Key Takeaways

• For 2026, the maximum HSA contribution is $4,400 for individuals and $8,750 for families. The maximum contribution for an FSA is $3,400. 

• Those aged 55 and older can contribute an additional $1,000 to an HSA

Tax-advantaged healthcare accounts like HSAs and FSAs are powerful tools for managing medical expenses while lowering your taxable income. Both offer meaningful savings, but differences in structure, eligibility, flexibility, and long-term value mean that one may be a better fit depending on your situation.

What are HSAs and FSAs?

Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are designed to help you pay for qualified medical expenses using pre-tax dollars. By reducing your taxable income and allowing tax-free withdrawals for eligible costs, they can significantly lower the overall cost of healthcare.

Health Savings Account (HSA)

A Health Savings Account is available to individuals enrolled in a qualified high-deductible health plan. Contributions are made with pre-tax dollars, the account grows tax-free, and withdrawals used for eligible medical expenses are also tax-free. This triple tax advantage makes HSAs uniquely powerful.

One of the defining features of an HSA is ownership. Even if the account is opened through your employer, the HSA belongs to you. The balance rolls over from year to year with no expiration, and unused funds can be invested for long-term growth. Over time, this transforms the HSA from a simple spending account into a strategic savings vehicle for future healthcare expenses.

Flexible Spending Account (FSA)

A Flexible Spending Account is an employer-sponsored benefit that also allows you to set aside pre-tax dollars for qualified healthcare expenses. FSAs are often easier to access because they are not tied to a specific type of health plan.

However, FSAs come with stricter rules. The account is owned by your employer, not you, and unused funds are generally forfeited at the end of the plan year unless your employer offers a limited rollover or grace period. FSAs also do not offer investment options, so balances remain in cash.

Contribution Limits and Employer Contributions

Both HSAs and FSAs are subject to annual contribution limits set by the IRS, and those limits are adjusted periodically. Employers may also set their own FSA limits, as long as they remain within IRS guidelines.

In general, HSA contribution limits are higher than FSA limits, and individuals age 55 and older may make additional catch-up contributions to an HSA. If your employer contributes to your HSA or FSA on your behalf, those amounts count toward your annual limit and may reduce how much you can contribute personally.

Because these limits can change from year to year and may be affected by employer funding, it is important to review your plan details carefully before making elections.

Contribution Limits:

For 2026, HSA contribution limits are $4,400 for individuals and $8,750 for families, with an additional $1,000 catch-up contribution allowed for those age 55 and older.

For 2026, FSA contribution limits are $3,400 for individuals. At the end of the year, up to $680 may be rolled over if your employer allows it. Contributions can typically be adjusted during open enrollment or following certain life events, such as a change in family status, plan selection, or employer.

Can You Have an HSA and an FSA at the Same Time?

In most cases, you cannot contribute to both a standard healthcare FSA and an HSA in the same year. The IRS does not allow overlapping tax benefits for the same category of medical expenses.

That said, there is an important exception. If your employer offers a limited purpose FSA, you can contribute to that account while also funding an HSA. A limited purpose FSA is restricted to expenses not typically covered by your health plan, most commonly dental and vision care.

This restriction does not apply to dependent care FSAs. You can contribute to an HSA and a dependent care FSA in the same year without issue.

Ownership and Portability Matter

One of the most significant differences between these accounts becomes apparent when you change jobs.

An HSA is yours permanently. You keep the account and its balance even if you leave your employer, change health plans, or stop working altogether. In certain situations, HSA funds can also be used to pay for COBRA coverage or health insurance premiums while unemployed.

An FSA, by contrast, is tied to your employer. If you leave your job, any remaining balance is typically forfeited unless you elect COBRA coverage and continue contributing. This lack of portability makes FSAs far less flexible over time.

Access to Funds During the Year

FSAs offer a short-term cash flow advantage that can be useful for predictable medical expenses. The full amount you elect to contribute for the year is available on the first day of your plan year, even though contributions are deducted from your paycheck over time.

HSAs work differently. Funds are only available as contributions are made. If you contribute gradually throughout the year, your available balance may be limited early on.

However, HSAs offer an important workaround. You can pay for a qualified medical expense out of pocket, save the receipt, and reimburse yourself later once your HSA balance has grown. This flexibility allows HSAs to function similarly to FSAs while preserving their long-term advantages.

Investment Potential and Long-Term Value

HSAs stand apart because they allow unused balances to be invested once a minimum cash threshold is met. Over time, investment growth can significantly increase the value of the account, particularly for those who do not need to spend their HSA funds each year.

FSAs do not offer investment options. Funds remain in cash and are generally intended to be used within a relatively short time frame.

What Happens at Age 65?

Before age 65, using HSA funds for non-qualified expenses generally triggers income taxes plus a 20 percent penalty. After age 65, that penalty is eliminated.

At that point, an HSA begins to function similarly to a traditional retirement account. Withdrawals used for non-medical purposes are taxed as ordinary income, much like a traditional IRA or 401(k). Withdrawals for qualified medical expenses remain tax-free.

This makes the HSA one of the most tax-efficient tools available for planning future healthcare costs in retirement.

Which Account Is Right for You?

An HSA may be a strong fit if you are enrolled in a high-deductible health plan, value flexibility, and want long-term tax-advantaged savings. For those who can afford to let balances grow, the HSA can play a meaningful role in retirement planning.

An FSA may be more appropriate if you have predictable medical expenses, want immediate access to funds, or are not eligible for an HSA. When used carefully, an FSA can still provide meaningful tax savings within a single plan year.

Final Thoughts

HSAs and FSAs both offer valuable tax advantages, but they serve different purposes. The right choice depends on your health plan, expected medical spending, job stability, and long-term financial strategy.

Taking the time during open enrollment to understand these differences can help you maximize tax savings while avoiding costly mistakes. Used thoughtfully, either account can be a powerful complement to your overall financial plan.

At Rimac Capital, we help clients evaluate options like HSAs and FSAs within the context of their broader financial picture, ensuring healthcare decisions align with cash flow needs, tax efficiency, and long-term planning goals.

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Key Takeaways

• For 2026, the most you can contribute to a Traditional pretax 401k and ROTH 401k is $24,500, increasing by $1,000 from 2025. 

• Those aged 50 and older can contribute an additional $8,000.

• Individuals aged between 60 to 63 are able to contribute an additional $11,250 in a higher catch-up contribution tier. 

The IRS announced this month that the amount individuals can contribute to their 401k plans in 2026 has increased to $24,500, up from $23,500 in 2025. IRA contributions limit has also increased to $7,500 from $7,000.

401(k) Contribution Limits

The annual contribution limit for employees who participate in 401k, 403b, 457 plans have been increased to $24,500, and to $72,000 for the combined employee and employer contributions. 

If the employee is aged 50 or older, they are eligible for a catch-up contribution and can contribute up to an additional $8,000 in 2026. However, if the employee is between ages 60 and 63, they can contribute up to $11,500 as a catch-up contribution in lieu of the standard $8,000. In summary, this means that employees aged 50 or older are eligible to contribute up to $32,500 in 2026 while those aged 60 to 63 will be eligible to contribute up to $35,750 in 2026. As a reminder, total contributions cannot exceed your annual compensation at the company that holds your plans. 

Contribution Limits:

Pretax and ROTH employee contributions: $24,500

Employee and Employer contributions: $72,000

Catch-up Contribution (if aged 50-59 or 64+): $8,000

Catch-up Contribution (if aged 60-63) $11,250

Advantages of Contributing to a 401k

One key advantage of 401k plans, offered by many employers, is the employer match. This means the company will match employee contributions up to a certain percentage of the employee’s income - typically between 3% to 5%. To maximize this benefit, employees should contribute at least up to the matching limit to take advantage of this ‘free money’ even if it means prioritizing the 401k over other accounts like IRAs.

Another major benefit of most 401ks is their tax-deferral feature which allows employees to avoid paying income tax on contributions for the year, effectively lowering their total taxable income. Some employers also offer a ROTH 401k option, though many employees are not aware of this. 

These plans provide a clear annual savings target for retirement. While employees are generally encouraged to save beyond the plan limits, these plans establish a minimum contribution goal to aim for each year.

401k Contribution Limits for Multiple Plans Across Employers

If you participate in 401k plans from multiple employers, your total employee contribution is still capped at the annual limit. For example, if you have two 401k plans, you can divide your 2026 maximum contribution of $24,500 between them

Note: These limits don’t impact what you can contribute to an IRA. You’re allowed to contribute the full legal maximum to both a 401k and an IRA each year.

Consequences of Overcontributing to your 401k

Exceeding your 401k contribution limit can result in significant penalties, including a 10% fine and unpaid income taxes on the excess contributions when they’re withdrawn. These excess contributions will appear on Form 1099-R for tax reporting purposes.

Fortunately, most 401k plans are designed to prevent overcontributions. However, if you change jobs midyear or participate in multiple plans, you could inadvertently contribute too much. If this occurs, you’ll need to request a refund of the excess by April 15, including any earnings it generated while in your 401k. Excess contributions and earnings are treated as taxable income and should be reported on Form 1099-R.

Conclusion

A 401k plan is one of the most powerful retirement savings tools available, yet many employees do not maximize it the way they are supposed to do. When compared to other retirement plans such an IRA, 401k plans allow for much higher annual contribution limits offering greater capacity for tax-deferred growth over time. This tax-deferred feature allows for investments to grow without being taxed until the employees withdraw funds, typically in retirement. Finally, the IRS tends to raise contributions limits each year to keep pace with inflation allowing employees to increase their savings rate gradually and work toward a more secure retirement as their income grows. 

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Key Takeaways

• The Internal Revenue Service (IRS) announced new increases for the 2026 tax brackets.

• Standard deductions have also been increased for 2026.

• The SALT deduction cap will rise to $40,400 in 2026.

Every year, the Internal Revenue Service (IRS) evaluates tax provisions and adjusts them if necessary. As a result, the IRS has recently announced inflation-adjusted changes to the 2026 tax brackets among other provisions for the upcoming year. 

2026 Federal Tax Brackets

What are tax brackets?

Federal tax brackets are income ranges that determine the percentage of federal income tax you owe, based on your earnings and filing status (e.g., single, married). The U.S. tax system is progressive, meaning income is taxed at increasing rates as it rises. Each portion of your income is taxed at the rate for the corresponding bracket, not the highest rate throughout. 

For example, single filers that earn more than $12,400 which is the top threshold for the 10% bracket in 2026, could owe $1,240 in federal income tax, or 10% of their first $12,400 in earnings, and then 12% on any income above that amount, up to $50,400.

