Government shutdown averted, new 2024 tax rates

The IRS announced new tax brackets for 2023 (the taxes you’ll file in 2024) which sees a 5.4% increase to each bracket, after a 7% increase last year. There is also an increase to the standard deduction, which increased to $14,600, up from 13,850 in 2022. 

The government will not be shut down… at least for this year. The House Speaker Republican Mike Johnson was able to guide a short-term funding bill with the support of Democrats, passing 336-95. Of the nay votes 93 out of 95 were Republicans. The bill included no spending cuts which irked the Republican Freedom Caucus who made up many of the nay votes. This sort of Democrat-supported resolution is the same sort of bill that led to the ouster of former Speaker Kevin McCarthy last month. The bill passed in the Senate yesterday, 87-11, and will be signed into law by President Biden. 

Inflation remained steady in October

A new batch of inflation data was released this week showing consumer price inflation was unchanged monthly for October. The monthly change since last October is visualized in the graph below. 

The unchanged reading, which hasn’t happened in more than a year, came after a .4% increase in September. Within October’s numbers, gas prices dropped 5 percent which offset an increase in food prices. 

Is the Fed done hiking this year? The market thinks so.

Using the CME FedWatch tool, we can get a picture of what investors are expecting regarding the future of monetary policy. The chart below shows the current target range for the Federal Funds rate (525-550) and the level of interest rates the market is pricing in (the blue bar) at a 99.7% probability for the next FOMC meeting on December 13th. Investors also expect interest rates to stay stable for the first meeting in 2024. 

While recent inflation numbers are positive and a cooling labor market adds hope for the future of destination - the jump from the end of rate hikes to rate cuts is a big one. We are not out of the woods yet.

Getting ready for 2024

With the announcement of tax brackets for the tax year 2023, we also received new limits for different tax-advantaged accounts for 2024. Here’s a look at 2024 and how much you can contribute to your major tax-advantaged accounts.

• Health Savings Account

  • $4,150 for individuals

  • $8,300 for family

  • $1,000 contribution for those 55 and older

• 401K

  • $23,000 (extra $1,000 catchup contribution for those 50 and older)

• IRA

  • $7,000

    • “The income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $146,000 and $161,000 for singles and heads of household”

    • “For married couples filing jointly, the income phase-out range is increased to between $230,000 and $240,000”

Setting money on fire in new and interesting ways.

“Well, at least I wouldn’t be lighting a check on fire every month”.

This is a common refrain from anyone considering buying a house. When you’re renting, it feels like that money just goes down the drain instead of growing your net worth. Unfortunately, buying a house isn’t much different (at least at first).

Let’s say you put 5% down on a $400,000 house. In the first year, you would pay $34,701.14, but only $2,937.99 would go toward your principal!

In the first year, instead of lighting the whole check on fire, you would be lighting 92% of the check on fire.

While this is an important point, it doesn’t tell the whole story.

The thing you are buying with that interest payment is leverage. If your house appreciates 10%, you made $40,000 on $20,000 of your own money. Even adjusting for the cost of the interest payments, you still earned a whopping 41% return!

There is never a perfect time to buy a house, and there are plenty of ways a house can ruin your finances.

A home purchase is not a magic key to wealth, it is a choice that can have both great upside and great downside. Don’t feel obligated to buy a house because someone told you to. Think of it as one option among many that can help you become financially free.

Everyone in the United States is in the global 1%. What is a money privilege you are thankful for this week?

Is your money ready for 2024?

We’ll design a financial plan for the new year, file your taxes in April, and help you make 2024 the best money year yet.