How saving for retirement is changing in 2024

Retirement account rules and contribution limits get adjusted in the new year.

By Kerry Hannon-Senior Columnist
Date: Decemeber 27th, 2023

Saving for retirement is getting a little easier in 2024 thanks to the phase-in of a handful of provisions stemming from the Secure 2.0 Act, which became law at the end of last year.

Here’s a roundup of some of the key retirement-related changes to watch out for in the new year and planning-related moves to consider.

New retirement saving reforms and rule changes

Employers will be able to consider student loan payments as qualifying contributions toward retirement-matching programs. That means if your employer provides a match to your 401(k) contributions and you are paying down your student loan, you could count your monthly student loan payments as your “contribution” to your employer-provided retirement account, even though your dough isn’t going in there.

Your employer’s match does, however, go into a retirement savings account. Provisions from the retirement law makes it possible for employers to earn a tax break on that type of match. The precise matching formula and whether the employer offers this depends on the employer.

There will be easier emergency access to retirement savings accounts. Ransacking retirement accounts to pay for unexpected financial shocks spiked in 2023 as inflation and interest rates stretched Americans’ budgets. This might help solve that for some folks. Starting in 2024, you may be able to pull up to $1,000 annually from a retirement account for specific emergency needs without owing the 10% early distribution penalty.

And if you agree to pay it back within three years, you might not face a tax bill on the sum either. That’s providing the withdrawal can be tagged to a personal or family emergency.

Domestic abuse victims under age 59½ can now take up to $10,000 from their IRAs or 401(k)s without paying the 10% penalty tax.

Employers also have the green light to offer their employees the option of putting money into an emergency fund that is paired with their retirement plan. Employees would be able to save up to $2,500 in an emergency fund. While this provision goes into effect on Jan. 1, it may take some time to get going.

“I don’t anticipate that getting much traction until a wide variety of administrative issues are worked out between plan sponsors, record keepers, policymakers, and regulators,” Emerson Sprick, senior economic analyst at the Bipartisan Policy Center, told Yahoo Finance.

Another critical measure effective in the new year authorizes “starter 401(k)s.”

“This is a simplified plan that employers can offer if they’re just getting started as a plan sponsor and that they can use off the shelf,” Sprick said. “These plans could really help expand retirement plan coverage in coming years, as they have the potential to drastically reduce administrative burden, especially on smaller employers.

“This question of access is really gaining momentum, as only around half of US workers have access to an employer-sponsored retirement savings plan,” he added.

And if you’re sitting on unused funds in 529 education accounts, take heart. Starting in 2024, you can roll those savings over tax-free to a Roth IRA. There are restrictions, of course. For instance, there’s a $35,000 lifetime cap, and rollover amounts cannot exceed the annual contribution limit for Roth IRAs. So, if you are under 50 and have $35,000 in unused 529 assets, you could roll over $7,000 per year (this contribution limit may change annually) over a five-year period. And the 529 account must have been open for more than 15 years.

Higher saver contribution limits

“The changes that retirees and those preparing for retirement can expect in 2024 are fairly standard,” Sprick said. “Contribution limits for retirement plans increased modestly.”

Workers who have a 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan can contribute up to $23,000 next year, up from the limit of $22,500 this year.

Those of you who are 50 and over can save an additional $7,500 catch-up contribution.

The contribution limit on individual retirement accounts (IRAs) will increase by $500 in 2024, from $6,500 to $7,000.

The IRA catch‑up contribution limit for individuals aged 50 and over was amended under the Secure 2.0 Act of 2022 to include an annual cost‑of‑living adjustment but remains $1,000 for 2024.

For 2024, IRA deductions for singles covered by a retirement plan at work aren’t allowed after their modified adjusted gross income (MAGI) hits $87,000 versus $83,000 in 2023. The deduction disappears for married couples filing jointly when their MAGI hits $136,000, up from $129,000 in 2022.

More people will be able to contribute to Roth IRA accounts too. In 2024, the income limit range will increase to between $146,000 and $161,000 for single individuals and heads of households, up from between $138,000 and $153,000 in 2023. For married couples filing jointly, the range increases to between $230,000 and $240,000.

Finally, the income limit for the Saver’s Credit, a nonrefundable tax credit worth up to $1,000 ($2,000 if married filing jointly) for taxpayers who contribute to a retirement account is $76,500 for married couples filing jointly, up from $73,000; $57,375 for heads of household, up from $54,750; and $38,250 for singles and married individuals filing separately, up from $36,500.

A key retirement tool gets sweeter

How much you can contribute to your health savings account is getting more generous. The new 2024 annual contribution limit announced by the IRS on health savings accounts, or HSAs, for individuals will be $4,150, a $300 uptick from 2023. For family coverage, the HSA contribution limit rises to $8,300, up $550.

“HSA contribution limit increases for 2024 are higher than what we’ve grown accustomed to in recent history because of above-average inflation in 2022 and 2023,” Jake Spiegel, research associate, health and wealth benefits, at the Employee Benefit Research Institute (EBRI), a nonprofit, nonpartisan organization, told Yahoo Finance.

While these accounts are not a substitute for a traditional retirement account, the larger contribution maximum can help boost retirement savings with the vehicle’s triple tax advantage. It’s the only account that lets you put money in on a tax-free basis, lets it build up tax-free, and lets it come out tax-free for qualified healthcare expenses.

A health savings account option is available if you’re enrolled in a high-deductible health care plan (HDHP). You can also open an account as a self-employed freelancer or business owner if you have a qualified HDHP. The IRS sets the parameters for these accounts annually.

“While an HSA is not explicitly a retirement savings vehicle, it’s a smart move to use it in that way, if possible,” Morningstar’s personal finance director Christine Benz, told Yahoo Finance.

“The idea would be to contribute to the HSA, invest the money, and use non-HSA funds to cover healthcare expenses. It’s pretty much a can’t miss from a tax standpoint.”

Forget ‘spend less’ or ‘save more.’ Make this your No. 1 financial resolution for 2024


By Jeanne Sahadi, CNN

Published 9:00 AM EST, Thu December 28, 2023

You may think that improving your financial life is simply a matter of taking unpleasant but necessary steps: Curb spending. Cut debt. Make more. Boost savings.

But, in real life, if your money resolutions for 2024 are just a long list of financial chores that you know you “should” have been doing but haven’t, you’re likely to ditch the plan by your third pot of coffee in January.

