Child Tax Credit: Stability Amid Changes

The refundable portion of the child tax credit will remain unchanged at $1,700 for 2025, which families can claim even if they owe no taxes. The maximum child tax credit of $2,000 per child under 17 is available to parents with modified adjusted gross incomes up to $400,000 for married couples filing jointly or $200,000 for single filers. Significantly, these figures will not change from 2024. However, it’s essential to note that the current child tax credit terms are set to expire at the end of tax year 2025, with expectations for a reduction to $1,000 per child. Lawmakers from both parties are advocating for proposals to make the credit more generous.

Earned Income Tax Credit: Increased Benefits

For 2025, the earned income tax credit (EITC), aimed at supporting low- to middle-income families, will see higher maximum amounts. According to the IRS, the maximum EITC amount will rise to $8,046 for qualifying taxpayers with three or more eligible children, up from $7,830 in 2024. Other adjusted figures include $7,152 for two eligible children, $4,328 for one child, and $649 for those without qualifying children. The maximum adjusted gross income (AGI) thresholds for qualifying for the EITC will also increase, allowing more families to benefit from this essential tax credit.

Understanding AGI Limits and Investment Income

In 2025, the maximum AGI for married couples with three or more children will be $68,675, while single and head-of-household filers will see a threshold of $61,555. Additionally, taxpayers must remain within a limit for investment income to qualify for the EITC, which will be set at $11,950 for 2025. This adjustment reflects a need for families to navigate their financial strategies carefully to ensure they meet eligibility requirements.

Adoption Credit and Gift Tax Exclusions: New Opportunities

The IRS has also announced changes that benefit families considering adoption or gifting. The maximum adoption credit for qualified expenses will increase to $17,280 in 2025, up from $16,810 in 2024. Meanwhile, the annual exclusion for gifts will rise to $19,000, offering taxpayers greater flexibility in their financial planning. For families looking to support their children, this means they can give more without incurring gift taxes, maximizing their economic contributions.

Looking Ahead: Preparing for 2026

As families navigate these tax changes for 2025, it’s crucial to keep an eye on potential shifts in 2026. According to Alex Durante, an economist at the Tax Foundation, “But the year following, 2026, families should be expecting to see higher tax liabilities unless Congress votes to extend these tax provisions that were implemented in 2017.” Therefore, proactive planning and awareness of legislative changes will be key for families aiming to optimize their tax liabilities in the years ahead.

The new tax changes announced by the IRS for 2025 present both challenges and opportunities for families. By understanding the adjustments to the child tax credit, earned income tax credit, adoption credit, and gift tax exclusions, families can make informed decisions to navigate their financial futures effectively.

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HSAs Are Growing, but Awareness Is Lacking

According to research firm Devenir, the popularity of HSAs has surged, with assets climbing to $137 billion by mid-2024. These accounts are projected to grow even more, reaching $175 billion by 2026. Todd Katz, executive vice president of group benefits at MetLife, stated, “We are seeing growth in the number of people who sign up.” He noted that the favorable market environment has also boosted HSA balances.  

Despite their benefits, half of U.S. adults remain unclear on how HSAs work. A survey by Empower, a financial services company, found that only 34% of employees with HSA access participate, and just 24% of those participants actively fund their accounts.   

Tax Benefits: Why HSAs Are ‘Unmatched’

Christine Benz, director of personal finance at Morningstar, emphasized the unique advantages of HSAs, saying, “HSA benefits are unmatched, relative to Roth IRAs or 401(k)s. You just don’t see tax benefits like that.”   

HSAs allow users to save in three tax-advantaged ways. First, contributions are made with pre-tax dollars. As long as the funds remain in the HSA, they are not taxed. Finally, withdrawals for qualified health expenses are tax-free, giving account holders a tax break at every step.   

To qualify for an HSA, individuals must be enrolled in a high-deductible health plan (HDHP). In 2025, the IRS defines HDHPs as plans with deductibles starting at $1,650 for individuals or $3,300 for families. These plans also cap out-of-pocket expenses at $8,300 for individuals and $16,600 for families.  

