Attention savvy taxpayers! If you’re part of Generation X or age 50 or above, buckle up because we’ve got some exciting updates on the 2024 tax law changes tailored just for you.

Now, these tax modifications have the potential to significantly impact your retirement years for either better or for worse.

So grab your favorite beverage, settle in, and let’s get started.

Retirement Age is Fastly Approaching Generation X

So what is retirement age? Well, according to Forbes Magazine, the average American retires at age 63 which is not too far off for middle-agers.

For many middle-aged people, retirement can be a scary thought, because many of their Baby Boomer parents are struggling to just afford the basic necessities of life during their golden years.

As hardworking as the Baby Boomer generation was, they often saved very little for their future. In fact, according to Business Insider, nearly half of Baby Boomers have not saved enough money for retirement.

And get this, a whopping 43% of Baby Boomers have no retirement at all. All of this puts Generation X in a very tight spot.

Not only does Generation X have to fund their own retirements, but many may need to rescue their parents from their financial troubles as well.

The IRS Makes Big Changes

So how do we fix this? Is there any hope of financial stability for the next generation of retirees?

Well, I have good news for you.

The IRS just made some changes in 2024 to help middle aged taxpayers build a larger retirement nest egg.

Starting in 2024, individuals 50 or older can get a special retirement savings boost. The annual contribution limit for 401(k) plans has increased from $23,000 to $30,500.

That’s an additional $7,500 per year that you can invest for retirement.

How the 2024 Tax Changes Help You

So why does this increase matter and how will it benefit you?

Well imagine this… You are 50 years old, with an average retirement age of 63, that leaves you with 13 years to build up your 401(k).

If you invest that additional $7,500 each year, or $625 each month, for 13 years with an average return of 10%, you could be looking at an extra $194,363 more in your retirement account.

But what do the numbers look like if we put in the full $30,500 annually or $2,541 each month, over the next 13 years with a 10% return.

You will be looking at approximately $790,201 after thirteen years.

irs 2024 tax changes for ira, roths and 401ks example

Not too shabby right? That’s some serious potential for boosting your retirement nest egg.

Now, you might be tempted to think, I’ll just keep that $7,500 for myself rather than invest it in my retirement each year.

But in reality, if you’re in the 22% tax bracket and you hold on to the $7,500, you have to pay Uncle Sam income taxes on that money (the money you keep) to the tune of $1,650 each year.

So, your $7,500, quickly becomes $5,850.

Emergency Withdrawals

Now that’s not the only tax change you need to know about for 2024.

One of the most talked about changes for 2024 allows individuals to withdraw up to $1,000 penalty-free from their retirement plan for emergencies such as fires, floods, hurricanes or a family member’s illness.

As you know, unplanned expenses like these can throw a monkey wrench into your monthly budget.

And up till now, if you withdrew from your retirement plan and you were not 59 1/2 or older, you were automatically hit with a 10% penalty for early withdrawal.

But with this new change, you will now have some much needed flexibility during unexpected financial challenges.

An Example of How This Works

Now you might be tempted to think. Big deal. What good will this do me?

But consider this… If you took that same $1,000 and placed it on a high interest credit card at say 20% interest. With just paying the minimum payments over 3 years, you would be shelling out about $800 in interest alone.

And something else worth noting is the $1,000 coming out of your 401(k) was not taxed when deposited, and with this change, you now don’t receive the $100 early withdrawal penalty.

The only drawback to this tax change is you will need to pay taxes on $1,000 withdrawal, the year you receive the funds.

We Would Love to Answer Your Questions

Now, as always, be sure to consult with a financial advisor to make the most of these tax saving opportunities.

If you don’t already know me, my name’s Sonia Narvaez. I’m a licensed CPA and wealth building strategist with over 25 years experience.

If you have any questions about how these recents tax changes by the IRS will impact you, don’t hesitate to contact us.

To get your FREE complimentary consultation with a member of my team, simply click this scheduling link, and pick the time that works best for you on the calendar.

We would love help and meet with you.

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