Here’s why: When it comes to managing our money, regardless of our net worth, there is usually a persistent gap for most of us: We know what we should do, but we struggle to actually do it.

“If you have the key fob to the gym, it doesn’t make you fit,” said Ashley Agnew, president of the Financial Therapy Association and director of relationship development at Centerpoint Advisors.

It’s hard to get motivated to do anything when you’re just doing it because you think you “should.” When it comes to improving your finances, staying motivated is much easier when you’ve honestly assessed what makes you feel content and secure in life and then figured out how to use your money to foster those feelings.

So make just one financial new year’s resolution for 2024: Figure out what financial well-being means for you. It will be a highly personal endeavor. Then pick one or two steps to improve it.

Here are seven ways you might define it and improve upon it in the new year:

1. Create a greater sense of ease

    Money helps mitigate uncertainty like emergencies, job loss, illness or premature death. Hence the desire for rainy day funds and insurance.

    How much you’ll need for either depends on your circumstance. To help figure out what is right for you, familiarize yourself with what your life today costs, so you know what baseline you’re working with, Agnew suggested.

    Beyond reviewing your monthly expenses (food, housing, utilities, health care, debt payments, subscriptions, etc.), map out when those and other anticipated expenses will arise. She recommends drawing a quadrant, and labeling each box with a season. In each season’s box, include your regular expenses plus special ones like birthdays, weddings and vacations, or scheduled expenditures like a roof replacement or tuition bill.

    Doing so will make it easier to see how much you’re really spending, what you can cut if need be and where you might be able to free up money to do something you’ve been avoiding but that might give you peace of mind. For instance, if you have young kids, you might make 2024 the year you buy a low-cost life insurance policy so you know you’ll be able to provide for your family when you’re gone.

    No one wants to think about their own death, but avoiding the issue just makes things harder on your family. “Avoidance will prevent you from taking a deep breath. You can avoid the action but you can’t bury something completely when it comes to money,” Agnew said.

    2. Spend in ways that are true to who you are, not others’ expectations

      Beyond creating a greater sense of security, financial well-being is about using your money as you wish.

      So look at where your money goes. Does it reflect what you really want? Or do you spend some of it living up to the standards and expectations set by your parents or society? For example, maybe you got a bigger, more expensive home than you feel you need or you feel an unspoken pressure to buy more expensive brands. Or maybe you spend too much on your children in ways that aren’t really that meaningful to either of you, or which your adult children take for granted.

      “We live in a world of comparison. It can be difficult to live up to someone else’s financial standards,” Agnew said.

      3. Buy yourself time

        Financial well-being is also about reallocating the money you have in ways that serve you better.

        “Sometimes it isn’t about adding more. It’s about subtracting. Sometimes it can be, ‘How can I spend my money to do less?’” said Meghaan Lurtz, learning and development specialist at Shaping Wealth, which trains financial professionals to help their clients achieve “funded contentment.”

        Lurtz is referring to the fact that time is everyone’s most limited resource. You can use money to buy a little time back if it lets you focus on what is most important to you.

        Take house chores and cooking. If they eat up most of your free time outside of work and take you away from being fully present with your young kids at key times of the day, you might consider spending money on a meal plan or hiring a house cleaner to help out once in a while.

        4. Express your values

          Financial well-being also results when you use your money to express your values in the world through charitable donations or providing a meaningful gift for someone in need — e.g., help with tuition or paying off a medical bill or student loan, etc. Or it can simply be having the capacity to volunteer your time.

          It’s not necessary to be a multi-millionaire in any of these regards. “People can be wealthy in that they live within their means and live within their values,” Lurtz said.

          5. Don’t confuse what you buy with joy

            Money is a tool that can free you from the distress of always having to choose between paying for groceries or paying the electric bill. But beyond allowing you to afford life’s basic necessities, it’s not a magic wand that can buy you deep-in-your-bones happiness.

            That’s worth remembering the next time you’re thinking about buying something that was marketed to evoke feelings of a beautiful home, a perfect family or a sense of being on top of the world. Ask yourself, “Is it the thing you want or the feeling from the thing you want?” Agnew said.

            6. Focus on what brings you contentment

              Take time to envision what would make you feel more content in your life overall because ultimately money should serve you in achieving that vision.

              “What do you enjoy? What did you like doing as a kid that you don’t do now? Everyone has their own picture of contentment. Get in touch with what you want your picture to be,” Lurtz suggested.

              Be specific, she said. Envision what would be happening, where you are, how you are spending your time, who is with you and how you feel.

              Compare that vision with where you are today. Then come up with a couple of small, achievable goals to move you closer to that vision. For instance, if you used to love playing the piano or painting when you were younger, it might mean committing time to doing that and maybe even some money for lessons. Or if you miss spending time with old friends who live far away, it may mean setting aside some money to travel to see them.

              7. Figure out your relationship with money

                There are plenty of other ways to define financial well-being for yourself. And you can help keep your new year’s resolution by simply reading a book that helps you think differently about money and its role in your life.

                Among the ones Agnew and Lurtz like best are: Mind over Money by Brad Klontz; The Psychology of Money by Morgan Hounsel; and The Geometry of Wealth by Brian Portnoy.

                Ultimately, the goal is to figure out what role you want money to play in your life. “It only does what you tell it to do,” Agnew said.


                Prime Time for Bonds


                The global economic outlook along with market valuations and asset class fundamentals all lead us to favor fixed income. Relative to equities, we believe bonds have rarely been as attractive as they appear today. After a turbulent couple of years of high inflation and rising rates that challenged portfolios, investors may see a return to more conventional behavior in both stock and bond markets in 2024 – even as growth is hindered in many regions.

                In this environment, bonds appear poised to perform well, while equities could see lower (though still positive) risk-adjusted returns in a generally overvalued market. Risks still surround the macro and geopolitical outlook, so portfolio flexibility remains key.

                Macro outlook suggests a return of the inverse stock/bond relationship

                In PIMCO’s recent Cyclical Outlook, “Post Peak,” we shared our baseline outlook for a slowdown in developed markets (DM) growth and, in some regions, the potential for contraction next year as fiscal support ends and monetary policy takes effect (after its typical lag). Our business cycle model indicates a 77% probability that the U.S. is currently in the “late cycle” phase and signals around a 50% probability of a U.S. recession within one year.

                Growth has likely peaked, but so has inflation, in our view. As price levels get closer to central bank targets in 2024, bonds and equities should resume their more typical inverse relationship (i.e., negative correlation) – meaning bonds tend to do well when equities struggle, and vice versa. The macro forecast favors bonds in this trade-off: U.S. Treasuries historically have tended to provide attractive risk-adjusted returns in such a “post-peak” environment, while equities have been more challenged.

                Valuations and current levels may strongly favor fixed income

                Although not always a perfect indicator, the starting levels of bond yields or equity multiples historically have tended to signal future returns. Figure 1 shows that today’s yield levels in high-quality bonds on average have been followed by long-term outperformance (typically an attractive 5%–7.5% over the subsequent five years), while today’s level of the cyclically adjusted price/earnings (CAPE) ratio has tended to be associated with long-term equity underperformance. Additionally, bonds have historically provided these return levels more consistently than equities – see the tighter (more “normal”) distribution of the return outcomes. It’s a compelling statement for fixed income.

                Delving deeper into historical data, we find that in the past century there have been only a handful of instances when U.S. equities have been more expensive relative to bonds – such as during the Great Depression and the dot-com crash. One common way to measure relative valuation for bonds versus equities is the equity risk premium or “ERP” (there are several ways to calculate an ERP, but here we use the inverse of the price/earnings ratio of the S&P 500 minus the 10-year U.S. Treasury yield). The ERP is currently at just over 1%, a low not seen since 2007 (see Figure 2). History suggests equities likely won’t stay this expensive relative to bonds; we believe now may be an optimal time to consider overweighting fixed income in asset allocation portfolios.

                Price/earnings (P/E) ratios, are another way that equities, especially in the U.S., are screening rich, in our view – not only relative to bonds, but also in absolute.

                Over the past 20 years, S&P 500 valuations have averaged 15.4x NTM (next-twelve-month) P/E. Today, that valuation multiple is significantly higher, at 18.1x NTM P/E. This valuation takes into account an estimated increase of 12% in earnings per share (EPS) over the coming year, an estimate we find unusually high in an economy facing a potential slowdown. If we assume, hypothetically, a more normal level of 7% EPS growth in 2024, then the S&P today would be trading even richer at 18.6x NTM P/E, while if we are more conservative and assume 0% EPS growth in 2024, then today’s valuation would rise to 19.2x NTM P/E. Such an extreme level, in our view, would likely drive multiple contraction (when share prices fall even when earnings are flat) if flat EPS came to pass.

                We note, however, a crucial differentiation within the equity market: If we exclude the seven largest technology companies from this calculation, then the remainder of the S&P trades close to the long-term average at 15.6x NTM P/E. This differentiation could present compelling opportunities for alpha generation through active management.

                Overall, we feel that robust forward earnings expectations might face disappointment in a slowing economy, which, coupled with elevated valuations in substantial parts of the markets, warrants a cautious neutral stance on equities, favoring quality and relative value opportunities.

                Equity fundamentals support cautious stance

                Our models suggest equity investors appear more optimistic on the economy than corporate credit investors. We use ERP, EPS, and CDX (Credit Default Swap Index) spreads to estimate recession probability implied by different asset classes, calculated by comparing today’s levels with typical recessionary environments. The S&P 500 (via ERP and EPS spreads) is currently reflecting a 14% chance of a recession, which is significantly lower than the estimates implied by high yield credit at 42% (via CDX).

                Such optimism is underscored by consensus earnings and sales estimates for the S&P 500, which anticipate a reacceleration rather than a slowdown (see Figure 3). We’re concerned about a potential disconnect between our macro outlook and these equity earnings estimates and valuations. It reinforces our caution on the asset class.

                Managing risks to the macro baseline

                We recognize risks to our outlook for slowing growth and inflation. Perhaps the resilient U.S. economy will stave off recession, but also drive overheating growth and accelerating inflation that prompts into much more restrictive monetary policy. There’s also potential for a hard landing, where growth and inflation fall quickly.

                In light of these risk scenarios, we believe it’s prudent to include hedges and to build optionality – and managing volatility, especially in equities, is attractively inexpensive (see Figure 4). For example, one strategy we favor is a “reverse seagull” – a put spread financed by selling a call option.

                Investment themes amid elevated uncertainty

                Within multi-asset portfolios, we believe the case for fixed income is compelling, but we look across a wide range of investment opportunities. We are positioned for a range of macroeconomic and market outcomes, and we emphasize diversification, quality, and flexibility.

                Duration: high quality opportunities

                At today’s starting yields we would favor fixed income on a standalone basis; the comparison with equity valuations simply strengthens our view. Fixed income offers potential for attractive returns and can help cushion portfolios in a downturn. Given macro uncertainties, we actively manage and diversify our duration positions with an eye toward high quality and resilient yields.

                Medium-term U.S. duration is particularly appealing. We also see attractive opportunities in Australia, Canada, the U.K., and Europe. The first two tend to be more rate-sensitive as a large portion of homeowners have a floating mortgage rate, while the latter two could be closer to recession than the U.S. given recent macro data. Central bank policies in these regions could diverge, and we will monitor the bond holdings on their balance sheets for potential impact on rates and related positions.

                In emerging markets, we hold a duration overweight in countries with high credit quality, high real rates, and attractive valuations and return potential. Brazil and Mexico, where the disinflation process is further along and real rates are distinctly high, stand out to us.

                By contrast, we are underweight duration in Japan, where monetary policy may tighten notably as inflation heats up.

                While we recognize cash rates today are more attractive than they’ve been in a long time, we favor moving out along the maturity spectrum in an effort to lock in yields and anchor portfolios over the medium term. If history is a guide, duration has significant potential to outperform cash especially at this stage of the monetary policy cycle.

                Equities: relative value is key

                Although the S&P 500 appears expensive in aggregate, we see potential for differentiation and opportunities for thematic trades. From a macro perspective, there’s also the potential for economic resilience (such as a strong U.S. consumer) to support equity markets more than we currently forecast. Accordingly, we are neutral in equities within multi-asset portfolios. An active approach can help target potential winners.

                In uncertain times, we prefer to invest in quality stocks. Historically, the quality factor has offered an attractive option for the late phase of a business cycle (see Figure 5). Within our overall neutral position, we are overweight U.S. equities (S&P 500), which present more quality characteristics than those in other regions, especially emerging markets. Also, European growth could be more challenged than in the U.S., so we are underweight the local equity market despite its more attractive valuation.

