The IRS announced the new 2024 retirement contribution limits for 401(k) plans, IRAs and other accounts last year, which include increases. This is a great opportunity for retirement savers to increase their savings rate this year. So, let’s take a look.

The employee contribution limit for 401(k)s will be increasing this year by $500, to $23,000, up from $22,500 in 2023, and catch-up contributions for those age 50 and older will remain unchanged at $7,500, so $30,500. These new limits apply to 403(b) plans as well and some TSP and 457 plans. Solo 401(k)s limit for 2024 is $69,000 and $76,500 for those over 50 years old.

The IRS also increased contribution limits for IRAs, increasing the limit for savers to $7,000 in 2024, up from $6,500 in 2023 for traditional and Roth savers. Catch-up contributions will remain unchanged at $1,000, so $8,000 for those over 50 years old. Simple IRA contribution limit will be $16,000.

If you have any further questions on the retirement contribution limits for this year, adjusting your contribution, or jus on your personal financial situation, email info@shermanwealth.com or schedule a complimentary intro call here. Check out the IRS website for more information on the contribution limits.

Now that we are in the last quarter of the year and approaching open enrollment season, we want to talk about an important topic that is oftentimes overlooked or misunderstood, retirement savings. If you were looking to increase your retirement savings last year, there is an opportunity for you in 2023. As we mentioned in a prior blog, the IRS increased retirement contribution limits for 2023, up $2000 from last year, from $20,500 to $22,500 and to $30,000 for individuals 50 years of age and older. So, another $2,000 you can save this year! We’ve found that many individuals who maxed out their 401(K) last year still have not raised their contribution to max out for this year. If you received a raise in salary from last year and want to save more for retirement, you will need to adjust your contribution as well! 

Whether you are taking advantage of the entire contribution limit or just want to increase your contribution by a percent or two, this is a great opportunity to save more before the end of the year. If you have yet to increase your retirement contribution, work with a financial advisor or financial professional to calculate the amount you will need to increase in order to reach your retirement goal for the year.

So, let’s take a look at how individuals saved last year for their retirement. According to 2022 estimates from Vanguard, “in 2021, roughly 14% of investors maxed out employee deferrals”, based on 1,700 plans and nearly 5 million participants. We find that many individuals actually intended to max out their retirement contributions or save more than they did, but either forgot to adjust their contributions or were clouded with other goals. So, if you plan on saving more this year, log on to your 401(k) platform and make your appropriate adjustments.

Contributing to your workplace retirement plan and taking advantage of the company match is a great way to build your wealth and save for your future. When deciding how much you want to contribute to your retirement plan each payroll period, it’s important to think about your entire financial picture and your goals. Make sure you are being intentional about your saving, and accounting for all the goals you want to achieve and save for. Find a balance that works for you so you can save for both your short and long-term goals. No matter where you start with your retirement contribution, you can always change it throughout the year on your retirement platform if you feel necessary. If you have extra room in the budget from the first half of the year, now might be a great time to adjust your contributions! 

While retirement is only one piece of your financial puzzle, we want to make sure you are taking advantages of the benefits it provides to you for your future. There is no clear or right answer when it comes to your retirement and goals, which is why we suggest working with a financial professional to prioritize your goals. As we approach open enrollment season, use this opportunity to review your benefits guide and familiarize yourself with all the benefits available to you so you can maximize your particular financial life. If you have any questions about adjusting your retirement contributions or about your 401(K) in general, please email us at info@shermanwealth.com and we are happy to help answer all and any questions. You can also schedule a 30-minute complimentary consultation here. 

If you or anyone you know withdrew funds from retirement accounts during the early stages of the COVID-19 pandemic, it’s important to be aware of a time-sensitive deadline to pay back those amounts and unlock significant tax advantages. In March 2020, Congress passed the CARES Act, which allowed individuals to withdraw up to $100,000 from their retirement accounts, such as IRAs and 401(k) plans. These withdrawals, known as coronavirus-related distributions (CRDs), were intended to act as loans and provide financial support during the economic hardship caused by the pandemic. However, to fully benefit from the tax advantages, individuals must act quickly to repay the withdrawn funds within a specific timeframe, which is ending soon.

Under the CARES Act, individuals who took CRDs were granted several tax advantages. Firstly, the usual 10% penalty for early retirement withdrawals was waived. While income tax was still owed on CRDs, those who repaid some or all of the distribution had the opportunity to recover the paid taxes and convert the withdrawals into tax-free loans. These tax benefits were only available in 2020, making it crucial for individuals to take prompt action to maximize their savings. Those who withdrew funds had three year to repay the CRDs, starting from the day after they received the funds. So, for many people, the deadline is quickly approaching if they want to be eligible for the tax refund.

