Tag: investing

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The End of the Tax-Deferred Catch-Up Contribution for High Earners

Beginning in 2026, a key break that many older, higher-earning workers have relied upon will disappear. Under new IRS rules implementing the SECURE 2.0 Act, individuals age 50 or older who earned more than $145,000 from a single employer in the prior year must now make their 401(k) catch-up contribution on a Roth (after-tax) basis—meaning the contribution will no longer be tax-deferred. In this post, we discuss the pros and cons of this change. We also provide some suggestions on what you can do to adapt to the change in your catch-up contribution, including using a free online financial planning calculator.

Catch-up contributions for high earners are changing in 2026.
Catch-up contributions for high earners are set to change in 2026.

Benefits from this change in your catch-up contribution

  • Tax-free growth and withdrawals: The employee must make the catch-up contribution with after-tax income. But the retiree doesn’t pay taxes on future growth or qualified withdrawals from the Roth portion. So, using these funds can help avoid pushing a retiree into a higher marginal tax bracket.
  • No required minimum distributions (RMDs): Roth funds offer more flexibility in retirement. Thus, there are no forced distributions, so these funds can continue to grow tax-free longer.
  • Tax certainty: You know the tax cost now, which may reduce surprises later if tax rates rise. This certainty can help avoid other retiree expenses that higher taxable income can trigger, like the Income-Related Monthly Adjustment Amount (IRMAA) surcharge.

Cons from this change in your catch-up contribution

Next Steps

To start, one can check their employer’s retirement plan options to see if a Roth option exists. If your employer’s plan doesn’t currently permit Roth contributions, you can ask your retirement plan administrators to add the option so employees can continue to make catch-up contributions.

Another step is to run some tax projections. ETFMathGuy offers a free calculator to simulate future values of retirement savings. It includes future contributions into a combination of tax-deferred, Roth, and taxable accounts.

Our Free Online Savings Calculator from ETFMathGuy can estimate the effect of the new catch-up contribution rule on your retirement savings
Our Free Online Savings Calculator from ETFMathGuy can estimate the effect of the new catch-up contribution rule on your retirement savings

Big Picture

The shift in 2026 marks a significant change for older, higher-earning workers who count on catch-up contributions for late-stage retirement savings. The removal of tax deferral is a tradeoff—pay tax now, but get more tax-free growth later. For many, the right path will be a mixed strategy, careful planning, and flexibility.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
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Extra Profiles for Our Optimal Retirement Income Calculator

Happy Labor Day Weekend! Our mission at ETFMathGuy is to educate investors seeking tax-efficient investing and financial plans. So, we continue to provide online access to algorithms that produce tax-efficient retirement income based on our award-winning published research. Today, we are happy to announce extra profiles, an upgraded feature requested by financial services professionals. Now, users may save profiles for more than two scenarios. We hope this new feature will better support advisors and their clients as they navigate the optimal decision-making process and the complexity of producing tax-efficient retirement income.

Users may now save extra profiles for more than two clients seeking tax-efficient retirement income with our software.
The main page for interactive personal finance calculators is at https://apps.etfmathguy.com

Enabling Extra Profiles

By default, all free and paid subscribers of the Optimal Retirement Income Calculator can create two profiles. Accordingly, these two profiles can store situations like “best case” and “worst case” outcomes for a retiree, and if applicable, their spouse.

Users may now save extra profiles for more than two clients seeking tax-efficient retirement income with our software.
All free and paid subscribers have access to up to two complete profiles. Saving profiles help expedite retirement income calculations, source: https://apps.etfmathguy.com/clients

However, financial advisors often help guide the retirement income of many clients. So, our extra profiles feature now enables this capability across three tiers of advisors.

  • Tier 1: Basic Advisor – Manage up to 10 client profiles
  • Tier 2: Standard Advisor – Manage up to 50 client profiles
  • Tier 3: Premium Advisor – Manage up to 300 client profiles
Users may now save extra profiles for more than two clients seeking tax-efficient retirement income with our software.
Client Profile Page for Tier 1 Extra Profiles, https://apps.etfmathguy.com/clients

Discount for Current Subscribers and a Holiday Discount

We are offering a special “thank you” to current paid subscribers to the Optimal Retirement Income Calculator by offering a 20% discount on your first year of extra profiles. The billing process is also simplified by pro-rating the extra profile price to correspond with your annual renewal date.

