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Saturday July 20, 2024

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Optimize Financial Plans for 2024

The first week of January is an excellent time to consider your financial plans for 2024. Some individuals are planning for retirement and should consider their contributions to a qualified retirement plan. Other individuals may have already retired and should consider their withdrawal strategies or required minimum distributions (RMDs). Individuals may benefit from a strategic plan to make wise financial decisions in 2024.

1. Retirement Contributions — The 2024 limit for your 401(k) contributions could be up to $30,500. The regular contribution is $23,000. If you are age 50 or older, there also is a potential $7,500 catch-up contribution amount. Individuals with moderate incomes may save $8,000 in an IRA. The regular contribution is $7,000 and the additional amount is $1,000 for age 50 and older. If you have not maxed out your 2023 IRA contribution, you can still make a transfer until April 15, 2024.

2. Tax-Free Retirement Accounts — While traditional IRA or 401(k) accounts are funded with pre-tax dollars, there are many benefits for making contributions of after-tax dollars into a Roth 401(k) or Roth IRA. Although the contributions are after-tax, your future retirement payouts will be tax-free. Some individuals have higher incomes and therefore do not qualify for a Roth IRA or their employer does not offer the Roth 401(k), but they may qualify for a Roth conversion. A traditional IRA or 401(k) can be transferred into a Roth IRA. There is a requirement to pay income tax on the transferred amount, but the future payouts will be tax-free.

3. Recently Retired — If you have retired during the past year or two, you are likely to be planning withdrawals from your savings account or investments. One of the main questions facing individuals is how much to start withdrawing. Most financial planners suggest withdrawing 4% of the account. While a conservative investor may choose to withdraw 3%, the 4% withdrawal rate is frequently advocated. Part of the withdrawal decision relates to your retirement budget. Individuals who retire may have significant expenditures on hobbies or travel. If you have substantial expenditures, you may have a larger retirement budget. You also might consider one-time expenses such as the purchase of a new vehicle or renovation of your home.

4. Fixed Payments — A popular method to receive fixed payments for a term of years or a lifetime is an annuity contract from a financial services company or a nonprofit. With the current higher interest rates on bonds, the rates on both commercial annuities and charitable gift annuities are higher. These fixed payments can be created for one or two lives. The combination of Social Security income, retirement account withdrawals and fixed annuity payments can provide a substantial income.

5. Estate Plan Review — January is an excellent time to update your estate planning documents. You should review your will (if you do not have a will you should plan to make one) and check the beneficiary designations on life insurance policies and retirement plans. Some individuals have held life insurance policies or retirement plans for many years. There may have been a change in family circumstances and the wrong beneficiary is listed on the plan document. You also should create a durable power of attorney for healthcare, which is referred to as an advance directive in some states. Your healthcare directive is designed to protect you. Your designated health care proxy will be able to make future health care decisions if you are incapacitated.

6. Required Minimum Distributions (RMD) — If you are age 73 or older in 2024, you will be required to take a distribution from your traditional retirement plans. You generally will start taking a withdrawal of 3.78% from a traditional IRA, 401(k) or 403(b) plan. The exception is for a couple with a spouse more than 10 years younger. There is a reduced withdrawal requirement for those couples. Another option to fulfill your RMD for 2024 is a qualified charitable distribution (QCD). The 2024 QCD limit is increased to $105,000 for individuals who are over age 70½.

Published December 29, 2023
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