Who We Are
We are driven by the belief that EVERY investor deserves to have the type of innovative and sophisticated portfolios typically reserved for the ultra-high net worth or institutional investors. Our clients gain clarity and transparency of their retirement through portfolios which are uniquely crafted to each individual. Hawks Financial is a boutique firm, specializing in innovative investment and retirement solutions not typically available to the traditional investor through a “big-box” investment firm.
AFFILIATE PARTNER OF 401(k) MANEUVER
Professional Account Management to help employees Grow and Protect their 401(k)
Risk Management And Financial Planning
Investment Management
You deserve a portfolio uniquely designed around you and your goals. Experience sophisticated strategies not typically found in a "big box" firm.
Learn about our Investment ManagementRetirement Income Planning
Is the possibility of outliving your savings a concern? Create peace of mind through a portfolio designed around sustaining income.
Learn about our Retirement Income PlanningEstate and Legacy Planning
The concept of estate planning is simple. The vehicles, planning, and implementation to make it happen is not. We help direct you in ways to make your legacy secure.
Learn about our Estate and Legacy PlanningWealth Management
Experience personalized guidance for 401(k) and IRA Rollovers, Roth Conversions, and Cash Management. Understand fully how to mitigate current portfolio fees and expenses and learn if tax-free growth is right for you.
Learn about our Wealth ManagementLong Term Care
Did you know the average Home Health Aide service in Iowa costs $5,577 per month? Create a strategy for funding Assisted Living or other long-term care needs without draining your retirement assets.
Learn about our Long Term CareLife Insurance
Life insurance can be a cornerstone of retirement protection. From protecting loved ones to providing tax-advantaged assets and income, create a life insurance plan as unique as your goals.
Learn about our Life InsuranceAmericans are taking early withdrawals from their 401(k)s at record rates “across different ages and income levels.”¹
According to Capitalize, “Half of Americans have made early withdrawals from retirement savings. […] These withdrawals will cost Americans $6.12 billion in penalties to the IRS in 2023.”²
A separate report from Bank of America found “the number of 401(k) participants accessing their retirement savings early increased 27% since the beginning of this year.”³
In addition to simply needing extra money to cover current expenses or emergencies, people are taking early withdrawals when they change jobs.
Marketing Science reports, “41.4% of employees leaked by cashing out 401(k) savings at job separation, most draining their entire accounts.”⁴
Rather than rolling over their 401(k)s, these investors faced penalties for early withdrawals.
It’s not ideal to touch your retirement savings.
But if you must take an early withdrawal, you want to withdraw the money with the least amount of impact on your finances – and your financial future.
Penalties for Taking an Early Withdrawal
Even if you feel pressed to dip into your 401(k) savings before you hit retirement age, pause and consider the penalties.
Let’s start with taxes. The IRS requires automatic withholding of 20% of a 401(k) early withdrawal.
For instance, if you withdraw $15,000 from your 401(k), you may only get about $12,000 after taxes are taken out.
Along with the withholding taxes, the IRS will also hit you with a 10% penalty if you’re under the age of 59½ on all funds withdrawn when you file your tax return.
The amount withdrawn will also be taxed as ordinary income for the year the money was taken out, which could push you into a higher tax bracket and force you to pay even more taxes.
Let’s return to the example. Let’s say you’re under 59½ and you withdraw $15,000 from your 401(k).
Now we’re up to 30% in taxes and penalties.
You’re going to get only about $10,500 of the $15,000 early withdrawal.
You’ve lost 30% of your money.
Is it worth it?
Can You Avoid the 10% Penalty?
10% is a considerable chunk, so before you take an early withdrawal, see if you qualify for an exemption on the 10% tax penalty.
There are a few ways to qualify:
- The first way is if you qualify for a substantially equal periodic payment plan. With this plan, retirement plans can be cashed out penalty-free. But this is only if you take annual distributions for a period of 5 years or until you turn 59½. However, income tax must still be paid on the withdrawals.
- The second way to qualify for the 10% penalty exemption is if you leave your job – but this only applies to those aged 55 and over.
This is what is called the 55 and Separated from Service rule. This is an IRS policy that allows workers aged 55 and over to take early withdrawals from their employer-sponsored retirement accounts without paying a 10% penalty, provided that they leave their jobs. It only applies to accounts you have with your current employer. But you will still owe taxes on the withdrawal, and funds withdrawn will be taxed as ordinary income. - The third way to get an exemption is if you’re getting a divorce and must withdraw money from your 401(k) to give to your spouse.
If this happens, then you won’t be charged the 10% penalty for taking money out of your 401(k).
Other exemptions include disability, significant medical expenses, higher education expenses, and certain first-time homebuyer expenses (which are different from hardship withdrawals…see below).
To find out if you qualify for an early withdrawal exemption, you will need to contact HR or your 401(k) plan administrator to learn the rules of your plan.
Hardship Withdrawal 10% Exemption Rules
Hardship withdrawals are another way to bypass the 10% penalty.
They are different from early withdrawals exceptions.
A hardship withdrawal is a withdrawal of funds from a retirement plan due to “an immediate and heavy financial need,” and, if you qualify, you usually don’t have to pay the penalty.⁵
The key here is that hardship withdrawal is only up to the amount of the actual hardship.
Situations that qualify for a hardship withdrawal:
- Medical bills for you, spouse, and dependents
- Money to buy a house
- Money to avoid foreclosure or eviction
- Funeral expenses
- Disability
- Adoption purposes
- Higher education expenses
- Disaster
- Military reservist
In order to qualify, you need to prove you can’t get the money anywhere else – for example, you can’t get a loan or don’t have a savings account.
In addition, the administrator of the 401(k) will have to approve a 401(k) hardship withdrawal. They’ll want to see the documentation of the hardship.
Know that just because you’re experiencing hardship doesn’t mean you will qualify because employers don’t have to allow hardship withdrawals!
Keep in mind that, if you do qualify, you will still have 20% taxes withheld, and it’s taxed as ordinary income.
[Related Read: The Real Impact of 401(k) Hardship Withdrawals]
The Real Cost of Tapping into Your 401(k)
Pulling from your 401(k) should not be done without carefully thinking about the overall cost.
You may fix the problem today, but create bigger problems for yourself come retirement.
Consider the following implications of an early withdrawal.
- Tax Consequences
The IRS requires automatic withholding of 20% of a 401(k) early withdrawal for taxes if you are under age 59½ – and it’s considered ordinary income. Along with the withholding taxes, the IRS will also hit you with a 10% penalty on all funds withdrawn when you file your tax return – again if you’re under the age of 59½.
- Missing Out on Compound Returns
When you contribute to a 401(k), your money earns interest, and that interest compounds over time – meaning you earn returns on your returns. This may lead to significant growth over time. The longer your money is invested, the more it can grow. Should you raid your 401(k) early, you risk missing out on that compounding effect, and you’re losing out on the potential growth. This can have a significant impact on your retirement savings over time.
- Financial Future Might Suffer
When you are tempted to take an early withdrawal, consider your future self. Will he or she be happy to live with less during retirement? While it may alleviate today’s stress, it may lead to more financial stress later on.It doesn’t matter which 401(k) withdrawal strategy you use; you should only take the money if you absolutely need it AND take the least amount possible because, even if you get the 10% penalty waived, you’ll still get hit with income taxes.
But if you must, you want to withdraw the money with the least amount of impact on your finances.
Have questions or concerns about your 401(k) performance? Click below to book a complimentary 15-minute 401(k) Strategy Session with one of our advisors today.