Not yet a subscriber to the Optimal Retirement Income Calculator? For the next 30 days, we are offering a 25% off sale on this annual subscription. Therefore, please enter the promo code laborday2025 after selecting the “Subscribe” button under the Optimal Retirement Income Calculator on your account’s profile page.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs

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Using ETFs to understand recent activity in the US economy

The US economy continues to navigate a complex landscape. Recent events include fluctuating inflation, evolving labor market dynamics, and the Federal Reserve’s ongoing efforts to achieve price stability. While certain sectors have demonstrated resilience, others are showing signs of cooling, creating a mixed picture for ETF investors. And, reversing trends in globalization continues.

black blue and red graph illustration
Using ETFs to understand recent activity in the US economy
Source: Burak The Weekender on Pexels.com

Stock ETFs and the US Economy

The labor market, a pillar of strength for much of the past year, is showing subtle signs of moderation. While the unemployment rate remains low, job growth has slowed, and initial jobless claims have edged up slightly. This suggests a potential cooling in demand for labor, which could eventually help to ease wage pressures and contribute to lower inflation. Investors tracking the broad equity market through passively managed ETFs like IVV (iShares Core S&P 500 ETF) have witnessed the market’s sensitivity to these economic data points and the Fed’s reactions.

Bond ETFs

The bond market, as reflected in ETFs such as AGG (iShares Core U.S. Aggregate Bond ETF), has also experienced volatility. Rising interest rates have generally led to lower bond prices. But, expectations of future rate cuts can influence yields, prices, and investor sentiment. AGG, representing a broad basket of investment-grade US bonds, serves as a benchmark for overall bond market performance and investor risk appetite in fixed income.

In times of economic uncertainty, investors often turn to lower-risk assets. BIL (SPDR Bloomberg Barclays 1-3 Month T-Bill ETF), which invests in short-term US Treasury bills, can be seen as a safe haven. Increased flows into BIL may indicate a more risk-averse sentiment among investors, reflecting concerns about the economic outlook.

US Economic Direction

Overall, the recent state of economic activity in the US presents a nuanced picture. While inflation remains a concern and the labor market is showing signs of cooling, the economy has so far avoided a sharp downturn. The performance of passively managed ETFs like IVV, AGG, and BIL offers a glimpse into how investors are interpreting and acting on these economic signals. Continued monitoring of these ETFs will be crucial in understanding the trajectory of the US economy in the months ahead.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
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2025 Mid-year Sector Review

Happy Independence Day from ETFMathGuy! Similar to what we posted at the halfway point of 2024, this post summarizes the mid-year sector review and ETF performance in 2025. Accordingly, we highlight some of the newest trends and identify the strongest and weakest sectors this year.

This post summarizes the mid-year sector review and ETF performance in 2025, and identify the strongest and weakest sectors this year.
Photo by Brett Sayles on Pexels.com

Review of the 11 Sectors of the S&P 500

Indeed, there are 11 sectors in the S&P 500, as shown below. Therefore, while some of these sectors have several ETFs tracking them, we have chosen the ETFs in parentheses due to their long-standing presence in the markets. In our analysis below, we also consider the S&P 500 Index ETF (ticker: IVV), and the tech-heavy Nasdaq ETF (ticker: QQQ).

  • Information Technology (XLK)
  • Health Care (XLV)
  • Financials (XLF)
  • Consumer Discretionary (XLY)
  • Communication Services (XTL)
  • Industrials (XLI)
  • Consumer Staples (XLP)
  • Energy (XLE)
  • Utilities (XLU)
  • Real Estate (IYR)
  • Materials (XLB)

Consequently, using this list and reinvesting dividends, our sector review reveals that some sectors had total returns that did very well in the first half of 2025. However, a couple of sectors, such as Health Care and Consumer Discretionary, lost value in the first half of 2025.

This post summarizes the mid-year sector review and ETF performance in 2025, and identify the strongest and weakest sectors this year.
2025 Mid-year review of S&P 500 sector ETFs. Total Returns. Source: https://www.etfreplay.com/charts.aspx

Analysis and Insights from our Sector Review

Outperformers occurred in six sectors, suggesting a strong cyclical comeback. Leading the way were Industrials, Communication Services, and Technology sectors. Moreover, we see that Financials, Materials, and Utilities also outperformed the S&P 500. Our sector review is in sharp contrast to the mid-year review from 2024 when only one sector (Technology) outperformed the S&P 500. These trends appear to be due to easing tariff fears, a resilient labor market, and expectations of rate cuts. It also shows that the outperformance occurred in both the growth and value sectors of the S&P 500.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs

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Globalization and International Stock ETFs

Globalization over the last several decades has increased the correlation between domestic and international stock ETF returns. In this post, we quantify how this relationship has recently changed, what may be contributing to this change, and what it means for ETF investors.