Balancing Health Costs with Long-Term Savings

While high-deductible health plans often come with lower monthly premiums, the challenge lies in meeting steep deductibles during emergencies. Experts recommend that, where possible, individuals cover medical costs out of pocket to allow HSA investments to grow. However, using the account for non-medical expenses before age 65 triggers income taxes plus a 20% penalty. Those aged 65 and older avoid the penalty but must still pay income taxes on non-medical withdrawals.  

“There’s a lot to think about,” say financial experts, advising that individuals carefully evaluate their financial situation before contributing to an HSA. “You need to run the numbers,” Benz added, stressing the importance of planning.  

Take Full Advantage of Your HSA

An HSA can be a valuable financial tool with its triple-tax benefit and flexibility. However, it requires careful planning and a solid understanding of the rules. As Christine Benz pointed out, these accounts offer tax advantages unmatched by other savings options, making them worth exploring for those eligible. Whether you are looking to invest for the future or manage healthcare expenses wisely, maximizing the potential of your HSA can yield long-term financial rewards. 

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A Rapid Rise in Active ETFs

Active ETFs were a small part of the U.S. ETF market, making up just 2% at the start of 2019. Yet, these funds have grown by over 20% annually, now holding more than 7% of the market in 2024, according to Morningstar. This surge reflects a significant shift in the ETF landscape.

In 2024 alone, 328 new active ETFs were introduced by September, showing a rapid pace compared to the 352 launches in all of 2023. “The growth of ETFs this year has been kind of remarkable,” Welch stated, emphasizing the sustained momentum.

Factors Fueling the Growth

The U.S. Securities and Exchange Commission (SEC) played a key role in this expansion by issuing the “ETF rule” in 2019. This policy streamlined the approval process, making it easier for portfolio managers to launch new ETFs, Welch explained.

In addition, investors and financial advisors have increasingly favored low-cost investment options, leading to a shift from mutual funds to ETFs. Some mutual fund providers have even converted their funds into ETFs, further accelerating the trend.

However, success in the active ETF market has been uneven. As of March 31, 2024, the top 10 issuers controlled 74% of all assets, highlighting the concentration of success among a few players. Additionally, only 40% of active stock ETFs have surpassed the $100 million asset mark, Morningstar reported.

Evaluating Active ETF Health

When considering active ETFs, Welch urges caution. “The biggest thing to focus on is the health of an active ETF,” he advised. “Stay away from ones that don’t have a lot of assets,” as smaller funds may be less stable.

Active vs. Passive ETFs: Key Differences

While passive ETFs track major indexes like the S&P 500, active managers aim to outperform a specific benchmark. According to Jon Ulin, certified financial planner and managing principal at Ulin & Co. Wealth Management, these funds offer unique advantages. “Active ETFs allow managers to make tactical adjustments, which may help navigate market volatility more smoothly than a passive index,” Ulin explained. 

Active ETFs also provide “more unique strategies” compared to traditional index funds, he added, making them attractive for investors seeking tailored approaches.

Weighing Costs and Potential Drawbacks

Active ETFs tend to be more affordable than mutual funds, with average fees around 0.65%, which is 36% cheaper than the average mutual fund fee. In comparison, passive ETFs had an asset-weighted expense ratio of just 0.11% in 2023.

However, Ulin noted some risks: “There is the potential for underperformance, as many active managers fail to beat their benchmarks.” Additionally, newer active ETFs may not have enough performance data for investors to assess long-term success.

Active ETFs offer promising advantages, including cost savings, tax efficiency, and tactical flexibility during market fluctuations. However, investors need to carefully evaluate the health of these funds and be mindful of the risks of underperformance. As Welch pointed out, it’s essential to “stay away from ones that don’t have a lot of assets.” Whether active ETFs align with your portfolio depends on your investment goals and risk tolerance.

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Credit Card Balances on the Rise  

Bankrate’s report highlights that higher living costs are the primary reason many people are hitting their credit limits. Sarah Foster, an analyst at Bankrate, explains, “With limited options to absorb those higher costs, many low-income Americans have had no choice but to take on debt to afford costlier essentials — at a time when credit card rates are near record highs.”  

In addition to daily expenses, unexpected events such as job losses, medical emergencies, and discretionary spending have added to the financial strain. TransUnion data shows that the average consumer credit card balance has climbed to $6,329, reflecting a 4.8% increase from the previous year.  

