With each incoming new year comes a new set of guidelines on contributions to Qualified Retirement Plans, both company-sponsored and individual. Changes are ostensibly made to reflect inflation over the prior year, although the increases are generally much smaller than increases in the actual cost of living. Up to the limits specified by the IRS, Americans of all ages should strive to maximize legal contributions. This applies to both deductible and after-tax (Roth) contributions.
The primary taxpayer-friendly feature of all Retirement Plans is the tax-free or tax-deferred growth over many years. Compounding earnings over long periods of time is a major component of wealth accumulation. As wondrous as it is, compounding takes a long time to realize its true power. In a tax-free or tax-deferred environment, that time frame is reduced greatly.
People who are dedicated to wealth accumulation must start early and hang in there for many years. Along the way, they should be dedicated to maxing out annual contributions to whichever Qualified Retirement Accounts they use. That’s where the IRS comes in, placing a wet blanket on our ability to contribute more than their guideline amounts. When those guidelines get revised, the best thing a saver can do is to immediately increase contributions for the year of change. That is right now for 2024, and while the changes are small, they remain important to reaching our wealth targets.
For 2024, IRA owners can contribute an additional $500, bringing the annual limit to $7,000, plus a $1,000 “catch-up” contribution for people ages 50 and up. Company-sponsored Plans, such as 401(k), 403(b), and others, may now be funded with an additional $500, for a maximum of $23,000. For age 50-and-up participants, catch-up contributions are once again $7,500.
While the 2024 increases are far from generous, everyone should make an effort to reach the new limit during the year. Limiting contributions to the percentage a company matches is not an effective method of maximizing results. People not already maxing out contributions should dedicate themselves to increasing their contributions annually.
Saving for retirement demands diligence and planning. Improving results has several components. Starting early, maximizing contributions, making contributions as early as possible in the year, and taking an appropriate amount of investment risk are key components for the accumulation of wealth. Most people can be helped by using a competent financial advisor. Van Wie Financial has a proven record of assisting people with setting and achieving responsible retirement goals.
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