Tax Brackets Changes for 2026

For 2026, the tax brackets range from 10% to 37%. These rates are the same as 2025, but the difference is the taxable income range for each rate.

For single filers, if your income is over $201,776, or $403,551 as a joint filer, your 2026 marginal rate is 32%. In 2025, the income level for the 32% marginal tax rate was anything above $197,301 for single filers and $394,601. 

Here is a summary of all tax bracket changes for 2026:

• 10% for incomes less than $12,400 ($24,800 for married couples filing jointly). 2025 income range: less than $11,925 single/$23,850 married filing jointly.

• 12% for incomes over $12,400 ($24,800 for married couples filing jointly). 2025 income range: $11,925 single/$23,850 married filing jointly.

• 22% for incomes over $50,400 ($100,800 for married couples filing jointly). 2025 income range: $48,475 single/$96,950 married filing jointly

• 24% for incomes over $105,700 ($211,400 for married couples filing jointly). 2025 income range: over $103,350 single/$206,700 married filing jointly.

• 32% for incomes over $201,775 ($403,550 for married couples filing jointly). 2025 income range: over $197,300 single/$394,600 married filing jointly

• 35% for incomes over $256,225 ($512,450 for married couples filing jointly). 2025 income range: over $250,525 single/$501,050 married filing jointly

• 37% for incomes over $640,600 ($768,700 for married couples filing jointly. 2025 income rage: over $626,350 single/$751,600 married filing jointly.

New Standard Deduction Changes for 2026

The standard deduction is a fixed dollar amount that helps lower an individual’s taxable income. This amount varies depending on your filing status.  You have two choices when you file your taxes:

• Standard deduction: In this scenario, you deduct the standard deduction amount from your total income for the year. The outcome is your taxable income which is what your tax is based on. 

• Itemized deductions: Here the taxpayer can itemize deductible expenses such as mortgage interest, medical expenses, charitable donations and more. If these expenses add up to more than the standard deduction, the taxpayer could use this option. 

Standard deduction amounts for 2026:

• $16,100 for single filers and married individuals filing separately, a 2.22% increase from the current tax year’s $15,750 ($350 increase).

• $32,200 for married couples filing jointly, compared to $31,500 this year 2025 ($700 increase).  

• $24,150 for head of households, increasing $525 from the tax year 2025. 

To conclude our understanding of standard deduction, as an example, a single filer earning $100,000 of income for the year could apply the 2026 standard deduction to reduce his taxable income to $83,900. Similarly, a married couple filing jointly with a combined income of $300,000 could reduce their taxable income to $267,800. 

Other Tax Provision Changes

• HSAs and FSAs: Starting in 2026, taxpayers who contribute to a health flexible spending account (FSA) can contribute up to $3,400 and, if their plan permits, carry over up to $680 into the next tax year. For those with health savings accounts (HSA), the 2026 limit for contributions will rise to $4,400 for self coverage and $8,750 for family coverage.

• Estate tax: This is the dollar figure for how much in assets can be sheltered from the estate tax. This federal estate-tax exclusion amount will increase to $15 million up from $13.99 million in 2025.

• Tax-free gifts: For 2026, the annual exclusion for gifts remains at $19,000. 

• Earned Income Tax Credit (EITC): The EITC helps low- to moderate-income workers and families get a tax break. For 2026, single people that can qualify can claim $664 on their tax returns, compared to $649 in 2025. Similarly, the maximum EITC amount that a family can claim in 2026 will be $8,231, up from $8,046 in 2025, however, it is important to note that this only covers qualifying households with three or more children. 

• Child Tax Credit of $2,000 with a refundable amount of $1,700 will remain the same.

Tax Effects of the ‘Big, Beautiful Bill’

Alongside the IRS’ inflation adjustments making changes to what people’s 2026 tax picture may look like, the OBBBA may have some effects on what they pay as well.

• Cap on itemized deductions: Those in the 37% tax bracket will notice a new 35% cap on itemized deductions. This means that instead of getting 37 cents on the dollar for itemized deductions, these filers will get 35 cents on the dollar..

• SALT deduction increases: The biggest increase to the state and local tax (SALT) deduction limit was seen this year, when it jumped from $10,000 to $40,000. But that increase will continue in 2026, when it will rise again to a limit of $40,400. 

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As tensions escalate in the Middle East, markets are watching closely to gauge how the Iran crisis might affect oil prices, global trade, and investor portfolios. While the situation remains fluid, recent developments suggest that Iran’s options for retaliation are limited, and a full-scale conflict, especially one that triggers a global economic shock, is still unlikely. Nonetheless, short-term volatility, particularly in energy and defense sectors, could create tactical opportunities.

Iran’s Limited Response Options

Iran’s leadership faces mounting pressure to respond to military setbacks and foreign pressure. However, with major global powers such as Russia and China offering only diplomatic support and refraining from military backing, Iran’s ability to escalate the conflict remains constrained. As a result, it is relying on asymmetric strategies rather than direct confrontation.

1. Proxy Escalation: Iran has long maintained influence over militias in Iraq, the Houthis in Yemen, and Hezbollah in Lebanon. These proxies could be activated to launch low-intensity attacks on U.S. interests, military bases, or allied infrastructure throughout the Middle East. Such attacks would aim to apply pressure and assert regional influence without triggering a full-scale war.

2. Maritime Disruption: The Red Sea and the Strait of Hormuz remain critical chokepoints in global shipping. Iran has already demonstrated capabilities using drones, missiles, and naval mines to threaten traffic through these corridors. While such actions can spike oil prices in the short term, they are typically calibrated for leverage, designed to signal strength and provoke negotiations rather than to ignite a full-scale conflict.

Could Iran Close the Strait of Hormuz?

The most dramatic scenario would be an outright blockade of the Strait of Hormuz, through which nearly 20% of the world’s oil supply and around 25% of seaborne trade flows. This narrow waterway is indispensable to global energy markets.

A blockade would have the most immediate and significant impact on Asia, particularly China, India, Japan, and South Korea. These four nations alone account for nearly 70% of the crude oil that transits the Strait. For India, the impact would be especially acute: over one-third of its 5.5 million barrels per day in oil imports pass through Hormuz. Any prolonged disruption could spark inflation and disrupt domestic supply chains.

However, the United States is far less exposed. Only about 0.5 million barrels per day, roughly 2% of U.S. oil consumption, pass through the Strait. Furthermore, the strength of the U.S. shale oil industry provides an added layer of insulation. Most U.S. shale operations break even at oil prices of $62–64 per barrel in the most productive basins, and some can profit at levels as low as $50. This built-in cost flexibility creates a natural floor under U.S. oil production, even in the face of rising global prices.

Why a Full Blockade Is Unlikely

While the threat of a full blockade grabs headlines, it remains an unlikely outcome for several strategic reasons. First, Iran would suffer tremendously from such a move. It depends heavily on its own maritime imports and oil export revenues. Sealing the Strait would amount to economic self-sabotage.

Second, the United States has taken visible and significant steps to deter such action. Two Carrier Strike Groups have been deployed to the region, each featuring a supercarrier with 65 to 70 fighter jets, supported by multiple destroyers and cruisers armed with hundreds of missiles. Any attempt by Iran to close the Strait would likely be met with a rapid and overwhelming military response.

Additionally, Israel has reportedly launched a targeted air campaign against Iranian air defense systems and missile infrastructure, degrading Iran’s military capabilities by an estimated 40%. This reduces the likelihood that Iran could sustain any prolonged operation in the Strait.

Finally, historical precedent suggests that Iran prefers to use brinkmanship rather than outright confrontation. Past threats to close the Strait have not materialized into lasting action. Instead, Iran has typically employed calibrated disruptions, such as limited mine deployments or sabotage operations, that make a statement without inviting a devastating response.

Other Tactical and Regional Risks

Beyond Hormuz, there are other flashpoints that could briefly rattle markets. Iran could target energy infrastructure in Saudi Arabia, potentially disrupting oil supplies through drone or missile strikes. It could also encourage terror operations against Western interests, though such actions would likely provoke harsher international backlash.

Another possibility is the acceleration of Iran’s nuclear ambitions. If key facilities remain intact, Iran might restart elements of its nuclear program in a bid for leverage. However, developing a deployable nuclear weapon remains a long-term endeavor, and any such move would invite renewed global sanctions and coordinated opposition.

In short, while these scenarios could lead to sharp market reactions, they are unlikely to cause sustained global economic turmoil. Most of the risks remain tactical and time-limited, rather than systemic.

A Possible Upside (but Unlikely) Scenario

While less likely, there is also an optimistic path forward. Iran could seek to de-escalate in exchange for meaningful incentives, such as the easing of economic sanctions or international guarantees. This would likely involve a rollback of nuclear activities and a commitment to avoid disrupting key shipping lanes. In such a case, oil prices could retreat, potentially reversing the recent $10-per-barrel rise and providing relief to global markets.

Market Implications and Investor Guidance

• Stay Diversified: For investors, the current crisis offers a timely reminder of the importance of diversification and strategic balance. The overall message is to stay the course, while tactically positioning to benefit from short-term volatility.

• Energy Marketing Positioning: A diversified global portfolio remains the most reliable risk-adjusted strategy. Geopolitical uncertainty tends to favor sectors like energy, commodities, and defense, all of which stand to benefit from rising volatility. U.S. energy producers, especially shale operators, are well-positioned to take advantage of higher oil prices, though gains may be capped if shale output increases in response.

• Defense Sector Watch: The defense sector also stands to gain, as heightened tensions often translate into increased government spending on aerospace, cybersecurity, and military technology. However, long-term performance in this sector depends on sustained policy commitments and budget allocations—not just headline-driven momentum.

• Avoid Overconcentration in Oil Plays: It’s wise to avoid over-concentration in pure oil plays, given the potential for quick normalization of prices if the crisis stabilizes or U.S. production ramps up. Instead, investors might consider watching related areas like LNG exporters, shipping insurers, and mineral extractors, which could emerge as indirect beneficiaries if regional instability persists.

Final Thoughts

Despite the current tensions, the structural underpinnings of the global economy remain intact. Iran appears to be seeking leverage, not all-out war. The United States and Israel maintain overwhelming military superiority in the region, and global oil supply disruptions, while possible, are more likely to be temporary and contained.

For investors, the key takeaway is clear: Stay diversified, stay informed, and avoid making aggressive, one-directional bets. Defense and energy exposures can serve as useful hedges, but should remain tactical components of a broader, balanced portfolio. The road ahead may bring volatility, but with careful positioning, it may also offer opportunity.

At Rimac Capital, we help clients navigate complex geopolitical events by aligning their portfolios with both long-term goals and evolving global risks. If you're unsure how current developments may affect your investment strategy we invite you to schedule a conversation with us. To get started, schedule a Free Strategy Session with our team today.

