The new, higher limits on retirement savings next year give financial advisors and their clients a fresh opportunity to consider bigger contributions and other strategies in 2024.
Annual cost-of-living
The hiked maximum contributions could change how much clients set aside for retirement, their overall cash flow and whether to use other types of savings or investment accounts, according to advisors Sarin Barsoumian of Burlington, Massachusetts-based
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"These limits are really good as a planning guide, but you don't have to do everything at once," Guglielmetti said. "If you're working toward a home purchase and you're paying for daycare and you have student loans, don't beat yourself up too much if you're not hitting these numbers every single year."
In themselves, the increases make only a "nominal" impact at around $500 or $1,000 that most clients can absorb with their cash flow, Barsoumian said in an email. Potential catch-ups for clients who are age 50 or older of $1,000 more in IRA savings and $7,500 in additional contributions to 401(k), 403(b) and most 457(b) plans, as well as the federal government's Thrift Savings Plan, are "where planning comes into play," she said.
"This warrants a conversation about how we can expand their retirement savings," Barsoumian said. "Do they have sufficient savings to cover the reduction in their take-home pay? Are they expecting a raise or bonus that could offset this amount?"
Other fruitful discussion topics now that the contribution limits are spelled out include the choice of traditional pretax IRAs versus after-tax Roth savings, how any possible self-employment vehicles could figure into plans next year and the way that homes or any other real estate holdings fit into the overall retirement strategy, Guglielmetti said. A taxable brokerage account for further savings after maxing out IRAs and 401(k) plans also provides "a really good amount of diversification, in terms of what we can pull from first" for any large outlays, she noted.
"I'm fond of saying anything can be retirement savings if you want it to be," Guglielmetti said. "It does have a lot of flexibility. It's not tied to your income. There are no limits. There are no deadlines. You can kind of do whatever you want with it."
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For clients whose employer has a high deductible insurance plan, Barsoumian often recommends thinking about using health savings accounts for the tax advantages and a "great way to bridge the gap to Medicare eligibility without dipping into retirement accounts," she said.
"You can use HSA funds to pay for deductibles, copayments, coinsurance and other qualified medical expenses now or in the future," Barsoumian said. "Other perks of an HSA include: pretax contributions, tax-free withdrawals (if used to pay for eligible medical expenses) and tax-deferred growth. Unlike a flexible spending account, there is no 'use it or lose it.' All contributions will remain in the account and available to you in future years."
