Are You HSA Eligible? If So, Check This Out

Are You HSA eligible? If so, here’s how to take advantage of it during this time of year. Open enrollment just passed, but if you did not consider contributing to your HSA, now is a great time to do so given that we’re in the beginning of the year. Many individuals have questions about what benefits they are eligible for, and what those benefits truly mean. Retirement savings and medical coverage are typically a large part of your workplace benefits, which is why it’s so important to take advantage of what’s available to you, such as an HSA.

So, what are HSA’s? An HSA is a tax-advantaged health savings account that allows you to save money to use to pay medical and health care expenses. If you get your insurance coverage through high-deductible health plans, you can qualify for an HSA. Your contributions within the account will grow on a tax-free basis, and any untouched dollars can be rolled over year to year. By using untaxed dollars in a Health Savings Account to pay for deductibles, copayments, coinsurance, and some other expenses, you may be able to lower your overall health care costs.

Due to inflation, the IRS increased the contribution limits for HSAs in 2023. So, employees and employers can now contribute a total of up to $3,850 for individual coverage, up from $3650 in 2022, and up to $7750 for family coverage, up from $7,300 in 2022. The HSA catch-up contribution if you are 55 years or older remains at $1000, the same as 2022. These adjustments are quite large, so be sure to take advantage if you are eligible to do so!

Be sure to contribute by the end-of-the-year December 31st deadline, so that you can make the most of your yearly contribution. Keep in mind that HSAs are just one of the many benefits that you can take advantage of. Check out our open-enrollment blog to see what else you may have been eligible for and our retirement contribution limits blog to see the increases in retirement contribution limits ! For other end of the year tips, check out our financial checklist blog here. If you have any questions about funding your various accounts, email us at info@shermanwealth.com or schedule a complimentary 30-minute consultation here. 

 

Do You Want to Save More For Retirement This Year? Here’s How

If you were looking to increase your retirement savings last year, there is an opportunity for you in 2023. As we mentioned in a prior blog, the IRS increased retirement contribution limits for 2023, up $2000 from last year, from $20,500 to $22,500 and to $30,000 for individuals 50 years of age and older. Whether you are taking advantage of the entire contribution limit or just want to increase your contribution by a percent or two, this is a great opportunity to save more in the year ahead. 

So, let’s take a look at how individuals saved last year for their retirement. According to 2022 estimates from Vanguard, “in 2021, roughly 14% of investors maxed out employee deferrals”, based on 1,700 plans and nearly 5 million participants. We find that many individuals actually intended to max out their retirement contributions or save more than they did, but either forgot to adjust their contributions or were clouded with other goals. So, if you plan on saving more this year, log on to your 401(k) platform and make your appropriate adjustments. The sooner the better! 

Contributing to your workplace retirement plan and taking advantage of the company match is a great way to build your wealth and save for your future. When deciding how much you want to contribute to your retirement plan each payroll period, it’s important to think about your entire financial picture and your goals. Make sure you are being intentional about your saving, and accounting for all the goals you want to achieve and save for. Find a balance that works for you so you can save for both your short and long-term goals. No matter where you start with your retirement contribution, you can always change it throughout the year on your retirement platform if you feel necessary. 

We also posted a blog regarding the Secure 2.0 Act that was recently passed by Congress at the end of 2022 that includes many changes and ways for individuals to save more for their retirement. If you have any questions about adjusting your retirement contributions or about your 401(K) in general, please email us at info@shermanwealth.com and we are happy to help answer all and any questions. You can also schedule a 30-minute complimentary consultation here. 

How The Secure 2.0 Act Might Impact You!

Happy New Year everyone, we hope you had a wonderful holiday season and wish you a healthy, happy, and prosperous New Year. Before the start of 2023, on December 29th, Congress passed the Secure 2.0 Act that was promised to provide changes to help many Americans’ retirement plans, including over 90 updated retirement plan provisions.

