Wisdom in Wealth

Strategies, Stories, and Lessons Learned Over the Course of 25 Years Helping Families Plan Their Financial Lives

New Year, Fresh Start

By William Beynon & John Walker | February 02, 2024

New year fresh start

One thing that I encourage everyone to do is think in a forward way as one-year yields to another.  Whether 2023 was a banner or a bust for your family, we can all start fresh on a new calendar year. As you look ahead, it can also be helpful to consider the lessons you learned last year. What were your highest and lowest moments? How do those lessons inform the way you think and act now? The new year will mean all new challenging, sad, funny, triumphant, and frustrating moments. We believe that having a good grip on your basic finances is key to charting a smooth course over whatever this year has to offer. As we start, the stock markets seem to have a stiff tailwind pushing in a positive direction based on the promise of a much more dovish policy from the Fed. On the contrary, this year’s Presidential election cycle seems to be off to a very loud headline-rich start. So whether this ends up being a great or awful year depends a lot on how you see, react, and address the events that come your way. In this article, we will cover just a few updates in terms of Internal Revenue Service (IRS) codes for giving, deductions, and contributions, as well as some classic ratios that deal with how to think about proper budgets. We hope that this discussion will help you chart a great course for 2024.

2024 UPDATES 

In this year, just like many others, the limits below change. Many sources log this data, and they should all be in alignment.

Giving

Gift Type 2024 Amount
Annual Exclusion Gift  $18,000
Federal Gift Tax Exclusion  $13,610,000
5-Year Accelerated 529 Gift  $90,000

 

Contributions 

Plan Type 2024 Amount
Elective Deferral such as 401k, 403b, 457, SARSEP

$23,000 Plus $7,500/$10,000

Catch-up contributions based on age
IRA and Roth IRA  $7,000 Plus $1000
HSA $4150/$1000 Catch up based on age 
 

Some limits and exclusions apply to the above metrics. Not everyone can directly contribute to IRAs and take a tax deduction because of certain income and tax rules. Please see IRS Publication 590 A or IRS Publication 590 B for the rules of your situation.

In this tax year, several key but small changes may impact your 401k plan.  I will very briefly touch on these changes, but I encourage you to do further research on the specifics of your plan’s rules. This is not meant to be an exhaustive list, but merely a summary.1

  1.  The Mega Roth - This is not a new concept, but it is interesting; Once you have maxed out your workplace plan, some plans allow for post-tax contributions. Those contributions can then be rolled into a Roth IRA to avoid further taxation.  Not all plans have the machinery to do this properly but if yours does, this can be a great way to accelerate your Roth-type savings very quickly as you are near retirement or have abnormally high-income years. 
  2. Higher Catch-up Contributions - If you are between 60 and 63 you are now eligible to make a $10,000 catch-up contribution to your workplace plan.
  3. Roth Matched Plans - Employers can now match Roth Savings inside workplace plans. Previously, plans could match your Roth contributions on a pre-tax basis only.
  4. $1000 Emergency Fund - In 2024 you can now access a $1000 emergency fund in your 401k. This can only be taken once a year and can be repaid over three years.
  5. Domestic Abuse Fund - There is now a distribution that can be accessed in the case of domestic violence. Workers below 59.5 can take a penalty-free distribution of up to $10,000.

BUDGET CONSIDERATIONS FOR THE YEAR

I have the view that we have a choice to either happen to our days or have our days happen to us.  As a financial advisor, I am strongly biased toward the former.  As such, I think that some classic guidelines can be very helpful in guiding budgets for necessities, fun, and charitable giving.2

  1. Principal, Interest, Taxes, Insurance (PITI) Ratio - This ratio is generally thought of in relation to lending standards. In general, the industry believes that you should strive to keep the total housing costs below 28% of gross income. 3
Example: If you are earning $100,000 per year, the ideal amount of housing costs is below $28,000 per year or a little more than $2,300 per month. 

     2. Savings Ratio - The accepted goal here is about 20%. Divide your monthly savings (of all kinds)                              into your monthly income total. 4

Example: If you earned $8,333 per month ($100,000 per annum) and you saved a total of $2000 between your Workplace Plan, Savings, and Roth, you would have a savings ratio of 24% which is above target.