                We also favor subsectors supported by fiscal measures that may benefit from long-cycle projects and strong secular tailwinds. The U.S. Inflation Reduction Act, for example, supports many clean energy sectors (hydrogen, solar, wind) with meaningful tax credits.

                On the short side of an equity allocation, we focus on rate-sensitive industries, particularly consumer cyclical sectors such as homebuilders. Autos could also suffer from higher-for-longer interest rates; as supply normalizes, we think demand will struggle to keep up.

                Credit and securitized assets

                In the credit space we favor resilience, with an emphasis on relative value opportunities. We remain cautious on corporate credit, though an active focus on individual sectors can help mitigate risks in a downturn. We are underweight lower-quality, floating-rate corporate credit, such as bank loans and certain private assets, which remain the most susceptible to high rates and are already showing signs of strain.

                In contrast to corporate credit, attractive spreads can be found in mortgages and securitized bonds. We have a high allocation to U.S. agency mortgage-backed securities (MBS), which are high quality, liquid, and trading at very attractive valuations – see Figure 6. We also see value in senior positions of certain securitized assets such as collateralized loan obligations (CLOs) and collateralized mortgage obligations (CMOs).

                Key takeaway

                Looking across asset classes, we believe bonds stand out for their strong prospects in the baseline macro outlook as well as for their resilience, diversification, and especially valuation. Given the risks to an expensive equity market, the case for an allocation to high quality fixed income is compelling.

                Does It Make Sense to Rent in Retirement?

                BY SANDRA BLOCK

                Renting isn’t right for all retirees, but it does offer flexibility and it frees up cash.

                Now that the kids are gone, you no longer need a five-bedroom home with a big backyard. It’s expensive, too. But when it comes time to downsize, you need to make an important decision: buy or rent?

                Upside of renting

                While many long-time homeowners may resist the idea of renting, don’t dismiss it outright. Instead of sinking money into a new house, you may be better off putting it in your investment portfolio. For example, suppose you sell your five-bedroom home and net $300,000 in cash. If you invest that money and earn 6% annually, you’ll generate an extra $18,000 in the first year. Even after taxes, you’ll have a good amount left over to put toward rent, and the cost of homeownership will drop sharply or disappear altogether.

                You should also think about how long you expect to stay in your new place. Renting may be the better choice if you’re not sure where you want to settle down for good in retirement. This is especially true if you think you may move within three to five years. (See the 10 Best States for Retirement and The 8 Best Places to Retire for Renters for ideas.) Otherwise, your home might not increase enough in value to offset your initial expenditures on things like real estate commissions and closing costs.

                Factors to consider as you decide

                When deciding whether to buy or rent, estimate how much income you’ll need to pay the bills. You should also look at the costs of home prices versus yearly rent for comparable homes in your community. You could do some comparisons on your own by using NerdWallet’s Rent vs Buy calculator.

                RENTING VS OWNING


                • Annual rent increases
                • No down payment, maintenance, or repairs
                • Rental could be sold forcing you to vacate
                • Limited ability to customize surroundings
                • Lower insurance and utility costs


                • Trapped equity — your investment in your home is beyond your reach
                • Cost of home maintenance
                • Stability — no one can sell your home except you
                • Possible capital taxes on gain from sale of home
                • Current home may lack the accessibility you need now

                And if you ultimately decide to buy, don’t automatically assume that a mortgage is a bad idea in retirement. Although the market has changed dramatically in the last few years. Mortgage rates and payments are up, tax deductions for mortgage interest have been reduced and home inventory is scarce.

                If you do buy, you may be better off taking a mortgage for part of the purchase and investing the rest of your money in a portfolio of stocks and bonds. Your investments may grow faster than your home appreciates, and you’ll also have money available for health care and other needs.

                You can use our tool, in partnership with Bankrate, to find mortgage rates from multiple lenders.

                Your happy ending

                Don’t discount emotional issues when making this important decision. Do you love the idea of owning your own place and fixing it up the way you want? Or will it be a big relief after years of ownership not to worry about the lawn or a broken sump pump?

                Mortgage interest rates are making buying an expensive option. Coupled with inventory shortages, the process of finding and buying a home is more stressful than normal. Rental price increases are finally returning to a pre-pandemic normalcy.

                While your decision needs to be financially sound, make the decision that makes the most sense for you. Not being a homeowner can be freeing, scary or both. Your home, its location and amenities should fit the life you lead now.

                How Are Bonuses Taxed?

                Tax withholding rules mean a portion of your bonus won’t make it into your bank account.

                BY KELLEY R. TAYLOR

                For some fortunate workers, a new year approaching means a bonus is on the way. That can be good news since some companies are cutting budgets, laying off workers, or scrapping bonus pay or salary increases altogether.

                But, people are often surprised when the amount of money they receive from an announced bonus is much less than expected. That situation — where a big chunk seems missing from your bonus pay — is due to federal tax withholding and so-called bonus tax rates.

                Even though you can’t eliminate bonus tax withholding, it is helpful to understand how bonuses are taxed so that you know how much money to expect. Additionally, knowing how much bonus pay will arrive in your account can help with tax planning. That might involve navigating tax changes and trying to offset income through various tax deductions, credits, and exemptions.

                Why are bonuses taxed so high?

                When you see that the amount of your bonus check or direct deposit is less than your employer-promised bonus amount, it’s most likely because your employer has withheld taxes from your bonus. (Although, it is always important to double-check the amount of your bonus as described by your employer.)

                • First and foremost, bonuses are taxed because they are considered taxable income. But the IRS also considers bonuses to be supplemental wages.
                • Essentially, supplemental wages are types of wages, e.g., overtime, commissions, etc., that aren’t regular wages.
                • When your employer pays supplemental wages, they are supposed to follow payroll tax rules and withhold a portion of those wages (in this case, your bonus), for taxes.

                The amount that is withheld from your bonus depends on the withholding method that your employer uses, which depends, in part, on the amount of your bonus, and how your bonus is paid.

                Tax rate for bonuses: How bonus tax withholding works

                Percentage Method: The first supplemental wage tax withholding method is called the percentage method. This method is typically used when your bonus check is issued separately from your normal paycheck.

                • The percentage method means that if your bonus is less than $1 million, your employer automatically withholds a flat 22% from the bonus for tax.
                • If you earn commission or have ever received severance pay, you may also have had the flat 22% withheld because those types of pay are also usually considered to be supplemental wages.

