It’s that time of year when most Americans make financial fitness a priority. According to a survey by USA Today, 88% of respondents said financial health impacts their overall happiness.1 The top priority for Americans (56% of respondents) heading into 2024 is to beef up their ‘rainy-day-fund, ’ followed by saving for retirement (53%) and saving for their child’s schooling (52%). With saving money being such a primary theme, we decided to offer some financial resolutions that can help in this pursuit.
Like any resolution, it will require some discipline to achieve your goals. According to a recent Edward Jones survey, only 22% of Americans made financial resolutions and stuck to them in 2023. In order to keep on track all year long, it helps to set goals that are specific. For example, if you want to contribute more to your 401(k) or IRA account, determine an exact amount such as 10% of income. It is also important to set attainable goals. Pie in the sky objectives will only lead to failure and disappointment at year-end. Finally, be persistent. If you are hit with curve balls during the year, try your best to deal with them and keep moving forward. And don’t be afraid to ask for help to either get back on track or to enforce accountability throughout the year!
1. Beef up your emergency fund
Plan to save a specific dollar amount or percentage of income every month, and make it part of your budget. Higher interest rates make 2024 a good year to pay yourself. With the right account, putting cash to work can result in something worthwhile.
2. Max out retirement accounts and employer matches
Set a monthly plan of investing a set number of dollars or percentage of earnings every month and stay with it, regardless of what is going on in the markets. If you have already been investing consistently, make arrangements to invest more in 2024, especially if you have an individual retirement account or 401(k) and are not already maxing out contributions. For 2024, there are new maximums for both pre-tax and Roth 401(k)s and IRAs. For 401(k)s, the maximum annual amount has increased to $23,000 per year with the catchup for those ages 50 or older remaining at $7,500. IRA contribution limits increased to $7,000 with the catchup for those ages 50 or older remaining at $1,000.
3. Start a 529 plan
Of families that are saving for their children’s college expenses, only 30% of savings are in tax-advantaged 529 accounts. As college tuition costs rise, it's especially important to save now with a 529 plan that is exempt from federal taxes. 529 plans offer federal tax-free growth if the account is used for qualified education expenses, which could include up to $10,000 of K-12 private school tuition as well as college tuition.
4. Consider opening or increasing contributions to an HSA
A health savings account (HSA) is a tax-advantaged medical savings account available to you if you enroll in a high-deductible health plan. Contributions are not subject to federal income tax. HSA funds roll over and accumulate year to year if they are not spent. Withdrawals for nonmedical expenses are treated similarly to those in an IRA in that they may provide tax advantages if taken after retirement age, and they incur penalties if taken earlier. The maximum annual contributions this year are $4,150 for individuals and $8,300 for families, plus an additional $1,000 for those 55 years of age and older.
With an economic recession, inflation and high interest rates on the minds of many entering 2024, resolutions centered on saving more this year could provide greater peace of mind. Almost 88% of respondents to the USA Today poll said their financial health impacts their overall happiness. The study also suggests that Americans rate financial health goals as more important than both physical and mental health.
If done properly, much of what you save can be done on a tax-advantaged basis. Maxing out contributions to eligible 401(k)s, 403(b)s, IRAs, HSAs, FSAs and 529s can reduce taxable income and allow you to grow your savings tax-deferred or tax-free. Paying taxes to the IRS unnecessarily can have the same effect as reckless spending. Protect the wealth you are building by developing a wise savings approach that considers not only how much you are saving, but also where you are saving.
If you would like to comment or have any questions on how you can save more in 2024, we’d love to hear from you.
Thanks for reading.
This material has been provided for general, informational purposes only, represents only a summary of the topics discussed, and is not suitable for everyone. The information contained herein should not be construed as personalized investment advice or recommendations. Rather, they simply reflect the opinions and views of the author. D. B. Root & Company, LLC. does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice that is specific to your situation. There can be no assurance that any particular strategy or investment will prove profitable. This document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such sources, and take no responsibility therefore. This document contains certain forward-looking statements signaled by words such as "anticipate," "expect", or "believe" that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements. As such, there is no guarantee that the expectations, beliefs, views and opinions expressed in this document will come to pass. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. All investment strategies have the potential for profit or loss. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. The impact of the outbreak of COVID-19 on the economy is highly uncertain. Valuations and economic data may change more rapidly and significantly than under standard market conditions. COVID-19 has and will continue based on economic forecasts to have a material impact on the US and global economy for an unknown period.
Chief Planning Officer
Nancy I. Kunz
CFP®, CPFA®, ChFC®, CLU®