Harry Sit's Blog, page 13

2023 2024 Cap on Paying Back ACA Health Insurance Subsidy

[Originally published in 2020. Updated on August 8, 2023.]

The ACA health insurance subsidy, aka the premium tax credit, is set up such that, for the most part, it doesn’t matter how much subsidy you receive upfront when you enroll. The upfront subsidy is only an estimate. The final subsidy will be squared up when you file your tax return next year.

If you didn’t receive the subsidy when you enrolled but your actual income qualifies, you get the subsidy as a tax credit when you file your tax return. If the government paid more subsidies than your actual income qualifies for, you pay back the difference on your tax return.

Repayment Cap

There’s a cap on how much you need to pay back. The cap varies depending on your Modified Adjusted Gross Income (MAGI) relative to the Federal Poverty Level (FPL) and your tax filing status. It’s also adjusted for inflation each year. Here are the caps on paying back the subsidy for 2023 and 2024.

MAGI2023 Coverage2024 Coverage< 200% FPLSingle: $350
Other: $700Single: $375
Other: $750< 300% FPLSingle: $900
Other: $1,800Single: $950
Other: $1,900< 400% FPLSingle: $1,500
Other: $3,000Single: $1,575
Other: $3,150>= 400% FPLNo CapNo Cap

Source: IRS Rev. Proc. 2022-38, author’s calculation.

No Cap Above 400% of FPL

The repayment caps in 2023 and 2024 apply only when your actual income is below 400% of FPL. There’s no repayment cap if your actual income exceeds 400% of FPL — you will have to pay back 100% of the difference between what you received and what your actual income qualifies for.

Large Change in Income

The caps are also set sufficiently high such that the amount you need to pay back will fall below the cap unless there’s a big difference between your actual income and your estimated income at the time of enrollment.

For example, suppose you’re married filing jointly and you estimated your income would be $50,000 in 2023 when you enrolled. Suppose by the time you file your tax return, your income turns out to be $60,000. Because your income is $10,000 higher than you originally estimated, you qualify for a lower subsidy now. You will be required to pay back the $1,554 difference. The cap doesn’t really help you because this $1,554 difference is well under the $3,000 repayment cap.

In addition, because you’re required to notify the healthcare marketplace of your income changes during the year in a timely manner so that they can adjust your advance subsidy, normally the difference between the advance subsidy you received and the subsidy you finally qualify for should be well under the cap. The cap helps only when your income increases close to the end of the year to make it too late to adjust your advance subsidy.

Easier for Singles

Still, a late income change can happen, and the change can be large enough to make the difference in the health insurance subsidy higher than the repayment cap. This is true especially when you’re single with a lower repayment cap.

For example, suppose you’re single and you estimated your income would be $30,000 in 2023 when you enrolled. Suppose in December 2023 you decide to convert $20,000 from a Traditional IRA to a Roth IRA. This pushes your income to $50,000. The extra $20,000 income lowers your health insurance subsidy by $3,001, but because your repayment cap is $1,500, you only need to pay back $1,500. You get to keep the other $1,501. In this case, you’re better off asking for the subsidy upfront during enrollment. If you only wait until you file your tax return, you won’t benefit from the repayment cap.

Bottom line: You should try to estimate your income conservatively and qualify for as much subsidy as you can upfront when you enroll. Maybe it won’t help. Maybe it will.

Learn the Nuts and Bolts I put everything I use to manage my money in a book. My Financial Toolbox guides you to a clear course of action.Read Reviews

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Fidelity Debit Card Foreign Transaction Fee on ATM Withdrawals

You can request a debit card when you use Fidelity as a checking or savings account. Fidelity says this in their debit card FAQs:

For each foreign transaction, there is a foreign transaction fee (currently, 1% of the transaction for non-US dollar transactions), which may be included in the amount charged to your account. This charge may apply whether or not there is a currency conversion.

Fidelity customer service also repeated this as an official response in this Reddit post. Because I don’t use a debit card for purchases whether in the U.S. or in foreign countries (no rewards), the only way this foreign transaction fee could be relevant to me is on ATM withdrawals when we travel internationally.

The FAQ says that a foreign transaction fee “may be included.” It implies that the fee isn’t always included. When exactly is it included and not included?

A Real-World Test

I had a chance to see in real life whether a foreign transaction fee applied to ATM withdrawals using a Fidelity debit card.

My wife took a trip to Canada. She withdrew $200 Canadian from an ATM at a gas station. Fidelity sent me this debit card activity alert in real-time:

A bank teller withdrawal on card ending in XXXX for $153.06 from CANCO #XXX XXXXXXXXX was posted to your account on 08/03.

$200 Canadian for $153.06 U.S. gave an exchange rate of 1 US dollar = 1.307 Canadian dollars. Google showed that the exchange rate on that day was 1 US dollar = 1.33 Canadian dollars. Using that exchange rate, we should be charged $200 Canadian / 1.33 = $150.38. Fidelity charged us $2.68 more than that. Did Fidelity include a foreign transaction fee in the amount charged to us?

Fidelity posted another entry to our account a day later:

ADJUST FEE CHARGED ATM FEE REBATE (Cash) +$2.26

Ah, the original $153.06 included an ATM fee charged by the machine. Fidelity reimbursed us that fee. The net charge after the ATM fee reimbursement was $153.06 – $2.26 = $150.80. This makes the exchange rate $200 Canadian / $150.80 U.S. = 1.326. That’s close to the 1.33 number from Google but it still doesn’t quite match it. Was the difference a foreign transaction fee that Fidelity included?