                So, for example, if you’ve been told that you are receiving a $5,000 bonus, and your employer uses the flat percentage method, they should withhold at least 22%, which based on this example would be $1,100.

                If your bonus exceeds $1 million, the flat percentage withholding would be 37% of the amount of your bonus that exceeds $1 million. Thirty-seven percent correlates to the top federal income tax rate.

                Aggregate Method: The other method for withholding from supplemental wages is the aggregate method. This is typically used when your employer pays your bonus money along with your regular pay in a single payment.

                Under this method, your employer withholds tax in accordance with a formula based on the information that you provided on your W-4 Form.

                Note: The aggregate withholding method can cause some confusion and frustration for people. That’s because your regular and bonus pay are combined as a lump sum. As a result, the amount of tax taken from the check that includes your bonus pay is higher than what you’re used to with your usual paycheck on your regular payday.

                Remember that other standard income and payroll taxes (e.g., state taxes, Social Security taxes, etc.) are also withheld.

                Can you avoid taxes on your bonus check?

                Because your employer is required to withhold, you can’t avoid the tax on your bonus. But it can understandably be frustrating to receive compensation for a job well done and then find that much of that money goes to taxes.

                With that said if you’re curious about how much your bonus payment might impact your taxes, the IRS has a calculator that can help estimate your withholding before you file your tax return. And, when you file your federal income tax return, it turns out that too much tax was withheld (based on your income and tax rate), you could look forward to a tax refund.

                On the other hand, if you’re worried that your bonus will be large enough to bump you into a higher income tax bracket, you could consider deferring your bonus to the next tax year.

                For example, if your company plans to pay your bonus in December (and you expect to have less income in the coming year) you could ask to have the bonus payment deferred. (Your employer doesn’t have to agree to this.)

                If your bonus is paid at the end of the year, you might offset your bonus and other taxable income with some year-end tax moves. Tax deductions for donations to charity or contributions to your retirement savings account can reduce your tax liability.

                But remember: December 31 is the deadline for making many contributions for tax purposes that might help offset a year-end bonus.


                Fed holds rates steady, indicates three cuts coming in 2024

                PUBLISHED WED, DEC 13 20232:00 PM EST UPDATED THU, DEC 14 20238:25 AM EST

                The Federal Reserve on Wednesday held its key interest rate steady for the third straight time and set the table for multiple cuts to come in 2024 and beyond.

                With the inflation rate easing and the economy holding in, policymakers on the Federal Open Market Committee voted unanimously to keep the benchmark overnight borrowing rate in a targeted range between 5.25%-5.5%.

                Along with the decision to stay on hold, committee members penciled in at least three rate cuts in 2024, assuming quarter percentage point increments. That’s less than what the market had been pricing, but more aggressive than what officials had previously indicated.

                Markets had widely anticipated the decision to stay put, which could end a cycle that has seen 11 hikes, pushing the fed funds rate to its highest level in more than 22 years. There was uncertainty, though, about how ambitious the FOMC might be regarding policy easing. Following the release of the decision, the Dow Jones Industrial Average jumped more than 400 points, surpassing 37,000 for the first time.

                The committee’s “dot plot” of individual members’ expectations indicates another four cuts in 2025, or a full percentage point. Three more reductions in 2026 would take the fed funds rate down to between 2%-2.25%, close to the long-run outlook, though there was considerable dispersion in the estimates for the final two years.

                Markets, though, followed up the meeting and Chair Jerome Powell’s press conference by pricing in an even more aggressive rate-cut path, anticipating 1.5 percentage points in reductions next year, double the FOMC’s indicated pace.

                In a possible nod that hikes are over, the statement said that the committee would take multiple factors into account for “any” more policy tightening, a word that had not appeared previously.

                “While the weather is still cold outside, the Fed has suggested a potential thawing of frozen high interest rates over the next few months,” said Rick Rieder, chief investment officer of global fixed income at asset management giant BlackRock.

                Along with the interest rate hikes, the Fed has been allowing up to $95 billion a month in proceeds from maturing bonds to roll off its balance sheet. That process has continued, and there has been no indication the Fed is willing to curtail that portion of policy tightening.

                Inflation ‘eased over the past year’

                The developments come amid a brightening picture for inflation that had spiked to a 40-year high in mid-2022.

                “Inflation has eased from its highs, and this has come without a significant increase in unemployment. That’s very good news,” Chair Jerome Powell said during a news conference.

                That echoed new language in the post-meeting statement. The committee added the qualifier that inflation has “eased over the past year” while maintaining its description of prices as “elevated.” Fed officials see core inflation falling to 3.2% in 2023 and 2.4% in 2024, then to 2.2% in 2025. Finally, it gets back to the 2% target in 2026.

                Economic data released this week showed both consumer and wholesale prices were little changed in November. By some measures, though, the Fed is nearing its 2% inflation target. Bank of America’s calculations indicate that the Fed’s preferred inflation gauge will be around 3.1% year over year in November, and actually could hit a 2% six-month annualized rate, meeting the central bank’s goal.

                The statement also noted that the economy “has slowed,” after saying in November that activity had “expanded at a strong pace.”

                In the news conference, Powell said: “Recent indicators suggest that growth in economic activity has slowed substantially from the outsized pace seen in the third quarter. Even so, GDP is on track to expand around 2.5% for the year as a whole.”

                Committee members upgraded gross domestic product to grow at a 2.6% annualized pace in 2023, a half percentage point increase from the last update in September. Officials see GDP at 1.4% in 2024, roughly unchanged from the previous outlook. Projections for the unemployment rate were largely unchanged, at 3.8% in 2023 and rising to 4.1% in subsequent years.

                Officials have stressed their willingness to hike rates again if inflation flares up. However, most have said they can be patient now as they watch the impact the previous policy tightening moves are having on the U.S. economy.

                Stubbornly high prices have exacted a political toll on President Joe Biden, whose approval rating has suffered in large part because of negative sentiment on how he has handled the economy. There had been some speculation that the Fed could be reluctant to make any dramatic policy actions during a presidential election year, which looms large in 2024.

                However, with real rates, or the difference between the fed funds rate and inflation, running high, the Fed would be more likely to act if the inflation data continues to cooperate.


                10 important money lessons you should learn by 18 — and can use forever

                Financial literacy is a lifelong journey.