Correlation changing?

Correlation measures potential portfolio diversification benefits. A high correlation indicates that the prices of two assets move similarly to one another. For diversification benefits, portfolios should contain assets that do not exhibit high correlation with each other. We previously discussed the correlation between the S&P 500 and a wide variety of asset classes. Below, we show that there appears to be a recent downward trend in correlation between U.S. and international stocks.

90-day Correlation of Total Returns of International Stocks (VEA) against the S&P 500. Downward trending suggests a reduction in globalization.
90-day Correlation of Total Returns of International Stocks (VEA) against the S&P 500

Here, the short-term correlation between the total returns of the iShares Core S&P 500 ETF (ticker: IVV) and the Vanguard FTSE Developed Markets ETF (ticker: VEA) hit a recent low from its longer-term average. This reduction in correlation suggests that U.S. and international stock markets are moving more independently than in the past. Thus, there is the potential to offer enhanced diversification benefits for investors.

Tariffs and Globalization

The most likely explanation of lower correlations is the news of significant tariffs on imported goods to the U.S., and perhaps more broadly, due to different central bank policies and geopolitical factors. This new trend appears to be reversing much of the investments in globalization that led to a high correlation between domestic and international stock markets. However, since most of these investments take some time to go into effect, we shouldn’t expect a rapid shift in correlations between domestic and international stock markets. The longer and more significant the tariffs are, the greater the chance that globalization will decrease. For ETF investors, enhanced diversification from international stock market investments may offer greater risk reduction than it did previously.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
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Bond ETFs and Money Market Funds

One of our favorite WSJ writers this week provided a critical analysis of money market funds, which many individual investors use to hold their cash. In this post, we discuss the similarities and differences between money market funds and ETFs that invest in treasury bills.

The purpose of money market funds

One purpose of a money market fund in a taxable brokerage account is to provide a place for cash to stay after it is transferred in from an outside source, like a bank checking or savings account. It also serves as a holding place for securities after they are sold. But some investors are also using them as a safe haven to avoid sharp changes in the stock market. Unfortunately, these funds tend to charge relatively high fees compared to ETFs that provide a similar safe haven. According to this WSJ article, the average money market fund charges 0.51% in fees and yields 3.89%.

But you’re probably getting ripped off on your money-market funds—and it’s one of the biggest heists on Wall Street.

Jason Zweig, WSJ columnist, May 2, 2025

Brokerages also use money market funds as a “sweep” account for investors. So, investors can benefit from this feature by being able to write checks against these balances. However, the cost and convenience of assets in these funds, which often invest in short-term U.S. treasury bills, means investor returns underperform when compared to investing in an ETF with a similar level of risk.

Very low risk ETFs

Bond ETFs still have risks, depending on the type of bonds included in them. But some bond ETFs can provide investors with direct access to short-term treasury bills, which some would refer to as a good proxy for a risk-free rate. The list below shows several of these types of ETFs, along with their expense ratio and assets under management.

ETFTickerExpenseAssets Under Management
iShares 0-3 Month Treasury Bond ETFSGOV0.09%$45 B
SPDR Bloomberg 1-3 Month T-Bill ETFBIL0.14%$47 B
iShares Short Treasury Bond ETFSHV0.15%$22 B
Three large ETFs investing in short-term U.S. treasury bills

Although the expense ratios are all quite similar, it is clear that the return of SGOV is likely to be the highest. The figure below shows this is true and that all of these ETFs had a slow and steady investment return over the last three years.

Total returns for the last three years of short-term U.S. treasury bill ETFs were higher than the average money market fund.
Total returns for the last three years of short-term U.S. treasury bill ETFs

So, investors willing to take the time to invest their money market funds into one of these ETFs can often earn very close to the current U.S. treasury bills yield, which in the last year was about 4.8%. Additionally, these ETF returns may be exempt from state taxes, unlike money market funds. Investors not needing the convenience of money market funds may wish to consider these ETFs as an alternative safe haven.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
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How ETFs responded to tariffs in the news

Recent news about U.S. tariffs has impacted ETFs representing several asset classes. This post discusses both positive and negative market effects. We close with some historical perspectives to help ETF investors make educated decisions that are best for their situation.

