A NEW CHAPTER FOR GEORGE HEBERT

As some of you may know, George Hebert decided to retire at the end of last year after having a long and successful career. George began working in the industry in 1975, beginning his career as a licensed insurance agent. In 1986, he began working at Horizon Financial, the savings and loan in Monroeville, PA in their Annuity Department, along with Laura Abbott DeCarolis, who joined the team in 1988. Two years later, he and Laura left the bank to form Horizon Financial Advisors as a fullservice investment firm. In 2015, George decided to move into semi-retirement at the age of 70, continuing to service his clients holding fixed annuity products. Now, after working nearly 50 years in the industry, he decided it was time to fully retire.

We owe a lot to George, who was committed to serving his clients and always putting their needs first. He always came to the office with a smile. It was a pleasure to work with him. Now he begins a new chapter of his life in which he'll have more time to spend with his wife at their lake house and with his four grandchildren. Thank you, George, for all you've done for your clients, for Horizon, and for its team members. We wish you all the best in this new and exciting chapter of life.

MARKET OUTLOOK

Last year was another healthy year for equity (stock) returns, as was the year prior. Declining inflation, interest rate cuts by the Federal Reserve, and strong earnings growth by many U.S. stocks helped to push stock markets higher, which was of no surprise. In 2024 growth finally expanded beyond that of the Magnificent 7. What was unusual, however, was the lack of volatility experienced during the year. The markets pushed higher month after month with little to no pullback. After the Presidential election, U.S. stock market indices surged higher, referred to as the "Trump Bump", peaking in early December. They then bounced up and down in the final weeks of December to end slightly off their peak but still ending with double-digit returns for the year. According to Cypress Capital, most asset classes ended the year with healthy returns, except for most bonds and international stocks. Nearly all U.S. sectors performed well last year with communications services and technology once again being the clear winners.

That brings us to our outlook for 2025. Our tag line for the coming year is "great expectations amid great uncertainty". With a new incoming Administration, expectations for the new year are high. Policies proposed by the Trump Administration, such as lower taxes and less regulation, are progrowth in nature and create a more business friendly environment. This is important because one of primary drivers of equity markets is healthy corporate earnings, as we've experienced over the past two years. According to an article published by Marketwatch, a recent survey of the top 20 financial institutions in the U.S. concluded that 18 out of 20 were expecting the S&P 500 to realize a positive return again in 2025, though at a much lower rate than in the prior two years. But we would again need good corporate earnings growth to sustain this outcome. Lastly, the economy is relatively good shape, the possibility of a recession in the near term is no longer being discussed, and further cuts by the Fed are expected. Rate cuts, in the absence of a recession, tend to boost stocks.

But there is also great uncertainty in the near term. It was originally forecasted that we would see four rate cuts in 2025 but that has now been reduced to two cuts. Inflation is not yet at the Fed's target and seems to be stickier than expected. There is also uncertainty with changes that will come about by the new Administration. There is concern that the tariffs being proposed could have an inflationary impact on the economy. Of course, any misstep in policy could prove to be harmful.

As we know, markets don't like uncertainty. It creates more volatility, and we have not experienced downside volatility in quite some time. So it wouldn't be a surprise or unusual if we were to experience a market correction at some point during the year. Corrections (defined as a pullback of more than 10% but less than 20%) are quite normal in nature, occurring every 14 to 18 months on average. Yet we haven't had one since 2022. Fortunately, they are relatively short in nature. Even pullbacks of 5% are extremely normal, having occurred nearly every year since the 1980s. Though they are uncomfortable to experience, corrections can be healthy. They help bring stock valuations to more attractive levels to produce future returns. Over the past two years, some stock prices, especially technology stocks, have gotten expensive. A correction could create a good buying opportunity, also inspiring investors who are still holding higher-than-normal levels of cash because of high money market rates to purchase stocks. This could push the markets higher. In light of a possible correction for stocks, holding bonds in a portfolio becomes even more important. According to Capital Group, bond yields have surpassed S&P 500 index earnings yield for the first time in nearly 20 years. Their total returns have been minimal the past two years but they could play a more important role for portfolios in the coming year.

