By Theresa Cagle Fry, Senior Vice President and Manager, IRAs, Retirement & Education Planning
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One minute you are graduating, excited about a new job and prospects for the future. Then, in what seems to be a blink of an eye, you are looking at the sunset of your career and the prospect of retirement becomes more than just an abstract concept.
According to the Employee Benefits Research Institute’s 2023 Retirement Confidence Survey (ebri.org), 75% of retirees are at least somewhat confident that they will have enough money to live comfortably throughout retirement. Workers, however, are far less confident. Among those who do not feel confident, four in 10 workers and a quarter of retirees state it is due to having little to no savings.
But here is some good news: retirement savings opportunities are more flexible than ever before. Whether saving through a workplace retirement plan or on your own, tax-advantaged retirement accounts provide opportunities to save with pre-tax dollars or after-tax dollars, provide tax-deferred earnings on your investments, and depending on the type of savings account you use, may provide taxable or tax-free retirement income.
Here’s a quick review of what may be available to you and how much you can potentially save each year:
Workplace Retirement Plans – There are many types of workplace retirement savings plans, some of which are funded only by the employer, only by employees, and others in which both the employer and employee make contributions. Plans funded by both the employer and employee have become a popular plan design in recent years, including:
401(k), 403(b) or governmental 457(b) plans. Eligible employees can defer up to $23,000 in 2024 from their salary. Participants aged 50 or older can make catch up contributions up to $7,500, bringing the total salary deferral amount up to $30,500. Depending on the employer, salary deferrals may be pre-tax or Roth (after tax). Some plans also permit employees to make additional voluntary after-tax contributions. Employers may also match a portion of the employee’s contributions (although, they may not be required to) or make other discretionary contributions to the plan, to pre-tax or designated Roth accounts, based on the terms of the plan.
SIMPLE IRAs. Eligible employees can defer up to $16,000 in 2024 from their salary. Catch-up contributions for individuals aged 50 or older are available up to $3,500, bringing the total for salary deferrals to $20,500. Depending on the employer, salary deferrals may be pre-tax or Roth. Employers must make either a matching or non-elective contribution for eligible participants, which can also be made pre-tax or Roth depending on the terms of the plan. Also, beginning this year, certain plans can offer enhanced employee salary deferrals, increasing the amount from $16,000 to $17,600.
Individual Retirement Savings Accounts – In addition to workplace retirement plans, individual retirement accounts or IRAs are also available to help you save for retirement.
Traditional IRAs. Anyone who has earned income (or, if married, has a spouse with earned income) can contribute up to $7,000 in 2024 or 100% of their earned income, whichever is less. An additional $1,000 catch-up contribution is available for individuals aged 50 or older, bringing the total to $8,000. Contributions to a traditional IRA may or may not be tax-deductible depending on your tax filing status, whether you (or your spouse, if married) are covered by a workplace retirement plan and your modified adjusted gross income. Contributions made to a traditional IRA must be combined with contributions to a Roth IRA when applying the annual limit.
Roth IRAs. If you have earned income (or, if married, your spouse has earned income) and your modified adjusted gross income falls within IRS limits, you can contribute up to $7,000 in 2024 or 100% of earned income, whichever is less, to a Roth IRA. An additional $1,000 catch-up contribution is available for individuals aged 50 or older, bringing the total to $8,000. Contributions to a Roth IRA are never tax-deductible and must be combined with contributions to a traditional IRA when applying the annual limit.
New retirement savings features will be coming in 2025. Here some changes to look forward to:
Auto-enrollment. For employers with 10 or more employees who established a retirement plan after 2022, newly hired employees in 2025 will be automatically enrolled in the plan to begin their retirement savings. Salary deferral contributions will start at 3% and, at the discretion of the employer, will be increased by 1% per year until the deferral rate reaches 10%. Although automatically opted in to the plan, employees can stop deferrals at any time.
Additional Catch-up Contributions. For individuals participating in workplace retirement plans, additional catch-up contributions for participants aged 60-63 will be available.
If you want to be more confident, take the time now to figure out what retirement looks like for you and what savings plans you should take advantage of. If you would like help in determining how ready you are for retirement, talk with a financial advisor about developing a plan that takes into consideration your goals and objectives.
IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.