Broad-based ETF recent performance

To see how recent tariff news has impacted several broad-based ETFs, we considered the following list.

  1. iShares Core S&P 500 ETF (ticker: IVV)
  2. iShares Core Total US Bond (ticker: AGG)
  3. SPDR 1-3 Month T-Bill ETF (ticker: BIL)
  4. iShares Barclays Long-Term Treasury (ticker: TLT)
  5. iShares MSCI EAFE (ticker: EFA)

The first ETF on this list tracks large-cap U.S. stocks. The second one follows intermediate-term U.S. treasuries and investment-grade corporate bonds. The third and fourth ETFs in our list consist entirely of short and long-term U.S. treasuries, respectively. The fifth and last ETF is an international stock ETF composed of “…developed-market securities based in Europe, Australia and the Far East“. The image above shows the total return of these ETFs for 2025.

Stock ETFs and tariffs

The sharpest downturns in the prices of ETFs due to recent announcements on tariffs appear to be in domestic and international stocks. However, since international stocks started the year stronger, they are currently at a small loss for the year. On the contrary, domestic stocks have produced a more significant negative return so far this year.

Bond ETFs and tariffs

Bond markets are typically less volatile than the stock market. In particular, short-term treasury bills returns largely follow the federal funds rate, as shown by the ticker BIL. But intermediate and long-term bond fund prices appear to have benefitted from the selloff in stocks, likely in a “flight to safety“. While investors holding bond ETFs now benefit from higher prices, yields on the underlying bonds are decreasing. If the yields decrease significantly enough, an inverted yield curve may result, which could be a sign of an economic recession. Time will tell if the leading indications of the market foreshadow such an economic downturn.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs

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Multiple Profiles added as a New Feature

Our mission is to help educate investors interested in tax-efficient investing and financial planning. Unfortunately, the complexity of producing tax-efficient retirement income makes this optimal decision-making process challenging. So, we provide online access to the algorithms from our award-winning published research. In this post, we are proud to announce a multiple profiles feature. This new feature can help individual retirees standardize and expedite tax-efficient retirement income plans. Additionally, financial planners may benefit from this time-saving feature too.

We now support multiple profiles in our web access to algorithms from our award-winning published research on tax-efficient retirement income.
The main page for interactive personal finance calculators at https://apps.etfmathguy.com

How to Enable Multiple Profiles

Our user community has sent us significant feedback about data input. Specifically, we should provide a streamlined approach in our interactive calculators: The Retirement Income Calculator and; the Pre-Retirement Savings Forecast. So, after a significant development effort, all registered users can now save multiple profiles to the Retirement Income Calculator. Please note: Free registration for these calculators is separate from the email list we use for distributing our monthly newsletter.

So, once registered, here is how you can enable these additional profiles. First, click on the green button labeled “Enable Client Feature” found in your profile at https://apps.etfmathguy.com/profile.

We now support multiple profiles in our web access to algorithms from our award-winning published research on tax-efficient retirement income.
How to enable the multiple profiles feature from your profile at https://apps.etfmathguy.com/profile

Once you click this button, you will see “Clients” listed as a link in the menu bar at the top of the page.

We now support multiple profiles in our web access to algorithms from our award-winning published research on tax-efficient retirement income.
This menu icon will appear for all registered users once the “Enable Client Feature” button has been selected.

Next, clicking “Clients” in the menubar will lead users to a page where they may manage unique profiles. The example image below shows how we set up two different user profiles that are similar to hypothetical examples from our award-winning paper.

We now support multiple profiles in our web access to algorithms from our award-winning published research on tax-efficient retirement income.
Multiple client profiles can now be saved to expedite the financial planning process.

Why use this new feature?

Retaining multiple profiles for a retiree (and their spouse or domestic partner) saves significant time each year when planning for tax-efficient retirement income. Additionally, retirement income plans often consider alternative plans, based on different economic, income, and time horizon assumptions. Lastly, financial planners and retirees may simply want to save their planning assumptions for later use. With this new and free feature of multiple profiles, all users of our retirement income calculator now have these benefits available for up to two profiles. To support our professional financial advisor community and their clients, our next upgrade will include support for even more profiles.

