Maximize Your Retirement Savings: 5 Steps to Take Before 2024 Ends

Time flies, and your retirement is now one year closer. As the December 31 deadline approaches, there’s still a window of opportunity to take steps that will help you strengthen your company’s retirement funding strategy before 2024 comes to an end. Here are five essential actions to consider before the year is over:

1. Set Up Your 2024 Retirement Plan

If you haven’t established a retirement plan yet, now is the time to act. Putting a retirement plan in place can qualify you for a tax deduction for 2024. Whether you’re running a sole proprietorship or a corporation, you can make both employer and employee contributions to a defined contribution plan, such as a 401(k). This dual contribution capability allows you to put away a significant amount toward your future.

2. Leverage the Retirement Plan Start-Up Tax Credit

The SECURE 2.0 Act increased the retirement plan start-up credit, offering small business owners substantial tax benefits. By starting a qualified retirement plan, you could earn a non-refundable credit worth up to $15,000. The credit amount is determined as the greater of $500 or a formula based on the number of eligible non-highly compensated employees (up to $5,000). This credit covers costs related to establishing or managing the plan and educating employees about it.

3. Take Advantage of the Employer Contribution Tax Credit

An additional credit introduced by the SECURE 2.0 Act allows employers to claim up to $1,000 per employee for contributions to a retirement plan, with up to $3,500 per employee available in some cases. This credit applies fully in the first year and gradually phases out over five years. For businesses with fewer than 50 employees, this can significantly offset the cost of employer contributions.

4. Claim the Automatic-Enrollment Tax Credit

Adding an automatic contribution feature to a 401(k) or SIMPLE plan can earn you a $500 annual tax credit for up to three years. This credit, which totals up to $1,500, incentivizes employers to simplify plan participation for employees. The best part? You don’t need to incur additional expenses. Simply adopt an auto-enrollment feature that employees can opt out of if desired.

5. Consider a Roth IRA Conversion

Converting your traditional IRA or 401(k) to a Roth IRA can offer future tax-free growth and withdrawals. While you’ll need to pay taxes on the conversion amount upfront, the long-term benefits include penalty-free access to contributions and no required minimum distributions after age 73. This strategy ensures you have greater control over your retirement funds and potential tax-free income in retirement.

Each of these steps provides unique opportunities to enhance your retirement savings while taking advantage of valuable tax incentives. Review your financial situation and consult with a tax or financial advisor to determine which actions are best for you before year-end.

For all your business planning and tax planning needs heading into 2025 and beyond, contact Illumination Wealth to schedule an introductory consultation.