Card Network Exchange Rate

Fidelity’s debit card is a Visa debit card. Visa has an online Exchange Rate Calculator to show how the Visa network converted currencies each day. The calculator showed this when I put in the transaction date and a 0% bank fee:

$150.795295 USD rounds to $150.80. That’s exactly the net amount Fidelity charged us after the ATM fee reimbursement. There was NO foreign transaction fee from Fidelity on the ATM withdrawal.

Visa has a small markup in the exchange rate used on its network. Fidelity is only passing along the exchange rate from Visa. It’s the best exchange rate you can get as long you’re using a Visa card. A Schwab Visa debit card can’t do any better.

***

Some side notes on spending money in a foreign country:

Getting Local Currency

The best way to get local currency is to use a local ATM machine. You pay no ATM fee and you get the best exchange rate when you have the right card. Don’t buy foreign currency in the U.S. before you leave. Don’t use the currency exchange booths at the airport. You don’t need to bring US dollar bills to exchange them except as a backup just in case. Just take your debit card and use an ATM machine when you’re there.

It doesn’t matter which ATM you use. An ATM at the airport works. One at a gas station also works, as you see in my wife’s ATM withdrawal. So does an ATM outside a bank branch.

If your bank charges an out-of-network ATM fee plus a foreign transaction fee and it doesn’t reimburse you the ATM fee charged by the machine, you’re with the wrong bank. Consider one of the 3 Ways to Use Fidelity as a Checking or Savings Account.

Act as a Local

Act as a local when you’re in a foreign country. If you see any mention of the U.S. dollar on any ATM machine or credit card terminal, back out and press a different button to transact in the local currency. They certainly don’t offer to charge locals in U.S. dollars and you shouldn’t pay any differently.

If you’d like to verify whether your bank included a foreign transaction fee on your international charges, use the Exchange Rate Calculator from Visa (or the Currency Converter Calculator from MasterCard if your card is a MasterCard). MasterCard may give better exchange rates on its network than Visa. If you do a lot of foreign transactions, get a MasterCard when all else is equal.

Learn the Nuts and Bolts I put everything I use to manage my money in a book. My Financial Toolbox guides you to a clear course of action.Read Reviews

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3 Ways to Use Fidelity as a Checking or Savings Account

Fidelity Investments is best known as an administrator for workplace retirement plans and an online broker for retail investors. In addition to 401k/403b accounts, Traditional and Roth IRAs, HSAs, and taxable brokerage accounts, Fidelity also offers accounts that can be used for the same purpose as a checking account and a savings account.

Because Fidelity is interested in having a full relationship with its customers for both banking and investing and its primary focus is on the investing part, it’s in a good position to offer better rates and features than other banks in the banking part.

This is not a sponsored post. Fidelity isn’t paying me to promote it. I’m only writing as a satisfied customer. Here are three ways to use a Fidelity account to manage day-to-day spending and savings.

Table of ContentsCMA as CheckingIncluded FeaturesRouting Number and Account NumberLimitationsCMA as Checking/Savings ComboBuy Money Market FundAdd Treasury Bills or Brokered CDsSeparate Regular Brokerage AccountSet and ForgetCMA as Checking

Fidelity Cash Management Account (CMA) is a separate account type from Fidelity’s regular taxable brokerage account officially called “The Fidelity Account.” You have to choose the account type when you open the account. A Cash Management Account can’t be changed to a regular taxable brokerage account after you open the account. Nor can an existing regular taxable brokerage account be changed to a CMA.

Included Features

The Cash Management Account is specifically designed to meet banking needs. It has pretty much everything people need for a checking account and nearly everything is free.

– FDIC-insured balance. Pays interest (2.6% APY as of July 31, 2023).

– No minimum balance. No monthly maintenance fee. Does not require direct deposit.

– Provides a routing number and an account number for direct deposits and direct debits.

– Accepts check deposits by mobile app or dropoff at a Fidelity branch.

– Free checkbook. No minimum amount for each check.

– Free Visa debit card for purchase, ATM withdrawal, and teller cash advance. Does not require using the debit card a minimum number of times per month.

– Reimburses ATM fee charged by any ATM worldwide.

– Free Bill Pay service with eBill.

– Free same-day ACH.

– Free wire transfers.

The 2.6% interest rate is lower than the rate on many high yield savings accounts but it’s a lot higher than the rate on most online checking accounts. For example, although Ally Bank pays 4% on its savings account as I’m writing this, its checking account pays only 0.25%. Most high yield savings accounts don’t have all the checking features such as check writing, debit card, and Bill Pay.

Routing Number and Account Number

You see the routing number and account number for direct deposits and direct debits when you click on the three dots next to the account name.

Limitations

Fidelity Cash Management Account has some limitations that aren’t a deal-breaker to me.

– Does not accept deposits of physical cash.

– Does not support Zelle (but it works with PayPal, Venmo, Cash App, Apple Pay, and Google Pay).

– Does not link instantly through Plaid.

– Does not offer goal-based sub-accounts.

– Does not offer cashier’s checks.

– Recurring outgoing transfers only support monthly and annual frequencies.

– 1% transaction fee on debit card purchases in foreign countries. This fee doesn’t apply to international ATM withdrawals.

– ACH pulls and check deposits are held for up to four business days. The money still earns interest. It’s just not available for withdrawal while on hold.

I’ve used Fidelity CMA for at least 15 years. It’s my primary checking account. I use my otherwise dormant Bank of America checking account on those rare occasions when I need to deposit physical cash, use Zelle, link instantly through Plaid, get a cashier’s check, or set up recurring transfers on an odd schedule. I don’t use a debit card for purchases or track my savings by separate goals.

The hold time on ACH pulls and check deposits will shrink over time for established accounts on smaller amounts. My ACH pulls and check deposits are usually available for withdrawal on the second business day. I do an ACH push from the other side when I need it to be available immediately. See ACH Push or Pull: The Right Way to Transfer Money.