Do you have suggestions for other features? If so, please Contact Us with your suggestions or to provide general feedback.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
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Always defer taxes in retirement?

Tax-deferred accounts avoid annual tax payments during our working years. Workers who defer taxes in accounts like 401(k)s accelerate growth for many years. However, distributions of retirement income from these accounts usually contribute to a retiree’s ordinary income for that year. So, these distributions are taxed much like wages are during our working years. This recent article in the WSJ highlighted that there are reasons to think more strategically about continuing to defer taxes in retirement.

Defer taxes in retirement?
Photo by Nataliya Vaitkevich on Pexels.com

“To be sure, the idea of accelerating income violates the first rule of traditional tax planning, which is to defer taxes whenever possible. But there are reasons to rethink this rule now. “

Laura Saunders, 31 January 2025, “When Paying More Tax, Not Less, Is the Smart Play“

We couldn’t agree more! In fact, we made this and other salient points in our award-winning article entitled “Seeking tax alpha in retirement income“. We supported our observations and conclusions through rigorous mathematical modeling of tax laws most relevant to retirees in the U.S.A.

Seeking tax alpha in retirement income

In this post, we highlight this recent news article. We then provide a suggestion on how an individual or financial advisor may improve their retirement income strategy.

Time horizon

A key flaw in deferring taxes is that many retirees need to look at a longer time horizon. Currently, a 65-year-old male retiree can expect to live another 18 years. Similarly, a 65-year-old female retiree can expect to live to 21 years more. So, unless a retiree has some known terminal illness or other significant health issue reducing their life expectancy, tax-efficiency in retirement can take advantage of this time horizon.

Termed “stealth” taxes, tax-deferred account typically force retirees to begin taking requried minimum distributions (RMDs) at age 73. These distributions only grow, as a percent of a tax-deferreed account value, due to a shorter life expectancy for each year a retiree ages. Along with other factors, like the widows-penalty when a surviving spouse files their tax returns as a single, net-investment income tax, and income-related premiums for Medicare, these RMDs can be tax inefficient.

When you may not want to defer taxes

Unfortunatley, there is no single decision that a retiree can make to maximize their tax efficiency. But, for retirees with significant assets in tax-deferred accounts, the algorithms in our article “Seeking Tax Alpha in Retirement Income” are available online. We encourage you or your financial advisor to try our free online calculator. With it, you can see the amount of tax efficiency potentially available by accelerating tax-deferred distributions and avoiding RMDs.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs
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2024 Year-end returns of broad index and sector ETFs

With 2024 officially over, it is a good time to reflect on 2024 equity ETF returns. Like our mid-year post from 2024, this post highlights the top and bottom-performing ETFs by sector. We’ve added the Nasdaq-100 ETF (ticker: QQQ) 2024 returns for comparison. We also discuss what themes likely contributed to this performance.

S&P 500 Sector Returns, S&P 500 and Nasdaq ETF total returns, 2024

Top and bottom-performing sector ETFs for 2024

As the chart above shows, communication services (ticker: XTL) was the top-performing sector ETF of 2024, with a nearly 35% return. This may be surprising, given it was the worst-performing sector ETF in the 1st half of 2024. It appears that this ETF’s exposure to artificial intelligence (AI) and data centers contributed significantly to its total return for 2024. The healthcare sector ETF (ticker: XLV) was the worst-performing sector of the S&P 500 index. Considered a more defensive sector, investors were not looking for this approach in 2024. However, lower prices in the healthcare sector, relative to other sectors in the S&P 500, may bode well for healthcare ETF investors in 2025.

The S&P 500 has another strong year in 2024

For ETF investors who selected the broad-based S&P 500 index (ticker: IVV), this was another strong year, with a total return of nearly 25%. The past two years have been the best returns for this broad-market index in the past 25 years. So, investors looking for a diversified equity ETF did well in 2023 and 2024 by investing in an S&P 500 index ETF.

S&P 500 Index performance since 1995. Source: WSJ.

2025 ETF Outlook

As we noted in previous outlooks at the start of the year, there is plenty of uncertainty going into 2025. With a new political party in the White House, and the Fed still considering the potential of future rate cuts, 2025 should be another challenging year for ETF investors.

ETFMathGuy is a subscription-based education service for investors interested in using commission-free ETFs in efficient portfolios.
ETFMathGuy is a subscription-based education service for investors interested in tax-efficient investing with ETFs