This is the time of year that a lot of folks begin to dig into their plans for finalizing some of their 2020 contributions and sorting out what – and how much – they can plan on contributing in the New Year.
There is some news – that might be seen as good OR bad.
For starters, contribution limits are remaining the same for next year virtually across the board.
Employees who are using 401(k)s, 403(b)s, most 457 plans, and the federal government’s Thrift Savings Plan will be able to contribute up to $19,500 to those plans during the year. That is the same contribution limit in place for 2020.
Roth and traditional IRAs also stay the same, at $6,000 annually.
I know, I know, “So how is that good news?”
Well, for starters, those limits did not go down, but more importantly, the deduction phase-out for your contributions are all going up.
So, while you might not get to “save” anymore, you will qualify for the tax credits when your income increases in 2021.
Now, you might think that, as hard as 2020 has been, 2021 might be challenging, and there is no way to know until we get there. The bigger point is this: right now, if you do not have a plan to maximize your contributions, you are losing money.
I want to make sure that doesn’t happen. How?
Simple! You get a plan in place! The secret is to approach your personal finances the same way your company might approach its operational costs – with a budget. I discuss this sort of thing all the time with clients who are getting close to retirement, and it is almost the same thing. Think about it: you know how much your car payment is, your mortgage, your various bills, and your subscription services for television each month AND you know what your paycheck is. From there, you can – and should – be able to deduce how much you CAN save every year.
Do you “have” to save it all? No, not if you don’t want to. You can budget your family vacation in there, or a weeklong getaway with your spouse, even season tickets for your home team.
None of that matters! What is most important is that you create a plan to save and you use the tax breaks we currently have in place to maximize the value of every dollar you save.
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