We are approaching the end of Q1 2024. This is a good time to audit how you are tracking against retirement saving opportunities.
[TIME SENSITIVE] 2023 IRA Contribution Limit: $6,500
If you have a Roth IRA, you have until the tax deadline, or April 15, 2024, to make contributions for the 2023 tax year.
Catch-up: $1,000 (incremental to the $6,500 limit)
If you’ll reach age of 50 or older during the calendar year, you are eligible to make the additional catch-up contribution.
The exact amount you can sock away may be reduced, depending on your income. Roth IRA contribution limits to see what your contribution eligibility is.
In case you are limited (partially or entirely) in your ability to directly contribute to a Roth IRA, you would need to execute a Backdoor Roth IRA transaction.
2024 Pre-tax / Roth 401(k) Contribution Limit: $23,000
Common principle within personal finance education circles being to opt for pre-tax, as detailed in the 101 materials. The Roth 401(k) case isn’t that strong even for folks in the 24% highest marginal federal tax bracket living in an income tax-free state (e.g. WA, TX, FL).
Catch-up: $7,500 (incremental to the $23,000 limit)
If you’ll reach age of 50 or older during the calendar year, you are eligible to make the additional catch-up contribution.
2024 After-tax 401(k) Contribution Limit: Varies by company (e.g. ~$34.5k for a certain FAANG company)
If your company offers after-tax 401(k) contributions to facilitate the Mega Backdoor Roth, ideal to take advantage as another way to bolster retirement savings.
Given future tax environment decades down the road is uncertain, good to augment pre-tax 401(k) funds with Roth funds to diversify the type of retirement assets you’re building.
Roth IRAs carry certain benefits of not being susceptible to RMDs (required mandatory distributions) for the primary owner and ability to be more tax-effectively bequeathed to your chosen beneficiaries.
Note: A Roth IRA’s beneficiaries generally will need to take RMDs to avoid penalties, although there is an exception for spouses.
2024 IRA Contribution Limit: $7,000
Catch-up: $1,000 (incremental to the $8,000 limit)
If you’ll reach age of 50 or older during the calendar year, you are eligible to make the additional catch-up contribution.
The exact amount you can sock away may be reduced, depending on your income. Roth IRA contribution limits to see what your contribution eligibility is.
In case you are limited (partially or entirely) in your ability to directly contribute to a Roth IRA, you would need to execute a Backdoor Roth IRA transaction.
In recap, take advantage of time sensitive (deadline: April 15th, 2024) contribution towards your 2023 IRA contribution limit (if you haven’t already taken care of it, as you’ve been eligible since January 2023). Then keep an eye on how you’re progressing against your 2024 contributions across various channels (pre-tax 401(k), after-tax 401(k) > Mega Backdoor Roth, IRA > Backdoor Roth).
You can see your 2024 pre-tax 401(k) contribution and after-tax 401(k) contribution progress in your paystubs and in your 401(k) manager website (e.g. Net Benefits, Fidelity, Vanguard, Schwab, etc.)
101 Level
[Meta employees only] Company 401k Investment Options Walk-Thru
For other companies, feel free to reach out to uspersonalfinance@gmail.com for options on getting educational guidance
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Advanced Level
Before diving into advanced topics, there are several prerequisite priorities:
6-month rainy day fund
Higher-interest debt pay-down (i.e. all non-home debt, so mainly car, student and credit)
Any money tied in the near term to a home down payment, children's education and family health SHOULD NOT (in my humble opinion) be invested into a retirement account (401(k) or IRA, due to $$, for the most part, being locked up till retirement) or, more generally, into the stock market. This money is best suited to be parked in a high-yield savings account or CD. The stock market, historically, only provides stable return over medium terms and beyond. Any money invested in the stock market, you should plan to keep invested for at least 5 years (and, ideally, 10 years). During the 2008-09 crisis, the market required ~6 years to fully recover. See attached graphic!