Start your financial year off right with these three easy steps you can take today to build your wealth in 2024, and beyond.
1. Increase your employer-sponsored retirement contribution
The employee contribution limit in employer-sponsored retirement plans increased from $22,500 in 2023 to $23,000 in 2024. Don’t miss out on that extra $500! Your contributions will lower your overall taxable income and increase your potential for tax-deferred growth (growth you don’t have to pay tax on until much later in life!).
If you are 50 years old already, or turning 50 this year, you are eligible to contribute 33% more. Catch-up contribution limits are $7,500, allowing you to contribute a total of $30,500 this year. Review your current retirement savings options to see where you can start to save more. Even if you aren’t contributing to an employer-sponsored plan, you can still make catch-up contributions in an IRA (see #2 below). This is not a time to lie about your age!
Are you a business owner? There are strategies for maxing out retirement plan contributions even if you are self-employed. The amount individuals can contribute to their SIMPLE or SEP retirement accounts also increased.
2. Contribute to an IRA or Roth IRA
The IRA and Roth IRA contribution limit increased from $6,500 in 2023 to $7,000 in 2024; with an additional catch-up contribution limit of $1,000 for those age 50 or older.
If you haven’t made your 2023 traditional or Roth IRA contribution yet, you have until April 15, 2024 to have it count as a 2023 contribution.
Eligibility for deductible IRA and Roth IRA contributions are dependent on adjusted gross income (AGI), with participation phased out for many households. It is best to discuss your IRA strategy with your advisors, there may be opportunities to add to Roth balances even if your AGI is over the limit for direct contributions.
3. Check Your Withholdings
Regularly reviewing and, if necessary, adjusting your paycheck tax withholdings proactively aligns your tax payments with your actual tax liability.
While getting a tax refund each year of hundreds – or even thousands – of dollars might seem nice, you essentially gave the government an interest-free loan (Uncle Sam says thank you!). This extra income could have been put toward savings, investments, or paying down debt, all of which contribute to your long-term financial success, helping to grow your wealth.
On the other hand, significant changes in your financial situation or tax laws can result in unexpected tax liabilities. If you underpay, you could face penalties and interest charges.
Regularly reviewing your paycheck withholdings helps you stay informed about your current tax situation allowing you to avoid unnecessary overpayments or underpayments, optimize your cash flow, take advantage of tax credits, and prevent surprises.
These three steps may seem simple, but their cumulative impact over time can contribute significantly to your financial success.
Contributing $6,500-$7,500 a year more to the tax-deferred growth of your qualified retirement accounts could translate to an extra $250,000 – $300,000 in savings over 20 years. That’s assuming a modest 6% annualized return, and it doesn’t even take into consideration the tax savings that often come with retirement savings.
Valuable resources to help build your wealth:
- 2024 Important Financial Numbers summarizes income tax rates, contribution limits, deductions, and social security details you need to know for 2024.
- Our comprehensive Start of the Year Financial Checklist covers more than 40 different points to think about or actions to take that will set you up for financial success this year.