At the end of each calendar year, both individuals and retirement plan sponsors alike must get their retirement plans in order. But what are the smartest moves you can make before the next year comes?
Turns out, taking a few simple steps today can have a significant impact on your overall retirement plan outcomes. Let’s go through some moves you should consider making, all vetted by the wealth planners at Wealth Enhancement.
We’ll approach this topic from two angles: First, retirement planning for individuals*, and second, considerations for retirement plan sponsors**.
Smart year-end retirement moves for individuals
If you’re an individual who owns an employer-sponsored 401(k) account, here are some things you should think about doing before the end of the year:
- Make last-minute 401(k) contributions
- Take your required minimum distribution (RMD)
- Learn next year’s 401(k) contribution limits
- Review your beneficiary designations
Contact Wealth Enhancement today to get help implementing these retirement moves.
Make last-minute 401(k) contributions
As the year-end approaches, consider making last-minute contributions to your retirement accounts to enhance your savings. In some cases, you can also allocate part or all of a year-end bonus to your 401(k) account and avoid the extra tax bill on it.
401(k) contributions are typically due by December 31. However, it’s a good idea to avoid waiting too long. Most providers need to have one or two paychecks of lead time to ensure all 401(k) contributions are allocated correctly. A wealth planner can help you determine the right contribution amounts, and ensure you meet deadlines.
With that in mind, here are the 401(k) contribution limits for 2024:
- If you’re age 49 or younger, you can contribute up to $23,000 to your 401(k) plan in 2024.
- If you’re age 50 or older, you can contribute an extra $7,500 to a 401(k) account as a catch-up contribution in 2024, for a total of $30,500.
Take your RMD
Distributions from Traditional 401(k)s and IRAs are required after age 73. These distributions, called required minimum distributions (RMDs), are designed to force retirees to make taxable withdrawals from their accounts, so the government can collect tax revenue from them. At the end of the year, it’s a good idea to double-check that you’ve taken your RMD so that you don’t get penalized.
You have until April 1 of the year after you turn 73 to take your first RMD, but subsequent distributions are due by December 31 of each year. If you delay your first distribution until the following April, you will then need to take two distributions in the same year, which could result in an unusually high income tax bill. You can work with a comprehensive financial advising team to balance your RMD with other parts of your financial plan — and even learn ways to leverage it.
Learn next year’s 401(k) contribution limits (2025)
Limits on 401(k) contributions change almost every year, so it’s important to be up to date on how much you’re allowed to contribute. When you check the updated limits for the following year, consider setting your periodic 401(k) contributions at an amount that will dollar-cost average you in throughout the year and get you to reach the maximum limits. Look for an announcement from the Internal Revenue Service regarding the new contribution limit around November.
Review your beneficiary designations
Review your current beneficiary elections to ensure they are up to date with any major changes in your life. For estate planning purposes, beneficiary designations supersede what’s listed in your will, so it’s important to always make sure these are up to date and accurate.
For personalized guidance on optimizing your retirement plan before year-end, consult with a wealth planner to ensure you’re making the most of your strategy.
Key year-end moves for retirement plan sponsors and business owners
If you’re a business owner who provides a 401(k) plan for your employees, consider these year-end checklist items as you prepare for next year:
- Take inventory of critical plan documents
- Check your ERISA bond
- Ensure timely distribution of required plan notices
- Review year-end contribution estimates and adjustments
- Gather employee data
Take inventory of critical plan documents
Check your plan documents file. Ideally, you should keep a copy of every plan document that was ever adopted for your plan. Make sure that all your amendments are properly signed and that you returned a signed copy to your third-party administrator (TPA) and/or plan record keeper.
Check your ERISA bond
If you’re required to maintain an ERISA bond, make sure that your policy covers the proper amount (generally 10% of plan assets up to a maximum of $500,000). If you’re unsure about the proper amount of coverage, consult with our business advising services team to avoid paying too much—or too little.
Ensure timely distribution of required plan notices
Plan participants must be provided information about the plan. The information required depends on your plan design. For example, notices may include:
- A Summary Plan Description (SPD)
- Summary of Material Modifications (amendments adopted after the SPD was drafted)
- Automatic Enrollment notices
- Safe Harbor notices (for 401(k) and 403(b) plans that have Safe Harbor provisions)
For participant-directed accounts, you may have fee disclosure notices, and Qualified Default Investment Arrangement (QDIA) updates. Pension plans may have annual funding notices to deliver. Make sure that you develop internal policies and procedures to make sure that the notices that are required for your plan are provided to both current and new employees in a timely manner.
Wealth advisors often recommend that you keep track of the delivery date, method, and delivery list for every notice for which you are responsible. Check with your provider to confirm that they are meeting your needs with respect to delivery.
Review year-end contribution estimates and adjustments
Before you close your accounting books for the year, you may want to get an estimate from your TPA about your company contribution liability for the year. Or perhaps you want to make sure that you’re funding the maximum contribution available for your own 401(k) or 403(b) plans for the year. Payroll closes out on December 31 for many companies, so the end of the year is the time to make any necessary adjustments!
Gather employee data
Your TPA will need to understand what happened at your company during the year. Here’s a short list of what data to start gathering:
- Employee records (hires, terminations, rehires, birth dates, etc.)
- Compensation information (watch for special definitions or exclusions in your plan)
- Hours worked (if applicable)
- Changes to shareholders or partners
- Changes to corporate officers
Finally, if there are any family members of the business owners working for the company, then let your TPA know (especially if the names are different).
Wealth planners can help employees and employers enhance their retirement plans
While the information outlined in this article is in no way exhaustive, it’s a good starting point. If you have further questions, or are looking for more advice on how to prepare for year-end, reach out to an experienced Wealth Enhancement specialist.
* This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
** This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advice assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.
