You’ve probably heard how important it is to save up as much as you can for retirement. After all, you don’t want to end up too dependent on Social Security benefits once you retire. Even if you get the absolute most you can out of your Social Security benefits, they’ll only replace around 40% of your pre-retirement income. And, many retirees will need more income than that to get by. That’s where your nest egg comes in. The more you save up, the better off you are in retirement.
If you have a 401(k) retirement plan account thanks to your job, you might be striving to contribute the maximum amount allowed this year. If you’re under 50, that would be $22,500. People age 50+ can contribute up to $30,000, thanks to a $75,000 “catch-up” contribution. Next year, however, you’ll have the opportunity to save up even more money with your 401(k).
Next year, many workers will be able to save up to $23,000 in their 401(k)s 2024. If you can afford to max out in 2024, that extra $500 is an opportunity you don’t want to pass up. Furthermore, the contribution limit to an individual retirement account will also increase by $500, reaching a total of $7,000.
What Does This Mean For You?
The more you contribute to your 401(k), the more income you’ll have to support yourself in retirement. 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 that the IRS can’t tax. And, even if you have a Roth 401(k), there’s still a tax benefit for you. 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 of this to say, 401(k) contribution limits rising next year is a good thing… for those who can actually afford to max out their account. It gives these savers the opportunity to save even more, and to shield even more of their income from taxes. However, looking at things realistically, how many savers actually max out their accounts?
In 2022, only 15% of people enrolled in 401(k) accounts issued by Vanguard Group saved the maximum amount. So, this change won’t affect many savers. It’s difficult to max out your 401(k) account on an average income. If you can’t max fund your account, though, you should still do the best you can to increase your contribution rate from year to year. Even just doing that can go a long way. And, if you’re part of the percentage of savers who can afford to max fund your 401(k), and want to save up even more for retirement, we have even better news for you…
Consider an FIA
If you’re interested in the possibility of tax-free income in retirement, a fixed indexed annuity (FIA) may pique your interest. Many pre-retirees choose to “rollover” the money from their employer-issued 401(k) or other plan into an FIA instead. This is because of the versatility an FIA offers. n FIA isn’t a retirement plan account, it’s an insurance product. However, it can be used as a source of tax-free, guaranteed* retirement income.
Unlike a 401(k), which has no guarantee of lasting you for life, a fixed indexed annuity can offer you a guaranteed* income stream for the rest of your life. By rolling over your 401(k) into an FIA, you may be able to ensure a steady, reliable source of income in retirement. This can be crucial for maintaining a comfortable standard of living without the fear of outliving your savings, a common worry amongst retirees nowadays.
Did we mention that an FIA has no government-issued contribution limit? If you’ve maxed out your retirement account and want to generate even more interest on your retirement savings, purchasing an FIA can help you that way, too.
Diversifying your retirement portfolio can help to mitigate risks. By implementing an FIA in your retirement strategy, you may be able to create a balance between market-based investments and more conservative, safe options.
Have you heard of the Rule of 100? It’s a guideline for investing, that states that the older you are, the more conservative you should be with your money. For example: if you’re 67 years old, at least 67% of your retirement savings should be kept in “safe money” options such as an annuity. Then, when you’re 70, at least 70% should be protected. And so on…
And, did you know that right now, one of our annuity products is offering a limit-time-only, 40% bonus? With the right type of annuity, for every $100k you contribute, an additional $40k could be added to your income and death benefit. Contact American Principal to learn more about this new bonus, these products, and how they may be able to help you.
*Backed by the claims-paying ability of the carrier.