This content is for informational purposes only and should not be considered financial or investment advice. Please consult with a qualified financial professional regarding your unique situation. Past performance does not guarantee future results. Investments involve risk, including the potential loss of principal. This is not a solicitation to buy or sell securities.

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Schedule a free 30-minute consultation call. We’ll learn more about your priorities and ensure we can answer all of your questions.

Key Takeaways

• Longer lifespans require more flexible, tax-savvy, and healthcare-conscious retirement plans.

• Working later in life is becoming the norm, sometimes by choice, often by necessity.

• Today’s retirees must actively manage income, taxes, and legacy planning, there’s no one-size-fits-all approach.

In generations past, retirement was more straightforward. Most people stopped working at 65, collected a pension, and relied on Social Security to cover a good portion of their needs. But the world has changed and so has the path to retirement. Today’s retirees must plan for longer lifespans, higher costs of living, and greater personal responsibility for managing their own financial futures.

The traditional concept of retirement is being redefined. Let’s explore how, and what that means for those nearing or entering this important phase of life.

Longer Life Expectancy

People are living significantly longer than previous generations. According to the Social Security Administration, a 65-year-old man today can expect to live, on average, to age 84, and a 65-year-old woman to age 87. But that’s just the average, one in three 65-year-olds will live past age 90, and one in seven will live past 95.¹ This longevity introduces several challenges that must be addressed early and thoughtfully:

• Delaying Social Security: While benefits can start as early as age 62, delaying until age 70 can increase your monthly benefit by up to 76%. This delay strategy is particularly effective for those in good health and with other income sources to rely on in the early years of retirement.

• Healthcare and Long-Term Care Costs: With more years ahead, the likelihood of significant medical needs increases. While Medicare offers a foundational layer of coverage starting at age 65, it doesn’t cover everything. Dental, vision, hearing, and most long-term care costs are excluded. Many retirees find that out-of-pocket costs including premiums, copays, and deductibles can consume a substantial portion of their budgets.
  To prepare, some turn to Health Savings Accounts (HSAs) while they are still working. HSAs offer triple tax advantages: contributions are tax-deductible, earnings grow tax-free, and withdrawals are tax-free when used for qualified medical expenses. After age 65, HSA funds can also be used for non-medical expenses without a penalty (though income tax will apply, similar to a traditional IRA). For those with access to an HSA and a high-deductible health plan, this can be a powerful tool to fund future healthcare needs in retirement.
  Planning for long-term care, whether through insurance, savings, or hybrid strategies is also essential. The costs of assisted living, home healthcare, or nursing facilities can run into hundreds of thousands of dollars over time.

• Adjusting Investment Risk for Longevity: A longer retirement horizon can justify maintaining some exposure to equities to help outpace inflation. However, retirees must also protect against sequence of returns risk — the danger of experiencing poor investment returns early in retirement while making withdrawals. Solutions like a bucket strategy, dynamic withdrawal systems, or annuities with income guarantees can help retirees balance growth with stability.

In short, retirement planning must go beyond "having enough to stop working." It must include preparing for rising healthcare costs, optimizing government benefits, and designing a portfolio that can endure a 30+ year time horizon.

Evolving Employment Patterns

The classic notion of retiring at 65 is evolving, not just by choice, but increasingly by necessity. With inflation and healthcare costs outpacing wage growth in many areas, more Americans are working later in life, even after they’ve technically “retired.”

Some retirees take on part-time jobs or consulting roles to supplement income. Others engage in entrepreneurial work, turning hobbies into side businesses. For many, it’s not just about financial need; it’s also about maintaining structure, social connection, or purpose.

Still, the financial incentive is real: delaying withdrawals from retirement accounts, continuing to contribute to savings plans, and deferring Social Security can all significantly boost long-term retirement security.

Policy changes have helped support this shift. The SECURE Act 2.0 raised the age for required minimum distributions (RMDs) to 73 (and eventually 75), and increased contribution limits for older workers. These adjustments recognize that today’s retirees are more active, more capable, and, in many cases, more financially motivated to keep working than ever before.

Planning for retirement now requires flexibility. Rather than viewing retirement as a single event, many Americans are transitioning in phases with work continuing to play a part in the early years.

Shift from Pensions to Defined Contribution Plans

In the past, many workers could count on a defined benefit pension to provide guaranteed income in retirement. Today, those plans are largely extinct outside of government or union jobs. Instead, most Americans rely on 401(k)s, IRAs, and other defined contribution plans.

This shift has placed the responsibility for retirement squarely on individuals. You must decide how much to save, how to invest, and, most importantly, how to turn those assets into sustainable income that lasts for decades.

The challenge doesn’t stop at accumulation. Retirement income planning involves coordinating withdrawals across multiple account types (taxable, tax-deferred, and Roth), minimizing taxes, and managing investment risk. There’s also the psychological shift: going from saving for the future to drawing down your assets requires thoughtful strategy and a strong sense of financial discipline.

A sustainable retirement plan today isn’t just a spreadsheet of projections, it’s a flexible, evolving roadmap that adapts to changes in your life, your goals, and the economy.

Actively Managing Taxes

Retirees often underestimate the impact of taxes. But the way you withdraw money from your retirement accounts, and the order in which you do it, can dramatically affect your lifetime tax bill.

Taxable Social Security benefits, required minimum distributions, capital gains from brokerage accounts, and surcharges on Medicare premiums can all add up. Thoughtful tax planning can reduce these burdens and help stretch your retirement savings.

Some common strategies include:

• Roth conversions during lower-income years before RMDs begin

• Qualified charitable distributions (QCDs) to offset RMDs and reduce taxable income

• Tax-efficient withdrawal sequencing, balancing withdrawals from taxable, tax-deferred, and tax-free accounts

• Gifting strategies or using donor-advised funds to manage charitable giving efficiently

Tax-smart planning doesn’t end when your paycheck does. In fact, it becomes even more essential.

Increasing Focus on Legacy and Generational Planning

As retirees look beyond their own needs, many begin to think about what they’ll leave behind to children, grandchildren, or charitable causes. With rising real estate values, larger retirement accounts, and concentrated assets, estate planning is not just for the ultra-wealthy.

Whether your goals include passing on wealth efficiently, supporting heirs during your lifetime, or creating a philanthropic legacy, thoughtful planning can reduce estate taxes, avoid family conflict, and ensure your intentions are fulfilled.

Tools like updated wills, trusts, beneficiary designations, and gifting strategies should all be reviewed regularly and coordinated with your broader financial plan.

Final Thoughts

Retirement is no longer a static goalpost. It’s a multi-decade journey that must adapt to a world of uncertainty, from inflation and market cycles to rising healthcare costs and changing tax laws. While this complexity can be overwhelming, it also creates opportunities for those who plan carefully and think long term.

At Rimac Capital, we help individuals and families build financial plans that evolve with life. We don’t just create projections, we help you make more confident decisions at every stage of retirement.

Whether you're nearing retirement or already there, we invite you to schedule a conversation and explore how strategic, personalized planning can help you thrive in this new era. To get started, schedule a Free Strategy Session with our team today.

References:

1. Social Security Administration. “Retirement Benefits.” https://www.ssa.gov/benefits/retirement/planner/ageincrease.html

2. Fidelity. “How to Plan for Healthcare Costs in Retirement.” https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs

3. IRS. “Health Savings Accounts (HSAs).” https://www.irs.gov/publications/p969
   

This content is for informational purposes only and should not be considered financial or investment advice. Please consult with a qualified financial professional regarding your unique situation. Past performance does not guarantee future results. Investments involve risk, including the potential loss of principal. This is not a solicitation to buy or sell securities.

Connect with Us Today

Schedule a free 30-minute consultation call. We’ll learn more about your priorities and ensure we can answer all of your questions.

Key Takeaways

• Higher Deductions for Individuals and Families: The standard deduction would rise to $16,000 for single filers and $32,000 for joint filers, with an additional $4,000 boost for seniors.

• Expanded Tax Breaks for Small Businesses and Families: The Qualified Business Income (QBI) deduction increases to 23%, though it phases out for high earners; the Child Tax Credit would increase to $2,500.

• Broader Use of 529 Plans and Estate Tax Relief: 529 plans would now cover curriculum, professional fees, and K–12 support; the estate tax exemption would be locked in at $15 million per person, adjusted for inflation.

On May 22, 2025, the Republican-controlled House of Representatives passed what’s officially titled the "One Big Beautiful Bill Act", a sweeping tax and spending package that reflects key elements of former President Trump’s economic agenda. While it still faces debate in the Senate, the bill, if enacted, would usher in some of the most significant changes to the U.S. tax code since the 2017 Tax Cuts and Jobs Act.

At its core, the bill seeks to extend and expand many of the tax breaks that were originally set to expire at the end of 2025, while adding new benefits targeted at seniors, small business owners, and families. Here’s a closer look at what’s inside and what it could mean for your financial future.

A Larger Standard Deduction and Added Relief for Seniors

One of the most immediate changes would be an increase in the standard deduction. For single filers, the deduction would rise by $1,000, bringing it to $16,000. Married couples filing jointly would see their deduction increase to $32,000. Seniors would receive even more relief through a temporary $4,000 boost to their standard deduction. The bill also proposes exempting overtime and tips from federal income tax for older Americans, a targeted measure aimed at reducing the tax burden on those working past retirement age.

A Win for Small Business Owners and Entrepreneurs

In a move to encourage entrepreneurship and investment in small businesses, the bill would permanently raise the Qualified Business Income (QBI) deduction from 20% to 23%. However, this more generous deduction would come with new income limits, phasing out for individuals with taxable income over $400,000 and joint filers over $500,000. For eligible filers, this change would allow nearly a quarter of qualifying business income to remain untaxed, boosting after-tax profitability and encouraging reinvestment.

Support for Families with Children

Families with children would also benefit. The Child Tax Credit would increase from $2,000 to $2,500 per qualifying child and remain at that level through 2028. This modest increase aims to offer additional relief during the critical years of child-rearing, while preserving some of the expanded benefits temporarily introduced during the pandemic.

The bill also significantly broadens the scope of 529 education savings plans. Beyond traditional college-related expenses, families could now use 529 funds for K-12 tutoring, textbooks, standardized test preparation, curriculum, professional licensing fees, and even other professional development expenses. This gives account holders much more flexibility in how they support lifelong learning or career transitions.

Relief for High-Tax States and Legacy Planning

The long-debated cap on the State and Local Tax (SALT) deduction would see a dramatic adjustment under the proposed legislation. The current $10,000 cap would increase to $40,000, offering meaningful relief to residents of high-tax states such as New York, California, and New Jersey. This change could significantly reduce the federal tax liability of higher-income earners in those regions.

