Late jumping in here, but FWIW ...
My ds was easily reading things like Beverly Cleary on entering K. They didn't differentiate to our satisfaction, and his pleasure reading level dropped massively over that school year -- it picked back up over the summer.
This fall, he started a new school and was bumped to a third-grade reading group. What we discovered was that there is a lot more to doing a language arts class than just reading level. With that two-year subject acceleration, ds was expected to do a lot more critical reading (something he'd never had experience with) and more writing. Plot, character development, predictions. All of these skills need to be taught, and my ds did have a "catch up period" going from the end of K to beginning third grade in reading, even though he'd started K reading around that level. Don't get me wrong -- he's well placed at this level. He just needs to put in a bit of effort, which is exactly what we wanted!
Just keep in mind that there's a lot more to "reading" than just the reading.