When you use the Fidelity CMA as your checking account, you can link it to an existing high yield savings account as you normally do with a checking account. You earn much higher interest in the Fidelity CMA than in a typical checking account.

CMA as Checking/Savings Combo

Instead of linking to an external savings account, you can buy a money market fund in the Cash Management Account and keep both checking and savings in the same account.

Buy Money Market Fund

Although the CMA is designed for banking needs, it’s still a brokerage account. With some exceptions (no margin or options), you can buy in the CMA pretty much everything that’s available in a regular brokerage account. That includes stocks, bonds, brokered CDs, mutual funds, and ETFs. A Fidelity money market fund pays about 4.8% annualized yield as of July 31, 2023, which is higher than the rate paid by many high yield savings accounts.

A money market fund isn’t FDIC-insured but when you buy a government or Treasury money market fund, the underlying investments in the money market fund are backed by the government. See No FDIC Insurance – Why a Brokerage Account Is Safe.

The CMA becomes a checking/savings combo when you buy a money market fund in it. The core balance in the CMA serves as the checking part and the money market fund serves as the savings part. You have to buy the money market fund manually but Fidelity will automatically sell from the money market fund when your core balance in the CMA is insufficient to cover a debit. This is like having free automatic overdraft transfers from savings to checking.

Because Fidelity will automatically sell from the money market fund to cover debits, if you’re so inclined, you can be aggressive in keeping the core balance in the CMA close to zero while keeping the bulk of your account in the money market fund earning a higher yield. Or you can set a maximum target balance alert with the Cash Manager to buy more shares of the money market fund when you have excess cash in the “checking” part.

Add Treasury Bills or Brokered CDs

If you’d like to take it one step further, you can also buy Treasury Bills or brokered CDs in the CMA when you have money that you know you won’t need for some time. The CMA then becomes a checking/savings/CD combo. The money automatically goes into the “checking” part when the Treasury Bill or brokered CD matures. For example, the amount set aside for the next property tax bill can go into a Treasury Bill or a brokered CD. See How To Buy Treasury Bills & Notes Without Fee at Online Brokers and How to Buy CDs in a Fidelity Brokerage Account.

Please note if you enable the “auto roll” feature when you buy new-issue Treasury Bills or brokered CDs in the CMA, the amount for the next roll reduces your “available to withdraw” number for a few days during the roll. A debit may fail if you don’t have enough available to withdraw. It’s not a problem if you don’t use auto roll or if you keep a substantially higher amount in cash and money market fund than the amount on auto roll.

I use a Fidelity Cash Management Account as a checking/savings/CD combo this way. I buy into the Fidelity Government Money Market Fund (FZCXX) when I have a large core balance. I also buy Treasury Bills with money I know I won’t need for some time. Fidelity automatically sells from the money market fund as needed to cover direct debits and outgoing transfers.

My setup works well but I’m moving to a different setup below.

Separate Regular Brokerage Account

A regular Fidelity taxable brokerage account (“The Fidelity Account”) also provides a routing number and an account number for direct deposits and direct debits, free checks, debit cards, and Bill Pay. It includes basically everything in the CMA except ATM fee reimbursement but it uses a money market fund that pays a higher yield as the core position instead of the FDIC-insured balance as in the CMA.

The ATM fee reimbursement is also included when you have Premium Services or Private Client Group status, which generally requires having $250k or more with Fidelity in all accounts. It doesn’t matter whether you have an assigned advisor.

You see your service level at the top right when you log in to Fidelity’s website. Contact customer service if you have more than $250k with Fidelity but you’re not given a premium service level.

Even if you don’t get ATM fee reimbursement, the higher yield on the core balance may very well cover the ATM fees several times over. Suppose your core position has an average balance of $3,000 during the year (the “checking” part in the CMA), a 2% higher yield pays $60 more in interest. That’s plenty to pay for ATM fees unless you frequently take ATM withdrawals. My account records show that I used an ATM only once in seven months so far this year.

CMARegular Brokerage AccountCore PositionFDIC insuredgovernment money market fundYield on core position
(as of July 31, 2023)2.6%4.8%ATM fee reimbursementincludedincluded for some accounts

The same missing features and limitations of the CMA also apply to the regular taxable brokerage account — no physical cash deposits, no Zelle, no cashier’s check, no instant Plaid, 1% foreign transaction fee on debit card purchases, and hold on ACH pulls and check deposits for up to four business days.

Set and Forget

Using a regular brokerage account for spending and savings becomes truly set-and-forget. You don’t have to manually buy a money market fund. All deposits automatically go into a money market fund that pays about a 4.8% yield as of July 31, 2023. All debits come out of this money market fund. It’s like using a savings account as a checking account.

You can still buy Treasury Bills or brokered CDs to set aside money for specific bills in the future. The same caveat on “auto roll” and “available to withdraw” as mentioned above also applies.

Name Your Accounts

Although you can keep the money for spending and short-term reserves in the same regular taxable brokerage account that also holds your long-term investments, most people probably prefer to keep them separate. You can have two (or more) regular taxable brokerage accounts for different purposes. You just give them different names so that you know which is which.

To change the display name of an account, click on the setup icon near the top left and then click on “Account display preferences.”

Check the box next to the account you’d like to name and then click on the “Rename” link on the top. Change the name to “Spending Account” or something to that effect.

You can also move an account to a different group to help you organize. There’s a built-in “Spend & Save Accounts” group but I leave my account in the “Investment Accounts” group so that it shows up on the top.