Estate planning would also be reshaped. The federal estate tax exemption, which had been scheduled to revert in 2026, would instead be locked in permanently at $15 million per individual (or $30 million for married couples), adjusted for inflation. This move would allow for more efficient wealth transfers across generations and could reduce the urgency around many estate planning strategies currently in place.

Additional Changes and Budgetary Considerations

The bill includes several other noteworthy provisions, such as a reduction in the proposed remittance tax rate from 5% to 3.5% and the introduction of a new tiered excise tax on private foundations based on their asset size. It also permanently repeals the personal exemption, streamlining parts of the tax code while eliminating a deduction that previously benefited certain households.

However, the bill comes with a significant fiscal cost. According to the Congressional Budget Office, its passage could increase the federal deficit by approximately $3.8 trillion over the next decade. Critics argue that the legislation disproportionately benefits high-income individuals and corporations, while potentially paving the way for future cuts to essential programs like Medicaid and the Supplemental Nutrition Assistance Program (SNAP).

What Comes Next?

If passed by the Senate and signed into law, this legislation could affect nearly every facet of personal and business tax planning, from how you save for education, to how you manage your retirement income, to how you prepare to transfer wealth to the next generation.

Whether you’re a small business owner evaluating your deductions, a retiree managing taxable income, or a parent planning your children’s future education, these potential changes warrant close attention. At Rimac, we’re committed to helping clients assess how these legislative changes may affect their broader financial goals and investment strategies.

As an independent, fiduciary firm, we offer truly comprehensive advice that’s objective, conflict-free, and always aligned with our clients’ best interest. To get started, schedule a Free Strategy Session with our team today.

This content is for informational purposes only and should not be considered financial or investment advice. Please consult with a qualified financial professional regarding your unique situation. Past performance does not guarantee future results. Investments involve risk, including the potential loss of principal. This is not a solicitation to buy or sell securities.

Connect with Us Today

Schedule a free 30-minute consultation call. We’ll learn more about your priorities and ensure we can answer all of your questions.

In recent years, a quiet but growing shift has been taking place in the world of private wealth: contemporary individuals and affluent families are increasingly seeking independent wealth managers over traditional financial institutions. What was once a world dominated by wirehouses, private banks, and large brokerage firms is now being redefined by independent Registered Investment Advisers (RIAs) who offer a more personalized, transparent, and fiduciary-driven approach to managing wealth.

This migration is not driven by trend or novelty, but by a desire for deeper alignment; with values, with long-term objectives, and with the complexity of modern wealth itself.

Here are five key reasons why high-net-worth families are turning to independent RIAs.

True Fiduciary Standard

At the core of the independent advisory model is a legal and ethical commitment to the client’s best interests. RIAs are bound by the fiduciary standard, a higher duty of care that obligates them to put clients first, disclose conflicts, and act with undivided loyalty.

By contrast, many advisors at large financial firms operate under the less stringent suitability standard, which permits recommendations so long as they are "suitable" even if they are not optimal. For families with complex, multi-generational wealth, that distinction is more than academic; it speaks to the integrity of the entire relationship.

Personalized Holistic Approach

Large institutions are designed for scale and with scale often comes standardization. Independent RIAs, on the other hand, are structured to serve a smaller number of clients with greater depth and intention. Rather than delegating relationships to junior teams or relying on preset models, independent firms offer highly personalized, nuanced advice shaped by the full complexity of a family's financial life.

From investments and tax strategy to estate planning, charitable giving, and intergenerational planning, independent advisors act as long-term partners, not product distributors. The experience is rooted in continuity and trust, where advice is tailored, proactive, and aligned with a family’s evolving goals. For families seeking more than transactional service, this level of engagement is both rare and essential.

Simple and Transparent Fee Structures

Transparency is often a casualty of complexity in traditional wealth management. Layered fee structures, proprietary products, and revenue-sharing arrangements can obscure how advisors are compensated, and whether those incentives are aligned with the client’s best interests.

Independent advisors typically operate under simple, clearly articulated fee models, most often as fee-only fiduciaries. This clarity fosters trust and removes ambiguity, allowing families to focus on the quality of the advice rather than second-guess the motive behind it

Access to Best-in-Class Investments

Independent wealth managers are not beholden to in-house product shelves or corporate mandates. Instead, they can curate a broad and sophisticated set of investment options, from traditional asset classes to private investments, alternatives, impact opportunities, and institutional-caliber strategies.

For affluent families seeking to build multi-dimensional portfolios, this open-architecture approach ensures that investment decisions are driven solely by what is best for them, not what’s best for a parent company’s bottom line.

Flexibility and Agility

Wealth planning is never static and neither are the markets, tax codes, or family circumstances that shape it. Independent RIAs are inherently more nimble than large institutions, free from layers of bureaucracy and internal approval processes.

This agility allows them to respond swiftly to client needs, seize emerging opportunities, and evolve their strategies in real time. For families seeking responsiveness, creativity, and forward-looking thinking, this flexibility is not just a convenience, it’s a competitive advantage.

Final Thoughts

The rise of independent wealth management is not a repudiation of the past, but a refinement of what clients now expect: bespoke advice, transparent practices, and an unwavering commitment to their best interests. For those seeking more than just market returns, for those seeking a true advisory relationship, RIAs offer not just an alternative, but a meaningful advantage.

At Rimac Capital, we were founded on the very principles that are driving this shift. As an independent, fiduciary firm, we offer truly comprehensive advice that’s objective, conflict-free, and always aligned with our clients’ best interest. To get started, schedule a Free Strategy Session with our team today.

This content is for informational purposes only and should not be considered financial or investment advice. Please consult with a qualified financial professional regarding your unique situation. Past performance does not guarantee future results. Investments involve risk, including the potential loss of principal. This is not a solicitation to buy or sell securities.

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Schedule a free 30-minute consultation call. We’ll learn more about your priorities and ensure we can answer all of your questions.

Key Takeaways

• Concentrated stock positions often acquired through equity compensation, inheritance, or long-term investing can create significant wealth but also pose substantial financial risk.

• Diversification is essential to reducing portfolio volatility and minimizing exposure to company-specific risks like market swings, regulatory shifts, or business underperformance.

• Some strategies for managing concentration include gradual diversification, hedging strategies, exchange funds, and charitable giving.

It’s not unusual for successful investors, especially executives, entrepreneurs, and long-tenured employees, to find themselves with a substantial portion of their wealth tied to a single stock. Whether through company compensation plans, inheritance, or long-term investing in a favorite business, a concentrated equity position can both drive and derail wealth.

While a large holding in one stock may have been the engine behind considerable financial success, it also exposes your portfolio to unique and significant risks. If you've built significant wealth through a concentrated position, it's time to assess whether holding that stock remains a wise long-term decision.

What is a concentrated position?

A concentrated position exists when a significant percentage of your total investment portfolio is tied up in a single security, typically more than 10% to 20%. This can occur for several reasons:

• Equity compensation: Founders, executives, and employees often accumulate stock through stock options, RSUs, or ESPPs.

• Inheritance or gifts: A single stock may be passed down through generations.

• Long-term conviction: Investors may have held a stock for decades, resulting in outsized growth relative to other holdings.

While these scenarios might feel like success stories, they also leave your portfolio vulnerable to risks that diversification typically helps reduce.

Why are concentrated positions are a double-edged sword?

Holding a concentrated position isn’t inherently bad. Some of the world’s wealthiest individuals made their fortunes by doing just that, think early Amazon, Nvidia, or Tesla investors. But what often goes unrecognized is the risk associated with what might seem like loyalty or confidence.

Concentrated stock holdings expose investors to elevated risks tied to a single company ranging from regulatory shifts and market volatility to industry-specific setbacks and internal performance challenges. In contrast, diversification helps cushion those risks by spreading investments across a broader mix of sectors and asset types.

The data reinforces this point: According to J.P. Morgan, 66% of the time a single-stock position underperformed a diversified investment in the Russell 3000 Index. In many instances, investors would have fared better simply holding cash rather than remaining overly exposed to one stock.

The Power of Diversification

Diversification is a foundational principle of long-term investing. It involves allocating capital across a range of asset classes, sectors, and geographic regions to avoid overexposure to any single investment. The goal isn’t just to maximize returns, it's to create a portfolio that can better withstand volatility and reduce the impact of poor performance in any one area.

By diversifying, investors smooth out their overall risk profile. When one holding lags, others may offset the decline helping maintain portfolio stability and supporting more consistent long-term growth.

Strategies for Managing Concentrated Positions

For those with a concentrated stock position, whether from equity compensation, inheritance, or long-term investing, it’s important to recognize that this success story could turn into a liability without proactive risk management. Fortunately, there are a variety of strategies available to help reduce exposure while aligning with your broader financial goals and tax situation.

Here are several key approaches to consider:

1. Gradual Diversification: Selling portions of a concentrated holding over time can help manage capital gains taxes and reduce emotional strain. A planned, incremental exit also allows investors to rebalance thoughtfully based on market conditions and income needs.

2. Hedging: Using options and other financial instruments can offer downside protection without requiring you to sell your shares. Strategies like protective puts, collars, or prepaid forward contracts allow you to limit losses while preserving upside potential though they can be complex and may require expert guidance.

3. Exchange Funds: For eligible investors, exchange funds provide a unique opportunity to swap a concentrated position for a diversified basket of stocks, all without triggering immediate capital gains taxes. These private investment vehicles can be powerful tools for achieving diversification while deferring taxes.

4. Charitable Giving: Donating appreciated stock to a qualified charity, donor-advised fund (DAF), or charitable remainder trust (CRT) can serve dual purposes: supporting a cause you care about while reducing tax liability and removing concentrated exposure from your portfolio.

Final Thoughts

There’s no one-size-fits-all approach to managing concentrated positions. Each strategy carries its own tax implications, liquidity considerations, and planning complexity. The right path depends on your unique circumstances, including your investment timeline, income needs, risk tolerance, and long-term goals.

At Rimac Capital, we offer a broad range of solutions to help you navigate and reduce the risks of a concentrated stock position. Our process starts with a thoughtful conversation to understand your specific circumstances and goals.

We work closely with clients to address complex financial planning needs and create tailored, tax-conscious investment strategies. Whether you're looking to diversify, preserve wealth, or unlock liquidity, we’re here to guide you with independent, personalized advice. Schedule a free strategy session with our team. 

