Part 2 of “under the radar” tax law changes. These changes lead to a needed discussion of current, related tax topics applying to ALL ages of savers with 401k accounts – and possibly IRA accounts too. There is still a decent amount of time remaining in 2023 to make a difference in 401k saving.
Remember that Roth 401k plans have slightly different income requirements than Roth IRA accounts:
Roth 401k accounts (which run alongside regular 401k accounts) have NO income limits.
Despite all of the calculations involved in investing, there is still an element of luck involved. A specific term for this luck is, “Sequence of Returns.” What on earth is that? Answer: it is a risk and may be the most important concept in the world if a saver or investor ever wishes to spend their savings – and have those savings last.
The topic became relevant recently when a client asked me for assistance in defining what their “concerns” should be for the long-term now that they had accumulated a decent amount of savings and investments. The desire was to continue to accumulate savings and, more important, have the monies last at least long enough to see their plan to fruition for themselves and their kids.
Money and Therapy: two things that people may love or hate thinking about. However, among other things in life, money and therapy help.
About five years ago I read a must-read book for young and old, wealthy, or building wealth, married or single. Anyone who wants to have a “life” someday… or even have a life NOW. The book is called The Number* and was written by Lee Eisenberg nearly 15 years ago but reads like he wrote it yesterday.
Here are several of the chapters:
“Welcome To Numberland”
“Alone At Sea”
“Covering Your Assets” (nice play on words)
All of these topics could be covered in conversations with friends, or by reading The Number,explored in a therapy session… or all 3! I recommend all three (and the therapy session could be with your financial adviser – because a real financial adviser makes this conversation mandatory.)
One of the most critical factors of long-term personal financial success is… guess:
And the answer is…. SPENDING. This fact is why a truly competent financial planner will spend the most time on discussing spending, both today and future projected, along with GOALS. (Goals are what people spend money on.)
Clearly another topic with multiple sequels, aging has its positives and not-so-positives. Recently a slight positive – from the IRS.
Its Life Expectancy Tables, otherwise known as the “IRS Uniform Life Tables I, II and III”, have adjusted the American life expectancy UP by approximately two more years. That means that RMD amounts, or required minimum distributions, from IRA, 401k and other retirement accounts will be slightly lower when calculated. These RMDs count as taxable income so even a small break will be welcome!
Tax planning is important stuff. Perhaps not as exciting as the markets but saving money on taxes can still be exciting! Mid-November begins the countdown to year-end. The following is a handy Tax Planning Checklist.* Some of these items, if done now, could make a big difference to the 2021 tax year AND add to savings.
1. How close are you to maxing out your 401k? The max is $19,500 for those under age 50 and an extra $6,500 for those age 50 and above. The deadline is December 31st and lots of 401k and 403b plans allow contributions of as much as 25-30% or even 100% of pay. Contribution rates can be lowered again in the new year.
Last week tgif2minutes.com explored a basic statement directly from Social Security’s SSA.gov summarizing that taxes will mostly likely need to go UP TODAY to afford Social Security in the mid 2030’s and for future generations – which is only 15 years away.
This week’s edition will present several possible changes that could take place along the path to higher taxes in order to preserve the Social Security that American workers pay into dearly and expect to receive someday.
From the January 2021 archives of TGIF 2 Minutes – a relevant 401k tax tip video. Remember, the 2020 tax filing deadline was delayed until MAY 17TH, 2021. Considering this extra time, it is never too late to plan for the rest of 2021 and beyond. Enjoy this quick video.