***

The biggest draw of using a Fidelity brokerage account for spending and short-term reserves is the checking features. You effectively use a savings account as a checking account and earn a good yield from the first dollar. Everything is seamlessly together.

A Vanguard money market fund and some less well-known high yield savings accounts pay more but they don’t offer checking features. When you pair it with a checking account that pays close to zero, the blended yield on all your cash goes down. For example, if you have $5,000 in a checking account that pays 0.25% and you have $50,000 in a Vanguard money market fund that pays 5.18%, your blended yield on $55,000 is 4.73%. You might as well put the whole $55,000 in a Fidelity brokerage account earning 4.8% and eliminate the need to transfer back and forth between two accounts.

If you’re going to open a new account, check Fidelity’s current special offers page first (not an affiliate link). You might as well get a small bonus when you meet the terms of the special offer.

Transitioning a checking account takes some time and effort. Banks know it. That’s why they pay you close to zero in checking accounts. They bet that you think it takes too much work to switch. Don’t fall for it. It’s easier than you think when you take your time to make the move.

Learn the Nuts and Bolts I put everything I use to manage my money in a book. My Financial Toolbox guides you to a clear course of action.Read Reviews

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PSA: Secure Your Email Account to Prevent Wire Fraud

What does it take to reset the password to your email account? What happens next if someone hacks into your email?

Log out of your email and try the “forgot password” link. If it takes a security code sent by SMS text message to your cell phone, consider upgrading your security setting.

I read this report on the Bogleheads investment forum: $250k lost in unauthorized wire fraud – experience/advice? An elderly couple lost $250,000 because thieves got into their email account by resetting the password. It can happen to you too.

Password Reset Attacks

Fraudsters fooled the couple’s cell phone company to transfer their cell phone number to another company. One break-in then led to another. They used the security code sent to that number (now under their control) to reset the password to the couple’s email account. They logged in and looked in old emails for where the couple had bank accounts. Access to the email account and security codes sent to the cell phone number gave these criminals access to the bank accounts. They requested wire transfers from three banks.

Two banks stopped a pending wire when the couple reported unauthorized access within 24 hours. A third bank promised to freeze the account but they sent out a wire later on a fraudulent request anyway. It took more than a month for the bank to finally return the money to the elderly couple. The couple almost had to sue the bank to get their money back.

Secure Your Email Account

It isn’t clear whether the bank paid lost interest. If not, the lost interest on $250k is well over $1,000, and think about the aggravation for over a month! You don’t want this to happen to you.

Try the “forgot password” link for each of your financial accounts and see what it takes to reset your password. If access to your email is part of the process, for example, to receive a password reset link, you should secure your email account with something stronger than SMS text messages sent to a cell phone number.

I wrote about using security hardware to protect investment accounts in this blog post: Security Hardware for Vanguard, Fidelity, and Schwab Accounts. The Yubikey security hardware mentioned in that post can be used to secure email accounts by GMail, Microsoft (Hotmail, Outlook), Apple iCloud, Yahoo, and AOL. It costs $50-60 to buy two Yubikeys but it’s worth the peace of mind.

Use a Better Bank

Which bank failed to freeze the couple’s account after getting a report of fraud and then dragged their feet for over a month to return the money? This is totally unacceptable. The poster only said it was an online bank headquartered in Utah. Does the name start with the letter A?

If you have an account with an online bank headquartered in Utah, maybe consider using a different bank. You can search for a bank’s headquarters by its name or web address on this FDIC web page.

Learn the Nuts and Bolts I put everything I use to manage my money in a book. My Financial Toolbox guides you to a clear course of action.Read Reviews

The post PSA: Secure Your Email Account to Prevent Wire Fraud appeared first on The Finance Buff.

How to Secure Your Email Account and Prevent Wire Fraud

What does it take to reset the password to your email account? What happens next if someone hacks into your email?

Log out of your email and try the “forgot password” link. If it takes a security code sent by SMS text message to your cell phone, consider upgrading your security setting.

I read this report on the Bogleheads investment forum: $250k lost in unauthorized wire fraud – experience/advice? An elderly couple lost $250,000 because their email account was set to send a security code by SMS text message to their cell phone number for resetting the password. It can happen to you too.

Password Reset Attacks

Fraudsters fooled the couple’s cell phone company to transfer their cell phone number to another company. It then started cascading from there. They used the security code sent to that number (now under their control) to reset the password to the couple’s email account. They logged in and looked in old emails for where the couple had bank accounts. Access to the email account and security codes sent to the cell phone number gave these criminals access to the bank accounts. They requested wire transfers from three banks.

Two banks stopped a pending wire when the couple reported unauthorized access. A third bank promised to freeze the account but they sent out a wire on a fraudulent request anyway. It took more than a month for the bank to finally return the money to the elderly couple. The couple almost had to sue the bank to get their money back.

Secure Your Email Account

It isn’t clear whether the bank paid lost interest. If not, the lost interest on $250k is well over $1,000, and think about the aggravation for over a month! You don’t want this to happen to you. Secure your email account with something stronger than text message codes sent to a cell phone number.

I wrote about using security hardware to protect investment accounts in this blog post: Security Hardware for Vanguard, Fidelity, and Schwab Accounts. The Yubikey security hardware mentioned in that post can be used to secure email accounts by GMail, Microsoft (Hotmail, Outlook), and Yahoo. It costs $50-60 to buy two Yubikeys but it’s worth the peace of mind.

Use a Better Bank

Which bank failed to freeze the couple’s account after getting a report of fraudulent access and then dragged their feet over a month to return the money? This is totally unacceptable. The poster only said it was an online bank headquartered in Utah. Does the name start with the letter A?

If you have an account with an online bank headquartered in Utah, maybe consider using a different bank. You can search for a bank’s headquarters by its name or web address on this FDIC web page.