SOURCES
- https://www.hicapitalize.com/resources/fire-401k/
- https://www.hicapitalize.com/resources/fire-401k/
- https://www.foxbusiness.com/personal-finance/early-withdrawal-surge-2023
- https://pubsonline.informs.org/doi/epdf/10.1287/mksc.2022.1404
- https://www.irs.gov/retirement-plans/hardships-early-withdrawals-and-loans
The Roth 401(k) is gaining in popularity due to employers offering it inside their plans and also thanks to provisions in the Secure Act 2.0 that only pertain to the Roth option.
The question is, is it right for everyone?
Read on to see if the Roth 401(k) is the right choice for you.
How the Roth 401(k) Works
The Roth 401(k) is a type of 401(k) that you fund just like a traditional 401(k).
The key difference is that you either get a tax break today with the traditional 401(k), or tax-free withdrawals in retirement with the Roth 401(k) since your contributions are made with after-tax dollars today.
2024 Contribution Limits for Roth 401(k)s
The contribution limits for Roth 401(k)s are the same as a traditional 401(k).
You can contribute $23,000 in 2024 with a catch-up contribution of $7,500 for those 50 or older ($30,500).
[Related Read: Retirement Plan Contribution Limits for 2024]
The Downside to the Roth 401(k)
Many CPAs try to get you to contribute to the traditional 401(k) each year, so you get the biggest tax break on your taxes.
If you contribute to the Roth 401(k), you won’t get a tax break since contributions are made with after-tax dollars.
Whether or not this is a downside ultimately comes down to the individual.
Some people need a tax break today, while others aren’t concerned with it and would rather have their retirement be tax-free.
Other Considerations for a Roth 401(k)
Not every employer offers the Roth 401(k) provision.
If your employer does offer the Roth 401(k) provision, you’ll need to read your plan carefully to understand the terms.
Some employer 401(k) plans allow employees to split contributions between a traditional 401(k) and a Roth 401(k).
If split contributions are allowed, it is up to the individual to determine which percentage is best for their personal financial situation.
Contact your HR or your plan administrator if you are unsure of the rules of your plan.
How the Secure Act 2.0 Affects Roth 401(k)
The Roth 401(k) plays a bigger role with the Secure Act 2.0 provisions.
There are 3 main Secure Act 2.0 provisions that affect Roth 401(k)s.
The first provision started in 2024.
It allows employee plan sponsors to create emergency savings accounts for participants, who could then make Roth pay-ins (on an after-tax basis) to that savings account within the 401k plan.
The rules state that your savings account balance cannot exceed $2,500 and you can only take up to one withdrawal per month.
Also, the first 4 withdrawals in a year must be penalty-free.
If you take more than four withdrawals in a year, your employer may impose fees, but you’ll still have access to your money.
Your employer may also automatically enroll you in the emergency savings account, setting aside up to 3% of your compensation.
An added bonus is that contributions to this emergency savings account qualify for matching contributions to your 401(k).
If you leave the company, the funds may be converted into a Roth investment account or withdrawn because your contributions are always yours to keep.
The second provision for the Roth 401(k) in the Secure Act 2.0 allows employers to make matching contributions directly to employees’ Roth 401(k)s.
This change took effect instantly upon the Secure Act 2.0’s passage, but it’s important to note that this option is discretionary, and employers may choose to make pre-tax matches or not provide a company match at all.
The third Secure Act 2.0 provision caused all sorts of noise when it was announced because the new rule states that 401(k) investors who make more than $145,000 must now make “catch-up” contributions to an after-tax Roth 401(k) account instead of a traditional pre-tax 401(k).
This new rule was set to start in 2024, but a recent announcement from the IRS has pushed back the deadline for this rule change to 2026, giving companies more time to adjust and investors to plan.
[Related Read: SECURE Act 2.0: How It Affects Your Retirement Savings]
RMDs and Roth 401(k)s
Traditional 401(k)s require investors to take RMDs.
But, starting in 2024, investors with a Roth 401(k) or Roth 403(b) will no longer need to take RMDs.
Early Withdrawal Rules of a Roth 401(k)
If you withdraw funds from a traditional 401(k) before you turn 59½, you could owe taxes plus a 10% penalty on the amount withdrawn.
With a Roth 401(k), there are no taxes or penalties on early withdrawal of your contributions as long as the account is at least 5 years old.
However, you may owe taxes and a penalty on earnings that are withdrawn before age 59½.
Roth 401(k)s and Inheritance
Heirs who inherit a Roth 401(k) have different tax treatment than those who inherit a traditional 401(k).
If the account is a Roth 401(k), then you won’t owe any income taxes, unlike an inherited traditional 401(k).
Since the traditional 401(k) is funded pre-tax, you’ll pay taxes at ordinary income rates.
According to the IRS, “Withdrawals of contributions from an inherited Roth are tax free. Most withdrawals of earnings from an inherited Roth IRA account are also tax-free. However, withdrawals of earnings may be subject to income tax if the Roth account is less than 5-years old at the time of the withdrawal.”¹
[Related Read: Pros and Cons of a Roth 401(k): Key Differences and Tax Implications]
If you have questions about your 401(k) or if you need help, we’re here for you. Click below to book a complimentary 15-minute 401(k) Strategy Session.
SOURCES
.fb-background-color {
background: !important;
}
.fb_iframe_widget_fluid_desktop iframe {
width: 1100px !important;
}
The number of 401(k) millionaires has soared in recent months.
According to a Fidelity Q4 2023 Retirement Analysis report, “This quarter saw a 20% increase in 401(k) millionaires following Q3 2023. […] The number of millionaires in Q4 is also 11.5% higher than Q2 2023.”¹
In other words: 20% of 401(k) investors entered the 7-figure club between September and the end of December.
Fidelity’s report reveals that there were 422,000 retirement savers who are currently 401(k) millionaires.²
Impressive.
If you want to be a 401(k) millionaire, read on to see how it happened for more people and how you could boost your 401(k) account balance, too.
Why There Are More 401(k) Millionaires Today
The main reason for the surge of 401(k) millionaires is due to improved market conditions.
But new provisions in the Secure Act 2.0 contributed as well.
For instance, the RMD (required minimum distribution) age has increased to 73.
As a result, more retirees are continuing to allow their 401(k) money to grow instead of withdrawing it.
According to Fidelity, “Most pre-retirees and retirees under the age of 70 maintained a savings mindset and did not withdraw from their 401(k) plans. […] 20% of retirees age 70-72 made 401(k) withdrawals in 2023.”³
Another reason we are seeing more 401(k) millionaires is because employees are contributing more.
Fidelity reports, “At the end of 2023, 78% of 401(k) savers were contributing at rate high enough to secure the full matching contribution offered by their employer.”⁴
4 Things You Can Do to Increase Your Balance
Here’s the thing – it’s becoming more and more necessary to be a 401(k) millionaire as the cost of retirement is higher than ever before.
It’s not as impossible as you might think.
Use the following 4 tips to make achieving this goal more possible.
1. Stay the Course
When Fidelity released these exciting 401(k) account balance figures, they also shared their thoughts.
Sharon Brovelli, president of Workplace Investing at Fidelity Investments, told CNN Business, “When it comes to matters like market stability and economic events, 2023 gave us the highs of the highs, and the lows of the lows but, encouragingly, many retirement savers took the long view and stayed the course through it all, which is the type of commitment that can lead to a secure financial future.”⁵
She spoke to CNBC and declared, “These are the poster children of staying the course and taking a long-term approach.”⁶
Life will not always be easy, and you will be tempted to contribute less to your 401(k) or withdraw funds.
Don’t do it. Stay the course.
[Related Read: How Long Will Your 401(k) Savings Last in Retirement?]
