You’ve probably heard that it’s very important to save up as much as you can for retirement, so you don’t end up overly dependent on Social Security once you retire. Even if you get the maximum out of Social Security benefits, they’ll only replace around 40% of your pre-retirement earnings. And many seniors need more retirement income than that: That’s where your nest egg comes in. The more you save, the more financial freedom you’ll have in retirement.
Now, if you have access to a 401(k) or a similar retirement plan account thanks to your job, you might have been striving to contribute the maximum amount allowed this year. If you’re under 50, that’s $22,500. People aged 50 and up can make additional “catch-up” contributions, specifically $7,500 extra, adding to a total $30,000. Next year, however, you’ll have the opportunity to save more money in your 401(k).
In 2024, most workers will be able to save up to $23,000 in their 401(k)s and other, similar workplace retirement plans in 2024. If you can afford to max out, that extra $500 is an opportunity you don’t want to pass up. Furthermore, the contribution limit to an individual retirement account will also increase by $500, reaching $7,000.
What This Means For You
The more you contribute to your 401(k), the more income you stand to gain. But, that’s not the only reason to try to max out your account in 2024. If you have a traditional 401(k), every dollar you contribute to that plan up to the legal limit is another dollar of income the IRS can’t tax. There’s still a tax benefit if you have a Roth 401(k): Although Roth 401(k) contributions are made with after-tax dollars, investment gains get to enjoy tax-free retirement. Additionally, withdrawals can be taken tax-free.
All said, 401(k) limits rising in 2024 is a good thing. It gives savers the opportunity to save more and shield more of their income from taxes. However, being realistic, this higher cap for 401(k) contributions will only benefit the small percentage of workers who actually do max them out. In 2022, only 15% of people enrolled in 401(k) accounts issued by Vanguard Group saved the maximum amount. As a result, this change won’t affect many savers: It’s difficult to max out a 401(k) on an average income. If you can’t max out your account, though, you should still do the best you can to increase your contribution rate from one year to the next. Doing this will go a long way, even if you don’t reach the maximum amount.
Consider an Annuity
If you’re interested in the possibility of receiving tax-free income, a fixed indexed annuity (FIA) may be useful to you. Many choose to “rollover” the money from their employer-issued 401(k) into an annuity instead. Unlike a 401(k), an annuity can offer a guaranteed* income stream for life. By rolling over your 401(k) into a fixed indexed annuity, you may be able to ensure a steady and reliable source of income during retirement, which can be essential for maintaining a comfortable standard of living without the fear of outliving your savings.
Diversifying one’s retirement portfolio is often a wise strategy to mitigate risks. By adding a fixed indexed annuity to their portfolio, individuals may be able to create a balance between market-based investments and more conservative, stable options, potentially enhancing the overall performance of their retirement savings. And, did you know that right now, one of our annuity products is offering a limit-time bonus? A particular FIA product comes with a 40% bonus. This means that for every $100k you contribute, an additional $40k could be added to your income and death benefit.
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