    3. Current Ratio - The current ratio is very simple.  Tally up all your assets and divide them into all your                debts.  The goal is to be as close to or above 1 as is possible.  This means you could satisfy your debts                 with the assets you have on hand. 

Example:  Let’s say you owe $250,000 on your mortgage, $38,000 plus $23,000 on your credit cards and your total cash, savings, and retirement accounts are worth $500,000. By dividing that $500,000 savings by $311,000 worth of debt comes out to a ratio of 1.62.  This implies that your current debts could be satisfied with current liquid assets. 

TYING IT ALL TOGETHER 

In consideration of the regulatory changes and ratios above, I am a big believer in budgeting.  That is to say, mentally and actually allocating dollars toward certain goals you have for the year.  I fully believe in family and carving out money to enjoy the things and the ones you love as well as giving to the causes that are near and dear to you.  I think that by sitting down to consider your total earnings, debt service, leisure, giving, and savings you can really enjoy life while simultaneously chipping away at your family goals.   If you have any questions about the ratios above, or how to establish a budget that works for your family, CWA specializes in financial planning and would be happy to consult with you on these topics.  We wish you and your family a happy and prosperous 2024.

 
Sources:
1 Mega Backdoor Roths: How They Work (n.d.). Retrieved January 5, 2024, from https://www.nerdwallet.com/article/investing/mega-backdoor-roths-work#:~:text=Mega%20backdoor%20Roth%202024
2 Secure Act 2.0 | What the new legislation could mean for you (n.d.). Retrieved January 5, 2024, fromhttps://www.fidelity.com/learning-center/personal-finance/secure-act-2
3 What Is PITI? It's Meaning And What It Stands For 2.0 Act (n.d.). Retrieved January 6, 2024, from https://www.rocketmortgage.com/learn/piti
4 Saving for Retirement Is Getting Easier in 2024 Due to the Secure 2.0 Act (n.d.). Retrieved January 6, 2024, from https://money.com/retirement-saving-changes-secure-act/#:~:text=Taking%20money%20out%20of%20tax
 

 

 
CWA Asset Management Group, LLC (“CWA”) is an SEC-registered investment adviser, doing business as Capital Wealth Advisors (FL, LA & NC) and as blueharbor wealth advisors (NC). Registration does not imply any level of skill or training. This material is for informational purposes only, as of the date indicated, is not complete, and is subject to change. Additional information is available upon request. Any opinions expressed herein represent current opinions as of the date of publication only and may change based on market or other conditions.  This material may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual results will not be materially different from those described here. Certain information herein has been provided by and/or is based on third-party sources and, although believed to be reliable, has not been independently verified, and CWA is not responsible for third-party errors.  No representation is made with respect to the accuracy, completeness or timeliness of information or opinions herein and CWA assumes no obligation to update or revise such information or opinions..

Any information that may be considered advice concerning a federal tax issue is not intended to be used, and cannot be used, for the purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter discussed herein. CWA does not offer legal or tax advice.  As such, this material is not intended and should not be construed as tax advice. Please consult with an Enrolled Agent, CPA, or attorney before implementing any of the strategies discussed herein.
Information presented is for educational purposes only and should not be considered investment advice or an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  All investments involve risk, including risk of loss and are not guaranteed.  Past performance is no guarantee of future results.  There can be no guarantee that CWA will achieve any specific investment objective or level of performance.  Specific companies, industries or securities described are meant to be illustrative of investment style only. Additional information regarding CWA including fees, expenses, and risks of investment, is contained in CWA’s investment advisory agreement, its Form ADV, Form CRS and related disclosure documents and should be reviewed carefully. CWA’s ADV 2A and Form CRS can be accessed via https://adviserinfo.sec.gov/ .

For additional disclosure information, please go to https://www.capitalwealthadvisors.com/disclosures/ 
Twitter icon LinkedIn icon
William Beynon
President & CEO

Co-Author of Wisdom in Wealth.

LinkedIn icon
John Walker, AEP®, CFP®, CAP®
Managing Director | Private Wealth Management

Co-Author of Wisdom in Wealth. 

Newsletter Signup