References:

J.P. Morgan. January 2023. Managing the Risks of a Concentrated Position. https://www.jpmorgan.com/content/dam/jpm/wealth-management/documents/managing-concentrated-positions-overview.pdf

This content is for informational purposes only and should not be considered financial or investment advice. Please consult with a qualified financial professional regarding your unique situation. Past performance does not guarantee future results. Investments involve risk, including the potential loss of principal. This is not a solicitation to buy or sell securities.

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Schedule a free 30-minute consultation call. We’ll learn more about your priorities and ensure we can answer all of your questions.

Key Takeaways

• Qualified expenses from 529 plans are not taxed at the federal level—provided you understand and follow all the rules for qualifying expenses.

• 529 savings plans aren't just for college tuition and fees; there are many ways to use your 529 funds for other educational expenses.

• You can spend up to $10,000 from a 529 plan on tuition expenses for elementary, middle, or high school.

• Starting in 2024, families can rollover unused 529 funds into a Roth IRA account for the beneficiary.

• Non-qualified expenses are treated like ordinary income: state and federal taxes will apply, with a 10% federal penalty for withdrawals used to pay for them.

What is a 529 plan?

A 529 plan is a tax-advantaged investment account designed to help families save for education. When used for qualified expenses, withdrawals are tax-free, making it a valuable tool for parents and relatives planning for a child's educational future.

Contributing to a 529 plan not only supports long-term savings goals but also provides significant tax benefits when the funds are used appropriately. However, understanding the plan’s rules—particularly around qualified expenses—is critical. Mistakes can be costly at tax time, and in some cases, may even impact your child's eligibility for financial aid. Learning the ins and outs of 529 plans in advance ensures you can maximize its benefits and avoid potential pitfalls.

How to calculate 529 plan qualified expenses

Qualified expenses are federal income tax-free as long as the total withdrawals for the year don’t exceed your child’s adjusted qualified higher education expenses (QHEEs). If your withdrawals are equal to or less than your QHEEs, the withdrawals—including earnings—are tax-free. However, if withdrawals exceed QHEEs, taxes and potentially a penalty will apply to the earnings portion of the excess.

For most families, keeping records is straightforward since large tuition bills typically consume most 529 savings. However, if you’re using your 529 plan for room and board expenses, it’s smart to keep receipts.

To calculate QHEEs:

1. Add up expenses for tuition, fees, room and board, books, supplies, school-related special needs, and computer costs.

2. Subtract any costs already covered by tax-free educational assistance (e.g., Pell grants, scholarships, tuition discounts, or employer educational assistance).

3. Deduct expenses used to claim the American Opportunity Tax Credit or Lifetime Learning Credit.

What expenses can a 529 plan cover?

Qualified higher education expenses cover costs necessary for enrollment or attendance at a college, university, or other eligible post-secondary institution. For 529 plan purposes, this also includes up to $10,000 per year for K-12 school tuition and up to $10,000 for student loan repayments.

Let’s get into the details and break down each expense:

Tuition and fees

529 plan funds can be used to pay the full amount of tuition and fees for eligible schools, including colleges, universities, vocational or trade schools, and public, private, or parochial elementary and secondary schools. This is not limited to physical classes; online classes may qualify as well. As long as the institution is eligible, you can use 529 plan funds to pay for online tuition and fees.

Additionally, the Tax Cuts and Jobs Act of 2017 allows families to use 529 funds to pay up to $10,000 in tuition at K-12 schools (elementary and secondary). This applies to public, private, and parochial schools.

Books and supplies

Books and supplies include textbooks, lab materials, safety equipment, notebooks, and anything mandatory for coursework. Essentially, anything required for student courses qualifies as a qualified expense.

Keep in mind that you won’t be able to claim books and supplies that aren’t mandatory.

For instance, if you’re enrolled in a graphic design course and the syllabus requires a specific design textbook, purchasing that book qualifies as a 529 plan expense. However, if you buy a general art history book for personal interest, it wouldn't qualify.

Computers, software, and internet access

Computers, software, and internet access are considered qualified expenses, as is peripheral equipment such as mouses, speakers, and software required for college courses. These items must be used by the beneficiary primarily during their enrollment. Any software for entertainment, or electronics like smartphones, are not qualified expenses. If the student purchases such items, they won’t qualify and will be fully taxed.

Room and board

After tuition and fees, room and board are typically the second largest college expense. Funds in a 529 plan can be used for qualified room and board expenses, such as rent, other housing costs, and meal plans. These funds may be used for both on-campus and off-campus housing as long as the student is enrolled at least half-time. The student must also be working toward a degree, certificate, or another recognized credential.

If the student lives off-campus, the withdrawal is limited to the amount the school reports in its cost of attendance. Any amount above that is considered a non-qualified expense.

Rent incurred during the summer months is also a qualified expense if the student is enrolled at least half-time.

Study Abroad

529 plan funds can be used for study abroad programs, subject to the same restrictions as for U.S.-based study. This includes tuition and fees, books and supplies, and room and board. However, certain expenses, such as airfare, travel costs, international health insurance, and personal expenses (like entertainment), are not qualified.

Special needs equipment and services

This includes items or services necessary to support the education of a student with disabilities. These expenses must directly relate to the student’s enrollment or attendance at an eligible institution.

Additionally, families with special needs may want to consider using a 529 ABLE account, which is specifically designed for individuals with disabilities.

Student loans

The SECURE Act of 2019 expanded the definition of qualified expenses to include repayment of the principal and interest on qualified student loans for the beneficiary.

However, the law limits 529 plan withdrawals for student loan repayment to a lifetime maximum of $10,000. This means you cannot make multiple withdrawals from different 529 plans to exceed this limit.

ROTH IRA

Starting in 2024, the SECURE Act 2.0 allows leftover funds in a 529 plan to be transferred to the beneficiary’s Roth IRA. Some rules to note:

• The 529 account must have been open for at least 15 years.

• The rollover amount must have been in the 529 plan for at least 5 years.

• The lifetime limit is $35,000 for each 529 plan beneficiary.

• Rollovers can only be made to the Roth IRA of the named beneficiary.

This option provides parents with a way to use unused 529 funds by converting them into a Roth IRA for the beneficiary.

Keep in mind that not all states follow the federal definition of qualified 529 expenses. Be sure to check your state’s guidelines to avoid potential state tax penalties when rolling over funds to a Roth IRA.

What are some non-qualified expenses?

Not everything related to college qualifies as a 529 plan expense. Some examples of non-qualified expenses include:

• Transportation and Travel Costs – Costs like gas, transit passes, car rentals, and vehicle maintenance are not qualified expenses. Any withdrawals for these purposes will be considered non-qualified.

• Health Insurance – While certain medical expenses like therapy or special needs equipment may qualify under specific circumstances, health insurance is not considered essential for enrollment or attendance. An exception may apply if health insurance is part of a comprehensive tuition fee or required for enrollment.

• Application and Testing Fees – Costs incurred before admission, such as college application and testing fees, are not qualified.

• Extracurricular Activities, Sports, and Health Club Dues – These are generally not considered qualified expenses.

What happens if you incur non-qualified expenses in your 529?

If you use 529 plan funds for non-qualified expenses, you’ll incur taxes and penalties that reduce the benefits of the plan. The earnings portion of a non-qualified withdrawal is subject to federal income tax, and you may face an additional 10% penalty.

States may also impose penalties. If your state provided a tax deduction or credit for contributions, you may need to repay that benefit. For example, California imposes a 2.5% tax penalty on top of the 10% federal penalty.

Finals thoughts

529 plans play a crucial role in saving for college, but understanding the rules—especially regarding qualified expenses—is essential. As we’ve described, qualified expenses include more than just tuition, and withdrawals can be used tax-free for books, computers, room and board, and more. Using 529 funds effectively can help you maximize your educational savings.

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Key Takeaways

• In 2023, the average account balance for Vanguard participants was $134,128, while the median balance was $35,286.

• The average participant contribution reached a high of 7.4%, and when combined with employer contributions, this figure reached 11.7%.

• A record-high 59% of plans offered automatic enrollment, and among these plans, 60% defaulted employees at a deferral rate of 4% or higher.

A report released earlier this year shows that once again, Americans are saving at historic rates in 2023, with a record-high of 401k participants increasing their savings rate. The comprehensive data material in How America Saves, issued by Vanguard, depicts the trends of the retirement behavior of nearly five million Vanguard participants.

The report found that employees are contributing at record amounts into their 401ks of 7.4% in 2023, and when combined with employer contributions, the average participant total savings rate reached an all-time high of 11.7%. Take a look at the average retirement savings rate for investors at every age taking into account both employer and employee contributions:

According to Vanguard this increase was due to greater adoption of automatic enrollment plans, which has shown to improve participation rates. Historically, employees have had to decide whether to participate in their employer’s plans and at what rate to save; however, now employers are increasingly making these decisions for employees through automatic enrollment. By year-end 2023, 59% of Vanguard plans had adopted automatic enrollment, including 77% of plans with at least 1,000 participants. Among the auto-enrollment plans, 60% defaulted employees at a contribution rate of 4% or higher. This compared dramatically to 2014 when only 35% of plans defaulted employees into the plan at a rate of 4% or higher. 

In addition, the report found that the average account balance for Vanguard participants was $134,128, while the median balance was $35,286. The average account balance has increased by 19% since 2022 as a result of positive market performance alongside ongoing contributions over the year. Here is a look at how much money Americans have saved for retirement, by age:

Besides age, many factors influence retirement savings, such as income and how long a person has worked for a company. Older employees who have been working longer tend to have higher account balances than employees who are at the beginning of their careers.  It is advisable not to be fixated on savings balances but rather to focus on factors that investors can control such as expenses, investment choices and the savings rate (typically between 12 - 15% including employercontributions). This rate could be challenging for many, especially those who are starting out so sticking to at least to get the employer’s full match would be a first step. 

Other Factors Helping Workers Increase Savings

Improved Asset Management: Employee investment decisions are a critical determinant of long-term retirement savings growth. Target-date funds have remained a dominant choice, offered by 96% of plans and used by 83% of participants, with 70% of participants fully invested in a single target-date fund. Only 1% of investors who invest exclusively in target-date fund traded in 2023.

Access to Investment Advice: Advice has become more accessible to plan participants. The plans offering managed account advice are at an all-time high, and 3 out of 4 participants now have access to financial advice. These professionally managed investment portfolios dramatically improve diversification compared to portfolios of participants who make their own choices. 

Bottom Line

Retirement participants continue to benefit from the ever evolving 401k plans that have added strong features like automatic solutions, while plan sponsors continue to expand the breadth of offerings available within retirement plans. The rate at which workers are saving for retirement is at an all-time high, however when looking at the account balances for the median 401k of a person approaching retirement (65+) remains very low, and we could assume that most Americans are still very reliant on Social Security for a large portion of their retirement. What can actually be done here? The simple answer is, to have a more robust retirement, Americans are just going to have to save much more. The future does look promising given the data in this report and all we do is save more day by day. 