Learn the Nuts and Bolts I put everything I use to manage my money in a book. My Financial Toolbox guides you to a clear course of action.Read Reviews

The post How to Secure Your Email Account and Prevent Wire Fraud appeared first on The Finance Buff.

ACH Push or Pull: The Right Way to Transfer Money

Most electronic payments and transfers to and from a bank account in the U.S. go through ACH, which stands for Automated Clearing House. To make money go from A to B, you can initiate the transfer from the sending account or you can initiate it from the receiving account. When I see complaints about ACH, it’s usually caused by not doing it the right way.

Table of ContentsACH Push vs PullODFI and RDFIACH LimitsACH FeesACH HoldACH SpeedSame-Day ACHFedNow Instant PaymentsWhen to Use ACH PullInternal TransfersACH Push vs Pull

If an ACH transaction is initiated from the sending account, it’s an ACH credit or figuratively an ACH push — you are pushing the money out of the sending account. When you receive a payroll direct deposit, the payroll provider is doing an ACH push into your account.

If an ACH transaction is initiated from the receiving account, it’s an ACH debit or figuratively an ACH pull — you are pulling the money into the receiving account. When you link your checking account to a mortgage or a credit card for autopay, the bank is doing an ACH pull against your checking account. When you write a paper check, the recipient’s bank uses the routing number and the account number on the check to do an ACH pull.

An ACH transfer isn’t a wire transfer. A wire transfer is faster but it usually costs more. Most banks charge $10-15 for sending a wire. Some banks also charge $10 for receiving a wire. An ACH transfer is usually free on both sides.

ODFI and RDFI

As members of the ACH network, financial institutions go by the operating rules set by an association (NACHA).

Whether it’s an ACH push or an ACH pull, the bank that initiates the ACH transaction is called the Originating Depository Financial Institution (ODFI). The bank that receives the ACH request is called the Receiving Depository Financial Institution (RDFI).

Originating and receiving refer to the ACH request, not which direction the money flows. The money flows in the same direction as the ACH request in an ACH push — from the ODFI to the RDFI. In an ACH pull, the money flows in the opposite direction of the ACH request. The ACH request goes from the ODFI to the RDFI but the money flows from the RDFI to the ODFI.

The fundamental rule in ACH is that the bank that initiates the ACH (the ODFI) is liable for the transaction. The RDFI can reject the ACH if the account isn’t in good standing but otherwise they must honor the transaction. The RDFI can’t place any hold on the incoming ACH credit or delay the outgoing ACH debit. After posting the ACH transaction, if the account holder says the transaction isn’t authorized, the RDFI can reverse it.

ACH Limits

Because the ODFI is liable, some banks and credit unions set limits on the frequency and/or the amount of ACH transactions they initiate. For example, a credit union has a policy of not initiating any ACH pull into its checking account. It also limits any ACH push it initiates to $5,000 per business day and $15,000 over any five business days.

These limits only apply when the credit union initiates the ACH. If the ACH is initiated by another bank, the credit union must faithfully accept it.

When you see limits on the frequency or the amount of ACH transfers, the limits only apply to ACH transactions initiated by that institution. It doesn’t mean you can’t transfer more frequently or in larger amounts. It just means you have to initiate the ACH on the other side.

ACH Fees

The ACH operator charges banks less than one penny for each ACH transaction. Because this cost is so low, most banks don’t charge consumers for ACH transfers but some large banks still do. For example, Bank of America doesn’t charge for ACH pulls but it charges $3 for each ACH push to be delivered in three business days and $10 for next-day delivery.

Similar to the ACH limits, these fees only apply when this bank initiates the ACH. The fees don’t apply when the ACH transaction is initiated outside this bank. If your bank charges a fee for ACH, initiate your ACH on the other side. If I need to transfer money from Bank of America to Fidelity, I initiate a pull from Fidelity.

ACH Hold

ACH goes by the principle of “No news is good news.” The ODFI will hear back if anything goes wrong but they won’t have any positive confirmation that the ACH transaction “cleared.” The ODFI only knows that it hasn’t been reversed yet. The RDFI has 60 days to reverse an ACH transaction.

The RDFI is given 60 days to reverse an ACH transaction because customers can’t be expected to watch their accounts daily. In the old days, banks issue paper statements monthly and that was the only opportunity for customers to review their accounts. Customers are given time to receive the statement in the mail, review the statement, and object to any errors. With online and mobile banking and paperless statements today, consumer protection laws still go by the monthly statements as the official account records.

This creates a problem especially for ACH pull transactions and check deposits. You see that your other account is already debited but the ODFI can’t trust that it won’t be reversed. That’s why the credit union I mentioned has a policy of not initiating any ACH pulls into its checking account. That’s why Fidelity holds any ACH pull and check deposit for up to four business days before making it available for withdrawals (it’s available immediately for trading, just not for withdrawals). That’s also why if you made a deposit to Vanguard recently, your withdrawal can only go back to the same bank where it came from originally. These policies limit their liability when they initiate the ACH pull.

On the other hand, when you do an ACH push, the sending bank processes it only if you have enough money in your account. The receiving bank treats the incoming ACH credit as good funds because the sending bank is liable. The receiving bank can’t put a hold on the money pushed in.

Therefore, when you have a choice, push the money from the source to avoid a hold. Don’t do it as an ACH pull.

ACH Speed

ACH traditionally processes overnight. The ODFI sends a batch of ACH transactions to the ACH operator in the evening. The RDFI posts the transactions to the accounts the next morning.