High Interest Rates and Debt Utilization  

As cardholders carry larger balances, interest rates above 20% compound the problem, making it harder to pay down debt. “People are living a life that they can’t afford right now, and they are putting the balance on credit cards,” said Howard Dvorkin, chairman of Debt.com.  

Carrying high balances affects a cardholder’s credit utilization rate, a key factor in determining credit scores. Experts recommend keeping credit usage below 30% of the available limit, but Bankrate reports that the average utilization rate reached 21% in August.  

Gen X: The Most Impacted Generation  

According to the report, Generation X — individuals in their 40s and 50s — is most affected, with 27% of Gen Xers maxing out their cards or coming close. This generation, often called the “sandwich generation,” faces financial pressure from supporting aging parents while raising children in a time of high education and healthcare costs.  

In comparison, 23% of millennials and 17% of Baby Boomers reported similar credit struggles, while Gen Z showed the least tendency to max out cards. These findings reflect the unique financial burdens Gen X carries, placing them at the forefront of credit card debt challenges.  

The Risk of Delinquency  

As debt levels rise, so do the risks of delinquency. The Federal Reserve Bank of New York and TransUnion have both reported an increase in missed credit card payments. Tom McGee, CEO of the International Council of Shopping Centers, noted, “Consumers have been measured in taking on additional revolving debt despite the inflationary environment over the past few years, although there has been an uptick in delinquencies in recent months.”  

When cardholders miss payments for an entire billing cycle, their debt becomes delinquent, which negatively impacts their credit score. This can lead to higher interest rates on loans or the inability to secure financing. Howard Dvorkin advises, “Some of the best ways to improve your credit standing come down to paying your bills on time every month, and in full, if possible. Understand that if you don’t, then whatever you buy, over time, will end up costing you double.”  

With inflation and high interest rates driving many Americans into deeper debt, managing credit responsibly has never been more important. As more cardholders struggle to keep up with monthly payments, the risks of delinquency and damaged credit grow. Staying on top of payments and limiting credit usage are essential steps to prevent financial trouble from spiraling. 

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A Lower COLA in 2025?

According to Mary Johnson, an independent Social Security and Medicare analyst, the COLA for 2025 is expected to be just 2.5%. This would mark the smallest increase since 2021. For the average retired worker receiving $1,920 in benefits, this adjustment would only amount to an additional $48 per month. “Beneficiaries may be surprised by how little their checks will increase compared to the previous two years,” Johnson commented.

In contrast, Social Security recipients saw more significant increases in 2023 and 2022, when the COLA was 3.2% and a historic 8.7%, respectively. These significant adjustments were made to help offset the effects of high inflation. In 2022, inflation reached levels not seen in four decades, driving the COLA to an exceptional level.

Could the COLA Estimate Change?

While the 2.5% estimate is the current prediction, there is still a chance for change. Johnson’s calculations show a 17% chance the COLA could increase and a 13% chance it might decrease. “The final adjustment will depend on inflation data from the consumer price index,” Johnson explained. The official COLA will be announced once the latest inflation numbers are released, providing the Social Security Administration with the data needed to make the final calculation.

The Social Security COLA is based on a specific measure of inflation, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index measures the cost of goods and services for urban workers and plays a crucial role in determining the annual adjustments to benefits.

When Will the 2025 COLA Go into Effect?

Beneficiaries will see the new COLA reflected in their Social Security payments starting in January 2025. However, they can check how their benefits will change earlier by visiting their My Social Security account online or by reviewing the paper statement mailed out by the Social Security Administration in December.

While the upcoming cost-of-living adjustment for Social Security may not bring the significant boost beneficiaries have seen in recent years, it still represents a positive benefit change. With inflation rates stabilizing, the 2.5% increase, though modest, will help recipients keep pace with rising costs. Stay informed by reviewing your benefits statement and understanding how these changes might affect your financial planning.

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A Smaller Increase Than Recent Years

According to Mary Johnson, an independent analyst specializing in Social Security and Medicare, the Social Security cost-of-living adjustment, or COLA, 2025 is projected to be around 2.5%. If this estimate holds, the average benefit for retired workers, currently $1,920 per month, would rise by only $48. “The benefit increase could be the lowest since 2021,” Johnson said. The official announcement of the COLA is expected to come from the Social Security Administration on Thursday.  