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Key Takeaways

• The Internal Revenue Service (IRS) announced new increases for the 2025 tax brackets.

• Standard deductions have also been increased for 2025.

• SALT deductions and Child Tax Credit remain the same for 2025. 

Every year, the Internal Revenue Service (IRS) evaluates tax provisions and adjusts them if necessary. As a result, the IRS has recently announced inflation-adjusted changes to the 2025 tax brackets among other provisions for that year. 

2025 Federal Tax Brackets

What are tax brackets?

Federal tax brackets are income ranges that determine the percentage of federal income tax you owe, based on your earnings and filing status (e.g., single, married). The U.S. tax system is progressive, meaning income is taxed at increasing rates as it rises. Each portion of your income is taxed at the rate for the corresponding bracket, not the highest rate throughout. 

For example, single filers that earn more than $11,925 which is the top threshold for the 10% bracket in 2025, could owe $1,192 in federal income tax, or 10% of their first $11,925 in earnings, and then 12% on any income above that amount, up to $48,475.

Tax Brackets Changes for 2025

For 2025, the tax brackets range from 10% to 37%. These rates are the same as 2024, but the difference is the taxable income range for each rate.

For single filers, if your income is over $197,300, or $394,600 as a joint filer, your 2025 marginal rate is 32%. In 2024, the income level for the 32% marginal tax rate was anything above $191,950 for single filers and $383,900. 

Here is a summary of all tax bracket changes for 2025:

• 10% for incomes less than $$11,925 ($23,850 for married couples filing jointly). 2024 income range: less than $11,600 single/$23,200 married filing jointly.

• 12% for incomes over $11,925 ($23,850 for married couples filing jointly). 2024 income range: $11,600 single/$23,200 married filing jointly.

• 22% for incomes over $48,475 ($96,950 for married couples filing jointly). 2024 income range: $47,150 single/$94,300 married filing jointly

• 24% for incomes over $103,350 ($206,700 for married couples filing jointly). 2024 income range: over $100,525 single/$201,050 married filing jointly.

• 32% for incomes over $197,300 ($394,600 for married couples filing jointly). 2024 income range: over $191,950 single/$383,900 married filing jointly

• 35% for incomes over $250,525 ($501,050 for married couples filing jointly). 2024 income range: over $243,725 single/$487,450 married filing jointly

• 37% for incomes over $626,350 ($751,600 for married couples filing jointly. 2024 income rage: over $609,350 single/$731,200 married filing jointly.

New Standard Deduction Changes for 2025

The standard deduction is a fixed dollar amount that helps lower an individual’s taxable income. This amount varies depending on your filing status.  You have two choices when you file your taxes:

• Standard deduction: In this scenario, you deduct the standard deduction amount from your total income for the year. The outcome is your taxable income which is what your tax is based on. 

• Itemized deductions: Here the taxpayer can itemize deductible expenses such as mortgage interest, medical expenses, charitable donations and more. If these expenses add up to more than the standard deduction, the taxpayer could use this option. 

Standard deduction amounts for 2025:

• $15,000 for single filers and married individuals filing separately, a 2.67% increase from the current tax year’s $14,600 ($400 increase).

• $30,000 for married couples filing jointly, compared to $29,200 this year 2024 ($800 increase).  

• $22,500 for head of households, increasing $600 from the tax year 2024. 

To conclude our understanding of standard deduction, as an example, a single filer earning $100,000 of income for the year could apply the 2025 standard deduction to reduce his taxable income to $85,000. Similarly, a married couple filing jointly with a combined income of $300,000 could reduce their taxable income to $270,000. 

Other Tax Provision Changes

• Estate tax: This is the dollar figure for how much in assets can be sheltered from the estate tax. This federal estate-tax exclusion amount will increase to $13.99 million from $13.61 million in 2024.

• Tax-free gifts: For 2025, individuals will be able to give others up to $19,000 on a tax-free basis, an increase from $18,000 this year. 

• Earned Income Tax Credit (EITC): The EITC helps low- to moderate-income workers and families get a tax break. For 2025, single people that can qualify can claim $649 on their tax returns, compared to $632 in 2024. Similarly, the maximum EITC amount that a family can claim in 2025 will be $8,046, up from $7,830 in 2024, however, it is important to note that this only covers qualifying households with three or more children. 

No Changes in 2025

Additionally, there are some tax provisions that aren’t adjusted on an annual basis and will remain the same in 2025. Some of these provisions are:

• Child Tax Credit of $2,000 with a refundable amount of $1,700 will remain the same.

• The state and local tax (SALT) deduction cap of $10,000 will not change. 

• The lifetime learning credit (LLC) which is for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution. It is worth up to $2,000 per tax return and will remain the same. 

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Key Takeaways

• For 2025, the most you can contribute to a Traditional pretax 401k and ROTH 401k is $23,500, increasing by $500 from 2024. 

• Those aged 50 and older can contribute an additional $7,500.

• Starting 2025, those 60 to 63 are able to contribute an additional $11,250 in a new ‘higher’ catch-up contribution tier. 

The IRS announced this month that the amount individuals can contribute to their 401k plans in 2025 has increased to $23,500, up from $23,000 in 2024. IRA contribution limit will stay the same in 2025 at $7,000.

401(k) Contribution Limits

The annual contribution limit for employees who participate in 401k, 403b, 457 plans have been increased to $23,500, and to $70,000 for the combined employee and employer contributions. 

If the employee is aged 50 to 59 or 64, they are eligible to contribute an additional $7,500 in catch-up contributions, increasing their employee contribution to $31,000 (from $23,500). Starting 2025, there is also a new “higher” catch-up for employees aged 60, 61, 62 and 63 who participate in these plans. This higher catch-up contribution is $11,250, when compared to the standard catch-up contribution of $7,500. In summary, this means that employees aged 50 to 59 or 64 and older are eligible to contribute  up to $31,000 in 2025 while those aged 60 to 63 will be eligible to contribute up to $34,750 in 2025. As a reminder, total contributions cannot exceed your annual compensation at the company that holds your plans. 

Contribution Limits:

Pretax and ROTH employee contributions: $23,500

Employee and Employer contributions: $70,000

Catch-up Contribution (if aged 50-59 or 64+): $7,500

Catch-up Contribution (if aged 60-63) $11,250

Advantages of Contributing to a 401k

One key advantage of 401k plans, offered by many employers, is the employer match. This means the company will match employee contributions up to a certain percentage of the employee’s income - typically between 3% to 5%. To maximize this benefit, employees should contribute at least up to the matching limit to take advantage of this ‘free money’ even if it means prioritizing the 401k over other accounts like IRAs.

Another major benefit of most 401ks is their tax-deferral feature which allows employees to avoid paying income tax on contributions for the year, effectively lowering their total taxable income. Some employers also offer a ROTH 401k option, though many employees are not aware of this. 

These plans provide a clear annual savings target for retirement. While employees are generally encouraged to save beyond the plan limits, these plans establish a minimum contribution goal to aim for each year.

401k Contribution Limits for Multiple Plans Across Employers

If you participate in 401k plans from multiple employers, your total employee contribution is still capped at the annual limit. For example, if you have two 401k plans, you can divide your 2025 maximum contribution of $23,500 between them

Note: These limits don’t impact what you can contribute to an IRA. You’re allowed to contribute the full legal maximum to both a 401k and an IRA each year.

Consequences of Overcontributing to your 401k

Exceeding your 401k contribution limit can result in significant penalties, including a 10% fine and unpaid income taxes on the excess contributions when they’re withdrawn. These excess contributions will appear on Form 1099-R for tax reporting purposes.

Fortunately, most 401k plans are designed to prevent overcontributions. However, if you change jobs midyear or participate in multiple plans, you could inadvertently contribute too much. If this occurs, you’ll need to request a refund of the excess by April 15, including any earnings it generated while in your 401k. Excess contributions and earnings are treated as taxable income and should be reported on Form 1099-R.

Conclusion

A 401k plan is one of the most powerful retirement savings tools available, yet many employees do not maximize it the way they are supposed to do. When compared to other retirement plans such an IRA, 401k plans allow for much higher annual contribution limits offering greater capacity for tax-deferred growth over time. This tax-deferred feature allows for investments to grow without being taxed until the employees withdraw funds, typically in retirement. Finally, the IRS tends to raise contributions limits each year to keep pace with inflation allowing employees to increase their savings rate gradually and work toward a more secure retirement as their income grows. 

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The recent U.S. election results mark a notable shift, with Donald Trump winning the presidency and a likely Republican majority in Congress. This outcome is anticipated to drive substantial economic and policy changes, which will have far-reaching implications for various asset classes and sectors. Here’s a closer look at the projected fiscal and monetary policies and how they may affect investment decisions.

Key Economic Policies Under Trump’s Administration

1. Continuation of Tax Reforms: The Trump administration is expected to extend the 2017 Tax Cuts and Jobs Act (TCJA), which initially brought corporate tax reductions and incentives to stimulate economic growth. Further corporate tax cuts may be introduced, providing a boost to corporate earnings and benefiting sectors that have significant tax liabilities.

2. Introduction of Universal Tariffs: The administration has proposed a 10% universal tariff, with an additional 60% on selected imports from China. These tariffs aim to bolster domestic production but could lead to increased costs on imported goods. This approach may also put upward pressure on inflation, potentially requiring an adjustment in monetary policy to counterbalance rising prices.

3. Loose Fiscal Policy and High Deficits: With plans for increased fiscal spending, high deficits are likely to continue. While this spending can stimulate short-term economic activity, it may also lead to inflationary pressures, making it essential for the Federal Reserve to implement tighter monetary policies.

4. Tighter Monetary Policy: In response to inflation risks from tariffs and fiscal spending, the Federal Reserve may adopt a tighter monetary stance, possibly leading to a stabilization or slower decline in interest rates. This shift could impact borrowing costs and influence investment flows between sectors.

Implications for Key Asset Classes

1. Mid and Small-Cap Stocks: Companies within the mid and small-cap segments are positioned to benefit from potential tax cuts and deregulation. At the same time, the expected emphasis on U.S. manufacturing could support growth in these companies, particularly in industries focused on domestic markets.

2. Banking and Fintech Sectors: The financial sector may experience growth as regulatory constraints ease, fostering innovation and profitability, especially for fintech firms. Lower regulatory burdens could stimulate more lending and financial activity, potentially increasing valuations in these sectors.