2. Contribute More to Your 401(k)
According to Fidelity, “In Q4, 10% of employees increased their contribution rate. For the full year, 37.2% made an increase.”⁷
One of the fastest ways to boost your 401(k) account balance – and get closer to becoming a 401(k) millionaire – is to contribute more.
Do what you can to save more out of each paycheck.
And, if you are not already saving enough to get the company match, make this a priority!
[Related Read: 3 Reasons to Get the 401(k) Company Match in 2024]
3. Rebalance Regularly
Rebalancing is simply changing how you allot your investments so that you can take advantage of growth opportunities and protect yourself against potential losses.
According to Fidelity, “In Q4, 5% of workers changed their asset allocation. Looking at all of 2023, 8.4% made adjustments.”⁸
You want to be part of that percentage.
[Related Read: What Every Investor Needs to Know about Rebalancing a 401(k)]
4. Get Professional Help
If you are unsure how to properly rebalance your account or don’t know where to start when it comes to boosting your 401(k) account balance, we’re here to help.
Professional help makes a significant difference.
In a 2019 study titled Advisor’s Alpha, The Vanguard Fund Group, Inc., reported a 3% average increase in the value of portfolios of clients who work with a financial advisor.⁹
[Check out our 401(k) calculator to see how professional account management (and properly rebalancing) may improve your 401(k) performance.]
Let’s say you have an account balance of $150,000, and you expect 7% returns, and you have 15 years until retirement.
Using our 401(k) calculator, you would see that having professional help to properly rebalance your account may improve your retirement by $212,732.49.
These calculations do not include employer contributions or future salary deferrals. With those included, you can see that the difference has the potential to be much larger.
Continuing with the example above, imagine what an additional $212,732.49 at retirement might mean for your future.
Would it make the difference between having just enough to get by or being able to enjoy your retirement?
Really think about it.
Then ask yourself, Can you afford not to seek professional help to regularly rebalance your 401(k)?
Check out our 401(k) calculator here to see how you may improve your account performance.
401(k) Maneuver provides independent, professional account management to help employees, just like you, grow and protect their 401(k) accounts.
Our goal is to increase your account performance over time, manage downside risk to minimize losses, and reduce fees that may be hurting your retirement account performance.
With 401(k) Maneuver, you can go about your life doing what you love with confidence, knowing we are handling the changes for you
Have questions or concerns about your 401(k) performance? Book a complimentary 15-minute 401(k) Strategy Session with one of our advisors.
Sources
- https://www.fidelity.com/about-fidelity/Q4-2023-retirement-analysis
- https://newsroom.fidelity.com/pressreleases/fidelity–2023-retirement-analysis–despite-uncertain-market-conditions–retirement-savers-have-high/s/b1b9fef9-4da9-4725-9080-bd614678181b
- https://www.fidelity.com/about-fidelity/Q4-2023-retirement-analysis
- https://www.fidelity.com/about-fidelity/Q4-2023-retirement-analysis
- https://edition.cnn.com/2024/02/27/success/401k-balances-fidelity/index.html
- https://www.cnbc.com/2024/02/27/401k-millionaires-and-average-balances-rose-in-2023-fidelity-says.html
- https://www.fidelity.com/about-fidelity/Q4-2023-retirement-analysis
- https://www.fidelity.com/about-fidelity/Q4-2023-retirement-analysis
- https://www.investopedia.com/articles/personal-finance/102616/how-much-can-advisor-help-your-returns-how-about-3-worth.asp
.fb-background-color {
background: !important;
}
.fb_iframe_widget_fluid_desktop iframe {
width: 1100px !important;
}
There is a looming retirement crisis.
It’s not a possibility. It’s about to be a reality for many Americans.
According to a survey by Clever, “Two-thirds of retired Americans say the U.S. is in a retirement crisis (66%). The average retiree owes $15,393 in non-mortgage debt, and 40% worry they will outlive their retirement savings.”¹
Those 66% have good reason to fear a retirement crisis.
Consider this information from the National Council on Aging.
“80% of households with older adults—or 47 million—are financially struggling today or are at risk of falling into economic insecurity as they age. […] Combined together, longer lives and lower savings are fueling a retirement security crisis for millions of Americans. It is exacerbated by inflation, rising health care costs, and the fact that someone turning age 65 today has almost a 70% chance of needing some type of long-term care services and support in their lifetime.”²
The 2023 Protected Retirement Income and Planning (PRIP) study from the Alliance for Lifetime Income found:
- 51% of consumers between 45 and 75 feel they do not have enough retirement savings to last their lifetime.
- 32% are not confident they will have enough money in retirement to cover basic monthly expenses.
- 44% are retired currently or retired previously and have gone back to work.³
It’s becoming more common for people to work past age 75.
According to the Bureau of Labor Statistics, the number of people over 75 in the labor force is expected to grow 96.5% by 2030.⁴
One reason for working longer is because people are in better health for longer.
The other reason is people do not have enough retirement savings to live on.
At the same time, Clever found, “54% of retirees say they retired earlier than planned — with 82% of that group retiring before age 65. In most cases, those aren’t success stories. About 38% retired early due to health problems, and 14% were laid off.”⁵
So, retirees either worked well into their retirement years because they haven’t saved enough, or they are forced to retire earlier than planned and live on what they have acquired up to that point.
Neither option is a good one.
Read on to learn why so many Americans fear the retirement crisis and worry they will experience it.
People Are Not Saving Enough in General
The first thing to recognize is that people are not saving enough for retirement in general.
Clever’s survey found, “The median retiree has $142,500 in savings – 4x less than the recommended minimum for starting retirement ($572,000). […] 25% of retirees have nothing saved for retirement.”⁶
There are several reasons why people are not saving enough.
- They underestimate how much they will need for retirement. Financial planners often suggest the cost of retirement is 80 percent of your pre-retirement income.⁷ If a couple has $120,000 annual income, they should plan to bring in $96,000 annual income ($8,000 a month). However, many Americans have far less than what is needed in their savings.
- They think Social Security will provide enough. Wrong. Go back to the previous example. The 2024 COLA adjustments mean that a couple can expect about $3,033.⁸ That’s a lot less than the $8,000 the couple needs. Where will that extra $5,000 come from to support the cost of retirement?
- Pensions are a thing of the past. Previous generations had retirement help in the form of pensions. But, as Jason Fichtner, a senior fellow and head of the Retirement Income Institute and chief economist at the Bipartisan Policy Center, explains, “There has been a seismic shift in retirement security from a time when many people could rely on a pension in retirement. […] This is the first retiring generation in which more than half don’t have a pension to cover part of their retirement costs. That makes this the first generation where the majority must rely on their own savings efforts to prepare for retirement.”⁹
Medical Expenses and Costs of Living Are on the Rise
Add in the horrifying costs of medical care, and it becomes even more clear why people are worried about a retirement crisis.
Fidelity Investments 22nd annual Retiree Health Care Cost Estimate in 2023 found, “A 65-year-old retiring this year can expect to spend an average of $157,500 in health care and medical expenses throughout retirement [or $315,000 for a couple].”¹⁰
Given the high costs of medical expenses and the lack of enough retirement savings, it’s sad but not shocking to learn that “15% of retirees say they’ve avoided medical appointments or treatments to preserve their savings.”¹¹
In addition to rising medical costs, the cost of living will continue to rise.
Some Retirees Are Already Running out of Savings
Matt Brannon, the author of Clever’s research, explains, “Retirees who aren’t sufficiently prepared will have to make serious sacrifices or risk outliving their savings. […] Our survey found some retirees have skipped meals or medical care to preserve their savings. It’s not how anyone wants to spend what are supposed to be their golden years – living in financial hardship, often in poor health, with no real sense of control.”¹²
Even so, their study found:
- 46% of retirees have no plan if their retirement savings run out, yet 2 in 5 (40%) worry they will outlive their savings entirely.
