The beginning of the year is an ideal time to review your retirement savings to ensure that you are on track for the new year. Are your savings and investing strategies aligned with your retirement planning goals?
February is often the first month of the year that this type of review is feasible. This is because February is when you should have all statements from 2024 as well as early 2025 statements, including the ability to look at how your retirement savings are being allocated to your 401(k) or other workplace retirement plan.
Catch-Up Contributions for 2025
If you are age 50 or older at any point during 2025, then you are eligible to make catch up contributions to your 401(k) or other workplace retirement plan.
For 2025 there will be two levels of catch-up contributions.
- For those ages 50 to 59 and those age 64 or older, the catch-up contribution level is $7,500. These workers can defer a total of $31,000. This is the $23,500 main contribution limit plus the $7,500 catch-up deferral limit.
- For those who will be 60 to 63 during 2025 there is a new, expanded catch-up limit. For these folks the catch-up limit for 2025 is $11,250. This brings their total deferral limit for the year up to $34,750.
This is the time to ensure that you are taking the full regular catch-up and the expanded catch-up if you are aged 60 to 63. You will want to ensure that you are contributing the full amount to your 401(k) or other type of employer sponsored retirement plan.
Review Your Employer Contributions
Many employers contribute to their employee’s retirement plan accounts. This might be a matching contribution. A common example is a 50% match on contributions of up to 6% of the employee’s income. This would mean that the employer match is 3% of the employee’s income if they do contribute 6% of their income.
Employers may have different matching formulas, but in many cases the match requires the employee to contribute a certain amount to their 401(k). Employer matches or other types of contributions can add a significant amount to your retirement savings. In the case of matching contributions, you want to be sure that you are making a contribution that is at least large enough to receive the full employer match if possible.
Adjust to Market Volatility
We have seen lingering volatility in the markets in recent months. In this type of environment, it is always important to maintain a level of portfolio diversification that makes sense for you.
A key tool is asset allocation. This is the distribution within your portfolio among various asset types such as stocks, bonds and cash.
Asset allocation is all about how much you have allocated to each asset class. The purpose is to manage the potential risk of the portfolio along with the potential upside. You will want to set rebalancing parameters. For example, if an asset class is 5% higher or lower as a percentage of the portfolio than its target, it would be time to rebalance this asset class back to its target allocation.
If one asset class has varied from its target allocation it is likely that others have as well. Rebalancing often involves buying and selling across several asset classes in the portfolio and transferring funds as needed.
This can also be done by directing any new money into your portfolio to asset classes that are under allocated. Tactics such as tax-loss harvesting can also be used where appropriate to help minimize the tax implications of rebalancing.
Summary
February is a good time to review your retirement plan contributions, including catch-up contributions, employer matching contributions as your portfolio’s volatility compared to both the market and to your comfort level.
Be sure to reach out to your Wedbush financial advisor for help with the review. They can help set portfolio parameters and in determining if you are taking full advantage of your catch-up contributions and employer matching.
Disclosure
Securities and Investment Advisory services are offered through Wedbush Securities, Inc. Member NYSE/ FINRA / SIPC.
Wedbush Securities does not provide tax or legal advice. Please consult your tax advisor or legal professional for your specific situation.
Rollovers of qualified plan assets is not your only option. Prior to deciding whether to keep an existing plan, or roll assets into an IRA, be sure to consider potential benefits and limitations of all options and discuss rollover options with your tax advisor.
Investment products involve investment risks including potential loss and are not insured by any federal agency, are not deposits or obligations of, or guaranteed by any financial institution and may involve loss of value.
The information provided is for general informational purposes only and should not be considered an individual recommendation or personalized investment advice. The investments mentioned may not be suitable for everyone. Each investor needs to review their own respective situation(s) before making any investment decisions. All expressions of opinion are subject to change without notice due to shifting market(s), economic or political conditions. Investment involves risks including the risk of principal. Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance.