Compelling statistic–
Three recent editions of TGIF 2 Minutes were at or near the “all-time most read”. ALL THREE editions covered mostly basic topics related to personal finance. Here they are:
3. “Decluttering Financially & In Real Life”
2. “Timely Tax & 401k Info”
1. ….and the all-time most read TGIF 2 Minutes in 11 years (drum roll, please) was “Reining In the Amount Your Kids Spend”.
Of these, #1 was not shocking, and #2 is still actionable. Please check out the following abbreviated points (originally published on August 30, 2024).
Updated & abbreviated:
It makes a ton of sense to focus on maximizing how contributions are made to 401k accounts. There is still time remaining in 2024 to make a difference.
Remember that Roth *401k* plans have different income requirements than Roth *IRA* accounts:
- Roth 401k accounts have NO income limits.
- Roth IRA accounts DO have income limits.
Advice for higher earners who no longer qualify for Roth IRA accounts: utilize the Roth 401k if your company offers a 401k plan with the Roth option. Remember, Roth 401k contributions are made after-tax, whereas regular or traditional 401k contributions are made pre-tax. “Why would a saver forego a tax deduction and contribute to the 401k after-tax, electing to use the Roth 401k?”
Good question with a solid answer. (For brevity, read the August 30th edition — see link above).
Over a lifetime of diligent 401k saving, total balances in 401k accounts can reach $1 million, $1.5 million and much more. The idea is to minimize taxable income in the future. Roth 401k monies have NO RMDs under current tax law. Whereas traditional, pre-tax 401k monies DO have taxable RMDs.
KEY: It can make sense to attempt to “straddle” the tax structure today and contribute to a combination of traditional pre-tax 401k and Roth 401k monies, in order to create tax-free income in the future. There is still time remaining in 2024 to put this strategy into action. Note, in certain cases it could make sense to contribute solely to the Roth 401k. Please ask me in conjunction with your CPA.
This early October time of year is key.
*401k limits for 2024 are $23,000 for those under age 50. For age 50 and older, the additional catch-up limit is $7,500, for a total of $30,500 to the 401k. In 2024, so far, the catch-up can be either pre-tax or after-tax.
This information is not intended to provide, and should not be relied upon for, tax, legal or accounting advice.
Thank you for reading, thank you to those who checked in with me after the hurricane and TGIF!