- About 1 in 5 retirees say their savings have already run out (19%), and 1 in 10 (10%) have skipped meals to preserve their retirement savings.¹³
Do What You Can to Maximize Your 401(k)
To help avoid a retirement crisis of your own, it’s time to do what you can to save more and max out your 401(k) savings.
Below are 5 tips to help you save more, keep more, and not outlive your retirement savings.
#1 Get the Company Match
If you aren’t contributing enough to get your company match, you are missing out on free money.
Even a small company match, like 50 cents on every dollar you contribute up to 6% of your salary, can add up significantly over your career.
Remember, this is your retirement future that’s at stake. Do what you can today to ensure a brighter future tomorrow.
Check out 3 Reasons to Get the 401(k) Company Match in 2024
#2 Know What You’re Invested In
Are you invested in the default option or a target date fund (TDF)?
Yes, target date funds make 401(k) investing easy.
But, there can be a significant difference in performance over time from target date funds versus other plan options.
This is because target date funds don’t take into consideration your unique retirement goals and risk tolerance.
Know what you’re invested in and make changes if necessary to maximize your 401(k) savings.
Check out Are Target Date Funds the Best for Your Retirement Goals?
#3 Avoid Withdrawing Early from Your 401(k)
401(k) hardship withdrawals should be a last resort.
But, as recent data shows from Vanguard, Bank of America, and Fidelity, investors are playing fast and loose with their retirement savings.
The ability to take a withdrawal from your 401(k) plan may seem appealing – especially if you are facing a financial emergency.
However, a 401(k) hardship withdrawal may cost you way more than you think.
Check out The Real Impact of 401(k) Hardship Withdrawals
#4 Regularly Rebalance Your 401(k)
If you are like many 401(k) investors, rebalancing your 401(k) is probably not one of your top priorities.
But what if we told you that by failing to rebalance, you are essentially turning your investments (and future retirement income) over to chance.
Failing to regularly rebalance your 401(k) portfolio often results in significant losses during bad markets and may open you up to more risk exposure than you initially intended.
And you may be missing out on earning more and keeping more of your retirement savings.
Check out What Every Investor Needs to Know about Rebalancing a 401(k)
#5 Get Professional Help
If you are looking for a way to improve your account performance, professional 401(k) management may help you in more ways than you might think.
Although you might have basic investment knowledge, utilizing an expert to make the moves that require skill and care may change the performance of your account from good to great…
And potentially boost retirement savings.
Check out How Professional 401(k) Management May Help Account Performance
If you have questions about your 401(k) or if you need help, we’re here for you. Click below to book a complimentary 15-minute 401(k) Strategy Session.
Book a 401(k) Strategy Session
SOURCES
- https://listwithclever.com/research/retirement-statistics-2024/#crisis
- https://www.ncoa.org/article/addressing-the-nations-retirement-crisis-the-80-percent-financially-struggling
- https://www.foxbusiness.com/markets/inside-americas-retirement-income-crisis
- https://www.bls.gov/opub/ted/2021/number-of-people-75-and-older-in-the-labor-force-is-expected-to-grow-96-5-percent-by-2030.htm
- https://listwithclever.com/research/retirement-statistics-2024/#crisis
- https://listwithclever.com/research/retirement-statistics-2024/#crisis
- https://www.fool.com/retirement/how-much-do-i-need/
- https://www.cnbc.com/2023/10/19/social-security-cola-heres-how-much-your-check-may-be-in-2024.html
- https://www.foxbusiness.com/markets/inside-americas-retirement-income-crisis
- https://newsroom.fidelity.com/pressreleases/fidelity–releases-2023-retiree-health-care-cost-estimate–for-the-first-time-in-nearly-a-decade–re/s/b826bf3a-29dc-477c-ad65-3ede88606d1c
- https://newsroom.fidelity.com/pressreleases/fidelity–releases-2023-retiree-health-care-cost-estimate–for-the-first-time-in-nearly-a-decade–re/s/b826bf3a-29dc-477c-ad65-3ede88606d1c
- https://listwithclever.com/research/retirement-statistics-2024/#debt
- https://listwithclever.com/research/retirement-statistics-2024/#debt
.fb-background-color {
background: !important;
}
.fb_iframe_widget_fluid_desktop iframe {
width: 1100px !important;
}
Choosing between paying off student loans and saving for retirement is a reality for many Americans.
But that’s about to change.
A provision in the Secure Act 2.0 permits employers to consider student loan payments as qualifying contributions toward retirement plans with the goal of enhancing retirement savings while paying off student loan debt.
Keep reading to find out how it works, who is eligible, and if it’s the right option for you.
The Student Loan Debt Crisis
The Federal Reserve estimates student loans are costing more than $1.6 trillion for borrowers as of 2024.¹
Data shows it takes an average of more than 20 years to pay off student loans.²
The struggle to pay these loans is why student loan repayments were paused during the pandemic.
Fast forward 3 years, in September 2023, student borrowers started receiving bills, and interest started accruing again.
Despite the advanced notice, student borrowers were not prepared.
According to Business Insider, “Nearly 9 million student-loan borrowers missed their first payments in October [40% of borrowers].”³
Given that the average monthly student loan payment is $503 and with the increased cost of living, it is easy to see why so many Americans missed their first repayment check.⁴
We get it. It’s hard to prioritize saving for your future retirement when you are stuck paying off your past.
That’s one reason many young people put off saving for retirement. They often can’t do both.
But, in doing so, they miss out on the compound growth that comes from early retirement contributions.
That’s about to change thanks to the Secure Act 2.0 provision that allows employers to offer student debt relief through matching contributions.
[Related Read: 5 Major Changes Coming to Your 401(k) in 2024]
How the 401(k) Match for Student Loans Works
The Secure Act 2.0 that passed in December 2022 has over 90 provisions to encourage more people to save for retirement in workplace plans and IRAs and to help grow their retirement savings.
A big provision for 2024 relates to student loans and retirement.
Effective January 1, 2024, employers may offer student debt relief through workplace retirement plans, such as 401(k)s, 403(b)s, 457s, and SIMPLE IRAs, by making matching contributions tied to a participant’s student loan repayments.
Instead of depositing a percentage of your paycheck to your 401(k) to max out the employer match, you will get the same employer match benefit when you make a qualifying loan payment.
Sounds great, but there are rules you need to be aware of.
According to the rules, it’s up to the discretion of your employer whether or not they add this benefit to the plan documents.
So not every plan will offer this.
While employers can make matching contributions to your retirement plan account based on your student loan payment amount, the contribution amount cannot exceed the total matching contributions available in the plan.
Employer matching contributions are required to follow the same percentage, eligibility, and vesting rules as traditional 401(k) employer matching contributions.
This is why it is critical to know your vesting schedule.
If you leave your job before you are fully vested, you could potentially lose some or all of your non-vested retirement savings.
If the money in your 401(k) is from employer-match contributions, you run the risk of having no retirement savings.
So, if you do not think you will stick around for at least 3 to 5 years with your current employer, taking advantage of the student loan match probably isn’t right for you.
Another thing to remember: Employer matching contributions for this new provision still apply to annual contribution limits.
For 2024, the 401(k) contribution limit is $22,500. Those ages 50 or older can contribute an additional $7,500.
[Related Read: Big Catch-Up Contribution Changes for 2024]
It’s important to recognize that the IRS has not provided much guidance for employers about this new provision.
A big issue that plan sponsors face is verifying the authenticity of employees’ student loan payments.
Any employer offering a 401(k), 403(b) 457, or SIMPLE IRA is eligible to offer a Secure 2.0 student loan match as an employee benefit.