There is no 3-day ACH versus next-day ACH on the ACH platform. If the ACH transaction takes longer than one business day, it’s only caused by the ODFI delaying it on purpose. It takes 3 business days when the ODFI intentionally delays sending it on a push or when it intentionally delays crediting your account on a pull.

If you want faster ACH, use a better bank to initiate it.

Same-Day ACH

The current gold standard in ACH is same-day ACH. When you request the ACH in the morning, you see it arrive on the other side in the afternoon.

This is again controlled by the bank that initiates the ACH. If the ODFI sends ACH requests to the ACH operator multiple times a day, your ACH transaction will arrive at your destination on the same day. If the ODFI only sends once in the evening, your ACH will arrive on the next business day.

For example, Fidelity does same-day ACH. When I ask Fidelity to transfer money to Bank of America before a cutoff time, I see the money in my Bank of America account in a few hours.

Not all financial institutions process same-day ACH but you should use one that does it at least overnight. Any slower than that is just lame. Because Fidelity’s same-day ACH is fast enough, I don’t bother using wire transfers even though Fidelity also offers free wire transfers.

FedNow Instant Payments

The Federal Reserve will launch a new real-time payment system soon. It’s called FedNow. It’ll work even faster than same-day ACH. Chase, Wells Fargo, and a number of other banks are already certified to work with FedNow.

We’ll have to see which banks will offer FedNow to consumer accounts and how it works in the real world. For the time being, let’s make sure all your transfers arrive at least the next business day.

When to Use ACH Pull

To minimize hold on your ACH, in general you should do your ACH as a push. Request the ACH at the institution where your money is at. Ask them to send the money to the receiving account.

However, you should do an ACH pull in the following situations (writing a check also counts as an ACH pull):

Bill Payments

When you pay a bill, it’s important to associate the payment with your bill. You can use your bank’s Bill Pay service and include a reference for your bill but involving a third party creates the potential for finger-pointing when there’s a problem. Did the Bill Pay service fail to make the payment on time? Did the Bill Pay service pay but the biller didn’t apply it correctly?

It’s much cleaner to let the biller pull from your bank account. Their billing system will apply the pull to your bill. You can always dispute the pull with your bank if the amount is wrong.

When It May Not Go Through

If there’s a chance that the ACH won’t go through, you should do it as a pull.

If you do a push but it doesn’t show up in the receiving account, the money already left your sending account. If you do a pull and it doesn’t come through, at least the money is still in your original account. If the money left your account and the receiving bank doesn’t credit you, you can ask your bank to reverse it.

Overcoming Limits and Fees

As I mentioned previously, if the sending bank has low limits or charges a fee for a push, you can initiate a pull from the receiving side. The pull may be subject to a hold though.

Contributing to an IRA

When you contribute to an IRA between January 1 and April 15, it can be for the previous year or it can be for the current year. If you do an ACH push into your IRA, the custodian doesn’t know which year it’s for. They can assume but their assumption can be wrong. If you ask the IRA custodian to pull, you’ll have an opportunity to say whether it’s for the previous year or the current year.

Buying a CD

A CD at a bank or a credit union doesn’t have an account number that accepts ACH. You can push to a checking account or a savings account at that bank and then use the money to buy a CD but it’s easier to just let the bank pull from your current account.

Depositing to Vanguard

Vanguard accounts don’t have a routing number for ACH except for its new Cash Plus Account currently in pilot. To transfer funds into your Vanguard account, you link your bank account at Vanguard and ask Vanguard to pull.

Internal Transfers

The fastest transfers happen within the same institution or between two institutions owned by the same parent company. Both sides trust each other and they know that you have sufficient funds for the transfer.

Some large financial institutions offer both banking and investment services. Bank of America owns Merrill Edge. Chase has J.P. Morgan Self-Directed Investing. Fidelity offers a Cash Management Account. Charles Schwab owns Schwab Bank. Vanguard will have the Cash Plus Account when it’s made available to everyone. An internal transfer between the banking side and the brokerage side happens instantly and there won’t be any hold.

In a way, internal transfers are the best way to transfer money — no limit, no time delay, no hold. Using the same company as a one-stop shop for both banking and investing doesn’t give you everything in the best of breed but it’s a lot easier when you make fewer things matter.

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Use Google Calendar to Manage Bills, Taxes, and Investing Tasks

When I started my first full-time job years ago, the first thing my manager asked me to do was to order a Franklin Covey Day Planner. It was the standard issue for all employees of that company.

Technology evolved over the years. The standard tool was Microsoft Outlook at my last full-time job. We used the calendar features in Outlook to book conference rooms and manage meeting invites.

I use Google Calendar now to track personal events such as dentist appointments and recurring household chores.

A computer-based calendar makes it easy to create recurring events, whether it’s monthly, quarterly, or annually. You set it only once and you’ll have it on your calendar every month, every quarter, or every year. For really important tasks, you can set up the calendar to send you not just one reminder but several reminders — for example, seven days before, three days before, and one day before — to make sure you don’t forget.

I have repeating events on my calendar to change the furnace filter, add salt to the water softener, run a cleaning cycle on the dishwasher, check the engine oil, and replace the air filters in my car. If I think of something else that needs to be done on a set schedule, I add it to the calendar.

Bills and Taxes

I also started using Google Calendar to manage financial chores.

I set all my bills on autopay to let them charge a credit card or debit a bank account but I understand not everyone is comfortable with autopay. Some bills, especially those from government entities, can’t be set on autopay.

For example, your state DMV may not have autopay for annual vehicle registration renewals. You have to renew and pay manually each time. Rather than using the renewal notice you get in the mail as the prompt, you can set a calendar reminder to look for the renewal on the DMV website yourself a month before your sticker expires. That way you won’t forget to renew even if you don’t receive the renewal notice. You’ll have this reminder on your calendar every year after you set it up only once.

