Many view the start of a new year as a time to make changes in their lives. This can include getting more organized, paying off debt, or creating a new budget. It's also a great time to review your retirement strategy or develop a savings plan if you haven't already started.
One of the first things you'll need to do is decide which retirement account(s) you want to use. Here are three of your best options going into 2024.
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1. 401(k)
A 401(k) is a great place to start if you qualify for a 401(k) match. This is free money your employer gives you for contributing to your retirement account. If you qualify for one, claiming it should be your top priority going into 2024.
Talk to your employer if you're unsure how its company matching formula works. Typically, you get $1 or $0.50 for every dollar you put into your retirement account, up to a certain percentage of your income. Once you know this, work out how much you must set aside each pay period in order to claim the full match. Try to set aside at least this much in 2024.
If your company doesn't offer a match, a 401(k) can still be a great home for your savings if its fees aren't too high and it offers investment options you like. You can contribute up to $23,000 to a 401(k) if you're under 50 in 2024 or $30,500 if you're 50 or older. So this is a strong contender for those who want to set aside large sums for retirement.
2. IRA
IRAs are great options for those who don't have access to a 401(k) through their employer. They're also good fits for those who want more freedom to invest how they want, rather than being limited to a number of funds their employer selects.
IRAs have lower contribution limits -- just $7,000 in 2024 for adults under 50 and $8,000 for adults 50 and older. But you're free to invest in just about anything, and this gives you a lot more control over how much you're paying in fees.
You can also choose when you want to pay taxes on your savings. Traditional IRAs give you a tax break in the year you make your contributions, but you pay taxes on your withdrawals in retirement. This could be a good fit for those who anticipate being in a lower tax bracket in retirement. If this isn't the case for you, consider a Roth IRA. You'll pay taxes on your contributions upfront, but you'll get tax-free withdrawals in retirement.
3. Health savings account (HSA)
A health savings account (HSA) isn't actually a retirement account, but you can use it that way if you'd like. Contributions to these accounts reduce your taxable income for the year just like 401(k) and traditional IRA contributions. But as a bonus, you also get tax-free medical withdrawals at any age.
Only those with individual health insurance plans with a deductible of $1,600 or more or family plans with a deductible of $3,200 or more are eligible to contribute to an HSA this year. They can set aside up to $4,150 with a qualifying individual plan or $8,300 with a qualifying family plan. And those 55 and older can add $1,000 more to these limits.
If you plan to use this money for retirement savings, avoid medical withdrawals if possible. Save up for this in a savings account instead. You should also think about investing your savings to help that money go further.
You can use more than one
You're free to combine two or more of the retirement accounts above together if this suits you better. For example, you might save in a 401(k) until you've claimed your full match. Then, you can switch to your IRA and if you max that out, move onto your HSA if you're eligible.
Just make sure you have some sort of strategy in place as we head into 2024. Without one, you run the risk of missing out on valuable savings opportunities, and that could set your retirement plan back a long way.
