Last Chance Retirement Account Savings
By Michael Hollis
We’re getting to the end of the year. Have you met your retirement savings goals? One thing you can do before the last couple of pay periods of the year is log in to your 401k management site and adjust your contribution rate, UP! I was debating this during the last month, but in the end, I opted to leave our contributions at 15% because that was our original goal, and Tanya wanted to have cash on hand for a few planned expenses we have coming up soon, so I (reluctantly, LOL) agreed. I’m the one in our relationship who pushes the envelope on our contributions, and she’s the one staying reserved. We balance each other well in that way, so we keep short- and long-term spending plans in perspective.
Your 2023 Goal
But what about you? Did you stick to the goal you set at the beginning of this year? Maybe today is the day to boost your contributions for the last couple of paychecks of the year. For 401k, 403b, TSP, and 457 plans, the contribution limit for 2023 is $22,500, but if you’re 50 or older, you can add an additional $7,500! You have breathing room to make your traditional and Roth IRA contributions for 2023 because those aren’t due until tax day in 2024. If you’re running a business and have 401k or SEP IRA employer contributions to make, you have until your business’ tax filing deadline to make those. It’s really those personal workplace contributions to address before the end of the year. So don’t delay. Go ahead and schedule a call with us if you want to talk through making any moves and you are unsure what’s best in your situation.
What’s Your Next Savings Move?
You also want to consider your 401k contributions for next year. Maybe you need to boost your contribution rate to reach the new 2024 limit of $23,000 ($30,500 for those over age 50), or maybe you’re not at a place where you can max out your 401k, but you have a raise coming, or you have a second income coming on line this year or are ready to tighten your budget belt, and you want to move up your contribution rate by a percentage or two. If you’re out of debt with an emergency fund, 15% of your total household income is the target rate to aim for. Over the length of your working life, this rate will set you up for solid years of living with little to no earned income starting in your 60s.
Sometimes, your company 401k plan is the best place to do that because it has respectable, low-cost fund options, but sometimes contributing up to your employer match is wisest, and you can use your traditional IRA or Roth IRA to reach the remainder of that 15% target. You might go in that direction if your workplace investment choices are limited, high-cost, or poor-performing. We include helping you evaluate your options as part of our wealth management and financial planning. Gather your latest plan statement, employer matching details, and the available investment options, and contact us today to review your workplace retirement plan.
Is it Time to Rebalance?
The other thing that you can do to maximize your contributions is reassess your allocation, both current and going forward. Maybe it’s time to rebalance because one fund has done well, and the others have been laggards. Rebalancing your portfolio allows you to sell high and buy low – exactly what you want to do to maximize your gains. It could also be time to dial back the risk in your portfolio as you near retirement. Rebalancing accomplishes that too. One nice feature of the 401k plan we use is auto-rebalancing, however, you don’t want to overdo that either, so be aware that once every six to twelve months is usually sufficient. As part of your annual review, we look at how your workplace portfolio has performed and recommend changes if necessary.
A Reprieve from a Tough Decision
If you have student debt, it can be difficult to decide whether you want to contribute to your employer’s retirement plan, at least up to what they are willing to match, or pay off your student loans more aggressively. With the passage of the SECURE Act 2.0 in 2022, you potentially have access to a feature that helps anyone with student loan debt maximize their retirement savings and probably sleep a little better at night. That’s because this new law allows you to pay down your student debt AND receive your employer’s match. You’ll want to discuss this with whoever runs your 401k plan at work because your employer isn’t required to offer this feature. If they don’t, maybe enough co-workers rocking the boat will perk their ears.
As always, we are here to serve you and help you determine the best strategy for your retirement contributions. We want you to achieve success with your savings goals while working, so you can satisfy other goals you have down the road. Maximizing your contributions is a large part of that story.
