December is the season for giving — but don’t forget to give to your future self by ensuring you have a sound retirement plan in place. Here we outline some steps to help ensure your path to retirement is on track as we enter the new year.
1. Evaluate your monthly spending plan. If your income or monthly expenses have changed significantly over the past year, it’s a good time to review your monthly budget. Is there room to reduce expenses in order to put more in your savings or retirement accounts? Even small contributions can add up over time to help get you closer to achieving your financial goals.
2. Take advantage of employer matching contributions. Contributing enough to your 401(k) and health savings account (HSA) to get the full employer match is a great way to boost your retirement savings. For instance, if your company has a 3% match rate, contributing 3% of your paycheck will basically double your total contributions. Matching amounts can vary among employers, however, and some may not have a match program. If you’re unsure what your company’s match policy is, check with your HR department.
3. Use auto-escalation to increase contributions. While contributing the maximum to your retirement savings accounts is a solid goal, it may not be achievable right now. However, one way to make progress in that direction is to steadily increase your contribution rate with tools like auto-escalation. This is a feature on many retirement plans that automatically increases the amount you save in tax-advantaged retirement savings accounts at certain times, typically 1% per year. For example, if you contribute 5% of your paycheck to your 401(k) this year, using this feature can automatically increase it to 6% next year.
4. Use windfalls to pack an additional punch. While auto-escalation certainly has its merits, saving unanticipated income can also help you make progress. Transferring bonuses, tax returns or other windfalls into your tax-advantaged accounts are great ways to increase your retirement savings without feeling like you’re compromising on your lifestyle.
5. Max out your retirement contributions. Each year, the IRS sets limits on how much you can contribute to tax-advantaged retirement accounts (i.e., traditional IRA, Roth IRA, 401(k), etc.). For 2024, the contribution limits are:
- HSA: $4,150 single coverage; $8,300 family coverage. Those 55 and older can contribute an additional $1,000 to the annual limit.
- 401(k): $23,000 for those 49 years old and younger; $30,500 for those 50 and older.
- IRA: $7,000 for those 49 and younger; $8,000 for those 50 and older.
The deductibility of traditional IRA contributions may be limited by your and your spouse’s income and access to a workplace retirement savings plan. Along similar lines, you may not be able to contribute to a Roth IRA if your income is too high.
6. Consider advanced savings strategies. If you’re already contributing the maximum amount to your retirement accounts, you can explore other options like a backdoor Roth IRA and mega backdoor Roth strategies. The backdoor Roth IRA can help you gain access to a Roth IRA if your income is too high, while the mega backdoor Roth can enable those with an employer-sponsored retirement plan (e.g., a 401(k) or 403(b)) to potentially save more tax-free funds than the employee elective deferral limits. Talk with your financial advisor and tax professional to determine if either of these strategies are right for you and, if so, how to go about implementing them.
How Edward Jones can help
Achieving your retirement goals doesn’t have to be a solo effort. Your Edward Jones financial advisor can help guide you toward your ideal retirement.
Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation.