Money Management

The SEP IRA and Solo 401(k) have high contribution limits. But which will allow you to maximize your savings? Find out here. [[{“value”:”

There are several different ways for self-employed individuals to save and invest for retirement, and two of the top account types are the SEP IRA and the Solo 401(k). Both are readily available through many major online brokers, and both can be used to invest in stocks, bonds, ETFs, mutual funds, and more. And both account types allow eligible participants to set aside lots of money for retirement. But which will allow you to contribute the most money on a tax-deferred basis?

First, when I tell you that the overall contribution limit for both types of accounts is $69,000 in 2024, this might sound like a trick question. But there are some key differences that could allow you to contribute significantly more to one than the other.

SEP IRA contribution limits for 2024

As mentioned, the overall SEP IRA contribution limit for 2024 is $69,000, but there are a few things to unpack here.

First, all contributions made to a SEP IRA are designated as coming from the employer. Of course, self-employed individuals fill the role of both the employer and employee. But from a technical perspective, SEP IRA contributions are all considered to be from the employer.

This is most significant because it means that there are no catch-up contributions for SEP IRA investors 50 years of age or older, like there are with traditional and Roth IRAs, as well as most other types of tax-advantaged retirement accounts.

Second, contributions are limited to 25% of your net self-employment income, up to a maximum of $345,000. I’ll spare you the math, but because half of the self-employment tax is excluded from your net income, this effectively limits your maximum contribution to approximately 20% of your net income.

Solo 401(k) contribution limits for 2024

Another way to save for retirement as a self-employed individual is with a one-participant 401(k) plan, also known as a Solo 401(k). These accounts have the same overall contribution limit of $69,000 as a SEP IRA, but there are some big differences.

First and foremost, just like with a 401(k) plan through an employer, there can be both employer and employee contributions. Up to $23,000 of your contributions can be considered employee contributions — technically called elective deferrals in 401(k) terms.

401(k) employer contributions have the same “25% of net self-employment income” rule as SEP IRAs, but because the $23,000 employee contribution can be made as well, it usually results in a higher contribution limit for all but the highest-earning self-employed individuals. (We’ll look at an example in the next section.)

Second, if you are 50 years old or older, you can make a catch-up contribution of as much as $7,500 — and this is on top of the $69,000 limit. In other words, if you are 50 or older, this means that you may be able to put as much as $76,500 in a solo 401(k) for 2024.

An example

Let’s look at an example. We’ll say that your self-employment net profit is $200,000 for 2024. The IRS has a handy worksheet you can use to calculate your SEP IRA contribution limit, and because self-employment tax for a $200,000 income would be $13,353, the calculated SEP IRA contribution limit for 2024 is $37,329.

If you chose to use a Solo 401(k) instead, this same employer contribution limit would apply to you. However, you could also choose to contribute as much as $23,000 — designated as an employee contribution — which would bring your total limit to $60,329. Plus, if you are 50 or older, you could add another $7,500 for a grand total of $67,829.

The bottom line

The short version is that for most self-employed people, the Solo 401(k) allows for higher contribution limits. There are some downsides to using a Solo 401(k), such as generally more required paperwork than a SEP IRA, and of course, not everyone needs to save anywhere near the $69,000 limit each year for a comfortable retirement. Having said that, if your priority is to save as much as legally possible, the Solo 401(k) could be right for you.

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Living on a fixed income? Read on to find out how Sam’s Club membership benefits seniors. [[{“value”:”

Several years of high inflation have made the cost of living more expensive than ever for seniors on a fixed income. A recent survey by the Senior Citizens League found that 43% of respondents said their household expenses increased by more than $185 per month in 2023.

Having a discount warehouse club membership has been a longstanding strategy for seniors to save money — and Sam’s Club is arguably one of the best places to do it.

Here are five Sam’s Club deals that can help seniors’ personal finances.

1. Prescription drugs

Many Sam’s Club locations have a full-service pharmacy, making it convenient for seniors to do their grocery shopping and get prescriptions filled at the same time. Not only is the pharmacy convenient, but you’ll likely save money using it.

All Sam’s Club members receive discounts on prescription medications. The company says its prescription drug prices are up to 80% off retail prices and average out to be a 65% discount.

Sam’s Club Plus members receive additional perks, including a 30-day supply of more than 600 generic drugs for $10 or less. There are even a handful of generic prescriptions that cost $0 with the Plus membership. Spouses are also eligible for the pharmacy discount, and if you have a pet, your Sam’s Club Plus membership will give you an 8% discount on pet-specific medications.

