4 Tips To Make Your Money Work Harder - Lancaster Chamber of Commerce
4 Tips To Make Your Money Work Harder
Business Resources, Chamber Updates, Local Stories, Member contributions

by Holly White, Marketing and Communications Manager and Angie M. Stephenson, CFP®, CPA/PFS, Partner | Senior Wealth Advisor | COO at Domani Wealth

As business leaders in Lancaster County, we know the value of hard work. It would be great if we could get our money to work just as hard as we do!

Following best practices both in our companies and in our personal finances is something county leaders are known for, but that doesn’t mean we don’t face the challenges of this fiscal environment with rising interest rates, wage pressures, and an uncertain economy. Following smart savings steps can make a difference.

Don’t Limit Yourself

We all want to have an enjoyable retirement someday, and its always good to remember that the IRS increases limits each year on what annual contributions you can maximize. Check out these numbers and update your practices if you can:

· Employee 401(k) contributions for 2023 increased by $2,000 to $22,500. For participants ages 50 or older, the additional catch-up contribution limit rose to $7,500.

· Employee SIMPLE IRA contributions for 2023 increased by $1,500 to $15,500.

· Roth and traditional IRA maximum contributions for 2023 are $6,500, or $7,500 if you are age 50 or older.

A Back Door Contribution

There is a strategy commonly referred to as a “Back-Door Roth IRA” which opens the opportunity for Roth after-tax savings to those who ordinarily were phased out from making such contributions due to their high income.

With a conversion, you can move money out of a traditional IRA, pay taxes on funds at ordinary federal and state rates, and move it into the Roth where it will be invested and grow tax-free. The main restriction to this is the aggregation rule, which the IRS uses to calculate the taxable amount of the conversion. Income tax has to be calculated for the conversion by aggregating all of the individual’s IRAs, which means that having large pre-tax IRA funds (those not in a retirement plan) can diminish the tax benefits of this strategy.

A Hard-Working Account

There is a way to defer even more pre-tax dollars each year. A Health Savings Account, an account that employees who are enrolled in a high-deductible health plan may have access to through their employer. Employees can contribute to these accounts on a pre-tax basis, with contribution limits ranging from $3,850 for a single individual to $7,750 for someone on a family plan, and an additional $1,000 catch-up contribution for those older than 55. Many employers will also seed an HSA with some company contributions each year. The funds contributed do not expire at year-end, and can keep growing over time to provide for future medical expenses (what the funds are limited to use for).

What’s the Plan?

While many of us save for retirement, knowing what our financial goals are and making sure we’re on track to meet them can give us more peace of mind. Having a detailed financial plan in place that analyzes assets and liabilities, current and projected savings, retirement income goals, tax implications, and risk factors can help make sure you’re on the right track.

not secure