From the Desk of Kevin Hodson: New Retirement Savings Limits and the Impact of Cost of Living

With the conclusion of this year, let’s welcome the opportunities of the next. Following are updates on retirement savings limits and their impact on your financial planning. Also, let’s consider the rising cost of living on your financial strategies.

New Retirement Savings Limits and Catch-Up Contributions

Starting next year, there are significant changes to the retirement savings limits that can help you maximize your contributions and secure a more comfortable retirement. The IRS has introduced higher limits for 401(k) contributions along with additional catch-up contributions for those nearing retirement age.

• Increased Contribution Limits: For individuals under 50, the contribution limit has been raised to $23,500. For those over 50, the catch-up contribution allows an additional $7,000, bringing the total to $30,500.
• Super Catch-Up Contributions: A new tier of catch-up contributions has been introduced for individuals aged 60 to 63. This allows for an even higher contribution limit, providing an opportunity to significantly boost your retirement savings during these critical years.

These changes are designed to encourage greater savings, especially for those who may not have saved enough earlier in their careers. By taking advantage of these increased limits, you can better prepare for a financially secure retirement.

Unused 529 Plan Fund Rollovers to Roth IRAs

Another exciting development is the ability to roll over unused 529 plan funds into a Roth IRA. This is particularly beneficial for high-net-worth individuals who have saved for their children’s or grandchildren’s education but find themselves with leftover funds. By rolling over up to $35,000 (subject to the annual IRA limits, and maximum lifetime contribution) into a Roth IRA, you can set your children up for a tax-free retirement nest egg. Over time, this can grow significantly, providing substantial financial security for their future.

The Impact of Cost of Living

While these new savings opportunities are promising, it’s important to acknowledge the challenges posed by unexpected expenses and the rising cost of living. Personally, I’ve experienced firsthand how the unexpected can strain finances. Lately, life’s been testing my patience: a teen driver turned my car into an unintended T, my fridge decided it was better at making puddles than preserving food, and my house’s electrical system developed a sudden flair for drama. These incidents remind me of the importance of having a robust financial plan to navigate life’s uncertainties.

The cost of living continues to rise, affecting everything from groceries to utilities. It’s crucial to factor these expenses into our financial planning to ensure we can maintain our standard of living without compromising our savings goals.

Strategies to Combat Rising Costs

To mitigate the impact of rising costs, consider the following strategies.

• Budgeting and Expense Tracking: Regularly review your budget and track your expenses to identify areas where you may cut back. This will help you allocate more funds towards savings and investments.
• Emergency Fund: Maintain an emergency fund to cover unexpected expenses. This will prevent you from dipping into your retirement savings or going into debt when faced with unforeseen costs.
• Investment Diversification: Diversify your investment portfolio to spread risk and increase potential returns. This can help you stay ahead of inflation and grow your wealth over time.

The latest changes in retirement savings limits and catch-up contributions open up some fantastic opportunities to boost financial security. By keeping clients informed and taking proactive steps, we can help tackle the challenges of rising costs and ensure you have a comfortable retirement. As always, if you have questions, please contact me at 774.512.4173 or khodson@nullaafwealth.com.

AAF Wealth Management is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where AAF Wealth Management and its representatives are properly licensed or exempt from licensure. This blog is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by AAF Wealth Management unless a client service agreement is in place.