Inflation’s Impact on Retirees’ Budgets

Although a 2.5% increase is expected, it pales compared to the adjustments seen in 2023 and 2022, which were 3.2% and 8.7%, respectively. These more significant adjustments were in response to record-high inflation. Despite a minor increase, many beneficiaries continue to feel the pressure of higher prices. Joe Elsasser, a certified financial planner and president of Covisum, highlighted this issue, stating, “It’s not like prices came back down. It’s just that the rate of increase has slowed, which probably contributes to people’s feeling that inflation hasn’t slowed.” This ongoing challenge means many retirees may struggle to manage their expenses, even with a slight benefit boost.  

Could the COLA Estimate Change?

The 2.5% COLA estimate could still change before the official announcement. According to Johnson’s calculations, the likelihood of an increase is about 17%, while the chance of a decrease is around 13%. The final adjustment will depend on the latest inflation data, notably the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which will be released alongside the official announcement.  

Understanding the COLA Calculation

The Social Security COLA is directly linked to the CPI-W, a specific subset of the broader Consumer Price Index. This metric tracks the prices paid by urban wage earners and clerical workers for goods and services, providing a snapshot of inflation that influences the adjustment. Historically, the average COLA has been around 2.6% over the last 20 years, according to the Senior Citizens League, a nonpartisan organization advocating for older adults. This year’s expected adjustment is closely aligned with that long-term average but significantly lower than recent increases.

When Will the 2025 COLA Take Effect?

Beneficiaries can expect to see their adjusted benefits in January 2025. However, they can find out about the changes to their payments earlier through their My Social Security online accounts or by checking their paper statements, mailed out in December. This adjustment will help recipients prepare for their financial plans in the coming year, even if the increase may not keep pace with their rising costs.  

Preparing for the 2025 Adjustment

While the expected Social Security COLA for 2025 aims to help beneficiaries manage inflation, the relatively small increase may overwhelm many. As Joe Elsasser noted, inflation’s impact on daily expenses remains challenging despite the adjustment. With the official announcement just around the corner, retirees should stay informed and review their updated benefits statements as soon as they are available. 

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Understanding the Fed’s Policy Shift

In September, the Federal Reserve implemented a 50 basis point cut, reducing its benchmark rate from 4.75% to 5%. The move marks the start of an easing cycle after years of rate hikes that had pushed yields on savings accounts and certificates of deposit to new highs. Following a stronger-than-expected jobs report, analysts predict that future rate cuts may be more conservative. However, the overall shift in Fed policy will likely benefit the bond market, as falling interest rates tend to increase bond prices. Ward emphasized that cash holdings may become “less attractive, less productive as rates decline.”

Corporate Bonds: A Stronger Option Amid Lower Rates

Financial experts, such as Ted Jenkin, CEO and founder of oXYGen Financial in Atlanta, recommend considering medium- to longer-term corporate bonds during a falling-rate environment. In the third quarter of 2024, the Morningstar US Corporate Bond Index posted a return of 5.8%, outperforming the broader bond market’s 5.2% return. Jenkin noted that many corporations capitalized on the low interest rates during the pandemic to refinance their debt and strengthen their balance sheets. Ward added, “I think we’ll see corporations emerge from this rate hike cycle in pretty good shape.”

Municipal Bonds: Tax Benefits for Investors

Municipal bonds, or “munis,” are also becoming more appealing to investors, particularly those in high-income tax states. These bonds offer federally tax-free interest, and investors in the issuing state can also avoid state taxes. Given the potential for higher future taxes, munis could be a valuable addition to a bond portfolio. Jenkin noted, “Longer-term municipal bonds should fare better if the Fed continues to cut interest rates.” Ward echoed this sentiment, highlighting that municipalities provide “excellent qualities for long-term investors,” including a favorable risk profile alongside attractive yields.

Adjusting Bond Duration for Maximum Returns

Financial advisors often adjust bond duration, which measures a bond’s sensitivity to interest rate changes, to align with the current market environment. Jenkin explained that his firm started transitioning to “medium-term duration” bonds—spanning five to ten years—months before the Fed’s first rate cut in September. As interest rates continue to fall, bonds with longer durations are expected to provide more rewarding returns for investors.