The provisions are set to encourage more employers to create retirement plans and automatically enroll employees to stimulate retirement savings growth, change the age individuals must take RMDs, make it easier to take cash out of retirement and more. We wanted to share a few of the updates that may have an impact on your financial plan and will report back with additional information and changes: 

“Mandatory Retirement Auto-Enrollment 

Required Minimum Distribution (RMD) 

Effective on January 1, 2023, the RMD age has been raised for some individuals based on the following criteria:

  • Born in 1950 or earlier: RMD begins at age 72
  • Born between 1951-1959: RMD begins at age 73
  • Born in 1960 or later: RMD begins at age 75 

Roth 401(k) RMD

Beginning in 2024, RMDs are no longer required from Roth 401(k) accounts. RMDs are still required from Roth 401(k) accounts in 2023. 

Qualified Charitable Distribution (QCD) Indexed for Inflation

Beginning in 2024, the maximum annual QCD of $100,000 will be adjusted for inflation. 

401(k) / SIMPLE IRA Catch-Up Contributions

Starting in 2025, some individuals can increase their employer-sponsored retirement plan catch-up contributions.

  • 401(k): Individuals whose age is 60-63 in 2025 and later will see their catch-up contribution limit increased to a greater of $10,000 or 150% of the regular catch-up contribution amount. RightCapital will default to $10,000 at this time.
  • SIMPLE IRA: Individuals whose age is 60-63 in 2025 and later will see their catch-up contribution limit increased to a greater of $5,000 or 150% of the regular catch-up contribution amount. RightCapital will default to $5,000 at this time.”

While these are only just a few of the many changes made in the Secure 2.0 Act, we know that these updates and information may be overwhelming, which is why it is important to defer to a trusted source such as your financial advisor to ensure you are understanding all and any changes. As we embark on 2023, it is a great time to get organized and review your budget and overall financial plan for the year to come. If you have any questions for us on the Secure Act 2.0 or your personal financial situation, email info@shermanwealth.com or schedule a complimentary intro call here. 

What To Do With Your Old 401(k)

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As we approach the end of the year and many individuals are either settling into a new job or thinking about starting a new job at the start of next year, we’ve been getting many questions about what to do with old retirement accounts. This is a great question that is oftentimes not discussed, causing many people to “forget” or lose track track of their old accounts. Many people often make rushed decisions and think they need to pack up their savings when they leave a job.  And conversely, some people pay no attention when they move from job to job and leave a trail of 401(k) plans behind them.  With any employment change, it’s important to know which mistakes to avoid when it comes to your 401(k).

Here are some tips regarding your 401(k). First and foremost, pause before simply cashing out on your 401(k) when leaving a job. Cashing out and not reinvesting your funds in a qualified retirement plan is a mistake.  People don’t realize the cost to their financial security by cashing out on their 401(k) and that cost includes an immediate tax hit – income taxes plus another 10% early withdrawal penalty if you are younger than 59 ½.

One thing to be weary of is not to roll over your accounts too many times. Employees who decide to move their money to another 401(k) plan or an IRA typically have two options—transfer the funds directly to another account, or do a rollover. Although “rollover” is when you move money from one retirement account to another. That money is best moved by direct transfer, but some employers will send a check. You have 60 days to roll that money over to an IRA or other qualified plan. If you miss that window, there is a grace period (with a penalty fee), but this is offered only once every 12 months, so direct transfers are often best to avoid penalties and issues. 

There are plenty of good reasons to move your money into an IRA (individual retirement account).  These accounts aren’t linked to any one employer and consolidate your money into a single retirement account. You also are not confined to that employers or old 401(k)s fund lineup, so may have more flexibility moving over to an IRA.  However, your employer’s plan may offer you access to investment options, tools and institutional pricing that you might not get with an IRA so it’s important to analyze that beforehand. 