Recent data from Vanguard Group reveals that a significant number of individuals took CRDs in 2020. In fact, “approximately 6% of investors in workplace retirement plans, totaling around 268,000 people out of 4.7 million”, withdrew these funds. However, according to Vanguard’s latest data, “less than 1% of those who withdrew funds had repaid them by the end of 2021.” For those who want to capture tax benefits or re-invest those funds back into their retirement accounts, now is the time to pay it back. Those who repay part or all of their CRDs within the three-year deadline must file an amended tax return to claim a tax refund.

Given the approaching deadline and the potential for significant tax advantages, it is crucial for individuals who have taken CRDs to take prompt action. Assess your financial situation and determine if you can repay the withdrawn funds partially or in full. Seek guidance from a financial advisor or tax professional who can assist you in the repayment process and help you make informed decisions based on your specific circumstances. If you have any questions, email info@shermanwealth.com.

Does your job offer workplace benefits? If so, are you aware of the benefits available to you and are you taking advantage of them all? We’ve been working with many individuals who are not only unaware of the extent of their benefits but are also not utilizing some great opportunities for them, especially their 401(k) employer match. Let’s take a look at why individuals are not taking advantage of this benefit and why it’s prudent to.

We’ve found that many employees are not educated on their benefits and therefore do not know how some of these added comps can benefit them. If your employer offers a 401(k) match, they are basically offering you free money. So, why wouldn’t you take it? Even if you are not able to/or want to max out your 401(k), contributing at least the employer match will help you make the most out of your retirement savings and take advantage of a really great company perk. Let’s break down how it works. Say your employer match is 4%. So, if you contribute 4% (or more) of your salary towards your retirement account, each pay period your employer will also contribute 4% on your behalf. 

Keep in mind, if you are starting a new job,  it’s important to speak with your employer or HR to determine when you are eligible to contribute to your company retirement plan and if the employer match is immediate or there is a waiting period. Additionally, many people are unaware that in 2022 they can contribute up to $20,500 of pretax income to a 401(k), so there’s a real opportunity to save throughout the year and getting closer to the limit quicker. 

Another issue we have seen as it relates to workplace benefits and retirement accounts is misplacing or forgetting about old 401(k)s. We know starting a new job can be a stressful time with many moving parts; however, it’s important that you don’t forget about your old 401(K) account. When switching jobs, you have a few options. First, you can roll the old retirement plan into your new 401(k). Other options are to leave the retirement plan where it is, roll it into an individual retirement account (IRA), or cash it out (however, depending on your age early withdrawal fees may apply). Oftentimes, it’s very helpful to analyze your old 401(K) and new workplace benefits to see which option is best for you. If you have questions about an old 401(K) or retirement account and would like our help analyzing your options, please let us know. Additionally, If you are an employer and are looking for a workplace benefit education course, email us at info@shermanwealth.com as we are happy to work with your employees to educate them on all the options available to them. Click here to schedule a complimentary intro call. 

On Tuesday March 29th, The House Of Representatives passed the Secure Act 2.0, a bill that is aimed to improve the retirement savings system for U.S workers. The legislation will now head to senate for its decision.

According to the House Ways and Means Committee Chairman Richard Neal, D-Mass., “H.R. 2954 will help all Americans successfully save for a secure retirement by expanding coverage and increasing retirement savings, simplifying the current retirement system, and protecting Americans and their retirement accounts,” he ahead of the Tuesday vote. “Too many workers reach retirement age without having the savings they need.”

According to a Wall Street Journal article, the bill proposes that “legislation would gradually increase the age at which savers must start taking withdrawals from 401(k)-type accounts and traditional individual retirement accounts to 73 next year, rising to 74 in 2030 and 75 in 2033.”  As of right now, people who have a retirement savings account must start withdrawals at age 72, so this will help those who wish to grow their money longer or may not need it quite yet.

In addition to the increased age to take RMDs, the new bill will allow older workers to make larger contributions to their 401(k)s. According to WSJ,  “people 50 and older can contribute an extra $6,500 a year to 401(k)-style retirement accounts, for a total of $27,000. The legislation would raise that to $10,000 a year starting in 2024 for people ages 62, 63 and 64. The bill would require catch-up contributions to be made after taxes. Under the legislation, starting in 2024, the extra $1,000 people 50 and older can contribute annually to an IRA would rise to account for inflation.” Again, this added benefit is a huge opportunity for individuals who maybe missed out on the early years of retirement savings.

This bill and the ultimate Senate decision could be huge for individuals, especially older ones, who want to boost and make the most out of their retirement savings by allowing them to maximize them in their later years. We will continue to follow updates from Senate on the progression and eventual implementation of this bill. If you have any questions for us, email us at info@shermanwealth.com.