Hindsight is defined by Merriam-Webster as the full knowledge and complete understanding that one has about an event only after it has happened. After experiencing a year filled with adversity and unexpected challenges, we are all hoping to bring that hindsight into focus as we move into 2021.
The global pandemic known as COVID-19 has brought substantial devastation to our way of life globally, nationally and locally. Many among us continue to feel the full force of the economic and health impacts to our daily lives.
However, there are encouraging signs that the end of the global pandemic is nearing. Multiple vaccine candidates have had successful clinical trials and are being reviewed and approved by regulatory authorities as of this writing.
Effective therapeutics continue to show promise as alternative treatment options. These combinations give us hope that a semblance of normal is possible in 2021. That same optimism can translate into what changes 2021 might bring and how they will impact your finances.
First, there will be a new president inaugurated in January. While most people feel strongly about one party or another, history shows the stock market tends to be indifferent to which party occupies the White House and Congress.
According to research from RBC Capital Markets that has tracked the returns of the S&P 500 dating back to 1933, the best outcomes for markets have been with a Democratic president and split Congress, with an average annual return of 14%. The second best outcome was a tie between a full Republican sweep and a Democratic president with a Republican Congress. Both of these scenarios returned 13% annually.
Second, 2021 tax laws also continue to offer ample opportunities for investors. Individuals with 401(k) plans can contribute up to $19,500 to their plan from their salary, and for those age 50 or older, an additional $6,500 catch up contribution is available.
Eligible individuals can save up to $6,000 in a traditional or Roth individual retirement account (IRA) with a $1,000 additional catch-up contribution for those age 50 or older. Expanded income tax brackets coupled with low tax rates provides opportunity to convert pre-tax retirement accounts to tax-free Roth IRA accounts and manage future taxes and retirement costs such as Medicare premiums.
The year 2020 will undoubtedly go down in the history books as unprecedented. Let’s look to 2021 and do some financial planning so we will be ready to travel, attend concerts and do all the things to build our economy. From all of us at Keller and KMH, we wish you a happy new year.