If you want to see this in your plan, it is best to contact HR and ask them to add this benefit.
Better Prepare for a Life of Abundance in Retirement.
Check us out on YouTube.
Sources:
- https://www.businessinsider.com/personal-finance/how-to-secure-2-0-student-loan-match-works?r=MX&IR=T
- https://www.usatoday.com/money/blueprint/student-loans/average-student-loan-debt-statistics/
- https://www.businessinsider.com/student-loans-what-happens-if-i-miss-payments-debt-relief-2023-12
- https://educationdata.org/average-student-loan-debt
.fb-background-color {
background: !important;
}
.fb_iframe_widget_fluid_desktop iframe {
width: 1100px !important;
}
We’ve been through a lot over the last couple of years, but 2024 is showing signs that things may be turning around.
In 2024, we have had a really good market thus far. We hit new highs on the Nasdaq, the Dow Jones, and the S&P 500 – marking the end of the bear market and a full recovery.
So where do we go from here?
All Eyes on the Fed
The market has struggled with the idea that the Fed has raised interest rates to a point that it could harm the economy.
There has been a lot of back and forth in the market about whether the Fed is going to raise rates too high and send us into a recession. Can the economy withstand the higher interest rates for a longer period of time?
And the market has struggled with recession vs no recession.
We’re now at a point that the expectation is that the Fed is done raising rates.
In fact, the market is building in the expectations that we will have a soft landing or no landing at all, meaning that the higher interest rates are definitely having an impact on the economy.
The question is: Is the market getting ahead of itself by pricing in rate cuts as early as the next Fed meeting in March, despite the fact that Powell said that’s not likely?
Key Factors to Watch
We’ve had reasonably solid economic results from the ISM manufacturing indicators and the gross domestic product indicators, which is the total economic output of the economy.
In fact, those expectations have been raised.
Another positive sign is that we are starting to see the market broaden out, and other sectors of the market beginning to do better.
Once interest rates start to come down, we expect even the small cap or the smaller companies will start to perform better, too.
The other thing that’s driving the market is the AI revolution.
We expect artificial intelligence to continue to drive the tech market and could possibly drive the entire market going forward.
There will be times where we need a little bit of a market correction and profit taking to build a foundation that will help sustain the next move up.
But, overall, we’re pretty confident the markets could continue to do well in 2024.
Check out the video as Mark Sorensen, our Chief Investment Officer, provides further insight into current economic conditions, how AI may rock the market, and where he thinks we’re headed this year.
Plus chart reviews!
401(k) Maneuver exists to help employees grow and protect their 401(k) accounts.
Our done-for-you, virtual service allows you to keep your 401(k) right where it is while we review and rebalance your account based on your risk tolerance and current market conditions.
Find out what 401(k) Maneuver may do for your retirement account balance. Click below to book a complimentary 15-minute 401(k) Strategy Session with one of our advisors today.
.fb-background-color {
background: !important;
}
.fb_iframe_widget_fluid_desktop iframe {
width: 1100px !important;
}
Decades in the 401(k) space have made it easy for us to identify common 401(k) mistakes investors make.
Obviously, the biggest 401(k) mistake is not contributing enough (or not even having a 401(k) plan).
But even those who set up a 401(k) plan and contribute to it regularly make costly mistakes.
We see it time and time again.
Today, we’re covering 5 crucial 401(k) mistakes you need to avoid.
Trust us, your future self will thank you for reading this article.
#1 Not Staying Engaged with Your 401(k)
It’s fairly common for people to sign up for a 401(k) without “reading the fine print.”
This could be because people tend to think 401(k) plans are all the same, or at least very similar.
In reality, 401(k) plans vary.
It’s important to know your particular plan’s rules, such as the company match, the vesting schedule, and the fees.
Look over your plan agreement carefully.
If you can’t find the information or don’t understand, ask your plan representative or contact your Human Resources department.
In addition to knowing how your 401(k) works, engaging with your savings is critical if you want to retire comfortably.
This means educating yourself, reading your 401(k) statements, and making changes as needed.
According to Empower’s second annual research study, Empowering America’s Financial Journey – How People Save, Invest and Get Advice, “Engaged participant savings rates are 56 percent higher than rates for unengaged participants. They are also more likely to take full advantage of their plan’s employer match.”¹
#2 Not Getting the Company Match
If there is one thing we always recommend, it’s to contribute enough each paycheck to get the company match.
The company match is FREE money – meaning you get even more money toward your retirement simply for contributing.
Look at your plan and see what percentage you need to contribute to receive the same amount back into your retirement plan from your employer.
For example, if your company matches 100% up to 6% of your pay and you make $40,000 a year, you could put in $2,400 (or 6%) for the year, and you would get $2,400 of free money toward your retirement!
[Related Read: 4 Ways to Potentially Maximize Your 401(k) Company Match]
One of the biggest 401(k) mistakes couples make is not allocating their funds to get the best company match.
For instance, a couple may be contributing more heavily to the partner’s 401(k) plan, which provides a lower company match.
Instead, couples should reallocate their contributions to the 401(k) plan that offers better employer-matching contributions.
[Related Read: The #1 401(k) Mistake Married Couples Make]
#3 Failing to Rebalance Your 401(k)
Another one of the 401(k) mistakes is people thinking they can set their retirement savings and forget it.
They mistakenly believe all they need to do is enroll and contribute.
This belief may leave you with less savings than you planned in retirement.
Here’s why: The investments you chose when you first set up your 401(k) may not be the best ones to maximize your savings today.
Your goals and risk tolerance change over time. So do the investments you selected.
This is why it is critical to rebalance your 401(k) investments.
Rebalancing is the process of realigning the weightings of the assets (your investments) in your portfolio to stay in line with your risk tolerance and your timeline for retirement.
It involves buying and selling assets in your portfolio to protect it against losses and maximize savings.
Rebalancing also provides an opportunity to take advantage of growth during good markets.
It allows you to stay in what’s working, and out of what’s not.
[Related Read: What Every Investor Needs to Know about Rebalancing a 401(k)]
#4 Staying in Target Date Funds
Vanguard’s How America Saves 2023 report states, “71% of [plan participants] had their entire account invested in a single target-date fund in 2022.”²
This is likely because investors are automatically enrolled in them – and because they make 401(k) investing easier.
But that doesn’t mean they are right for you.
Target date funds (i.e., 2020, 2030, 2040, 2050 funds) are based on the expected date of retirement.
They are designed as a “one size fits all” plan. The problem is, investors are not the same size.
Your age, career, lifestyle, and retirement goals may look quite different from your colleagues.
These factors, as well as your location, salary, and risk tolerance, are NOT taken into consideration.
The reality is that target date funds will often underperform in good markets and do a poor job of managing downside risk during down markets.
Target date funds also do not take into consideration changes in the economy, tax policy, trade, earning reports, or investment trends – and may not make adjustments for any of these driving factors that affect investment performance.
If these adjustments are not made, you may not stay on course to reach your retirement goals.
Are you currently in a target date fund? Do you want to boost 401(k) savings?
We suggest moving away from the target date fund and better utilizing the options available in your workplace retirement plan.
Check out our guide 5 Ways Target Date Funds Fail to Live Up to Their Promise. [link to TDF guide pop up]
#5 Not Seeking Help with Retirement Savings
One of the crucial 401(k) mistakes people make is not seeking help.
According to Empower’s study, Empowering America’s Financial Journey — How People Save, Invest and Get Advice, “People who are engaged and leverage educational content; seek out advice or guidance; and/or aggregate or consolidate accounts have higher savings rates than people who are not engaged.”³
Fortunately, this is an easy mistake to correct.