                Some people are lucky enough to grow up with parents or teachers who can help them understand concepts like saving and investing from a young age. But given that over 1 in 3 U.S. adults aren’t considered “financially literate,” according to a 2022 Ipsos poll, it’s clear plenty of people aren’t getting those lessons early on — if ever.

                That’s part of why I recently joined CNBC’s senior economics reporter Steve Liesman, and deputy personal finance editor Kelli Grant, to speak with over 1,000 high school seniors in Queens, New York.

                We shared our experience and expertise to help the students get a foundational understanding of how money works. These are the 10 most important financial lessons we think high school students need to know before they graduate.

                1. Identify your goals, values, and desires—apart from your friends and social media

                Personal finance is personal. Before you can even begin to set a budget and work toward your goals, you need to establish what those goals are. They need to matter to you.

                Buying a home, for example, is a very common financial goal both because of its practicality and its potential to be a lucrative investment. But if you’d rather spend a lot of time traveling or living in different places, being a homeowner might not be your dream.

                Don’t feel pressured to work toward a certain milestone that doesn’t align with what you want out of life.

                2. Compound interest is your best friend, so start investing now

                When it comes to investing, the time your money is in the market is often as important as the amount of money you’re contributing. That’s because of compound interest: The cash you invest earns interest, which gets added to your initial investment and you start earning interest on the interest.

                Investing pros like Warren Buffett agree: Compound interest is one of the easiest ways to build wealth, and the way to maximize it is to keep your money invested as long as you can. That’s why it pays to start investing as soon as possible.

                3. Be intentional with your money

                Most everyone has to figure out how to live on a certain amount of money. Even if you have a lot to work with, it’s very easy to go broke, or wind up in the red, if you’re not keeping track. Consider how many lottery winners or professional athletes wind up back at zero.

                Impulse buys are designed to be tempting. Take your time when shopping to consider if what you’re tapping your card for is truly how you want to spend your money.

                Understanding wants versus needs means being able to identify the things you have to spend your money on, like housing, food and bills, versus the things you want to spend your money on, like trips or concerts.

                Writing down everything you spend money on in a month is a good place to start to identify where your cash is going. From there you can see exactly how much you actually have leftover after your needs are met. Then you can decide what to do with the rest, or look for areas where you can pull back on spending to meet a certain goal.

                4. Talk to everyone about money: The more you talk, the more comfortable you get

                In the past, it was often frowned upon to talk about money. But that attitude has allowed financial problems like wage inequality and lack of knowledge to persist.

                Talking about money with your trusted elders or more experienced peers can help you learn concepts like how to use a credit card wisely or the risks of investing.

                The more comfortable you are talking about money in no-stakes situations, the easier it will be for you to bring it up when it matters, like when you’re negotiating a salary or putting an offer on a home.

                5. Learn how to negotiate

                The sooner you master the art of negotiating, the better off you’ll be. When it comes to both money coming in, like your salary, and money going out, like your rent, you could be putting yourself in a better position simply by asking for a better deal.

                It can be intimidating to negotiate your first job offer, but you won’t know what you’re capable of getting unless you ask. If your employer won’t offer a higher wage, ask for other benefits like time off or a signing bonus.

                Similarly, when you go to rent an apartment, you can always ask for a lower monthly price or to have utilities included in your rent. Most of the time, the worst that can happen is you’re told “no.”

                6. Advocate for yourself, and if you don’t understand something, ask

                You’ll get better with money the sooner you get comfortable asking questions about it.

                If your paycheck seems lower than you thought it would be, it might be wise to consult your human resources department to make sure your tax withholdings are correct. Maybe your bank or your doctor charged you a fee you don’t understand — call and ask what’s going on.

                You can’t improve your current situation if you don’t understand why you’re in it in the first place.

                7. Learn from your mistakes

                Everyone makes mistakes. It’s all part of the learning process, so long as you actually learn from them.

                Ask yourself why the error happened and if it was possible you could have prevented it. Then take that knowledge with you into the future so you don’t make the same mistake twice.

                8. Surround yourself with people who support your money goals

                If you’re trying to save up for a spring break trip but your friends want you to go out to dinner and drinks every weekend and go shopping for new clothes every month, it may get difficult to stick to your goals.

                You don’t have to all be in the same financial situation, but friends who pressure you to spend money you don’t have or want to spend can end up costing you big time.

                On the flip side, if you have people in your life who will encourage you to stick with your goals and hold you accountable, it can feel a lot easier to succeed.

                9. Find free or low-cost hobbies and activities you enjoy

                Especially while you’re learning how to manage your money and beginning to build wealth, it’s a good idea to find free or low-cost activities that you like, such as spending time outdoors in nature, volunteering at local nonprofits, writing, sports or making art.

                That way, you can have fun, and still hang out with likeminded people, when money is tight, or you’re just trying to save for the future.

                10. True wealth is about more than money

                The people who feel the wealthiest aren’t necessarily the people who have the biggest salaries.

                Financial experts and wealthy people alike tend to agree: If you can get yourself in a position where you’re not worried about money because you have some wiggle room to do things that bring you joy, you’re likely to be happy and feel fulfilled.

                That is easier said than done, especially when the cost of living keeps growing. But the point is that it’s possible at a wide range of income levels if you have the knowledge and skills to effectively manage your money.


                10 Greatest Personal Finance Lessons That Will Change Your Life

                By Steve Burns

                Personal finance isn’t just about numbers; it’s about securing a future free from financial stress. Navigating the complexities of personal finance can be daunting, but understanding key lessons can be a game-changer for your financial future.

                Whether you’re just starting your financial journey or looking to enhance your fiscal strategies, this article offers invaluable insights. From building a robust emergency fund to mastering the art of budgeting and unlocking the power of compound interest, these principles are designed to transform your financial life. Keep reading to discover how you can take control of your finances and set yourself on a path to lasting financial freedom. In this article, we’ll delve into the ten greatest personal finance lessons that can change your life.