Why Now Is the Right Time for Bonds

With the Federal Reserve’s shift toward lower interest rates, bonds have re-emerged as a potentially lucrative investment. Financial planners like Scott Ward and Ted Jenkin emphasize that a thoughtful review of bond portfolios could unlock opportunities for investors seeking safer returns. Whether through corporate bonds, municipal bonds, or adjusting bond duration, there are multiple ways to navigate the current market environment. As Ward succinctly said, “This is a fantastic time to revisit bonds.”

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As Teresa Ghilarducci, an economics professor at The New School for Social Research, explains, “Women have achieved parity in the workplace, but not full equality.”

The Pressure to ‘Have It All’

Women, particularly millennials and Gen Z, face growing pressure to balance their careers and personal lives. Pop culture vividly depicts this pressure, including music and viral social media trends. Taylor Swift’s lyric, “I cry a lot, but I am so productive, it’s an art,” from her song *I Can Do It With a Broken Heart* resonated deeply with many women. The song has been featured in over 180,000 TikTok videos, capturing many women’s frustration in their attempts to juggle multiple roles.

“It resonates with both millennials and Gen Zers,” says a social media trend forecaster Casey Lewis. “It indicates that Gen Z is feeling the same ‘girl-boss’ pressures that millennials famously grew up with.”

Another song that caught attention this year is Megan Boni’s viral hit, “I’m Looking for a Man in Finance, Trust Fund, 6′5″, Blue Eyes…” While intended as a light-hearted commentary on dating expectations, it underscores single women’s challenges in meeting societal ideals. 

The Rise of the Tradwife Trend

Amid these pressures, some women are opting to step out of the traditional workforce in favor of embracing domesticity, a trend known as “tradwife.” This viral movement portrays women adhering to traditional gender roles, focusing on homemaking rather than climbing the corporate ladder. According to Casey Lewis, young women choose to become tradwives as “an excuse to step back and do less” professionally, allowing them to prioritize family and home life.

However, this doesn’t mean women are doing less overall. Research shows that women still shoulder more domestic responsibilities than men, regardless of whether they work outside the home. As Richard Fry, a senior researcher at Pew, points out, the lack of affordable childcare is a significant factor, stating, “The childcare crisis, which was simmering before the pandemic, has come to a boil.”

The Male Perspective: Workforce Disengagement

Interestingly, while women are facing mounting pressures, men are exiting the workforce at alarming rates, particularly those between the ages of 25 and 54. A Pew Research study revealed that non-college-educated men leave the workforce at higher rates than their college-educated peers. The decline of manufacturing jobs and the rise of NEETs (neither in employment, education, or training) highlight a growing trend among younger men who struggle to find their place in today’s economy.

Julia Pollak, chief economist at ZipRecruiter, reflects on the portrayal of this phenomenon in last summer’s blockbuster movie, *Barbie*. “Ken is a young man in America who just has no place and no role,” she says, capturing many men’s frustration.

The Earnings Gap: Still Present

Despite the shifts in workforce participation, men continue to outpace women in other areas. Actual median earnings for full-time male workers increased by 3%, while women saw only a 1.5% rise. Furthermore, societal expectations continue to weigh heavily on women, with 37% reporting that they need to prioritize their partner’s career over their own, according to Deloitte’s 2024 Women at Work report.

While women have made tremendous progress in their careers, the journey toward true equality remains complex. From viral pop culture moments to workplace statistics, many women’s frustrations with societal expectations continue to ripple through their lives. As Teresa Ghilarducci noted, women may have achieved parity but “not full equality.” Achieving this balance, both at work and home will require ongoing effort and societal change.

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Here are three clear indicators that it’s best to hold off on applying for a new credit card.

1. Existing Credit Card Debt Is Holding You Back  

Carrying a balance on your current credit cards should be a red flag when considering a new card. Credit card interest rates are some of the highest, with an average rate of 22.76%, according to the Federal Reserve. For example, a $10,000 balance could accrue over $2,200 in interest charges annually, making it harder to eliminate your debt.  

Opening another credit card could increase your available credit and tempt you to spend more, deepening your financial hole. While the allure of more rewards or bonuses is tempting, it’s not worth the risk when you’re already managing high-interest debt.