If you pay estimated tax because you’re self-employed or retired, the IRS and the state revenue agency don’t send you invoices. You have to pay them proactively four times a year. I use EFTPS to schedule payments to the IRS. If you set up the four quarterly due dates as annually repeating events, your calendar will remind you every time without fail.

The same goes for the property tax if you’re not paying it through mortgage escrow. If the property tax bill is lost in the mail or if their email notification gets filtered into spam, you still owe the property tax. Property tax is due on a set date every year. You can set an annually repeating calendar reminder to make sure you pay it on time.

Investing Tasks

If you’re not automatically reinvesting dividends, you can set a recurring calendar event to go into your account and reinvest manually.

If you invest in Treasuries or brokered CDs, the interest payments can’t be automatically rolled into the same Treasury or brokered CD but you know when the interest will be paid out as cash. If the amount is substantial, you can set a recurring calendar reminder to reinvest.

You also know when your Treasury or CD will mature. If your broker doesn’t have the “auto roll” feature or if you choose not to use it, as soon as you buy the Treasury or CD, you can set a calendar reminder to reinvest the principal repayment at maturity.

If you’re required to take the Required Minimum Distribution from your retirement accounts, you can set up an annually repeating calendar event to help you remember to take it. The IRA custodian may also remind you but the ultimate responsibility falls on you.

If you’re planning to cash out I Bonds to buy new ones at a higher fixed rate, set a calendar reminder for the best time to sell. After you sell, set another calendar reminder to download the 1099 form from TreasuryDirect next January because they don’t send it by mail.

Automation is usually my first choice. If I can’t make it happen automatically, I put it on my calendar to make sure I don’t forget. I use Google Calendar but any other calendar system works too.

Learn the Nuts and Bolts I put everything I use to manage my money in a book. My Financial Toolbox guides you to a clear course of action.Read Reviews

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How to Buy CDs in a Fidelity or Vanguard Brokerage Account

The previous post Buying CD in a Brokerage Account vs Bank CD or Treasury talked about the advantages and disadvantages of buying brokered CDs versus buying CDs directly from a bank or a credit union or buying Treasuries. It ended with these steps when you’re considering buying brokered CDs:

1. Decide what term you want because selling brokered CDs before maturity will be costly.

2. Check DepositAccounts.com for the best rate on a direct CD for your term. Weigh the convenience of brokered CDs against giving up yield and the early withdrawal option.

3. Check the yield on Treasuries for your term. Adjust it for the state and local tax exemption if you’re buying in a regular taxable account.

4. Only compare non-callable brokered CDs with direct CDs and Treasuries. Demand a large yield difference if you don’t mind callable CDs.

Now we go into the logistics of how to buy a CD in a Fidelity or Vanguard brokerage account with a real-life example.

Suppose we want a 3-year CD because we’re comfortable committing to holding it for three years.

Table of ContentsResearch Direct CDsResearch TreasuriesNew IssueSecondary CDsFidelityNew IssuesSecondary CDsVanguardNew IssuesSecondary CDsResearch Direct CDs

We go to DepositAccounts.com to see the current best rates offered directly by a bank or a credit union. We want the yield on a brokered CD not to be too far off.

We select the 3-year term in the term dropdown. The highest rate offered is 5.65%. Going into the details of the CDs that offer the highest rates shows that they’re variable-rate CDs, which means the rate can drop during the term. We don’t want that.

We go down the list to find a CD with a fixed rate. We see that the best 3-year fixed-rate CD pays 5.13%. It requires opening a new account at a credit union though. We like the convenience of using our existing brokerage account without having to open another account but we don’t want to give up too much on the yield.

Research Treasuries

We also check Treasuries. This bond yields page from Fidelity doesn’t require a login.

We see the 3-year Treasury yield is 4.36% right now. Because Treasuries are exempt from state and local taxes and we’re buying in a regular taxable account, we calculate the Treasury’s tax-equivalent yield using this formula:

treasury yield * ( 1 – federal tax rate ) / ( 1 – federal tax rate – state tax rate )

It comes out to 4.36% * ( 1 – .22 ) / ( 1 – .22 – .06 ) = 4.72% when our federal tax rate is 22% and our state tax rate is 6%. A CD that’s fully taxable for both federal and state must have a yield this high to beat the Treasury. We don’t have to make this adjustment if we’re buying in an IRA or if we live in a no-tax state.

Now we want to see if we can beat the 3-year Treasury if we buy a brokered CD and how close we can get to the best rate from a direct CD.

There are two ways to buy a brokered CD: new issue and secondary market. Whether you’re looking for new issues or the secondary market, it’s best to look when the market is open (9:30 – 4:00 Eastern Time). You’ll see more choices during those hours.

New Issue

Buying a new-issue brokered CD means buying a brand-new CD offered by a bank through the broker. You see the rate and the terms of the CD set by the bank. You pay the face value to get the CD if you like the rate and the terms. The broker doesn’t charge you a fee because they’re getting paid by the bank to sell it.

Secondary CDs

Buying on the secondary market means buying from a dealer who bought the CD from a previous owner. The price the dealer asks for may be above or below the face value of the CD depending on the existing rate of the CD relative to the current market rate. The interest payments and the principal repayment from the bank are still based on the face value and the original rate because the bank doesn’t care whether you’re the first owner or the second or the third owner. The CD still has FDIC insurance.

The broker charges you a commission to buy CDs on the secondary market. The commission is typically $1 per $1,000 in face value. Paying a commission reduces the yield you get from the CD.