All you have to do is ask for help from qualified professionals.
401(k) Manevuer’s mission is to solve all 5 of these retirement damaging problems.
We provide professional account management to help you grow and protect your 401(k) account.
Our goal is to increase your account performance over time, manage downside risk to minimize losses, and reduce fees that harm your account performance.
Our done-for-you virtual service allows you to keep your 401(k) right where it is while we review and rebalance your account based on your risk tolerance and current market conditions.
Have questions or concerns about your 401(k) performance? Click below to book a complimentary 15-minute 401(k) Strategy Session with one of our advisors today.
Book a 401(k) Strategy Session
Sources
- https://www.empower.com/press-center/empowering-americas-financial-journey-2022
- https://institutional.vanguard.com/content/dam/inst/iig-transformation/has/2023/pdf/has-insights/how-america-saves-report-2023.pdf
- https://www.empower.com/press-center/empowering-americas-financial-journey-2022
.fb-background-color {
background: !important;
}
.fb_iframe_widget_fluid_desktop iframe {
width: 1100px !important;
}
Will your 401(k) savings last in retirement?
It’s a question on the minds of a lot of 401(k) investors. Despite that, most people underestimate how much money they will need in retirement.
Experts tend to recommend saving 80% of your pre-retirement income.
If you and your spouse bring in $120,000 annual income, you should save enough for a $96,000 annual income throughout your retirement years.
10 years of retirement at this annual income rate equals $960,000.
This is why many people are drawn to the idea of saving $1 million in their 401(k)s.
The problem is that most Americans aren’t even close…and, even more concerning, $1 million isn’t going to take you as far as it once would.
Consider these findings from Vanguard’s How America Saves 2023 report:
- In 2022, $112,572 was the average 401(k) balance of nearly 5 million Vanguard plan participants. The median 401(k) balance was $27,376.
- The average 401(k) balance for those 55 to 64 years old was $207,874. The median 401(k) balance was $71,168.
- The average 401(k) balance for those 65 and older was $232,710. The median 401(k) balance was $70,620.¹
Both the average and the median balances for those closest to retirement are quite a bit less than $1 million.
The truth is that $1 million in your 401(k) savings may not be enough to last in retirement.
Consider the fact that retirements last a good bit longer than 10 years.
For example, the average retirement in the United States across genders is 61 years old.²
The average life expectancy for 2024 is 79.25 years.³
If you retire at 61 and live until you are 79, that’s 18 years – 8 years longer than you have saved for.
In fact, the Organization for Economic Co-operation and Development (OECD) found that American men spend 18.6 years in retirement, and women spend 21.3 years in retirement.⁴
Are you planning to save for a lengthy retirement?
Keep reading to get a better idea about whether your 401(k) savings will last in retirement.
Average Retirement Costs
How long will your 401(k) savings last in retirement largely depends on where you live.
But, before we break down the state-by-state costs of retirement, it’s important to discuss where the money goes.
- Healthcare: Fidelity Investments® 22nd annual Retiree Health Care Cost Estimate in 2023 found, “A 65-year-old retiring this year can expect to spend an average of $157,500 in health care and medical expenses throughout retirement [or $315,000 for a couple].”⁵
- Transportation: Retirees spend an average of $7,160 for costs associated with transportation.⁶
- Housing: Retirees use an average of 36% of their annual income to pay for housing costs.⁷
- Groceries: Food and groceries cost retirees an average of $6,490 a year.⁸
- Long-term care: According to Merrill, “Someone turning 65 today has a nearly 70% chance of requiring some type of long-term care during their lifetime. […] A private room in a nursing home can cost upward of $100,000 per year.”⁹
[Related Read: The Real Cost of Retirement: Are You Saving Enough?]
Keep in mind that the numbers above are averages, which means these dollar amounts come from all across the country. What Californians pay for food is averaged with what South Carolinians pay.
In other words, there will be a significant cost of living adjustment for these expenses for many retirees.
How Long $1 Million Will Last in Each State
Where you choose to spend your retirement years will make a significant difference to how long your 401(k) savings will last.
A study from Go Banking Rates calculated the annual costs of living for retirees in each state in the United States.¹⁰
The state where your $1 million 401(k) savings will last the longest is Mississippi.
The state where your $1 million 401(k) savings will be spent the quickest is Hawaii.
Use this list to see how long your 401(k) savings will last in retirement in your home state.
- Hawaii: 10 years, 3 months, 22 days (total annual = $96,982.26)
- New York: 14 years, 1 month, 15 days (total annual = $70,755.34)
- California: 13 years, 9 months, 29 days (total annual = $72,319.57)
- Massachusetts: 12 years, 9 months, 14 days (total annual = $78,159.36)
- Alaska: 15 years, 3 months, 12 days (total annual = $65,346.96)
- Maryland: 15 years, 5 months, 13 days (total annual = $64,706.98)
- Oregon: 15 years, 8 months, 8 days (total annual = $63,716.30
- Connecticut: 16 years, 7 months, 13 days (total annual = $60,170.71)
- New Hampshire: 16 years, 8 months, 18 days (total annual = $59,805.73)
- Vermont: 16 years, 5 months, 23 days (total annual = $60,692.12)
- Maine: 16 years, 8 months, 29 days (total annual = $59,701.45)
- Washington: 16 years, 9 months, 21 days (total annual = $59,492.88)
- New Jersey: 16 years, 9 months, 25 days (total annual = $59,440.74)
- Rhode Island: 17 years, 2 months, 31 days (total annual = $57,980.79)
- Arizona: 17 years, 9 months, 3 days (total annual = $56,312.28)
- Delaware: 18 years, 2 months, 13 days (total annual = $54,956.61)
- Montana: 18 years, 2 months, 17 days (total annual = $54,904.47)
- Utah: 18 years, 9 months, 18 days (total annual = $53,183.82)
- Nevada: 18 years, 9 months, 26 days (total annual = $53,131.68)
- Virginia: 18 years, 9 months, 11 days (total annual = $53,235.96)
- Florida: 18 years, 4 months, 7 days (total annual = $54,487.35)
- Colorado: 18 years, 2 months, 24 days (total annual = $54,852.33)
- Idaho: 19 years, 4 months, 22 days (total annual = $51,567.45)
- Pennsylvania: 19 years, 6 months, 12 days (total annual = $51,202.46)
- Minnesota: 20 years, 2 months, 2 days (total annual = $49,586.09)
- North Dakota: 19 years, 8 months, 8 days (total annual = $50,785.33)
- Wisconsin: 20 years, 5 months, 1 day (total annual = $48,960.40)
- South Dakota: 19 years, 11 months, 16 days (total annual = $50,107.50)
- North Carolina: 19 years, 9 months, 15 days (total annual = $50,524.63)
- Wyoming: 20 years, 11 months, 1 day (total annual = $47,792.44)
- South Carolina: 19 years, 11 months, 1 day (total annual = $47,293.53)
- New Mexico: 20 years, 5 months, 12 days (total annual = $48,908.26)
- Kentucky: 20 years, 7 months, 31 days (total annual = $48,386.85)
- Louisiana: 20 years, 6 months, 4 days (total annual = $48,751.84)
- Texas: 20 years, 8 months, 15 days (total annual = $48,282.57)
- Nebraska: 21 years, 0 months, 17 days (total annual = $47,500.45)
- Illinois: 20 years, 10 months, 12 days (total annual = $47,917.58)
- Ohio: 21 years, 5 months, 12 days (total annual = $46,614.05)
- Missouri: 21 years, 3 months, 15 days (total annual = $46,979.04)
- West Virginia: 21 years, 4 months, 10 days (total annual = $46,822.62)
- Michigan: 20 years, 10 months, 27 days (total annual = $47,813.30)
- Arkansas: 21 years, 1 month, 23 days (total annual = $47,291.89)
- Tennessee: 21 years, 2 months, 27 days (total annual = $47,083.32)
- Indiana: 21 years, 3 months, 4 days (total annual = $47,031.18)
- Georgia: 21 years, 6 months, 26 days (total annual = $46,353.35)
- Iowa: 21 years, 8 months, 26 days (total annual = $45,988.36)
- Alabama: 22 years, 0 months, 6 days (total annual = $45,414.81)
- Kansas: 21 years, 11 months, 19 days (total annual = $45,519.09)
- Oklahoma: 22 years, 1 month, 12 days (total annual = $45,206.25)
Mississippi: 22 years, 8 months, 12 days (total annual = $44,059.15)
Worried You Won’t Have Enough 401(k) Savings to Last?