In the near term, focus will be on the impact that the new Administration's polices will have, as well as on the Fed's stance regarding inflation and interest rates. Until we have more clarity, greater expectations and investor exuberance will continue to cause wider swings in the markets.

AN INTRODUCTION TO CRYPTOCURRENCY

Because of its growing popularity and the topic spending more time in the news, we are devoting an article to cryptocurrency. Please be advised that we are not experts in this subject matter. Additionally, we do not invest in any of the SEC-approved ETFs in our clients' portfolios nor are we recommending that clients purchase them. This article is merely our attempt to help clients gain an understanding of the basics of cryptocurrencies in the limited amount of space we have.

What exactly is cryptocurrency? The word cryptocurrency comes from the terms crypto and currency. Crypto means hidden or secret, referring to the process of cryptography. Cryptography is the study of techniques for secure communication, hiding it away particularly from a third party. Currency refers to money. Therefore, cryptocurrency is a digital form of currency secured by cryptography and exchanged through computer networks. There is no physical form because it's all online.

How is this different from the money you have in your digital wallet that you access electronically from a mobile app? Traditional currencies are controlled by governments' central banks. Accessing your money electronically is done by going through a bank or payment service. With digital currencies, there is no need for a bank or middleman, which is one of the appeals to cryptocurrency. Additionally, the identity of the buyers and sellers of the currency is not public, another benefit for those in favor of the currency.

Though cryptography has been around for decades, the first cryptocurrency (Bitcoin) was created in 2009 by an anonymous person known as Satoshi Nakamoto. It was created as a way for people to exchange money that wasn't controlled by any central authority. Though the most popular cryptocurrency is Bitcoin, there are now thousands of different cryptocurrencies in existence just like there are hundreds of currencies used around the world. Different cryptocurrencies are used for different purposes, and not all can be used for everyday transactions. Some have a limited number of coins that will ever be issued (i.e. Bitcoin) and others have an unlimited supply.

How does cryptocurrency work? It uses a technology called blockchain. Instead of a central government keeping track of the currencies like they do with traditional currency, records of all cryptocurrencies are stored across all the computers that are connected to a cryptocurrency network. This is referred to as the blockchain. This means that every currency transaction is recorded and cannot be altered or erased because everyone in the network has a copy of these transactions. Details of all transactions are sent to each computer in the network around the world and the users confirm its information by solving very difficult equations. People solving these equations are rewarded by earning (cryptocurrency) coins. This process is referred to as mining.

Since cryptocurrencies have no physical form, how do you keep track of what currency you own? Each coin is deposited into your cryptocurrency wallet. The address on your digital wallet is like the account number on a bank account. Bitcoin transactions and everyone's balances are public information. However, your wallet provides privacy. There is no personal information on your wallet so no one knows your identity, and only you can hold your wallet. The danger is, therefore, that if you lose your wallet and forget your recovery phrase, you would lose your cryptocurrency.

How is cryptocurrency used? Presently, most vendors don't accept cryptocurrency for purchases nor do banks accept it for deposits. There are companies that convert your crypto to make purchases, but many owners prefer not to use it to make purchases because of how volatile its price is. As a result, the most popular use for cryptocurrencies has been for investment purposes, buying in hopes it will increase in value. But the prices of cryptocurrencies can be extremely volatile and fluctuate very quickly and dramatically in one day.

With all of the downsides, why have many of the cryptocurrencies become so popular? Proponents of cryptocurrencies argue that many global currencies are no longer backed by gold as they used to be but are only backed by the trust and faith in the government that issues those currencies. Governments can control the supply of money thereby influencing or manipulating the value of their currencies. But with currencies such as Bitcoin, there is a maximum supply of it. So if demand continues while supply remains the same, it should continuously drive up the price of the currency. It is, therefore, the supply and demand of the currency that controls its value.

