With the clock ticking closer to 2025, now would be a good time to check in on how you've been progressing toward your retirement goals. Whether you've been steadily socking away money into your portfolio for years or need to play a little catch-up, making a few strategic moves in the next few weeks can set you up for success down the road.
Since year-end tends to be a whirlwind for most folks, we're keeping this to-do list short and simple. Here are three moves you should absolutely consider making before we close out the year.
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1. Review your 401(k) contributions
If you are enrolled in a 401(k) at work, your employer has been deducting money from your paychecks to fund the account.
You might be contributing to a traditional 401(k), which helps lower your taxable income for 2024. Or perhaps you find a Roth 401(k) -- funded with after-tax dollars -- more appealing. Either way, take a few minutes to check on your account to make sure you're comfortable with the amounts of your contributions and how your funds are being allocated.
If you need to adjust your contribution amount, switch account types, or make other changes, you'll want to act quickly. While the deadline to contribute funds to a 401(k) for this tax year is Dec. 31, your employer may have an earlier cutoff for making adjustments. Here are a few things to look into right now:
- Contribution limits: For 2024, you can contribute up to $23,000 to a 401(k) if you are under 50. While some workers may contribute the maximum amount, that won't be reasonable for everyone. In fact, according to Vanguard, the average 401(k) participant contributes 7.4% of their income to their account. At that level, a person earning $100,000 annually would be contributing $7,400 to their 401(k).
- Reduce your taxable income: If you'd like to shrink your tax bill, contributing to a traditional 401(k) will help. For example, if you're going to make $100,000 this year and contribute the $23,000 maximum, your taxable income will drop to $77,000. Check your 401(k) balance and review your budget and financial situation to see if increasing your contributions before year-end makes sense for you.
2. Consider contributing to (or opening) a Roth or traditional IRA
While you have until April 15, 2025, to make contributions to a Roth or traditional individual retirement account (IRA) that can apply to the 2024 tax year, waiting until the last minute might not be the best strategy. Start by reviewing your finances to see what makes sense for your budget and goals, then contribute as much as you can now to take the pressure off later. Here's what to keep in mind:
- Choose between a traditional or Roth IRA: Decide which account will best suit your needs. You can only contribute to a Roth IRA if your income is below the threshold. If your income exceeds the limit, you may want to consider alternative strategies like setting yourself up for a backdoor Roth IRA conversion.
- Know the contribution limits: For 2024, if you're under 50, you can contribute up to $7,000 to IRAs. If you're 50 or older, you can contribute an additional $1,000 beyond that.
- Set up recurring contributions: It's easier to save and invest when you don't have to manage the process of contributing to your accounts manually. You can schedule weekly or monthly deposits from your bank account to put your IRA contributions on autopilot. That will take one more task off your year-end to-do lists and help you stay on track toward your retirement goals.
3. Review possible retirement perks
Saving and investing for retirement can come with some benefits that can make your journey even sweeter. Take a look at the perks below to see if you qualify for them:
- Employer match: Some employers will partially match your 401(k) contributions. So if, for example, you earn $100,000 and your employer matches 50% of your contributions up to 6% of your salary, contributing $6,000 means your employer will chip in another $3,000 toward your retirement.
- Saver's credit: If your income qualifies, contributing to a 401(k) or IRA could make you eligible for the Saver's Credit. This tax credit can be worth up to $1,000 for single filers or $2,000 for married couples filing jointly.
The year-end period can get hectic, but just take it one step at a time. The actions you take today can set you up for a more comfortable and secure retirement down the road.
