Savings Goals For 2025

January 6, 2025

Hello and Happy New Year!

And yes, my personal rule of thumb is that wishing someone “Happy New Year” is acceptable any time before my birthday (January 11th).

The start of the new year is the perfect time to focus on personal growth and self-improvement. While today isn’t January 1st, it’s not too late to develop impactful financial goals for the year ahead.

With that in mind, let’s talk about savings goals — specifically, how we can strategize to maximize contributions to your tax-advantaged accounts in 2025.

One of my core financial philosophies is that every dollar should have a specific purpose. Whether it’s covering monthly expenses, paying down debt, creating an emergency fund in a high-yield savings account, or working to generate growth and dividends in an investment account — it's essential that your money works hard for you.

A Quick Refresher on Common Tax-Advantaged Accounts:

• Traditional IRA (Individual Retirement Account): A retirement savings account where individuals contribute pre-tax income, lowering taxable income for the year.* Funds grow tax-deferred until withdrawal in retirement.
• Roth IRA: A retirement savings account where contributions are made with post-tax income. The contributions grow tax-free and can be withdrawn 100% tax-free in retirement.**
• 401(k)/403(b): Employer-sponsored retirement savings plan in which employees contribute pre-tax (or, in some cases, post-tax) income for retirement.

Contribution Limits for 2025:

• Traditional or Roth IRA: $7,000 per year ($8,000 if you're 50+ years old)
• 401(k) / 403(b): $23,5000 per year ($34,750 if you're 50+ years old)

How to Meet the Contribution Limits for 2025:

• Traditional or Roth IRA: $583.33 per month ($269.23 biweekly)
• Traditional or Roth IRA (50+ years old): $666.67 per month (307.69 biweekly)
• 401(k)/403(b): $1,958.33 per month ($903.85 biweekly)
• 401(k)/403(b) (50+ years old): $2,895.83 per month ($1,336.54 biweekly)

Automating Savings: Paying Yourself First

One of the most efficient ways to save is by automating your contributions — what we affectionately call "Paying Yourself First." In your Charles Schwab account, setting up a recurring transaction via MoneyLink on a bi-weekly or monthly basis is an easy way to ensure you stay on track toward your goals.

Not everyone has the disposable income to max out all their tax-advantaged accounts, and that’s OK! One of my favorite exercises is sitting with clients, examining their budget for the year, and developing a plan to allocate their dollars efficiently toward their short-, medium-, and long-term goals.

One Common Strategy

1. Contribute to your employer-sponsored retirement plan up to the company match. As an example: Your employer matches 50% of the first 6% you contribute, so you set your contribution amount to 6% of your paycheck and receive a 3% match for a total of 9%.
2. Max out your Traditional or Roth IRA account. Reminder that IRA contributions are subject to an annual limit that applies to the total contributions made across all your IRA accounts, whether Traditional or Roth. This means that the combined contributions to all your IRAs in a given tax year cannot exceed the annual contribution limit set by the IRS. For example, with a contribution limit of $7,000, the total amount you contribute to all your IRAs—whether in one account or multiple accounts—cannot exceed that limit.
3. If there’s money left over, crank up your contributions to your employer-sponsored plan or focus on your brokerage account. While watching your retirement account balances grow can be satisfying, sometimes it doesn’t make sense to max them out every year. Pre-tax contributions (like those in a 401(k) or Traditional IRA) can’t be touched without penalty until you reach age 59½. This could tie up funds you might need for other goals.

As we close the financial chapter on 2024 and look forward to the opportunities of 2025, let’s work together to set achievable savings goals that will benefit your future self. I’m here to help you create a plan that maximizes your financial potential.

*Your IRA deduction may be limited if you (or your spouse) are covered by a retirement plan at work and your income exceeds certain thresholds.

**You can withdraw your contributions, or "basis", at any age and for any reason.

- Chris McKeown

Source: https://dqydj.com/sp-500-return-calculator/