There are many possible outcomes on the future of cryptocurrencies. Will they be used in everyday transactions? Will they become worthless? Will they become something in between? As developments occur, we will write more about this subject in future newsletters.

NEW RULES REGARDING RMDs FOR BENEFICIARY IRAs

The Secure Act, first passed in 2019, changed the rules for those who inherited an IRA or qualified plan from an owner who passed away after January 1, 2020. Under these new rules, the beneficiary could no longer stretch out distributions over their life expectancy. Instead, they would be required to withdraw the assets within 10 years. Exempt from the 10-year rule, however, were surviving spouses, minor children (until age 21) of the deceased account owner, beneficiaries who are chronically ill or disabled, and beneficiaries who are not more than 10 years younger than the decedent. But the Treasury and IRS did not require that annual distributions (or "RMDs") be made during that 10-year period until recently

On September 17, 2024, new regulations changed RMD requirements. According to the IRS, beneficiaries subject to the 10-year rule will now be required to take annual distributions, beginning in 2025, only if the deceased owner died after their RMDs began. If the owner died before starting their RMDs, however, the beneficiary needn't take annual payments. In either case, the 10-year rule remains in force requiring the entire balance to be withdrawn by December 31st of the 10th year following the original owner's death.

As for inherited Roth IRAs, beneficiaries of inherited Roth IRAs are not required to start taking RMDs, regardless of whether the original account owner died before or after starting their RMDs. However, the 10-year rule still applies, and distributions continue to be tax-free. If you have questions regarding this rule change, call our office or contact your tax advisor/tax preparer.

HAPPY 35TH ANNIVERSARY

We're happy to announce that Horizon Financial Advisors is celebrating its 35th anniversary this year. It is the loyalty and trust that our clients have placed in us, as well as our talented and dedicated staff, that have led to our success. Thanks to all of you!

TAXATION UPDATE

According to the Internal Revenue Service, Social Security Administration, and Centers for Medicare & Medicaid Services, the following are tax rules and limits for the 2025 tax year.

• The tax rates for 2025 are the same as last year, but the income ranges have increased slightly. They are:

Tax Rate	SINGLE FILERS Taxable Income Between	MARRIED FILING JOINTLY Taxable Income Between
10%	$0-$11,925	$0-$23,850
12%	$11,926-$48,475	$23,851-$96,950
22%	$48,476-$103,350	$96,951-$206,700
24%	$103,351-$197,300	$206,701-$394,600
32%	$197,301-$250,525	$394,601-$501,050
35%	$250,526-$626,350	$501,051-$751,600
37%	Over $626,350	Over $751,600

• The standard deduction for 2025 rises to $30,000 for married filers (plus $1,600 for each spouse age 65 or older), $15,000 for single filers (plus $2,000 if age 65), and $22,500 for heads of household (plus $2,000 if age 65).

• The limit for contributions into a 401(k), 403(b) and 457 INCREASES another $500 to $23,500. The additional catch-up contribution will be $7,500 for those age 50-59 or age 64 and older and $11,250 specifically for those ages 60-63.

• The limit for contributions to a SIMPLE IRA also INCREASES another $500 to $16,500. The additional catch-up contribution will be $3,500 for those age 50-59 or age 64 and older and $5,250 for those ages 60-63. However, certain applicable SIMPLE plans have higher contribution limits of $17,600 plus a $3,850 catch-up for those age 50-59 or age 64 and older and $5,250 for those ages 60-63. These higher limits are the same as they were for 2024.

• The limit for contributions into a Traditional or Roth IRA remains UNCHANGED at $7,000 for those under age 50 and $8,000 for those age 50 or older. Also, you can contribute at any age as long as you have EARNED income that is equal to or greater than your contribution.

• Taking the deduction for Traditional IRA contributions may be limited for those who participate in an employer-sponsored retirement plan. The AGI income phase-out increases to $126,000 -$146,000 for marrieds, $79,000-$89,000 for singles, and $0-$10,000 for married filing separately. Where only one spouse is active in a plan, the phase-out increases to $236,000- $246,000 but remains $0- $10,000 for married filing separately.

