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Retirement Tip of the Month

What You Need to Know About 401(k)s in 2024

It’s important to save up as much money as you can before retirement. That way, once you retire, you don’t end up overly dependent on Social Security. Even if you get the maximum out of your Social Security benefits, they only replace around 40% of your pre-retirement income. And many seniors need more than that to get by: That’s where your nest egg comes in. The more you save, the more financial freedom you’ll eventually have in retirement. If you have a 401(k) retirement plan account thanks to your job, we have some news for you.

If you’re under 50, you probably know the maximum amount you can contribute to your 401(k) is $22,500. Meanwhile, if you’re aged 50 or older, you can make additional “catch-up” contributions, specifically $7,500 extra, adding to 30,000. Next year, however, most workers will have the opportunity to save more money in their 401(k). Up to $23,000, specifically. And that extra $500 is an opportunity you don’t want to pass up if you can afford to max it out.

What This Means For You

The more you contribute to your 401(k), the more income you stand to eventually gain. But, that’s not the only reason to try to max out your account next year. If you have a traditional 401(k), every dollar you manage to contribute to that plan is another dollar of income the IRS can’t tax. Even if you have a Roth 401(k), there’s still a tax benefit. Although Roth 401(k) contributions are made with after-tax dollars, investment gains get to enjoy tax-free retirement. Furthermore, withdrawals can be taken tax-free.

All said, 401(k) contribution limits rising next year is a good thing. It gives savers the opportunity to save even more, and in turn, shield more of their income from taxes. However, realistically, this higher cap for 401(k) contributions will only benefit the small percentage of workers who actually do max out their accounts. In 2022, only 15% of people enrolled in 401(k) accounts with Vanguard Group saved the maximum amount. 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 still go a long way. And if you can afford to max out your 401(k) and want to save up even more for retirement, we have even better news for you…

Consider an Annuity

If you’re interested in the possibility of receiving tax-free income, a fixed indexed annuity (FIA) may be of use to you. Many choose to “rollover” the money from their employer-issued 401(k) or other plan into an annuity instead. An annuity isn’t a retirement plan account, but it can be used as a source of retirement income. Unlike a 401(k), an annuity can offer a guaranteed* income stream for life. By rolling over your 401(k) into an FIA, you may be able to ensure a steady, reliable source of income during retirement. This can be essential for maintaining a comfortable standard of living without the fear of outliving your savings, a common worry amongst retirees nowadays. And did we mention that an FIA has no government-issued contribution limit?

Diversifying your retirement portfolio is usually a wise strategy to mitigate risks. By adding a fixed indexed annuity to your portfolio, you may be able to create a balance between market-based investments and more conservative, stable options, potentially enhancing the overall performance of your retirement savings. Are you familiar with the Rule of 100? It states that the older you are, the more conservative you should be with your savings. For example, if you’re 65 years old, at least 65% of your retirement savings should be kept in “safe money” options like an FIA.

And, did you know that right now, one of our annuity products is offering a limit-time-only bonus? An 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. Reach out to Messina’s Wealth Management to learn more about this new bonus and these products. 

*Backed by the claims-paying ability of the carrier.

Sources: Wall Street Journal, Nasdaq,

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