                10 Personal Finance Lessons That Changed My Life:

                • Build an Unbreakable Emergency Fund: Life is unpredictable. Research shows that having an emergency fund covering 3-6 months of living expenses can be a financial lifesaver.
                • Unlock the Power of Compound Interest: Compound interest is called the 8th wonder of the world. Start investing early and watch your money grow exponentially.
                • Master the Art of Budgeting: Studies confirm that budgeting is the cornerstone of financial freedom. Know where every dollar goes and take control of your financial destiny.
                • Diversify or Risk Ruin: Academic papers and financial experts agree—putting all your eggs in one basket is a recipe for disaster. Diversify your investments to weather any economic storm.
                • Guard Your Credit Score Like a Hawk: A stellar credit score isn’t just a number; it’s a ticket to low-interest loans and financial opportunities. Studies show that a good credit score can save you thousands of dollars.
                • Embrace Delayed Gratification: The Stanford Marshmallow Experiment proved that Those who delay gratification are more likely to succeed financially. Patience pays—literally.
                • Become a Tax Wizard: Don’t just work hard; work smart. Expert tax planning can boost your net income and secure your financial future.
                • Live Frugally, Live Free: Living below your means is the secret to accumulating wealth as explained in the best-selling book “The Millionaire Next Door,”
                • Invest in the ‘You’ Fund: Whether it’s a course, a book, or a conference, investing in yourself offers the best ROI, according to multiple studies.
                • Be Financially Literate or Fooled: In a world of financial pitfalls, being financially literate is your best defense against scams and bad investments.

                Build An Unbreakable Emergency Fund

                An emergency fund is more than just a financial safety net; it’s your peace of mind in a bank account. Life is unpredictable, and whether it’s a sudden medical emergency, unexpected car repairs, or a job loss, you need a cushion to fall back on. An emergency fund equivalent to 3-6 months of living expenses can significantly reduce your financial stress. Without this cushion, you’re one emergency away from a financial disaster, which could lead you into a cycle of debt. The only way to achieve this is to save the variance between what you earn and what you spend.

                Unlock The Power Of Compound Interest

                Compound interest isn’t just a financial term; it’s a principle that can turn your small, consistent investments into a substantial sum over time. Compound interest is famously called the “eighth wonder of the world” for a reason. When your money earns interest, that interest makes interest; you’re essentially growing a money tree that works for you even when you sleep. This principle also applies to compounding capital gains or compounding dividends. Starting early gives your investments more time to grow, setting you on a path to financial independence.

                Master The Art Of Budgeting

                Budgeting isn’t just about tracking your expenses; it’s about taking control of your financial destiny. Knowing where every dollar goes helps you control your spending and save more. People who budget are less likely to fall into debt and more likely to achieve their financial goals. Mastering the art of budgeting empowers you to allocate funds effectively, making it easier to reach your financial milestones. Personal finance is more about discipline than math. You must create a budget and more importantly, follow it.

                Diversify Or Risk Ruin

                Diversification is more than just a risk mitigation strategy; it’s a financial safety net that protects your wealth during market downturns. Academic papers and experts recommend diversifying your investments across different asset classes to reduce risk. By spreading your investments into different assets, you ensure that a downturn in one sector or market won’t wipe out your entire portfolio, safeguarding your long-term financial health.

                Guard Your Credit Score Like A Hawk

                Your credit score is more than just a number; it’s a measure of your financial responsibility that can significantly impact your long-term financial health. A good credit score opens doors to lower interest rates on loans and credit cards, saving you thousands of dollars over your lifetime. Guarding your credit score like a hawk ensures you can always take advantage of the best financial opportunities.

                Embrace Delayed Gratification

                Delayed gratification is not just about self-control; it’s a life skill that has far-reaching implications for financial stability. The Stanford Marshmallow Experiment showed that deferring gratification is critical in achieving more favorable life outcomes, including financial stability. Learning to avoid impulsive spending helps you focus on your long-term goals, making it easier to accumulate wealth over time.

                Become A Tax Wizard

                Tax planning is more than just a yearly chore; it’s a continuous strategy that can significantly boost your net income. Understanding tax laws and planning accordingly can save you significant money. Effective tax planning increases your take-home pay, providing more funds for investment and savings and accelerating your journey to financial freedom. It’s crucial to understand the tax consequences of your investments and income along with how best to optimize your finances to pay minimal taxes. Paying for professional tax advice and preparation is money well spent. Taxes are the number one expense for most people that earn a good living.

                Live Frugally, Live Free

                Living frugally is not about deprivation; it’s about making smarter choices that set you on a faster track to financial independence. Books like “The Millionaire Next Door,” showed living below your means frees up more money for saving and investing that can lead to building wealth. It’s a lifestyle choice that enriches both your wallet and your life.

                Invest In The ‘You’ Fund

                Investing in yourself is the best investment you’ll ever make. Your skills, knowledge, and health are your most valuable assets. Whether it’s a course, a book, or a conference, investing in yourself offers the best return on investment. It increases your earning potential and enriches your life in ways that money can’t buy.

                Be Financially Literate Or Be Fooled

                Financial literacy is not a luxury; it’s a necessity. In a world of financial pitfalls, being financially literate is your best defense against scams, bad investments, and poor financial decisions. Being economically savvy equips you with the tools to make informed decisions, safeguard your money, and ensure a more secure financial future.

                Key Takeaways

                • Financial Cushion: Always maintain a robust reserve for unforeseen expenses.
                • Miracle of Exponential Growth: Leverage the magic of compound returns.
                • Expense Mapping: Gain mastery over your financial landscape through budgeting.
                • Asset Mix: Safeguard your wealth by spreading your investment risks.
                • Credit Vigilance: Keep a watchful eye on your creditworthiness.
                • Self-Control: Learn the art of postponing immediate pleasures for long-term gains.
                • Tax Acumen: Become proficient in optimizing your tax liabilities.
                • Economical Living: Adopt a minimalist lifestyle to accelerate wealth accumulation.
                • Self-Capital: Allocate resources to enhance your skills and well-being.
                • Financial Savvy: Equip yourself with the knowledge to navigate financial complexities.


                In the journey toward fiscal autonomy, the lessons outlined in this article serve as pivotal guideposts. From establishing a robust monetary buffer and harnessing exponential growth to cultivating expense awareness and asset diversification, these principles are instrumental in shaping a resilient financial future. Moreover, the emphasis on credit vigilance, self-restraint, tax proficiency, economic living, self-investment, and financial acumen underscores the multifaceted approach needed for comprehensive economic well-being.

