💥 Catch-up contributions can be a great way to make up for lost time when it comes to retirement savings. Are you eligible? 💥
Here’s what you should know to take advantage of this potentially valuable opportunity presented by Laurence Hale, AAMS®, CRPS® on the latest #YouandYourMoney podcast.
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Welcome to You and Your Money. Empowering you to reach your goals with tips to help you Plan Well, Invest Well and Live Well. Today's episode features Laurence Hale, principal, managing partner and chief investment officer at Weiss, Hale and Zahansky Strategic Wealth Advisors. Now on to today's topic. It’s You and Your Money, sponsored by Weiss, Hale and Zahansky Strategic Wealth Advisors. Look who's here. Laurence Hale, principal, managing partner and chief Investment officer at Weiss, Hale and Zahanskyy Strategic Wealth Advisors. Welcome back to the show, Laurence. Always great to be here, Gary. All right. In today's episode, we'll be talking about Roth catch up contributions and how recent changes could change the game for your retirement plans. Let's start by understanding the basics. What exactly are a catch up contributions and what are the limits associated with them? But we're not talking about “catsup” you find in the grocery store for sure. Good. Thanks for that. Catch up contributions are additional contributions that individuals who are over the age of 50 can make to retirement accounts on top of the standard contribution limit. So for IRAs, I think both traditional and Roth combined, the standard limit for this year for 2023 is $6500. But those who are over 50 can contribute to an extra $1000. So that makes the total limit up to $7500 in the case of Roth. Traditional and Roth 401k is the standard limit to contribute in this year is $22,500, with an additional$7500 allowed for catch up contribution. So a total of $73000. All right. That's good information, obviously, especially for those considering retirement soon. Now, could you explain what a Roth retirement account is and why that's an attractive option? Absolutely, Gary. So a Roth retirement account is a type of retirement account where contributions are made on an after tax basis, meaning that you don't get an immediate tax deduction like you do with traditional contributions. However, the good thing is withdrawals from a Roth account and retirement are typically tax free, making it a really appealing choice for those expecting to be in a higher tax bracket during retirement or seeking tax free income in their retirement years. All right. Move on to recent changes in rules regarding catch up contributions. Tell us about the Secure 2.0 Act and its impact on catch up contributions, especially for higher earning households. Well, you know, we all love government rules and they passed one at the very end of 2022, which was called the Secure 2.0 Act. And one of the provisions in that brought changes to how catch up contributions function for higher earners. I think if you're earning over $145,000 in the previous tax year, this impacted you. So the rule specified that those earning that over that $145,000 in the previous tax year must make all catch up contributions on a Roth basis. So that means they're forgoing the tax break in the current year on those dollars. However, a recent development postpone the requirement until 2026, providing an opportunity to maximize contributions with pretax dollars over the next few years for those higher earners. All right. So the delay in the Roth catch up contribution seems like a significant opportunity. Can you elaborate on how individuals can benefit from that postponement? Yeah, definitely, Gary. The delay does allow eligible individuals to contribute their retirement plans with pretax dollars for a couple more years. So this means they're potentially resulting in a larger nest egg that they can rely on due to compound interest and favorable long term market performance and still get that pretax that that upfront tax benefit for those who are on the younger side of the catch up contribution age requirement. This could have a substantial impact on the retirement savings over time. So as we approach a retirement, obviously it's crucial to understand how much to contribute and the implications of different tax strategies. How can working with a financial advisor like those at Weiss, Hale and Zahansky help individuals navigate to all these big decisions? Well, as we know, you know, things change and the government can pass down rules such as the Secure 2.0 Act. That does have some real implications on your ability to save and how you can plan most effectively. So working with a qualified financial advisor can provide an invaluable guidance and understanding that optimal contribution strategy and the tax implications based on your individual circumstances. And our team over at WHZ Wealth uses our Plan Well, Invest Well, Live Well process to help clients create a strategic retirement plan. We take a personalized approach to ensure that individuals can make informed decisions that align to their financial goals and their aspirations. All right. Good stuff today. Thank you, Laurence, for shedding light on this important topic and how it could impact our listeners retirement plans if you'd like to learn more about maximizing your retirement savings or if you need assistance in planning your financial future, you can request a complimentary consultation on the Weiss, Hale and Zahansky website, whzwealth.com or call them at 860-928-2341. Hey, Laurence, good job today. Thank you. Thanks so much, Gary. That's it for today. Thanks for listening to You and Your Money. Find even more episodes, videos and other resources at our web site whzwealth.com. Be sure to come back next week for more tips to help you live fearlessy and pursue your financial and life goals. Until then, live well. Weiss, Hale and Zahansky Strategic Wealth Advisors offer securities and advisory services through Commonwealth Financial Network member FINRA/SIPC, a registered investment advisor. Fixed insurance products and services offered through CES Insurance Agency. They practice at 697 Pomfret Street, Pomfret Center, Connecticut, 06259 and can be reached at 860-928-2341. Weiss, Hale and Zahansky Strategic Wealth advisors do not provide legal or tax advice. The tenured financial services team strive to support clients in achieving their financial life goals. For more information regarding wealth management and customize financial planning with Weiss, Hale and Zahansky Strategic Wealth Advisors, please visit. www.whzwealth.com.