Next, make sure not to overlook other tax strategies. There may be other strategies to consider when weighing a job move, although most people associate 401(k) plans with pretax contribution. One option may be to convert the savings to a Roth IRA; you’ll owe income taxes on what you convert, but future growth and withdrawals will be tax free. If your income is lower that year, the tax impact will be less.  For those who’ve accumulated their employer’s stock in their 401(k) plans, leaving a job may open the door for an often overlooked tax break. 

As we enter the last month of the year, make sure you have all your November 2022 statements for your old 401k plans, and use this opportunity to evaluate and understand what you have and your options. Keeping regular tabs on what is going on with your investments is critical to ensuring they line up with your goals for the future.  For more specific advice on what to do with your old retirement accounts, email, info@shermanwealth.com. 

Are You Taking Advantage Of Your 401(k) Employer Match?

Does your job offer workplace benefits? If so, are you aware of the benefits available to you and are you taking advantage of them all? We’ve been working with many individuals who are not only unaware of the extent of their benefits but are also not utilizing some great opportunities for them, especially their 401(k) employer match. Let’s take a look at why individuals are not taking advantage of this benefit and why it’s prudent to.

We’ve found that many employees are not educated on their benefits and therefore do not know how some of these added comps can benefit them. If your employer offers a 401(k) match, they are basically offering you free money. So, why wouldn’t you take it? Even if you are not able to/or want to max out your 401(k), contributing at least the employer match will help you make the most out of your retirement savings and take advantage of a really great company perk. Let’s break down how it works. Say your employer match is 4%. So, if you contribute 4% (or more) of your salary towards your retirement account, each pay period your employer will also contribute 4% on your behalf. 

Keep in mind, if you are starting a new job,  it’s important to speak with your employer or HR to determine when you are eligible to contribute to your company retirement plan and if the employer match is immediate or there is a waiting period. Additionally, many people are unaware that in 2022 they can contribute up to $20,500 of pretax income to a 401(k), so there’s a real opportunity to save throughout the year and getting closer to the limit quicker. 

Another issue we have seen as it relates to workplace benefits and retirement accounts is misplacing or forgetting about old 401(k)s. We know starting a new job can be a stressful time with many moving parts; however, it’s important that you don’t forget about your old 401(K) account. When switching jobs, you have a few options. First, you can roll the old retirement plan into your new 401(k). Other options are to leave the retirement plan where it is, roll it into an individual retirement account (IRA), or cash it out (however, depending on your age early withdrawal fees may apply). Oftentimes, it’s very helpful to analyze your old 401(K) and new workplace benefits to see which option is best for you. If you have questions about an old 401(K) or retirement account and would like our help analyzing your options, please let us know. Additionally, If you are an employer and are looking for a workplace benefit education course, email us at info@shermanwealth.com as we are happy to work with your employees to educate them on all the options available to them. Click here to schedule a complimentary intro call. 

 

Here Are The 401(k) Contribution Limits for 2023

The IRS released annual inflation adjustments to income tax brackets and many other adjustments for 2023 on Tuesday which are followed by today’s announcement of the 401(k) contribution limits for 2023.

The contribution limit for retirement accounts such as 401(k)s, 403(b)s, most 457 plans and TSP accounts has increased to $22,500, up from $20,500, the largest increase for retirement savings contributions in history. The contribution limit to an individual retirement account (IRA) increased to $6,500 for 2023, up from $6,000. The 401(k) catch-up contribution if you are 50 or older will rise $1,000 to $7,500 for 2023. The catch-up contribution limit for individual retirement accounts remains at $1,000.

For self-employed individuals who have individual 401(k)s or SEP retirement plans, the contribution limit for 2023 is $66,000, up $5,000 from this year, including employee and employer contributions. Those allowed catch-up contributions can contribute up to $73,500 in 2023. 
If you have any questions about the tax brackets or retirement contribution limits for 2023 and how that may impact you and your financial picture, head to the IRS website for more information or email us at info@shermanwealth.com or schedule some time to connect here.

