $11,250 (instead of $7,500).

2) Simple IRAs

The annual contribution limit for individuals participating in a Simple IRA plan will increase to $16,500, up from $16,000. The additional “catch-up contribution” limit will remain $3,500 for Simple IRA plan participants that are age 50 or older in 2025. However, under SECURE 2.0, participants who are 60, 61, 62 or 63 at the end of 2025 are eligible for an increased “catch-up contribution” amount of $5,250 (instead of $3,500).

3) SEP IRAs

The limit on annual contributions from employers sponsoring a SEP IRA will increase in 2025 to the lesser of $70,000 or 25% of eligible employee compensation. In addition, the eligible compensation limit used in the contribution calculation will increase to $350,000.

4) Defined Benefit Plans (Cash Balance and Pension Plans)

The maximum annual benefit that a participant may receive through a defined benefit plan will increase to $280,000, up from $275,000.

5) IRA (Traditional or Roth)

The limit on annual contributions remains $7,000 for 2025 – this limit applies to the aggregate amount contributed to Traditional and Roth IRA’s. Furthermore, the additional “catch-up contribution” for individuals that are age 50 or older in 2025 will remain unchanged at $1,000 for the seventh straight year. The income phase-out limits for making deductible IRA contributions and Roth IRA contributions will increase slightly as well.

Buy or Lease a Vehicle: Which Option Makes Sense for You?

Car shopping can be a stressful experience with so many choices to think through. Perhaps the most pivotal of these is whether to buy or lease a vehicle. Each option has its advantages and disadvantages, so it’s important to consider your priorities and weigh the pros and cons before deciding. To help with your decision, here are some key factors to consider for buying vs. leasing a car:

Leasing a Car

Advantages

• Lower Monthly Payments: Lease terms often require lower down payments, especially for those with good credit scores, and smaller monthly payments. Therefore, leasing is almost always the more cost-effective option in the short term.

• Newer Vehicles: Most leases are for 3-4 years and then you can purchase the car or lease another vehicle. This is an appealing arrangement if you prefer to drive the latest car models with the newest features and technology.

• Warranty Coverage: Regular car maintenance is typically covered under warranty for the duration of the lease, which can eliminate a major pain point for car owners. Just make sure you’re aware of what is and isn’t covered before you drive off the lot.

• Business Owner Tax Benefits: If you plan on using the vehicle for business purposes, you may be able to write off a portion of your lease payments as a tax deduction. Just be sure to consult with a trusted tax professional to confirm this is an option for you.

Disadvantages

• Mileage Restrictions: Leases often come with mileage limits, typically 12,000 to 15,000 per year, and exceeding these limits can result in additional charges. These mileage limits could be a leasing roadblock for those that travel long distances for work or have a passion for family road trips.

• No Ownership: Leasing is similar to renting – you don’t build equity in the vehicle and you’ll always have a monthly payment. This makes leasing the more expensive option in the long term.

• Penalties for Wear and Tear: While lease contracts generally allow for “average” wear and tear, you’ll be expected to return the leased vehicle in good condition. Those that are turned in with excessive damage or missing parts may incur hefty fees. This could be a dealbreaker if you frequently drive on rough roads or haul heavy loads of material.

• Restrictions on Modifications: You typically can’t make major modifications to a leased car. Therefore, leasing isn’t a great option if you like to personalize your car with features like custom rims or running boards.

Buying a Car

Advantages

• Ownership: When you buy a car, you own it outright and build equity in the vehicle as you pay off the loan (if you finance the purchase). This gives you the freedom to keep the car as long as you want and modify or customize the car to your liking.

• No Restrictions: Unlike leasing, there are no mileage limits or penalties for excessive wear and tear when you own a car. So you can drive the vehicle as much as you want and as hard as you want without incurring extra charges.

• Long-Term Savings: While financing the purchase of a vehicle usually results in higher monthly payments for a handful of years, the payments will end once the car is paid off (although you’ll still have ongoing costs like insurance and maintenance). By eliminating your car payment, you can use the additional cash flow to boost your monthly savings until it’s time for your next car purchase.

• Business Owner Tax Benefits: If you plan on using the purchased vehicle for business purposes, you can typically take advantage of certain deductions that are not available when leasing. These include deductions for items such as depreciation and car loan interest. Just be sure to consult with a trusted tax professional to confirm you’re eligible to claim these tax benefits.

Disadvantages

• Higher Upfront Costs: Purchasing a car typically requires a down payment and comes with higher monthly payments, as you’re paying for the entire cost of the vehicle. Plus you’ll need good credit to get fair and reasonable financing terms.

• Depreciation: Cars depreciate in value the second you drive them off the lot which means buyers are funneling money into an asset that is constantly losing value over time. This plays a major role in determining how much you get when you eventually decide to sell or trade in your vehicle. As a result, it can also effect how much you pay for your next car.

• Maintenance Costs: Owning a car means you’re responsible for all regular or unexpected maintenance and repair costs once the warranty expires. These costs typically increase the longer you have a car, which can significantly reduce the long-term financial benefits of ownership.

• Long-Term Commitment: To truly reap the long term financial benefits of buying a car, you should plan to own it for a significant period of time before you sell or trade it in. This long-term commitment may not suit those who prefer to change cars frequently.

Ultimately, your decision to buy or lease a car should consider several factors such as your financial situation, credit score, driving habits, lifestyle preferences, and how long you plan to keep the car. If you prefer driving a new car every few years and lower monthly payments, leasing may be the more attractive option. If you wish to avoid an endless cycle of monthly lease payments and value the freedom of using your car without restrictions, buying may be the better choice. The right decision exists, it’s just a matter of determining which option fits best with your unique goals and circumstances.

If you have questions or would like to discuss any of the information contained here in greater detail, please do not hesitate to contact us.

Sincerely,

AJ, Ryan, Gary, Rhonda and Tom

AJ Gilbert, CFP®

Ryan McCafferty, CFP®

Gary Fortier, CPA

Rhonda Gilbert, CPA

Tom Savage, CPA

Disclosures

Keystone Financial Group, Inc. does not provide legal or tax advice

The contents of this email and any attachments are confidential and intended for the named recipient(s) only. If you are not the intended recipient(s) (or have received this email in error) please notify the sender immediately and destroy this email. Any unauthorized copying, forwarding, disclosure, or distribution of the material in this email is strictly prohibited.

The indices mentioned are not managed and cannot be invested in directly. Past performance does not guarantee future results. Diversification and asset allocation strategies do not assure a profit or protect against loss.

Sources used for the article:

• *Quarterly Market Review – J.P. Morgan Investment Research
• *News Release IR-2024-285, Internal Revenue Service (IRS)
• *Should I Lease or Buy a Car?, NerdWallet