2. Half-priced membership

Admittedly, this deal is for anyone, not just seniors. But if you don’t already have a Sam’s Club membership or know someone who needs one, now is the time to buy it. Sam’s Club currently offers 50% of its basic membership, meaning you’ll pay just $25 for a full membership year.

If you’re on the fence, here’s what you’ll get with a Sam’s Club membership:

Access the warehouse club stores and online dealsFuel discountsAccess to same-day delivery with online shoppingComplimentary membership for one person in your household

You had better act fast if you want this deal. The half-priced membership deal expires May 1.

3. Eyecare discounts

Almost all Sam’s Club locations have eye services, where you can get an eye exam, choose frames, order glasses, and buy contacts. The great thing for seniors is that Sam’s Club eye exams are some of the cheapest available.

The average eye exam costs about $61 at Sam’s Club, much lower than the national average of $95. Both the basic and Plus memberships allow you to order glasses and contacts, but the Plus membership offers additional discounts, including 20% off a complete pair of prescription glasses and sunglasses.

4. Restaurant gift cards

Because of inflation’s rapid rise over the past few years, dining out is more expensive than ever. But a Sam’s Club membership can help you stick to your budget.

I found a three-pack of $25 gift cards to Darden restaurants — which include Olive Garden and Longhorn Steakhouse — on the Sam’s Club website for just $71.98. That’s a $3 savings, which could save you $72 over an entire year if you go out to eat twice per month.

There are also good deals on fast food gift cards. A four-pack of Wendy’s $15 gift cards (worth $60) only costs $47.98. That’s more than $12 in free food!

5. Hearing aids

Sam’s Club members can get free hearing tests, consultations, hearing aid cleanings, and warranties when buying hearing aids through the warehouse club.

There’s a wide variety of hearing aid prices on the company’s website, and I found hearing aids for as little as $175. Sam’s Club says its membership can save people hundreds of dollars on the price of these devices.

How to find the best deal at Sam’s Club

If you’re looking for even more deals at Sam’s Club, you should follow two online accounts: The Krazy Coupon Lady and The Grocery Lady YouTube account. Both of these sources regularly discuss Sam’s Club deals.

Additionally, signing up for the office Sam’s Club email newsletter is a great way to find out when discounts and promotions are available. There are even some exclusive deals that are online for newsletter subscribers.

And if you’re not keen on looking for deals online, you can do it the old-fashioned way and peruse the aisles until you find something you like at the right price.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Citigroup is an advertising partner of The Ascent, a Motley Fool company. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Should you max out your 401(k) in 2024, or make other money moves? See how to make the right choice for your retirement savings. [[{“value”:”

Saving for retirement is one of the most important long-term goals for your personal finances. According to research from Fidelity, as of the third quarter of 2023, Americans contributed an average of 13.9% of their income to their 401(k) plans. (This percentage includes employer-matching contributions.)

That’s a pretty healthy contribution rate — a general rule of thumb among financial experts is that people should try to save 15% of their income for retirement. But putting 13.9% of your income into a 401(k) might not be enough for everyone. If you’re behind on your retirement goals, or if you want a bigger tax break for your retirement savings, you might want to consider putting even more money into your 401(k).

Let’s look at a few ways you can make the most of your 401(k) contributions in 2024.

1. Double check the 401(k) contribution limits

Do you know how much money you’re allowed to put into your 401(k)? If it’s been a few years since you started contributing to a retirement plan at work, you might not be aware of just how much money you can sock away on a pre-tax basis.

According to the new IRS rules, you can put up to $23,000 into a 401(k) for 2024. (This contribution limit also applies to other employer-based retirement plans, like 403(b) and 475 plans, and the federal Thrift Savings Plan.) Are you 50 or older? If so, use 401(k) catch-up contributions — people age 50+ can put an extra $7,500 into a 401(k) for 2024, for a total of $30,500.

2. Make investing automatic with every paycheck

One of the best advantages of using a 401(k) is that it makes it easy to invest automatically with every paycheck. Look at your options with your employer’s retirement plan administrator to see how to adjust your 401(k) contributions — some will typically allow you to set a fixed percentage of each paycheck, or a fixed amount of each paycheck. You can also change your 401(k) settings throughout the year.

3. Get your employer match (if any)

If your employer offers a 401(k) match, earning it is a smart move that you should make. Get that free money! Just like you should take all your paid time off, claiming your full employer match is part of getting what you deserve from your job.

