We had great news on the employment front this week. The economy continues to grow and the jobless rate dropped to 4.1%. The bad news is that continued higher-than-average inflation and a robust economy means rate cuts are looking less likely. This translated into a down week for the market, as the major indexes are currently led by technology companies, which benefit from lower interest rates.
With a new year ahead of us, the IRS has released contribution limits for retirement plans. For most employer-sponsored plans, including 401(k)s, 403(b)s, and TSP, you can now contribute up to $23,500. If you are 50 or over, you have an additional $11,250 catch-up contribution. This is not a separate contribution; it means that if you are 50 or over, you can contribute a total of $34,750.
IRA contribution limits remain at $7,000 for anyone under 50, and $8,000 for those over. If you’re not able to contribute the maximum to your accounts, consider increasing by 1%. Over time, that can make a big difference at retirement.
Another great time to increase retirement plan or savings contributions is when you receive a raise. Any time your salary goes up, split the increase between spending and saving.
The IRS did postpone another provision of the Secure 2.0 Act. Originally starting this month, but delayed until January of 2026, is that for anyone making $145,000 or more, catch-up contributions must be made to Roth accounts within the retirement plan. Next year, this can have a larger impact on your tax-home pay, as you will need to pay taxes on the catch-up portion of your contributions.
Another change in limits is for Health Savings Accounts. If you have a High Deductible Health Plan, you can also fund a Health Savings Account. These accounts are triple tax-preferred: contributions are tax-deductible, growth is tax-deferred, and distributions for medical expenses are tax-free. For an individual, you can contribute $4,300 in 2025, or $8,500 for couples or a family. If you are 55 or older, you can contribute an additional $1,000 annually.
Your action item this week is for anyone turning 50. The pneumonia vaccine was previously recommended for ages 65 and up, but is now available at 50.
Our signature education event, Women, Wine & Wisdom, goes co-ed for January with a market update. Check out our website at covingtonalsina.com, or our Facebook page, for more information and to register for this and our other upcoming educational events.
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