                IRS announces 2024 retirement account contribution limits: $23,000 for 401(k) plans, $7,000 for IRAs

                PUBLISHED WED, NOV 1 20232:00 PM EDTUPDATED WED, NOV 1 20232:55 PM EDT

                KEY POINTS

                • The IRS has increased the 401(k) plan contribution limits for 2024, allowing employees to defer up to $23,000 into workplace plans, up from $22,500 in 2023.
                • The agency also boosted contributions for individual retirement accounts to $7,000 for 2024, up from $6,500.

                 The IRS has announced new 2024 investor contribution limits for 401(k) plans, individual retirement accounts and other retirement accounts.

                The employee contribution limit for 401(k) plans is increasing to $23,000 in 2024, up from $22,500 in 2023, and catch-up contributions for savers age 50 and older will remain unchanged at $7,500. The new amounts also apply to 403(b) plans, most 457 plans and Thrift Savings Plans.

                The agency also boosted contribution limits for IRAs, allowing investors to save $7,000 in 2024, up from $6,500 in 2023. Catch-up contributions will remain unchanged at $1,000.

                In 2024, more Americans may qualify for Roth IRA contributions, with the adjusted gross income phaseout range rising to between $146,000 and $161,000 for single individuals and heads of households, up from between $138,000 and $153,000 in 2023.

                The Roth IRA contribution phaseout for married couples filing together will rise to between $230,000 and $240,000 in 2024, up from between $218,000 and $228,000.

                The IRS also increased income ranges to qualify for the retirement savings contributions credit and the ability to deduct pretax IRA deposits with a workplace plan.

                3 Mindsets That Make Ordinary People Wealthy

                I was talking to a friend recently about strategies that make ordinary people wealthy. Often, people talk about trying to spend less by budgeting, saving more, and investing. Or working harder to earn more.

                These things definitely help. But we all know that without a good budget, savings, and investing plan, it’s hard to build wealth.

                After all, even rich people go broke when they spend more than they earn without saving anything.

                This happens to lottery winners who suddenly don’t know what to do with their windfall. It also happens to normal folks who go bankrupt after mismanaging their finances.

                Interestingly, a recent study found that most American millionaires are the owners of a regional business, such as an auto dealer or a beverage distributor.1 They’re not some high-flying tech CEO or social media influencer who travels to different exotic beaches every weekend.

                In other words, these millionaires are normal people having normal jobs.

                These millionaires might be “normal.” But they do things differently than most other folks. This is where mindset comes in. The way their mind works makes them go beyond the crowd.

                Here are the 3 mindsets and habits that make ordinary people wealthy.

                Mindset #1: Grow from your comfort zone

                Most people don’t become rich because they don’t take action. They just keep doing the same thing over and over again. The result? They stay where they are.

                They make roughly the same amount of money and debt, year after year. And they never build wealth.

                That doesn’t mean you have to jump out of your comfort zone, leave your job, and start your own business right away. Or worse, start gambling with crypto and individual stocks you read about on Reddit.

                You can also build wealth whilst staying within your comfort zone. As long as you act, remain consistent, and are not afraid of failure.

                Mohnish Pabrai, for example, is one of the most successful investors who came from an ordinary background.

                He wasn’t born into generational wealth and he didn’t study in an Ivy League university. Instead, he grew up in cheap apartments with his family in India, while his father started and failed various business ventures.

                In the book, Richer, Wiser, Happier: How the World’s Greatest Investors Win in Markets and Life, Pabrai said:

                “I watched my parents losing everything multiple times… And when I say losing everything, I mean not having enough money to buy groceries tomorrow, not having money to pay the rent… I never want to go through with that again.”
                Pabrai didn’t leave his IT company job until his startup business had acquired enough clients. And when his business made enough money that he could invest full-time, he still pooled most of his capital from other investors.

                Pabrai always had a safety net for when things went wrong. But unlike other people who are content with being safe, Pabrai actively pursued his goals.

                That’s the key to ordinary people becoming wealthy: They act. They take calculated risks. And they don’t quit when things get hard. They remain consistent.

                Mindset #2: Optimize your environment

                There are three levels of environments that make a major impact on your finances: The city you live in, the people you work with, and the people you spend time with the most outside of work.

                • Live in a cheaper city — I never met anyone who got wealthy (unless they’re earning millions) by living in a big, expensive city. I used to work at a big company in London. At the time, I was spending most of my income on rent, commuting, and simply living in an expensive city. Then I moved back to my hometown, Leeuwarden, in The Netherlands. First back to my parents, and later, I bought an apartment. My mortgage was €500. In London, I paid almost three times more in rent, for a smaller place. The same apartment I bought for 135K is now worth 200K. So I didn’t only save in rent, I also built equity.
                • Avoid working with bad people — That’s also one reason I quit my corporate job in London. I couldn’t stand the office politics. There was a lot of backstabbing and people who didn’t want to see you do well. If you’re in a negative environment or deal with people who don’t want to see you win, you’re only destroying chances of success.
                • “Marry the right person” — This is actually money advice from Warren Buffett.2 It might not seem related to personal finance at first. But when you think about it, who else but your spouse/partner has one of the biggest impacts on your financial decisions? This applies to other people who become close to you as well: Friends, family members, etc.

                Mindset #3: Think 50% when you spend. And 10% when you don’t

                Let’s say you want to buy the latest $1000 iPhone.

                The thing with most of the stuff we buy is that their value goes down over time. That applies to cars, furniture, clothes, electronics, etc.

                So before I spend money on big purchases, like a new phone, a new car, and so forth, I always think about them in future terms.

                I estimate that most of our stuff degrades by at least 50% in value within 3 years. And I don’t know about you, but I just can’t be bother with reselling most of my old stuff on marketplaces.

                So after years of using my devices, I end up trading them in for even less than what they’re worth. I know I’m leaving money on the table. But I do that the moment I buy something.

                Compare buying stuff to investing your money. The S&P 500 index grows at around 10% per year on average.

                With the power of compounding, $1,000 is worth $1,610.51 in 5 years.

                That $1,000 iPhone is really worth $1,610.51 when you think about the other option you have, which is to invest.

                Spending your money on something means giving up a bit of freedom and options. That’s what money truly represents. We all spend money to buy a certain level of freedom.

                Every dollar you spend is another dollar lost from your freedom goals. That doesn’t mean you become a money hoarder. But whenever you spend, always try to ask yourself:

                “Is this thing worth the freedom I’m losing?”
                If you want to retire early, you’ll need a certain amount, usually a million bucks or more. That amount of money won’t materialize by itself. You’ll need to keep earning enough to enjoy life while building your nest egg.