Check to see if your employer-matching contributions are fully vested (meaning you “own” the contributions in your account) or if you have to stay employed with the organization for a minimum amount of time before the contributions vest. Even if you have to wait a few years for the full vesting of the employer match, it’s still likely worth contributing enough to your 401(k) to get it.

4. Got a pay raise? Make extra 401(k) contributions

If you get a promotion or pay raise at work, this is a chance to bump up your 401(k) contributions. Consider raising your contribution by 1% per year to keep growing as your income grows. If you want to get more precise, you could adjust your 401(k) contributions temporarily for a few months — such as setting it up to take out an extra 5% of your salary for three months.

Automatically increasing your 401(k) contributions can help “train” you to live on slightly less of your income, instead of spending every new dollar you get. It can also help you keep getting tax breaks for your retirement savings as your income (and perhaps your tax bracket) increases.

5. Are you a high earner? Consider maxing out your 401(k)

There are no income limits for who is allowed to contribute to a 401(k). This isn’t true for every tax-advantaged retirement account — traditional IRAs have income limits for who is allowed to make tax-deductible contributions, and Roth IRAs have income limits on who is allowed to use them at all.

So if you’re a high earner, your 401(k) might be your best chance to save money for retirement while getting a tax break. For example, if you’re age 50 and single, and your income is $120,000 for 2024, you’re not allowed to use a tax-deductible traditional IRA. But you could max out your 401(k) with $30,500 of your income, and that $30,500 will not be counted toward your taxable income on your tax return.

But if you’re in a lower tax bracket, maxing out your 401(k) might not be the best move. People of lower income levels should definitely do what it takes to get their full 401(k) employer match, but beyond that amount, you might want to consider putting extra cash somewhere else.

Use a traditional IRA or Roth IRA (or both) if you qualify. These accounts are more flexible than 401(k)s in case you need an early withdrawal. Or open a taxable brokerage account — these accounts make it easy to invest for multiple goals throughout life, not just retirement. There is such a thing as saving too much money in your 401(k), as you may need cash for other purposes or have a big life event that changes your plans.

Bottom line

401(k)s are a great retirement savings option for high-income employees who can’t use a traditional IRA or Roth IRA. But if you qualify for these other accounts, you might not want to max out your 401(k). Consider opening a brokerage account for extra flexibility.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Managing money is important for everyone, including digital nomads. Check out a common financial mistake that could lead to serious problems. [[{“value”:”

If you’ve decided to become a digital nomad, you probably don’t want to wait long. It’s an exciting change in your life, after all. I know that once I set my mind to it, I wanted to book my flight pretty much immediately.

There’s nothing wrong with this rush to get out and explore the world — if you’re well-prepared. But impatient digital nomads often make a serious financial mistake.

Living the digital nomad life on a bare-bones budget

The No. 1 money mistake for digital nomads is trying to do it on a low income. You don’t need to make six figures, as some people decide to become digital nomads on an income of $1,500 or less per month.

It is possible to do this. One of the perks of being a digital nomad is that you can visit areas with a lower cost of living. But even in affordable cities, it may be harder than you think to live on a strict budget, for a few reasons.

Short-term, furnished rentals are more expensive than other housing options

You can’t always trust average housing costs because they’re based on traditional housing options: unfurnished units with long-term leases. Furnished rentals cost more, especially in areas that are popular with digital nomads, where owners jack up the prices.

The most budget-friendly places aren’t always places where you’d want to live

A $300-per-month apartment might seem fine, until you realize the internet barely works and the neighbor loves to blast their favorite music for the world to hear. Neither of these are ideal when you’re trying to work from home. Cheaper homes are also sometimes in unsafe areas.

You’ll need money for travel and activities

Part of the fun of being a digital nomad is seeing new places. Plane tickets, meals at restaurants, and activities can quickly eat up what’s left of your income after you pay your bills.

Some people only focus on whether being a digital nomad can be done on a low income. While it certainly can, that doesn’t necessarily mean you should.

The dangers of being paycheck to paycheck as a digital nomad

If you’re only scraping by financially, you’re essentially living paycheck to paycheck. That’s a problem whether you’re in the United States, Mexico, Thailand, or anywhere else in the world. Here’s why:

You won’t be setting aside anything for the future. You’ll need money to retire one day — Social Security benefits only replace about 40% of pre-retirement earnings, on average. If you don’t start saving for retirement now, it’s hard to catch up later.You won’t have an emergency fund. Emergencies are going to happen. An emergency fund enables you to pay for them without going into debt.You’ll be more stressed about money and more limited with what you can do during your travels. Seeing the world is an incredible experience. It’s a lot better when you aren’t constantly concerned about going over budget and when you can visit more than just the most affordable destinations.

