It’s getting close! The first snowfall made me realize that the end of the year is almost here, so I figured it’s time for a series of blog posts with actionable insights to help you save money before year-end.
This will be a series of weekly, bite-sized posts designed to be digestible and actionable. But keep in mind, none of this is tax advice - I don’t know your situation, and therefore CANNOT provide you with personalized advice. However, if you feel that this education isn’t going to be enough, and you want to engage a professional, just click here to schedule time with me.
Now - the good stuff.
Subject: Alphanumeric Soup - 401(k), 403(b), 457(b), TSA
Deadline: 12/31/2024
Who: W2 employees with access to a retirement plan
Worried that your income is higher than you anticipated this year and looking for ways to decrease your taxes?
If you have access to a
401(k)
403(b)
457(b)
TSA
Then you may be able to use it to save money on taxes by making payroll contributions before year-end.
The rules
Employee contributions are limited to $23,000 (plus $7,500 if you’re 50 or older). Each of these plans is a little different, so there may be other contribution provisions.
You can make pre-tax contributions - this is the default, and if you’re trying to save money on taxes THIS year, it’s the option you want. Most plans also allow Roth contributions (no current-year deduction, but tax-free growth).
Contributions typically have to go through payroll, so you’ll need to increase your contributions ASAP to benefit before the end of the year.
An honorable mention goes to the SIMPLE IRA - if you work for a small employer, you may have access to a SIMPLE IRA Plan. These also offer pre-tax contributions, but the employee contribution limits are lower - $16,000 for 2024 (plus $3,500 if you’re 50 or older).
Caveats
When you make a contribution to a retirement plan, you lose a certain amount of access to those funds. If your plan allows for it, you may be able to take a loan from your plan or take withdrawals penalty-free earlier than the normal retirement age of 59.5, but generally it’s good to think of this money as invested for the long-run - it’s money for future you, not current you.
There may be fees involved in investing in these vehicles (although they’re usually fairly low), and there are generally limited investment options available.
Conclusion
Retirement plans through work are probably the easiest way to save and invest for retirement because the money never hits your bank account. If used properly, they’re also a great tax-planning tool. Make sure you’re getting the most out of your plan!
As always, keep in mind that you don't have to go it alone. I’m Austin Preece, a fee-only financial planner in Eau Claire, Wisconsin, and I work virtually with people across the US. Check out my website to see what it's like to work with me and reach out if you have any questions.
If you found this post helpful, help spread the word! Share with friends and family that you think may benefit as well. But remember, this is solely for educational purposes - it's not advice.
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