What’s The Secure Act 2.0?

On Tuesday March 29th, The House Of Representatives passed the Secure Act 2.0, a bill that is aimed to improve the retirement savings system for U.S workers. The legislation will now head to senate for its decision.

According to the House Ways and Means Committee Chairman Richard Neal, D-Mass., “H.R. 2954 will help all Americans successfully save for a secure retirement by expanding coverage and increasing retirement savings, simplifying the current retirement system, and protecting Americans and their retirement accounts,” he ahead of the Tuesday vote. “Too many workers reach retirement age without having the savings they need.”

According to a Wall Street Journal article, the bill proposes that “legislation would gradually increase the age at which savers must start taking withdrawals from 401(k)-type accounts and traditional individual retirement accounts to 73 next year, rising to 74 in 2030 and 75 in 2033.”  As of right now, people who have a retirement savings account must start withdrawals at age 72, so this will help those who wish to grow their money longer or may not need it quite yet.

In addition to the increased age to take RMDs, the new bill will allow older workers to make larger contributions to their 401(k)s. According to WSJ,  “people 50 and older can contribute an extra $6,500 a year to 401(k)-style retirement accounts, for a total of $27,000. The legislation would raise that to $10,000 a year starting in 2024 for people ages 62, 63 and 64. The bill would require catch-up contributions to be made after taxes. Under the legislation, starting in 2024, the extra $1,000 people 50 and older can contribute annually to an IRA would rise to account for inflation.” Again, this added benefit is a huge opportunity for individuals who maybe missed out on the early years of retirement savings.

This bill and the ultimate Senate decision could be huge for individuals, especially older ones, who want to boost and make the most out of their retirement savings by allowing them to maximize them in their later years. We will continue to follow updates from Senate on the progression and eventual implementation of this bill. If you have any questions for us, email us at info@shermanwealth.com.

Last Call To Fund Your Traditional & Roth IRA For 2021

Spring has arrived which means it’s time to get out your spring cleaning checklist. That doesn’t just mean yard work and old clothes, but your finances too! A great place to start is to fund your Traditional and Roth IRA accounts for 2021. The deadline for these contributions is April 18, so make sure to act fast if you plan to fund these accounts. Below you will find further details from the IRS website on this deadline.

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“The Internal Revenue Service reminds taxpayers they may be able to claim a deduction on their 2021 tax return for contributions to their Individual Retirement Arrangement (IRA) made through April 18, 2022.

An IRA is a personal savings plan that lets employees and the self-employed set money aside for retirement and can have tax advantages. Contributions for 2021 can be made to a traditional or Roth IRA until the filing due date, April 18, but must be designated for 2021 to the financial institution.

Generally, eligible taxpayers can contribute up to $6,000 to an IRA for 2021. For those 50 years of age or older at the end of 2021, the limit is increased to $7,000. Qualified contributions to one or more traditional IRAs may be deductible up to the contribution limit or 100% of the taxpayer’s compensation, whichever is less. There is no longer a maximum age for making IRA contributions.

Those who make contributions to certain employer retirement plans, such as a 401k or 403(b), an IRA, or an Achieving a Better Life Experience (ABLE) account, may be able to claim the Saver’s Credit. Also known as the Retirement Savings Contributions Credit, the amount of the credit is generally based on the amount of contributions, the adjusted gross income and the taxpayer’s filing status. The lower the taxpayer’s income (or joint income, if applicable), the higher the amount of the tax credit. Dependents and full-time students are not eligible for the credit. For more information on annual contributions to an ABLE account, see Publication 907, Tax Highlights for Persons With Disabilities. PDF

While contributions to a Roth IRA are not tax deductible, qualified distributions are tax-free. Roth IRA contributions may be limited based on filing status and income. Contributions can also be made to a traditional and/or Roth IRA even if participating in an employer-sponsored retirement plan (including a SEP or SIMPLE IRA-based plan).