Here’s the other problem: It’s difficult to grow your income as a digital nomad. Many employers aren’t interested in hiring people who live abroad, even if they hire remote workers. It can be a tax-planning and logistical nightmare that they’d rather avoid. So if you’re hoping to find a better job later, your options may be limited.

If you’re hoping for a raise, that’s no cakewalk, either. At some companies, being 100% remote makes it practically impossible to get promoted.

You may be able to increase your earnings from abroad. But you’ll probably have the best odds of doing it in your home country.

Figure out the financial side before you take off

Moving to a new country is a big change. It’s a new culture, and maybe a new language that you’re not fluent in yet. You don’t know where anything is. The food options are different. It’s a lot to process, and it takes time to get comfortable.

Do you really want to go through all that and have financial uncertainty? Personally, I’d make sure to have stable income and be in a secure financial position first.

To be specific, your income should ideally be at least twice as much as your bills in the places you’ll be living. If you expect to spend about $2,000 per month, then aim for $4,000 per month of income. That way, you’ll have enough to comfortably pay your bills, save money, and invest, while also being able to go out and enjoy yourself.

It’s also always good to have enough in your emergency savings for three to six months of living expenses. Using that same estimate of $2,000 in bills per month, you’d want $6,000 to $12,000 in your savings account earmarked for emergencies.

Those are my personal recommendations and what I’d need to feel confident about life as a digital nomad. While some cut it closer, this lifestyle is much more enjoyable when you don’t need to worry about money.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Citigroup is an advertising partner of The Ascent, a Motley Fool company. Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends PNC Financial Services. The Motley Fool has a disclosure policy.

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Keeping employees on board can save your business time and money. Find out here how to do it. [[{“value”:”

Hiring staff can be a costly and time-consuming process, no matter what size company you run. But if you own a small business, you may have limited resources (time-related and financial) at your disposal for things like hiring and onboarding candidates. As such, once you find good employees, it’s a really good thing to be able to retain them.

But in today’s labor market, job-hopping is a fairly common thing. Often, moving from one employer to another is a good way for employees to grow their wages and their careers. So it might take a really concerted effort on your part to keep your best workers on staff.

As a small business, you may not be able to match the salaries some of your larger competitors may be offering. But that doesn’t mean you’re doomed to lose your best workers after a limited stint. If you focus on two specific benefits, you may find that you’re able to keep your staff loyal for the long haul.

Focus on health insurance and retirement savings

In a recent survey by the Employee Benefit Research Institute, workers pointed to health insurance and access to a retirement savings plan as things that are most important in the context of their decisions to stay at a current job versus look for a new one. As such, those are two perks you may want to focus on.

First, let’s talk about insurance. Healthcare can be a huge concern and expense. If you have workers who are worried about affording medical tests or treatment, it has the ability to seriously impact their performance on the job. So that’s reason alone to offer subsidized health insurance.

Next, there’s retirement. Without some sort of employer plan, many workers struggle to find ways to sock money away for the future. And while anyone with earned income can open and fund an individual retirement account (IRA), the nice thing about 401(k) plans is that they’re funded via payroll deductions. This tends to help workers stay on track with contributions.

But it’s not just enough to offer a retirement plan. Ideally, you should aim to offer one with some sort of matching incentive. That doesn’t mean you have to offer a 401(k) plan, though. Those can be quite expensive for small businesses to administer. Rather, you can look at other options, like a SEP or SIMPLE IRA, which are small business retirement plans that could be more cost-effective.

Ask your employees what benefits they need to stay put

Clearly, health insurance and access to retirement savings are important to workers in general, as per the aforementioned survey. But if your goal is to retain the talent you’ve cultivated, then your best bet is to ask your specific employees what benefits they value the most. That way, you can address your human resource needs directly and divert your limited funds to paying for perks that are likely to not only have the most impact but also spare you the hassle of having to replace workers who seek out better offers.

One perk you may be able to offer that won’t necessarily cost you a thing is flexibility. Some jobs can be done remotely or at off-hours to accommodate workers’ needs. It almost always pays to be accommodating in situations like these, because sometimes, workers will stay put for the flexibility alone.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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