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.
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
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
| 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. |
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.