3. Interest Rates and the U.S. Dollar: The Federal Reserve’s tighter policy could result in a stronger U.S. dollar, which may affect international investments and emerging markets. Investors should consider currency risk when evaluating assets with global exposure, as a stronger dollar could reduce the value of foreign investments in dollar terms.

Investment Considerations for Advisors

For financial advisors, this political shift presents both opportunities and risks. It may be an ideal time to evaluate client portfolios, especially in sectors sensitive to tax and regulatory changes. For clients with international holdings, considering hedging strategies against dollar appreciation might be prudent. Maintaining a diversified portfolio with selective exposure to mid and small-cap stocks, banking, and U.S.-centric investments could provide balanced growth potential and risk management.

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You may have heard last month that before he was arrested, music mogul Sean “Diddy” Combs paid off the $18.8 million mortgage on his Florida home valued at $48.5 million. Even for the very wealthy, throwing almost $19 million at a problem better have a well thought out rationale and reasoning. Mr. Combs surely consulted his lawyers, financial advisors and accountants to coordinate this move. 

But why would he do this before being arrested? Another celebrity example can also provide some clues. O.J. Simpson had an outstanding judgment against him of $33 million dollars from his civil wrongful death case in 1997. That judgment wasn’t paid in any meaningful way over the years and by the time of his death in 2024, it had ballooned to around $100 million. Yet Simpson lived a seemingly luxurious lifestyle in Florida. One of the reasons for this is what is sometimes referred to as the Florida Homestead Act. Simpson acquired his principal residence in the state of Florida. Article X, Section 4 of the Florida Constitution protects a Florida resident’s homestead from creditors.

The Florida Homestead Act provides homeowners with valuable protections, particularly from creditors, by designating their primary residence as a protected homestead. Here’s a breakdown of how it works and the protections it offers:

1. Exemption from Forced Sale: Under the Florida Constitution, a homestead property is protected from forced sale by most creditors. This means that, if you have unsecured debts or financial judgments against you, creditors cannot force the sale of your homestead to satisfy those debts. This applies to personal residences, and it shields both the property and a certain amount of land (up to half an acre within an urban area or up to 160 acres in rural areas).

2. Exceptions to Homestead Protection: While the Homestead Act is broad, there are exceptions. You are not shielded from foreclosure if the debt is tied to the home itself, like a mortgage, property taxes, or contractor liens. Additionally, it doesn’t protect against federal debts like IRS tax liens or support obligations like child support or spousal support.

3. Inheritance and Transfer Limitations: The homestead protection passes on to your heirs, which means they can inherit your home with the same shield from creditors. However, transferring or selling a homestead property to shield it from creditors can be complex and may have legal limitations or implications, particularly regarding how it affects the homestead’s protected status

4. Asset Protection: The Homestead Act can be a valuable asset protection tool, allowing homeowners to invest in their home without the risk of losing it to creditors. This is particularly beneficial in a state like Florida, which doesn’t have state income tax; some high-net-worth individuals use it as a legal way to protect their wealth.

Florida homestead protection is one of the strongest in the U.S. yet it’s not the only one. Several other states have homestead laws similar to Florida’s, offering protection from creditors for a primary residence. However, the level and specifics of protection vary by state. Here are some notable states with strong homestead protections:

1. Texas - Like Florida, Texas has robust homestead protections against creditors, with no dollar limit for the property value, covering up to 10 acres in an urban area and up to 100 acres in rural areas for individuals (200 acres for families).

2. South Dakota - Offers unlimited protection on homestead property against unsecured creditors, similar to Florida. However, it is limited to 1 acre in city limits or 160 acres elsewhere.

3. Kansas - Provides unlimited homestead protection on a primary residence, with acreage limited to 1 acre within city limits and 160 acres in rural areas.

4. Iowa - Offers a homestead exemption up to 40 acres in rural areas or up to ½ acre in cities.

5. Nevada - Provides homestead protection up to a certain dollar amount ($605,000 as of 2023), which protects the equity in the primary residence from creditors.

The level of homestead protection can vary significantly, with some states providing unlimited protection like Florida and Texas, while others have specific equity limits or acreage restrictions.

Retirement Assets Are Also Protected

Another set of assets that is protected against creditors in many cases are retirement assets. Mr. Combs, like many entrepreneurs and workers today, likely doesn’t have a 401k or a pension. But in the case of Simpson, besides his home, the other reason Simpson was able to live a luxurious lifestyle has to do with federal protection for retirement assets. Simpson benefited from pensions from both the Screen Actors Guild and the National Football League (NFL). Pensions and retirement plan assets are often the best protected assets people own. Virtually all ERISA-qualified pension plans are federally protected from both creditors and bankruptcy. This includes most defined benefit pension plans, 401(k), profit-sharing or money purchase plans.

Simpson’s pensions, combined with his Florida homestead, allowed him to live very comfortably despite the civil judgment. This is a significant consideration for us all regarding our own asset protection plans.

It should be noted that traditional IRAs, Roth IRAs, SEP, KEOGH plans and 403(B) plans are not provided with federal protection. Those accounts may be protected at different levels based upon state law.

Trusts, Prenups & Wills

One of the more popular questions that we get as advisors is how do I protect my assets? There isn’t always a simple answer since it is typically highly dependent on the personal situation of the person asking. It also depends on whether they are looking to protect their assets during their lifetime, entering marriage or after death, each one comes with a unique solution, as well as tax considerations that need to be weighed before making a decision. Some of the most popular examples we see include:

• Protecting Assets Prior to Marriage - This is typically handled through a prenuptial agreement. It’s important to keep in mind however that this only covers assets that were obtained prior to marriage. Eleven the growth in those assets is not safe, if you had stocks that were invested prior to marriage and doubled in value while married, then a quarter (half the growth achieved during marriage) could be divided in a divorce.

• Protecting Assets During Divorce - It hurts to say this, but this is nearly impossible. Divorce settlements and litigation is riddled with uncertainties and it never pays to hide assets during a divorce and incur the wrath of the judge. 

• Protecting Assets During Marriage - Postnuptial agreements are also an option if a prenup has not been signed although depending on your relationship, it could get contentious so it needs to be approached with caution. As with a prenup, it will be limited in terms of what you can financially separate in many states once you are married. Another option is also an irrevocable trust, again here once married both spouses would need to consent to the terms.

• Protecting Assets from Spendthrift Children or Ex-Spouses - For those that are divorced, one of the best motivating factors to get working on a will is that even if they leave their assets to their children post divorce, if those children happen to be under 18, then their estate will in most cases transfer to their ex-spouse. Sometimes that isn’t the issue but people may be worried that their whole estate passing to a 20 year old wouldn’t be used responsibly. In these cases what’s called a testamentary trust can be created, which is a trust created by a will only when the testator (the person whose will it is) passes on. This trust can be customized, for example to pay out a certain stipend per year or to not pay at all until adult children have reached a certain age such as 35.

Depending on the state you reside in, your tax situation, your legal status and your marital status, one asset protection plan will not always look like another. Add to that the terms of a divorce, judgment or settlement, the terms of which can carry on for many years after these issues are finalized and you may find yourself with the need of professional advice. As more news brings the financial details of notorious celebrity cases to light, it will be interesting to see some of the innovative structures that the rest of us may be able to utilize.

References:

1. Alper Law

Alper Law. “Florida Homestead Law.” Alper Law, accessed October 31, 2024. https://www.alperlaw.com/florida-asset-protection/florida-homestead-law/.

2. Speiser Law Firm

Speiser, Jonathan. “Understanding the Benefits of Florida’s Homestead Law.” The Speiser Law Firm, September 1, 2022. https://www.speiserlaw.com/2022/09/floridas-homestead-law/.

3. Asset Protection Planners

Asset Protection Planners. “Homestead Exemptions by State.” Asset Protection Planners, accessed October 31, 2024. https://www.assetprotectionplanners.com/planning/homestead-exemptions-by-state/.

4. The Florida Bar Journal

The Florida Bar Journal. “Florida Exemptions and How They May Be Lost.” The Florida Bar, accessed October 31, 2024. https://www.floridabar.org/the-florida-bar-journal/florida-exemptions-and-how-the-same-may-be-lost/.

5. Goralka Law Firm 

How did O.J. Simpson avoid paying the Brown and Goldman families? Goralka Law Firm. Retrieved 11/4/24,from 

https://www.goralkalawfirm.com/blog/how-did-o-j-simpson-avoid-paying-the-brown-and-goldman-families-.cfm

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As remote work has become more common since the pandemic, so has the need to manage multiple jobs for those ambitious few who hold multiple jobs. This isn’t just an issue for those that are trying to work 2 jobs in secret which the mainstream press has focussed on. Many different types of skilled employees have the ability to both work for a traditional W2 employer as well as act as a 1099 contractor with other employers. Workers who are in high demand like this and highly compensated (healthcare is one field that comes to mind) may have the option to establish both a SEP IRA for their 1099 work as well as reap the benefits of more traditional retirement plans such as a 401(k) or 403(b). 

This post will focus on the difference between those types of plans most commonly seen among private, government and non-profit employers and how Rimac can assist skilled professionals in navigating and maximizing these plans, supercharging their own retirement in the process.

Types of Plans

401(k)

This is the most common plan for private corporations, this is an employer sponsored plan. The limit for contributions for 2024 is $23,000 per employee not counting employer contributions. If the employer contributes then the total employer and employee contributions cannot exceed $69,000 for 2024. If you are over 50, there is an allowed catch up contribution of $7,500 which can be made. This $23,000 total is across different employers. If you have multiple 401(k) plans, then the total that you contribute combined among all of them cannot exceed $23,000 in the tax year. This is called the one employee contribution total.

Example: So for someone who is 45 years old, they can allocate a maximum out of their income of $1,916.67 per month for 12 months to total $23,000. Employers often provide matching of between 3% and 5% up to some maximum figure, in this example let’s choose $4,000. So this 45 year old could contribute $23,000 for the year and the employer would match $4,000 for a total of $27,000. 

However, some employers also offer a profit sharing retirement contribution mechanism for good times. Let’s say an employer had a banner year and wanted to give back to employees through retirement account profit sharing. The employer in this case could contribute an additional $42,000 into the retirement account of our 45 year old for a total retirement contribution of $69,000 That is, $23,000 from our employee, $4,000 in matching and $42,000 in profit sharing.

If that same person was over 50, they could contribute $30,500 out of pocket, see the $4000 matching and along with the company’s $42,000 contribution could reach $76,500 for the year.