If the info above has shaken you, don’t panic. There are ways to boost your savings.
- Increase your contributions. Can you increase your contributions by 1%? 3%? This will make a difference overall.
- If you are over 50, take advantage of catch-up contributions. For those ages 50 and older, the 401(k) catch-up contribution jumps from $6,500 to $7,500 in 2023 – for a total of $30,000. You have until Tax Day to make these catch-up contributions.
- Wait to pull from your 401(k). You may be tempted to withdraw from your 401(k) before retirement, but as you can see, you need those 401(k) savings.
- Get the company match. Prioritize contributing enough each year to receive the company match. This is free money.
Seek help from experts. If you are worried that you won’t have enough 401(k) savings to last through your retirement, reach out to us.
Click below to book a complimentary 15-minute 401(k) Strategy Session.
Book a 401(k) Strategy Session
SOURCES
- https://institutional.vanguard.com/content/dam/inst/iig-transformation/has/2023/pdf/has-insights/how-america-saves-report-2023.pdf
- https://www.fool.com/research/average-retirement-age/
- https://www.macrotrends.net/countries/USA/united-states/life-expectancy
- https://www.fool.com/research/average-retirement-age/
- https://newsroom.fidelity.com/pressreleases/fidelity–releases-2023-retiree-health-care-cost-estimate–for-the-first-time-in-nearly-a-decade–re/s/b826bf3a-29dc-477c-ad65-3ede88606d1c
- https://finance.yahoo.com/news/average-retiree-spends-4-345-120000803.html
- https://finance.yahoo.com/news/average-retiree-spends-4-345-120000803.html
- https://finance.yahoo.com/news/average-retiree-spends-4-345-120000803.html
- https://www.ml.com/articles/healthcare-in-retirement.html
- https://www.gobankingrates.com/retirement/planning/how-long-million-last-retirement-state/
.fb-background-color {
background: !important;
}
.fb_iframe_widget_fluid_desktop iframe {
width: 1100px !important;
}
With tax season right around the corner, it’s time to talk about what you need to know before you file 2023 taxes.
According to the IRS, “Although the IRS will not officially begin accepting and processing tax returns until Jan. 29, people do not need to wait until then to work on their taxes if they’re using software companies or tax professionals.”¹
You heard it straight from the source – don’t wait! Get ready to file 2023 taxes now before the April 15, 2024 deadline.
Before you file your 2023 taxes, you need to be aware of some significant changes that affect everything from which tax bracket you are in to which tax breaks you qualify for.
Here are 7 key changes to keep in mind as you prepare to file 2023 taxes.
#1 Income Tax Brackets Changed
For 2023, there are still 7 different federal income tax rates, but the income ranges shifted significantly to account for inflation.
In fact, there was about a 7% increase in brackets.
#2 Increased Standard Deduction
There is also a bigger standard deduction for 2023.
The good news is that this reduces your taxable income. According to the IRS:
“The standard deduction for taxpayers who do not itemize deductions on Form 1040, Schedule A, has increased. The standard deduction amounts for 2023 are:
- $27,700 – Married Filing Jointly or Qualifying Surviving Spouse (an increase of $1,800)
- $20,800 – Head of Household (an increase of $1,400)
- $13,850 – Single or Married Filing Separately (an increase of $900)”²
#3 Increased Estate Deduction Tax
For 2023 taxes, the estate and gift tax exemption has increased to $12,920,000.
Note – This higher exemption will expire at the end of 2025.
Additionally, the annual gift exclusion (the ability to give money to loved ones without tax liability or subtraction from your lifetime estate tax exemption) rose $1,000 to $17,000 total.
#4 Form 1099-K Rule Changes (Again)
The IRS has decided to again delay the change that would require payments over $600 from third-party payment systems to complete Form 1099-K.
According to the IRS, “Following feedback from taxpayers, tax professionals and payment processors and to reduce taxpayer confusion, the IRS delayed the new $600 Form 1099-K reporting threshold for third party settlement organizations for calendar year 2023. As the IRS continues to work to implement the new law, the agency will treat 2023 as an additional transition year.”³
So for the 2023 tax year, previous reporting thresholds are still in place.
Payment apps and online marketplaces will only be required to send out Form 1099-K if you receive over $20,000 and have more than 200 transactions.
Note – You are still taxed on the income – no matter if it is the sale of goods or a side hustle. The difference here comes down to the type of form.
#5 Child Tax Credits
Child tax credits help reduce how much of your income is subject to tax.
For 2023, the Child Tax Credit is $2,000 per child under 17 years of age.
Due to inflation, the refundable portion of the Child Tax Credit has risen to $1,600 from $1,500.
According to the IRS, “You qualify for the full amount of the 2023 Child Tax Credit for each qualifying child if you meet all eligibility factors and your annual income is not more than $200,000 ($400,000 if filing a joint return). Parents and guardians with higher incomes may be eligible to claim a partial credit.”⁴
Also, the IRS cannot issue refunds for people claiming the EITC or Additional Child Tax Credit (ACTC) before mid-February.
#6 Energy Tax Credits
Did you make any energy-conscious purchases in 2023?
If so, you may qualify for energy tax credits.
If you purchased a clean vehicle or electric vehicle, you may qualify for credits up to $7,500.
According to the IRS, “To claim either credit, taxpayers will need to provide the vehicle’s VIN and file Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit, with their tax return.”⁵
Additionally, if you made energy improvements to your home, you may qualify for energy tax credits.
“The Inflation Reduction Act of 2022 expanded the credit amounts and types of qualifying expenses. To claim the credit, taxpayers need to file Form 5695, Residential Energy Credits, Part II, with their tax return.”⁶
#7 There’s Still Time to Contribute to Your IRA
You have until Tax Day for 2023 (April 15, 2024) to max out contributions for IRAs and Roth IRAs.
That means there is still time to boost your retirement savings.
IRA contributors are able to invest up to $6,500, with a catch-up contribution limit of $7,500 for those 50 and older for the 2023 tax year.
Note – For the 2024 tax year, the contribution limit allows you to invest up to $7,000, with the catch-up contribution limit for those 50 or older set at $8,000.
[Related Read: Retirement Plan Contribution Limits for 2024]
As you file 2023 taxes, we hope it is not stressful. Use insights from this year’s tax season to prepare for 2024.
Have questions or concerns about your 401(k) performance? Click below to book a complimentary 15-minute 401(k) Strategy Session with one of our advisors today.