One alternative to consider is a balance transfer card, which may offer a 0% APR introductory period on transferred balances. This can help you save on interest while paying down existing debt, but it’s crucial to pay off the balance before the promotional rate expires to avoid hefty interest charges later.

2. You’re Planning a Major Loan Application  

If you’re gearing up to apply for a substantial loan, such as a mortgage or car loan, it’s advisable to delay any new credit card applications. Your credit score plays a pivotal role in determining the interest rates and terms for large loans, and even a small dip in your score could increase your borrowing costs.  

Whenever you apply for a credit card, the lender performs a hard inquiry, which slightly reduces your credit score. Although the drop is generally minor, it may impact your chances of securing the best loan terms. Experts suggest waiting at least six months to a year after applying for a credit card before moving forward with a significant loan. This gap gives your score time to rebound, improving your prospects for better rates and terms.

3. You’ve Been Missing Payments  

Missed payments on your current credit cards can be a sign that it’s not the right time to open another account. Late payments not only lead to late fees but also hurt your credit score. A single late payment reported after 30 days can drop your score by over 100 points, making it more challenging to qualify for future credit cards or loans.  

Before considering a new card, focus on addressing missed payments and building better payment habits. More cards mean more due dates, increasing the risk of missing a payment. Ensuring your current accounts are in good standing with on-time payments should be your priority before adding another card to the mix. Setting up automatic payments or reminders can help prevent future missed payments and improve your overall financial health.

Be Smart About When You Apply  

Though credit cards offer great benefits, timing your application wisely is essential for your financial well-being. If you’re already in credit card debt, planning to apply for a loan, or dealing with missed payments, waiting to open a new card could save you from further financial challenges. By improving your current situation first, you’ll be in a much better position to benefit from the rewards and perks a new card can offer in the future.

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When an Extended Warranty Is a Good Idea

For drivers who plan to keep their vehicle for many years, an extended warranty can provide long-term security. Once the manufacturer’s original warranty expires, an extended plan can cover the cost of major repairs, offering peace of mind. This is particularly useful for those who worry about potential breakdowns or unexpected repairs. In these cases, the monthly payment for the warranty may feel like a small price to pay for avoiding larger, unpredictable bills down the road.

Additionally, an extended warranty makes sense for vehicle owners who are committed to regular maintenance. If you plan to keep your car in excellent condition, the warranty will help cover larger mechanical issues that may arise despite your efforts. The protection it offers is especially valuable if the vehicle is known for developing problems after several years on the road.

Situations Where You Might Skip the Warranty

On the other hand, extended warranties are not necessary for everyone. If you tend to trade in your vehicle every few years, it may not be worth paying for long-term protection that you won’t fully use. Short-term ownership usually means the manufacturer’s warranty will cover most of the time you own the car, making the extra investment in an extended plan less valuable.

For those with a strong emergency savings account, paying for repairs out of pocket might make more sense than purchasing a warranty. If you have enough savings to cover unexpected repair costs, the extra monthly expense of a warranty may be unnecessary. This approach allows you to save money upfront while still having a financial safety net for potential vehicle issues.

Budget and Coverage Considerations

Before purchasing an extended warranty, it’s important to assess whether it fits within your budget. With the average monthly car payment in the U.S. already at $760, adding another $110 or more could strain your finances. If you’re already stretching to cover your car loan, insurance, and other expenses, it might be more prudent to avoid the extra cost of a warranty.

Another factor to consider is the limitations of extended warranties. Some plans come with exclusions, such as certain parts not being covered or waiting periods before the coverage begins. It’s essential to carefully review the details before signing up, as these limitations can reduce the value of the protection you’re paying for.

Making the Right Decision

Ultimately, deciding whether to purchase an extended warranty comes down to your individual financial situation and long-term vehicle plans. If you plan to drive the car for many years and worry about covering repair costs, a warranty could be a helpful safeguard. Budgeting for the warranty alongside your vehicle down payment and other expenses may make it easier to afford. 

However, for those who don’t expect to keep their vehicle for long or have sufficient savings to cover repairs, the extra cost may not be necessary. Carefully evaluating your budget, driving habits, and vehicle reliability will help you make an informed decision. While extended warranties aren’t for everyone, they can provide valuable peace of mind for drivers who want added protection against costly repairs.

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