403(b)

Very similar to a 401(k) plan is a 403(b) plan. It also allows employees to save for retirement while receiving tax benefits. The difference is that 403(b) plans are offered by public schools, churches and certain tax exempt organizations such as non-profit hospitals i.e. 501(c) organizations. The same total contribution limit applies to the above however, i.e. that the $23,000 limit applies to your own contributions across employers. So if you have a 403(b) and a 401(k) again, that $23,000 employee contribution limit is combined across accounts.

457(b)

This is a plan for deferred compensation for state and local governments and tax exempt organizations (those 501(c) organizations described above). The 457(b) plan is the most common type of plan seen under this code. The key point to understand about 457(b) plans is that they are deferred compensation from your employer to you. That means that it is money the employer owes you but that the employer has not yet paid you. There are both tax-deferred (traditional) and tax-free (Roth) versions. It is also important to note whether your 457 is governmental or non-governmental, in the former case, the 457(b) shields your assets from your creditors. It isn't your money (yet), so your creditors can't take it. In the case of a non-governmental account, it may be available to your employer's creditors. The annual contribution limit for a 457(b) plan mirrors that of a 401(k) or 403(b)—$23,000 in 2024. This amount however is independent of what has been contributed to a 401(k) or 403(b) so if employees can afford it, we almost always advise that clients try to max out their 457(b).

There is no early withdrawal penalty from a 457(b), at least if you are allowed to make a withdrawal. While taxes may be due, there is no extra 10% tax for withdrawing prior to age 59 1/2. However, plans generally require you to either separate from the employer first or, at least, have a hardship before you can make a withdrawal. 

Like 403(b)s, 401(k)s, Roth 401(k)s, Roth 403(b)s, and traditional IRAs, 457 plans have required minimum distributions (RMDs). If you have not already depleted the account, beginning at age 73, you will be required to take a certain amount of money out of your account each year or pay a huge tax (50% of the amount you should have withdrawn). You don't have to spend the money, but you do have to remove it from the retirement account and reinvest it elsewhere.

After you leave your employer, what you can do with the 457 depends on whether it’s a governmental plan or not. If it’s a governmental plan it can be rolled into an IRA or taken out and taxes paid on it. If it’s not a governmental plan then you are only allowed to roll it into another 457(b) plan, leave it or pull out the funds according to the plan rules and pay the taxes due (no taxes if it’s a Roth 457(b).

Getting More Complicated - Rules Per Unrelated Employer

The IRS also only allows you and your employer (which might also be you) to put a total of $69,000 for 2024 ($76,500 if 50+) per year into a 401(k). This includes the employee contribution, any match from the employer, and any employer contributions. This is the same limit for a SEP-IRA (if <50) which is technically all employer contributions. However, this limit applies to each unrelated employer separately.

“Unrelated employers” means that the businesses doing the employing are not a “controlled group.” There are two types of controlled groups:

1. “Parent-Subsidiary” Group

   This is when a parent business (corporation, sole proprietor, LLC, partnership, etc.) owns 80%+ of another business.

2. “Brother-Sister” Group

   This is where 5 or fewer individuals, estates, or trusts own a controlling interest (again, 80%+) of two different businesses.

So if the two businesses you are involved in aren't a controlled group, and they each have a 401(k), (or a 401(k) and a SEP-IRA) you get two $69,000 limits. In layman’s terms, as long as you own 20% or less of the other company offering you a 401(k) or 403(b) then you have a second limit of $69,000 in total employer and employee limits

Example: A single doctor works for 2 hospitals as well as is a self employed 1099 employee. In hospital 1, the doctor earns $150k is offered a 401(k) and a 457(b) with employee match up to $5k on the 401(k). In hospital 2 the doctor earns $100k, has a 403(b) with a match of up to $7k. Our doctor then has a personal corporation where they earn 1099 income which totaled $400k in 2024. This doctor also has an IRA which he contributes to every year up to the limit, which in 2024 is $7k. This doctor could maximize their contributions to all accounts as follows:

• Hospital 1 401(k): At least $5K plus the $5K match = $10K

• Hospital 1 457: $23K

• Hospital 2 403(b): At least $7K plus the $7K match = $14K

• Plus $11K into either 403(b) or 401(k) plans depending on which offers the best investment options

• Plus another $69K into the SEP IRA for their 1099 employment

• Plus $7K for their IRA

• Total: $134,000 

Special Notes

These Rules Have Nothing to Do with 457s, IRAs, or HSAs

457(b)s, Backdoor Roth IRAs, and HSAs all have their own separate limits that have nothing to do with the limits for 401(k)s, 403(b)s and SEP-IRAs. Putting more into an HSA doesn't mean you can't still max out your 401(k).

Catch-Up Contributions Also Allow You to Surpass the $69K Limit

Many accounts have catch-up contributions if you're old enough (usually 50 or older, but 55 or older for HSAs). Roth IRAs have a $1,000 catch-up, HSAs have a $1,000 catch-up, and 401(k)/403(b)s have a $7,500 catch up. That $7,500 catch-up is in addition to the $69K limit, so if you're over 50, you're self-employed with lots of income, and you make your full $30,500 employee contribution to your individual 401(k), the $69K limit becomes a $76,500 limit. Note that 457(b) catch-ups and 403(b) catch-ups work slightly differently.

403(b)s Are Not 401(k)s

Some employees have access to a 403(b) by working for a public entity. There is a unique rule for 403(b)s, however, which will prevent many who use a 403(b) at their main job from maxing out an individual 401(k) on the side, at least if they own 50% or more of the company for which they have an individual 401(k). Essentially, your 403(b) at work, unlike a 401(k), is considered to be controlled by you. So you are limited to the same 415c limit of $69K (see Chapter 3 at the link). So if you put $23K into your 403(b) at work, you are only allowed to put $69K-$23K=$46K into an individual 401(k). Note that the individual 401(k) is distinct from the SEP-IRA which is different.
If you’ve made it this far, you may still be a little overwhelmed at all the options. The retirement system was created as a hodgepodge of different rules and laws so isn’t necessarily designed to be easy to understand and intuitive. If you are lucky enough to be offered multiple retirement options such as were mentioned here, please reach out to one of our advisors to assist in maximizing your retirement and increasing your investment options which can be offered through rolling over into an IRA or a SEP-IRA that we can assist you in setting up. 

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A Guide to the PINNO Investment Policy

The title of our guide refers to a timeless book on investment written by Fred Schwed and published in 1940. The title refers to a story about a visitor to New York who admired the yachts of the bankers and brokers. Naively, he asked where all the customers' yachts were? Of course, none of the customers could afford yachts, even though they dutifully followed the advice of their bankers and brokers.The fact that this book was written over 80 years ago and that much of its cynical views still hold true, is a testament to how deeply connected the way we deal with money is more often than not driven by emotion and irrationality.

Abel and I started Rimac after years of work in the financial and tech industries where we saw the ins and outs of wealth management, private credit and markets. We saw a demand for advice that was transparent, more accessible and sophisticated compared to the mostly salespeople who are the majority pushing wealth advice. Every advisor would like to posit how different they are to stand out from the crowd. Yet we believe our radically practical and transparent approach truly makes Rimac a one of a kind firm for your wealth advice. To show this, we would like to share our core investing principles. After taking these in, we hope you will understand better where we stand and what gets us up out of bed every morning.

We Believe in Maximizing Long Term Well Being for Our Clients

You may be thinking, what does this mean really? So let us explain. Rimac is a firm that is not going to push a hot stock or beat the market in any given year. There has been enough academic research to show that over the long term this is a fool’s errand for most people. Our advisors make sure that you are saving properly and in the most tax efficient manner. We make sure that you achieve low cost diversification across markets to reduce the volatility of your portfolio for a given target return. Apart from investing, this can also mean advising our clients on what NOT to do as much as what to do.

For example, using a half of your savings near retirement to open a risky business like a restaurant in a major metropolitan area (where there is a lot of competition) may not be something we would advise a client to undertake. Sometimes sitting a hot investment out is the best course of action and Rimac will be your partner and coach in such times. It can also mean that some portfolios may look a bit boring, and we don’t shy away from that, if boring gets our clients where they need to be, we will take ‘boring’ every time. If we put you into boring funds for 20 years that grew to meet your goals and saved you $500,000 in taxes over your lifetime would you feel we’ve earned our fees? Your well being doesn’t just include your money and retirement. It can also mean taking care of loved ones or leaving a legacy. Our access to Trust and Estates attorneys and charitable giving allow us to add value for clients with all types of objectives.

We believe that Trust is built through Transparency

Rimac is a fiduciary firm required to put its client’s interests first. As of June 2023, of the 385,058 Registered Investment Advisors (RIA) in the U.S., 307,590 of them are Dual-Registered Advisors. This means that only 69,482 RIAs are true fiduciary investment advisors without this huge conflict of interest. This represents only 11.2% of the 689,925 financial advisors in the U.S. (source). When an advisor is associated with a broker dealer firm, they are almost always paid a commission to push the products that their brokerage gets paid a hidden fee for. Asset management firms pay these “distribution fees” to brokers to push the funds onto their clients. They don’t even have to be in the client’s best interest, they just have to be deemed “suitable” for a particular client. We believe this model is ethically indefensible and by propagating it, the wealth management industry has engendered a general mistrust and skepticism of financial advisors that hurts the industry in the long run. Rimac offers fees based on the assets we manage or a flat fee for financial advice if clients prefer. This allows clients to choose which payment method they feel most comfortable with and takes the conflict of interest out of our advice. Our prices for both assets we manage and flat fee advice are designed to be competitive with low cost advisors such as Vanguard but with what we believe is better quality service. Allowing Rimac to manage your assets for you allows us to also explore alternative investments that may not be available to lower cost providers such as private equity, private real estate and derivatives. 

We Believe in Accountability Through Benchmarking

Benchmarking, or establishing a standard investment that your portfolio is to be measured against, is the bane of most advisors’ existence and they will avoid it if they can. Not at Rimac. We examine your holistic investment portfolio across your retirement, brokerage and private assets against an agreed upon benchmark and evaluate the performance of our advice on an annual basis. If our clients outperform, we can point to why and what extra risk or special investment they took to get there. If they underperform, we can also pinpoint the source of why and discuss if adjustments need to be made and risk reduced. Sometimes underperformance may be expected due to client driven constraints and that’s ok, as long as it is understood and communicated clearly. 

We Are Constantly on The Hunt for New Alternatives

We believe an investment advisor should be passionate about any avenues to getting their clients towards their goals. Rimac is willing to consider and guide retirement scenarios that may be outside of the traditional box such as retiring overseas, early retirement and utilizing foreign trusts. We are constantly examining the latest investment research to explore new alternatives such as factor funds, alternatives indices, derivatives, private equity, venture capital, crowdfunding, commodities and futures to achieve target returns with minimum volatility.

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