Maximize Your Savings Strategy

As we approach the end of the year, now’s the perfect time to evaluate your savings strategy. Whether you’ve been consistently contributing or still have room to make a few final deposits, year-end is an ideal time to maximize your accounts. It’s also a great opportunity to set a solid plan for the upcoming year.

For 2024, consider ramping up your contributions to fully maximize tax-advantaged accounts before the calendar year closes. For example, many 401(k) plans allow you to increase contributions to a high percentage in December to shovel more into your retirement savings. This can be a strategic move if you haven’t yet hit the annual limit. There are accounts like HSAs and IRAs that give you the option to contribute until the tax filing deadline, providing a bit of extra flexibility. But if you’re aiming to get ahead on next year’s savings goals, contributing any extra funds in your checking account now will give you a strong start in 2025.

Starting in 2025, retirement contribution limits are increasing, allowing many people to save even more on a tax-deferred basis:

• 401(k) Plan Contributions: The limit rises to $23,500, with an additional catch-up of $7,500 for those born before 1976. For individuals ages 60-63, SECURE 2.0 introduces an even higher catch-up amount of $11,250.
• HSAs: The contribution limits for HSAs increase in 2025, allowing you to set aside up to $4,150 for self-only coverage and $8,300 for family coverage. For individuals 55 and older, a catch-up contribution of $1,000 is still allowed. HSAs provide triple tax benefits: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free. HSA funds can be invested in equities. HSA funds that are not needed for qualified medical expenses can be withdrawn after age 65, although you will pay ordinary income taxes on it, similar to a traditional IRA withdrawal.
• Traditional and Roth IRAs: The contribution cap remains $7,000, with a $1,000 catch-up for those over 50. Roth IRA income limits are rising as well, phasing out at $236,000-$246,000 for couples and $150,000-$165,000 for singles and heads of household.

One of the best ways to maximize your retirement savings is through automatic monthly contributions. By setting aside a set amount each month, you’re essentially “paying your future self” before covering other expenses. This disciplined, automatic approach smooths out market fluctuations and consistently builds toward your long-term goals through dollar-cost averaging.

Layering your savings across various types of accounts can provide you with the best return and tax advantages. Here’s a priority list to consider:

1. Max Out Employer 401(k) Matching: If your employer offers a match, contribute enough to capture the full amount. This “free” money is one of the best returns you can get.
2. Investable Savings Accounts: Accounts like Health Savings Accounts (HSAs) and 529 education savings plans offer tax benefits and flexibility, making them powerful tools for a balanced financial strategy.
3. Non-matched 401(k) and IRA Savings: Go back to contribute the rest needed to reach the maximum for your 401(k). Additionally, make your annual Traditional IRA or Roth IRA contributions if your income is within the phase-out.
4. Brokerage (Taxable) Savings: Brokerage accounts provide ultimate flexibility for short-to-medium term financial needs as well as retirement investment savings. Though taxable, they’re an excellent addition for funding goals outside of retirement.

As the year wraps up, take a moment to evaluate your contributions, assess the progress you’ve made, and make any needed adjustments for an even stronger financial future. Even small tweaks to your contribution strategy now can lead to significant gains down the road. Remember this line from Warren Buffett: “Do not save what is left after spending, but spend what is left after saving.” By putting your future first, you’re setting yourself up for financial security and freedom. Happy saving!