• The income limit for making Roth IRA contributions also increases with the phase-out at $236,000-$246,000 for married filers, $150,000-$165,000 for single filers, but $0-$10,000 for married filing separately.

• The 0% tax rate on capital gains and qualified dividends still exists. It applies to married filers with income less $96,700 and to single filers with income less than $48,350. After that, the 15% capital gains tax rate applies until income exceeds $600,050 for married filers and exceeds $533,400 for single filers at which time the 20% rate applies.

• Social Security recipients are receiving a 2.5% cost-of-living increase in their monthly benefit for 2025.

• Medicare Part B premiums increase in 2025 to $185.00 per month. However, premiums are based on a recipient's modified gross income, using the tax return from two years prior. For those with modified gross income for 2023 in excess of $106,000 for individual filers or $212,000 for married filers, their 2025 Part B premiums will be higher. This is referred to as "IRMAA" (income related monthly adjustment amount), which applies whether or not the recipient has original Medicare or Medicare Advantage for their insurance coverage.

• The Social Security wage base for this payroll tax also INCREASES to $176,100 for 2025.

• Those collecting Social Security before full retirement age can earn $23,400 in 2025 without losing benefits. But individuals who reach their Full Retirement Age during 2025 can earn up to $62,160 IN THE MONTHS BEFORE reaching FRA without losing benefits.

• The annual gift tax exclusion INCREASES to $19,000 per recipient.

• The lifetime estate and gift tax exemption for 2025 jumps to $13,990,000. After 2025, the exemption will fall back to $5 million, adjusted for inflation, unless Congress agrees to extend the higher amount.

• The child tax credit is $1,700 per child UNDER the age of 17 at the end of the year. To qualify for the full amount of the credit, you must meet all eligibility factors and your annual income cannot be more than $400,000 for married filers and $200,000 for all other filers.

• The American Opportunity Education tax credit holds at $2,500 PER STUDENT for qualifying expenses made within the first four years of post-secondary education. The credit phases out for married filers with income between $160,000-$180,000 and single filers with income between $80,000-$90,000. For those not eligible for the American Opportunity Credit, the Lifetime Learning Education tax credit offers a maximum credit of $2,000 PER RETURN. Income limitations are the same as the American Opportunity credit.

• The contribution limit to Health Savings Accounts ("HSAs") jumps to $4,300 for single coverage and $8,550 for family coverage, plus an additional $1,000 for HSA owners age 55 or older. Why is this important information? Because contributions are tax-deductible as long as you have a high-deductible health plan ("HDHP"). An HDHP is defined as having an annual deductible of at least $1,650 on single coverage and $3,300 on family coverage and an outof-pocket maximum threshold of $8,300 on single coverage and $16,600 on family coverage. Distributions made for qualified expenses are considered tax-free. But once your health insurance is through Medicare/Medicare Advantage, you can no longer contribute to a health savings account.

• Those who inherited IRAs in 2020 and later from someone who was not a spouse or an eligible designated beneficiary must have the IRA paid out within 10 years of the decedent's death. Beginning in 2025, however, these beneficiaries will now be required to take RMDs (required minimum distributions) on an annual basis until the IRA is depleted (within 10 years).

Disclaimer: The opinions expressed herein do not necessarily reflect those of Trustmont Financial Group, Inc./Trustmont Advisory Group. Inc. Trustmont does not provide tax or legal advice. Additionally, the information contained herein has been obtained from sources believed to be reliable but the accuracy of the information cannot be guaranteed. Lastly, reference to any product, service or concept in no way implies that it is suitable for everyone. There may also be risks and costs associated with any product, service or concept mentioned herein. Where applicable, a prospectus should be read for complete details. The material presented here is neither an offer to sell nor a solicitation of an offer to buy any securities. Past performance is not a guarantee of future results. Dollar cost averaging does not assure a profit or protect against a loss. Diversification can help an investor manage and reduce the volatility of an asset's price movements; however, no matter how diversified a portfolio is, risk can never be eliminated completely.