Today’s year-end planning tip is regarding Employer retirement plans:
Here are a few items to keep in mind…
First, Assess contributions made this year: You should Review how much money you contributed to your employer retirement plan this year. If you are financially able to, it’s worthwhile to max out your 401(k) or 403(b) if you have not done so already. In 2024, those limits are $23,000 before any company match or $30,500 if you are 50 or older.
Also, Be mindful of next year’s contribution limits: For 2025, the contribution limit increased to $23,500. Catch-up contributions will remain the same at $7,500, for those 50 to 60. AND, this is interesting, the IRS now permits an additional catch up for employees ages 60 to 63 of $11,250, instead of just $7,500. Don’t forget to make the required tweaks within your plan to ensure you are making the maximum contribution for the upcoming year.
Next is the classic deliberation between a Roth vs Traditional: The rule of thumb is if you think you may have a high-income year, then a traditional IRA makes more sense. If you anticipate a low-income year, then a Roth IRA makes sense.
Also, Review your investment lineup and portfolio: Determine with your advisor if it makes sense to make any changes. This is especially applicable if your firm switched 401(k) providers recently, if you rolled over an old 401k into your IRA, OR if you are approaching retirement. In any of those scenarios, tweaking your investments may make sense.
Next is the Consolidation of old accounts: If you have old retirement accounts still held at a previous employer, be sure to consolidate them into an IRA to keep your assets organized! It RARLEY makes sense to have old retirement accounts scattered at various institutions, especially old employers. If you need help consolidating old accounts, let me know if I can help.
And here’s a Planning Tip: For clients with 1099 income or who are self-employed consider setting up a Solo 401(k). Even if an individual is maxing their employee contributions through their W2 job, they could still make a profit-sharing contribution into their Solo 401(k), deferring taxes on up to an additional $69,000 depending on their self-employed income. For people in a higher tax bracket, this strategy can allow them to defer more funds for retirement, reducing their taxable income, AND increase their nest egg.