Winter is Coming: Protecting Your Retirement Plan

Bitter winds and heavy snowfall make Iowa winters less than a pleasurable experience for many. As you winterize your home and cars for the impending elements, you should also consider protecting your retirement plan from the potential pitfalls of the unpredictable season ahead. 

As the year draws to a close, it’s essential to take a moment to review your retirement plans and prepare for any modifications that may arise in 2024. Proper end-of-year retirement planning can help you stay informed about changing policies and adapt to a shifting financial landscape.

By incorporating some valuable tips and adopting a mindful approach to your wealth, you can focus on cruising through the winter season while staying on track with your retirement goals. Here’s what you need to know.

Take Advantage of Catch-Up Contributions

Start by closely examining your retirement accounts, such as your 401(k), IRA, or pension plan. Review your contributions throughout the year and determine if you can make catch-up contributions before the year ends. These catch-up contributions can help you maximize your retirement savings and reduce tax liability.

The 401(k) contribution limit for the year 2023 stands at $22,500. However, there’s good news for those aged 50 and older; they can make additional catch-up contributions of up to $7,500. If you qualify, you can contribute a maximum of $30,000 to your 401(k) account.

Increasing your 401(k) contributions can substantially impact your 2023 tax liability. To illustrate, consider a 50-year-old employee with an effective tax rate of 24% who maximizes their 401(k) contributions. By contributing the full $30,000, they can lower their tax bill by a noteworthy $7,200 (calculated as $30,000 x 0.24). Even a modest $1,000 contribution can yield tax savings of $240.

Taking advantage of the catch-up contributions available to those aged 50 and above can help provide immediate tax benefits. It’s a smart financial move that can help secure your future and put more money back in your pocket today.

Take RMDs and Be Aware of New Rules

For many individuals, a critical aspect of retirement planning involves managing distributions from 401(k) plans and traditional IRAs once they reach a certain age. Typically, this involves taking required minimum distributions (RMDs) each year after reaching 72. However, as of 2023, there’s a significant change: the age at which you must begin taking RMDs has been pushed back to 73.

Failing to follow these RMD rules can result in a 25% penalty of the amount you should have withdrawn. Fortunately, if you act promptly and correct the missed RMD within two years, you may see the excise tax reduced to 10%. There’s leniency for the timing of your first RMD. It’s crucial to note that this extension applies only to your first RMD. Afterward, all RMDs have to be withdrawn by December 31, 2023. Waiting until April to take your first distribution could lead to a scenario where you must take two RMDs in a single year, resulting in a high tax liability.

Regarding Roth retirement accounts, there’s a notable difference. While Roth 401(k)s have an annual distribution requirement, Roth IRAs do not. Understanding the rules and timelines for required minimum distributions is a crucial aspect of retirement planning.

Have a Social Security Strategy

The Social Security Administration (SSA) has exciting news for retirees: benefit checks will see an increase of 3.2 percent in 2024. This adjustment translates into a significant increase of $59 per month for the average retired worker who relies on Social Security. Starting in January, beneficiaries will enjoy this enhanced financial support.

To put it into perspective, the average monthly benefit for retired workers will rise from $1,848 to a more comfortable $1,907. For couples where both partners are receiving benefits, this adjustment means an estimated payment increase from $2,939 to $3,033, providing them with an extra $94 each month. This boost in Social Security benefits is a positive development for retirees, offering additional financial stability in the coming year.

Assess Your Health Insurance

Healthcare costs are predicted to increase by an average of 5.1% per year, reaching $6.8 trillion by 2030, according to the Centers for Medicare and Medicaid Services. While paying for health insurance can be costly, those who don’t have health coverage often pay a steeper price.

Fortunately, there are ways to help reduce healthcare costs. One option is having a Health Savings Account (HSA). An HSA allows you to allocate income before taxes to cover eligible medical expenses like deductibles and copayments. Using untaxed funds from an HSA can frequently reduce your total healthcare expenses. To be eligible for an HSA, you must have a high-deductible health plan. You can also establish an HSA through a bank or credit union as well.

With open enrollment starting November 1, 2023, and running through January 15, 2024, now is a great time to see if your plan meets your current needs. Life is unpredictable, and health conditions can evolve. Reviewing your plan and exploring options that provide the necessary coverage to meet your current and future needs is essential.

Additionally, see if your home and auto insurance policies are current. In retirement, you may spend more time at home, and helping to ensure your property is adequately protected is vital. Explore options for bundling policies to save on premiums, but don’t sacrifice coverage to cut costs.

Maximize Your Tax-Efficiency

In retirement, you may have access to various types of accounts with different tax treatment. For example, Traditional IRAs and 401(k)s are tax-deferred, meaning you’ll pay taxes when you withdraw funds. Withdrawals from your retirement plan before age 65 (or the plan’s normal retirement age) may incur a 10% additional income tax unless you meet specific exceptions. Early withdrawals from an IRA occur before age 59½ unless you qualify for an exception.

Tax codes can change frequently, and these changes can significantly impact retirees. Stay informed about the latest tax laws and how they may affect your retirement finances. Being aware of tax deductions, credits, and incentives available to retirees can help you make informed financial decisions.

Working with a financial advisor with knowledge of retirement income planning is highly recommended. They can help you create a tax-efficient withdrawal strategy tailored to your financial situation. This strategy aims to minimize your tax liability while helping you have the income you need to enjoy retirement.

Regular Financial Check-Ins with an Advisor

Lastly, establish a routine of regular financial check-ins with your Fiduciary Advisor. Fiduciaries can provide valuable guidance and help you stay on track with your retirement goals. By meeting with yours periodically to review your investment portfolio, you can monitor your progress and adjust your financial plan as needed.

At Johnson Wealth and Income Management, our Fiduciary Advisors can help guide you through the intricacies of retirement, financial planning, and investment management. Our goal is to help ensure that every decision leads you in the right direction toward a secure financial future. We help simplify the processes, allowing your money to adapt to economic changes and your evolving personal situation.

Our Fiduciary Advisors are here to assist you in maximizing the potential of your retirement years. Our mission is to help empower you with the knowledge and guidance needed to make informed financial choices, ultimately leading you toward a more secure and fulfilling retirement.

Final Thoughts

As winter draws near, preparing your finances for the upcoming year is crucial to help ensure you’re on track for retirement. Consistently seeking guidance from a financial advisor and staying diligent with your finances can protect and improve your financial well-being during this exciting chapter of life. Keep in mind that a well-prepared financial plan acts as a source of warmth during the colder seasons and can help offer lasting security throughout your retirement journey.

Contact us today to schedule your complimentary retirement strategy session.

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