Broker Check

Monday Morning Report

| January 23, 2023
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The market was down last week as investors are still weighing economic data and wondering what track the Federal Reserve Bank will take with future interest rate increases. Inflation metrics, while declining, remain well above the Fed’s target of 2%.

Higher inflation also meant the limits on retirement contributions increased for 2023. If you’re under age 50, you can add $22,500 to your employer-sponsored plan.  If you’re 50 or older, you can save $30,000. These limits are the total employee contributions to all retirement accounts.  If you work two jobs, you are subject to the same total limit. 

It's important not to confuse a Roth option inside your employer-sponsored plan with a Roth IRA. You have a total limit of $22,500 if you’re under 50 and can contribute that to either the Roth or Traditional option, regardless of income.   It doesn’t matter which option you contribute to when it comes to your employer’s match.  It’s the contribution amount that matters, not how it is taxed or invested, when your employer is matching.

The recent legislation referred to as “Secure 2.0” also allows participants to allocate the employer match as Roth or Traditional.[1]  Not all plans have been amended to reflect this option, and you’ll have to pay income taxes on the Roth employer contributions. This is a big change, so be sure to discuss it with your financial and tax advisors.

If you’re wondering how much to save, a very general guideline is aiming for ten times your salary at age 67. Depending on how aggressive your investments are, the debt you carry, and the lifestyle you want in retirement, a very broad gauge of success would be to have retirement savings of one times your salary by age 30, four times your salary by age 45, and six times your salary by age 50.

Another way to look at it is by percentage of income. Ideally, you should save 10-15% of your income, including your employer’s match. This may change over time, as your family grows, you take on a mortgage, you pay off debt, or receive a promotion.  Given the power of compounding, the more you can save when you’re young, the further ahead you are.

And while it doesn’t feel very good, buying into the market right now is a wonderful thing. You have an opportunity to invest at a 20% discount.  Remember that the focus when you are accumulating wealth is on how many shares you buy.  Take advantage of the market downturn to buy as many shares as possible.

Your action item this week is to check your Homestead Tax Credit. If you own a home, you need to let the state know when it’s your primary residence. Once your tax credit is approved, the rate at which your home’s assessed value increases is limited. In the City of Annapolis, your assessed value can grow up to 10% a year.  In Anne Arundel County, that growth is limited to 2%.

Join us tonight for our Social Security webinar.  And follow us on Facebook and check out our website at covingtonalsina.com for other educational events.

Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. 

The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, contact the appropriate qualified professional prior to making a decision.


[1]https://www.bdo.com/insights/tax/secure-2-0-act-of-2022-introduces-key-changes-for-workplace-retirement-plans#:~:text=Effective%20December%2029%2C%202022%2C%20employers,income%20for%20the%20year%20made.

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