Taxpayers can find answers to questions, forms and instructions and easy-to-use tools at IRS.gov. This news release is part of a series called the Tax Time Guide, a resource to help taxpayers file an accurate tax return. Additional help is available in Publication 17, Your Federal Income Tax (For Individuals)”

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For further information about the April 18 contribution deadline, check out the IRS website here. As mentioned prior, spring time is here which constitutes a great time to get your finances in order and make a financial plan. Whether that begins with getting those 2021 contributions in or not, let us know if you have any questions as we are happy to help. Email info@shermanwealth.com or schedule a complimentary intro call here.

Should You Contribute To a Pre-Tax or Roth 401(K)?

We often get many questions around this time of year regarding the key differences between a Roth and Pre-Tax (Traditional) 401(k). This is such a great question and an important concept to understand so you can fully maximize your financial and retirement goals. And, there is no better time than the beginning of the year to review your retirement portfolio. So, let’s get started. 

The main difference between the traditional and Roth 401(k) is that with the pre-tax option, you pay the tax on your contributions and the earnings when you withdraw them at retirement at that current tax bracket, whereas with the Roth, you pay the tax on your contributions upfront, but the earnings can be withdrawn tax free. Roth options are becoming more and more common in company 401(k) plans, so don’t be shocked if you see the option during open enrollment season. What’s really great about this option is that the Roth 401(k) has no income limits unlike the Roth IRA, so if your employer offers it, you are good to contribute. As found in a CNBC article and depicted in the chart below, “roughly 86% of 401(k) plans offered a Roth account in 2020, up from 75% in 2019, according to the Plan Sponsor Council of America.”

As this option is becoming more popular and if your employer’s 401(k) includes a Roth option, how do you decide between the two? Typically when deciding between whether to contribute to a Roth and Pre-tax 401(k), you will compare your current tax bracket with what you think it will be in retirement, which will depend on your taxable income and tax rates in retirement. So, if you plan on making more money in retirement or think you will fall in a higher tax bracket than you are currently in now, you should highly consider contributing to a Roth to take advantage of that often sizable tax break. However, if the opposite is true, and your tax bracket will likely be lower in retirement, consider contributing to a traditional 401(k). Keep in mind that if you are unsure or are interested in both, you can contribute to both the Roth and the Pre-Tax. 

Considering Roth options when deciding on your 401(k) and IRA contributions can often be confusing or stressful, yet very important. However, for those wanting to contribute to an Roth, but don’t have the option within their 401(k)s, keep in mind that Roth IRA’s have income limits which can limit your eligibility when you are past a certain income level. Check out this article from the IRS to see if your income qualifies you to contribute to a Roth IRA. For a mathematical breakdown and example between the two, check out our other blog we wrote a few months back. To discuss which route makes the most sense for your retirement savings, send us an email at info@shermanwealth.com or schedule a complimentary 30-minute consultation here. Also, make sure you check with your CPA or tax professional when making this decision to ensure you are fully protected. 

Retirement Inflation-Adjustments for 2022

Happy November everyone! New retirement inflation-adjustments for 2022 have been released, and we want to provide you with a quick breakdown. Business owners and employees, this one applies to you, so don’t miss it.

See Below For Retirement Inflation-Adjustments for 2022

  • IRA/Roth IRA contribution: $6,000 (no change)
  • 401k/403(b)/457 deferral: $20,500 ($1,000 increase)
  • 401k/403b/457 catch-up: $6,500 (no change)
  • SEP IRA/PSP: $61,000 ($3,000 increase)
  • SIMPLE deferral: $14,000 ($500 increase)
  • SIMPLE catch-up: $3,000 (no change)
  • Also boosted for 2022: The income ranges for determining eligibility to make deductible contributions to traditional IRAs, Roth IRAs.
  • IRS also issued technical guidance regarding all of the cost of living adjustments

If you have any questions on how these adjustments apply to your financial situation, email us at info@shermanwealth.com.