Before the year wraps up, we suggest taking the time to assess the potential benefits of increasing your retirement account contributions and satisfying your RMD obligations. Now is an excellent opportunity to strengthen your retirement accounts and ensure you're optimally positioned for the future. Consider enhancing your retirement savings plans, and, if applicable, fulfilling your RMDs.
What proactive steps can you take with your retirement accounts before 2025?
401(k) Contributions:
Until December 31, individuals under 50 can contribute up to $23,000 for the 2024 tax year (updated for 2024 limits). If you're 50 or older by year-end, the limit increases to $30,500. For IRAs, the contribution deadline extends until the April 2025 tax-return filing, with a maximum of $6,750 or $7,750 if you're 50 or older (updated IRA contribution limits).
Self-Employed Options:
If you're self-employed, explore the potential to contribute even more to your retirement account. Sole proprietors can make employee contributions to their solo 401(k) until the April 2025 tax-filing deadline. The total contribution limit is $68,000 (or $75,500 if you're 50 or older) for 2024 (updated for 2024 limits). SEP IRA contributions, capped at $68,000 for 2024, can also be established and funded until the April 2025 tax-filing deadline.
Required Minimum Distributions (RMDs):
If you turned 73 in 2024, the deadline for your first RMD from traditional IRAs and 401(k) plans is April 1, 2025. Otherwise, this year's RMD must be taken by December 31, 2024. Be mindful that delaying the first distribution until 2025 results in two RMDs that year, potentially impacting your tax bracket. (Updated age and year for RMDs.)
SECURE Act 2.0 Changes:
The recent SECURE Act 2.0, implemented in late 2022, reduced the penalty for missed RMDs. While the penalty is lowered to 25% (or 10% if corrected promptly), it remains a significant portion of your retirement savings. Accurate calculation is crucial, and your plan provider or IRS worksheets can assist in determining your RMD based on your year-end account balance and life-expectancy factors.
Taking these proactive steps now will not only fortify your retirement plans but also position you for more financial success in the future!
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