Book a 401(k) Strategy Session
Sources
- https://www.irs.gov/newsroom/2024-tax-filing-season-set-for-january-29-irs-continues-to-make-improvements-to-help-taxpayers
- https://apps.irs.gov/app/vita/content/00/00_13_005.jsp
- https://www.irs.gov/newsroom/get-ready-to-file-in-2024-whats-new-and-what-to-consider
- https://www.irs.gov/credits-deductions/individuals/child-tax-credit
- https://www.irs.gov/newsroom/get-ready-to-file-in-2024-whats-new-and-what-to-consider
- https://www.irs.gov/newsroom/get-ready-to-file-in-2024-whats-new-and-what-to-consider
.fb-background-color {
background: !important;
}
.fb_iframe_widget_fluid_desktop iframe {
width: 1100px !important;
}
It’s no secret that many Americans struggle to save for retirement.
The hard truth is that this is often due to bad financial habits.
Consider the fact that Americans’ credit card balances have gone up 40% over the last 2 years with overall card balances totaling $1.08 trillion.¹
Now, some of this debt is understandable, given inflation and all the other craziness Americans have faced over the past few years.
But it’s hurting them when it comes to saving.
A 2023 Bankrate study found, “Nearly half (49 percent) of U.S. adults have less savings (39 percent) or no savings (10 percent) compared to a year ago.”²
In the previous 2022 Bankrate study, they found, “Some 56% of Americans are unable to cover an unexpected $1,000 bill with savings.”³
Emergencies happen. And they can be costly.
Recently, a friend had to take her daughter to the ER for a kidney infection and dehydration. The surprise emergency room visit ended up costing $4,000, and she had to pay $1,000 after insurance.
If you don’t have money set aside for emergencies, it is likely you will end up in debt as a result.
Americans are also struggling to save for retirement.
A Bankrate study found, “In September 2022, 55% of American workers said they felt behind and 35% felt ‘significantly behind.’ Around one-quarter of workers haven’t made retirement contributions in at least a year. 22% of American workers said they weren’t making retirement contributions in 2023 or 2022.”⁴
Saving for the future is just as important as saving for emergencies.
The good news is that it is possible to change bad financial habits and save more.
The first step is being honest: Are these 5 bad financial habits sabotaging your financial future?
#1 Lifestyle Creep
One of the easiest bad financial habits to fall into is lifestyle creep.
As the name implies, it creeps up slowly so that you aren’t aware you’re doing it.
Essentially, lifestyle creep refers to boosting your lifestyle as you earn more.
You start earning more, and you feel a little more comfortable spending more.
The house gets bigger, the car more luxurious, the vacations more expensive, the closets get fuller, and so on.
Not only are you losing out on potential savings by spending more, but you are also setting yourself up for a retirement lifestyle you may not be able to afford.
Instead of falling into this bad financial habit, make a point of saving this extra income rather than spending it.
This way, you will continue to live the same today (within your means) while also saving for a nice retirement.
#2 Mindless Spending
The second on our list of bad financial habits is mindless spending.
Someone once confessed to me that she spent every Saturday going to T.J. Maxx just for the fun of it.
There wasn’t anything she needed or wanted. She just enjoyed shopping.
The problem is that she spent mindlessly. If she saw it and liked it, she bought it. There was no thinking about her financial future or where the item would go in her house.
Even if she could afford this accumulation of “stuff,” imagine how much more money she would have in her emergency fund or her 401(k) if she’d chosen to save the money instead.
Think before you buy.
#3 Not Saving Early Enough
Ask retirees what they wish they’d done differently, and “more than 20 percent of U.S. adults [will say] not saving for retirement early enough was their biggest financial regret.”⁵
Unfortunately, many Americans (especially Gen Z) are not taking heed of this advice.
A 2023 NerdWallet study found, “11% of Americans haven’t started saving for retirement; more than a quarter of Generation Z (27%) — ages 18-26 — say this.”⁶
At the same time, many worry that they will not have enough money to retire.
A study by Allianz Life also found that “Nearly three in four (72%) [Gen-Xers] worry that if they don’t increase their retirement savings soon, it will be too late to have a comfortable retirement.”⁷
A Northwestern Mutual Study found, “More than four in ten (43%) people say they do not expect to be financially ready for retirement when the time comes. […] Meanwhile, one-third (33%) of Americans expect to live to 100, with an equal third (33%) predicting there is a better than 50% chance they may outlive their savings. At the same time, more than one in three (36%) report that they have not proactively taken any steps to address this concern.”⁸
Think of it this way: The earlier you start saving, the longer your money has to grow over the years.
Compound growth makes a substantial difference over time.
#4 Carrying Too Much High-Interest Debt
As of 2023, 56 million cardholders have been in debt for at least a year and carry debt from month to month.⁹
Keep in mind that carrying debt from month to month is more likely now that the average credit card rate is more than 20% (highest percentage ever). And the average credit card balance is $6,088.¹⁰
Let’s say that this is your credit card balance. If you have a 20.74% interest rate and make minimum payments towards the balance, you will be paying off that credit card debt for more than 17 years!
It will wind up costing you more than $9,072 in interest!
Do whatever you can to avoid high-interest debt.
See if you can find a balance transfer credit card with a lower interest rate. Even better, see if you can find one that offers a 0% APR.
Once you pay down this high-interest debt, you can save more easily.
#5 Not Setting Clear Retirement and Financial Goals
One of the other bad financial habits that holds people back is not setting clear retirement and financial goals.
A study by Go Banking Rates found that 33% of American workers do not have any real retirement savings plan.¹¹
Unfortunately, this is hard to do considering that “more than 1 in 5 Americans (22%) say they don’t know how much money they’ll need to retire comfortably, with younger Americans more likely to say this.”¹²
That’s not the only reason for a lack of financial planning.
Recent studies suggest that younger generations are not prioritizing retirement savings. Instead, they focus on feeling “more fulfilled in the now.”¹³
According to CNBC, “Roughly three-quarters of Gen Z Americans said today’s economy makes them hesitant to set up long-term financial goals and two-thirds said they might never have enough money to retire anyway, according to Intuit. Rather than cut expenses to boost savings, 73% of Gen Zers say they would rather have a better quality of life than extra money in the bank.”¹⁴
We worry they may live to regret living for the moment instead of saving for the future.
Everyone should sit down, review their financial situation, and come up with a plan.
Have questions or concerns about your 401(k) performance? Click below to book a complimentary 15-minute 401(k) Strategy Session with one of our advisors today.
Book a 401(k) Strategy Session
Sources
- https://www.cnbc.com/2024/01/08/56-million-americans-have-been-in-credit-card-debt-for-at-least-a-year.html
- https://www.bankrate.com/banking/savings/emergency-savings-report/#over-1-in-3
- https://www.cnbc.com/2022/01/19/56percent-of-americans-cant-cover-a-1000-emergency-expense-with-savings.html
- https://www.bankrate.com/retirement/retirement-savings-survey/
- https://www.bankrate.com/retirement/americans-not-contributing-to-retirement-savings/
- https://www.nerdwallet.com/article/investing/investing-data/survey-some-americans-who-plan-to-retire-say-theyll-leave-the-workforce-early
- https://www.allianzlife.com/about/newsroom/2022-press-releases/inflation-causing-majority-of-americans-to-stop-or-reduce-retirement-savings
- https://news.northwesternmutual.com/2022-10-25-Northwestern-Mutual-Study-Finds-Americans-Now-Believe-They-Will-Need-1-25-Million-for-Comfortable-Retirement
- https://www.cnbc.com/2024/01/08/56-million-americans-have-been-in-credit-card-debt-for-at-least-a-year.html
- https://www.cnbc.com/2024/01/08/56-million-americans-have-been-in-credit-card-debt-for-at-least-a-year.html
- https://www.gobankingrates.com/retirement/planning/jaw-dropping-stats-state-retirement-america/
.fb-background-color {
background: !important;
}
.fb_iframe_widget_fluid_desktop iframe {
width: 1100px !important;
}