401K

2023 401(k) Contribution Limits Highlights. The contribution limit for employees who participate in 401(k) is increased to $22,500, up from $20,500. The catch-up contribution limit for employees aged 50 and over who participate in 401(k) increased to $7,500, up from $6,500. Therefore, participants in 401(k) who are 50 and older can contribute up to $30,000, starting in 2023.

401(k) Investing During a Bear Market. Dollar-cost averaging is a way to turn stock market weakness into a positive for long term 401(k) investors. Most people are quick to agree that volatile markets may present buying opportunities for investors with a long-term horizon. But mustering the discipline to make purchases during a volatile market can be difficult. You cannot help wondering, “Is this really the right time to buy?”.

This year taxpayers can put an extra $1,000 into their 401(k) plans. The IRS announced that the 2022 contribution limit for 401(k) plans is now $20,500. 401(k) Plan participants may also contribute to their own Individual Retirement account (IRA). It is recommended that Plan participants max out your company 401(k) contributions before considering an IRA. 401(k) contributions are before -tax which lowers your taxable income!

How To Invest in Your 401 (k) During Periods of Volatility

When the stock market volatility becomes extreme it is only human to want to panic due to our natural aversion to losses. Many long-term investors become short term investors by seeking the safety of cash over stocks when they see even short-term losses.

But the best investors are long term investors who maintain an allocation of stocks and understand that stocks are long term investments and treat them as such. In general, a diversified U.S. S&P 500 Equity Fund is more likely to produce positive results the longer the holding period. Yes, in the short term it is easy to lose money in it but when held for ten years or longer its more likely to double in value than lose money. Why, because over the long term the S&P 500 Index tends to rise as corporate earnings grow. Even including downturns, the S&P 500’s average annual return over all 10-year periods from 1937 to 2021 was 10.57%. Overall, the S&P 500 Index is rising 70% of the time and the rest of the time its treading water going nowhere, correcting, or in a Bear market. To get the long term returns of the S&P 500 Index you must be always invested and ride out corrections and down markets – stay the course. Studies have shown that investors that miss the best return days in the market, which occur after a market bottom, experience a significant drop in their long- term results.

The contribution limit for employees who participate in 401(k) is increased to $20,500, up from $19,500 for 2021.

Plan participants with earned income can also contribute to their own individual retirement account (IRA) in addition to their company 401(k) plan account. Always “max out” your company 401(k) contribution before contributing to your own IRA.

What are the New Required Minimum Distributions (RMDs) Rules?

Owners of qualified retirement plans and IRAs must adhere to the new rules for required minimum distributions (RMDs). The RMD rules are tricky and could result in a substantial tax penalty if you're not careful. For starters, an RMD is the amount you must withdraw from a qualified retirement plan account or traditional IRA to avoid an expensive tax penalty after reaching the age of 72.

Tax rates seem likely to rise for the highest-earning taxpayers under the Biden administration. For those with traditional retirement accounts, who are in a high tax bracket, making moves ahead of said tax law changes would reduce income-tax bills in retirement. Given tax changes occur. 401(k) investors may want to consider the advantages of diversifying retirement funds between a Roth 401(k) and Traditional 401(k).

Retirement experts estimate that you may need up to 80% of your pre-retirement income in retirement. An employer-sponsored plan might not be enough to accumulate the savings you need. Fortunately, you can contribute to both a 401(k) and an IRA.

Diversification strategy is meant to reduce volatility in account value and lower downside risks. Aspetuck’s Risk Managed Portfolio Program allows for a choice between a Strategic Model or a Tactical Model that suits your preference, depending on your own risk and reward preference.The models use an Asset Allocation approach towards investing in markets thereby diversifying your assets worldwide in stocks, bonds, and cash-equivalents.

The Department of Labor's new "interim rule" regarding 401 (k) reporting has some drawbacks. While the monthly income statement is instructive, and should encourage better investor behavior, it does run the danger of providing unreliable information or steering 401(k) investors into making the wrong decision. The rule implements Section 203 of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, enacted at the end of last year

For investors, a market pullback can be a painful thing—no one likes to see the value of their account go down. But every downturn brings investment opportunities. For one, while the investments you hold may be dropping in value, the investments you may want to buy could be getting cheaper. Here are a few strategies for plan participants to navigate down and up markets.

Aspetuck Financial Management is replacing two of the ETF options in the 401k lineup with new ETFs in the third quarter. The changes in ETFs involve your U.S. Small-cap option and your U.S. Large-cap Dividend paying option.