You also must pay accrued interest to the dealer. If the CD pays interest every six months and it’s been two months since the last interest payment date, you owe two months’ worth of interest to the dealer. You’ll still receive six months’ worth of interest from the bank when the CD pays interest next time, which reimburses you for the accrued interest you paid to the dealer.

If the price of the CD is above 100 because the coupon rate of the CD is higher than the quoted yield, you’re paying more than the face value of the CD. The difference above the face value isn’t insured by the FDIC. Avoid this type of CD or, if you must, only choose one from a bank that’s too big to fail.

If you’re buying in a regular taxable brokerage account, paying a price above or below the face value with the trading commission and accrued interest complicates your taxes. If you prefer to avoid this complication, stick with new-issue brokered CDs when you’re buying in a regular taxable brokerage account. The tax complication doesn’t apply when you’re buying in an IRA.

Fidelity

If you use Fidelity, click on “News & Research” and then “Fixed Income, Bonds & CDs” after you log in to your Fidelity account. If you use Vanguard, please jump ahead to the next section for Vanguard.

You get to the same bond yields page.

New Issues

Clicking on the link under the term we want gives us this list of new issue CDs being offered:

“No” in the “Call Protected” column means the CD is callable (not protected from a call). In general, we want to avoid callable CDs because although the advertised rate is higher, we’re not locked in to earn it for the full term. We see in this list that the highest yield on a non-callable 3-year CD is 4.7%.

“Coupon Frequency” shows how often the CD pays interest. Some CDs pay monthly, some pay quarterly, and some pay semi-annually. Which way is better is only personal preference. We prefer less frequent payments so that we don’t have to deal with the received cash. Some others may prefer to receive cash more frequently to meet cash flow needs.

“Maturity Date” is when we’ll get our principal back. “Settlement Date” is when the broker will debit our cash to buy the CD. Our cash earns interest in the money market fund until the settlement date.

Suppose we want to buy that CD from Capital One. We see this page after we click on “Buy.”

We must buy in $1,000 increments. We enter 50 under “Quantity” if we want to buy $50,000 in face value. Fidelity offers an optional “Auto Roll” feature. If we choose to use it, Fidelity will automatically buy another brokered CD of the same term and interest payment frequency when this CD matures. We choose not to use the “Auto Roll” feature because Fidelity can pick a callable CD for the auto roll and we don’t like callable CDs. We can set a reminder in Google Calendar to reinvest when our CD matures.

If we’re buying in an IRA or if we live in a no-tax state, the 4.7% rate on a non-callable CD is still higher than the 4.3% rate on a 3-year Treasury. We can decide whether the 0.4% extra yield is worth the poor liquidity in a brokered CD. However, when we’re buying in a regular taxable account, the 4.7% rate on a non-callable CD isn’t any better than the tax-equivalent yield of a 3-year Treasury after we adjust for the state and local tax exemption from the Treasury. We might as well just buy a Treasury note.

Secondary CDs

Before we abandon the idea of buying a brokered CD in favor of buying a Treasury note, we’re curious whether we can do better by buying a brokered CD on the secondary market.

We go back to the bond yields page by clicking on “News & Research” and then “Fixed Income, Bonds & CDs.”

Click on the “Bonds” tab and then the “CDs” sub-tab. We’re now searching for CDs on the secondary market. Enter a date range for the maturity date and then click on “See xx CUSIPs.”

First, click on “Yield to Worst” in the “Ask” columns to sort the list by the offered yield.

When we see a date in the “Next Call Date” column, that CD is callable. As we still want to avoid callable CDs, we see the highest yield for a non-callable CD is 4.751%.

The “Price Qty(Min)” column gives us three numbers. The first number is the price. It’s expressed as a percentage of the face value. 99.585 means $995.85 per $1,000 face value. We’ll have full FDIC insurance when the price is below 100. The second number shows how much in face value is available to buy. 8 means $8,000 in face value is available in that one. The third number in parenthesis shows the minimum purchase. 1 means a minimum of $1,000 in face value. The CD in the next row at a yield of 4.750% has $95,000 in face value available but we must buy at least $20,000 in face value.

Because we must pay a commission when we buy a secondary CD, our net yield will be lower than the gross yield we see in the table. This makes it not worth the hassle to buy a secondary CD when the 4.75% rate isn’t much higher than the 4.7% rate on a new issue CD to begin with.

In summary, our round of research shows:

3-year CD directly from a credit union5.13%3-year Treasury4.7% (tax-equivalent), 4.3% in IRA3-year new issue non-callable brokered CD4.7%3-year secondary non-callable brokered CD4.7%

Given these rates, if we prefer the convenience of keeping everything in the brokerage account, we’ll buy a 3-year Treasury note (see How To Buy Treasury Bills & Notes Without Fee at Online Brokers and How to Buy Treasury Bills & Notes On the Secondary Market). We’ll buy a CD directly from a credit union for a slightly higher yield if we don’t mind opening a new account there. If we’re buying in an IRA, we’ll consider a new issue brokered CD but we have to weigh it against the poor liquidity. Buying a brokered CD on the secondary market doesn’t give us a meaningful bargain at the moment we looked.

The tradeoffs will change as rates change. Sometimes brokered CDs are more competitive and sometimes they’re less competitive. Sometimes you find a bargain in a secondary CD and sometimes you don’t. The research process I’m showing in this example will stay the same.

Vanguard

It works similarly in a Vanguard brokerage account. Click on “Products & plans” and then “CDs” after you log in to your Vanguard account.

New Issues

Scroll down a little and click on the big “View detailed CD rates” button.

The next page displays an old-style page in a frame. If you’re using the Safari browser on a Mac and you don’t see anything, turn off “Prevent cross-site tracking” in your Safari settings.

Find the term you’re interested in and click on the rate. The displayed rate may be from a callable CD.

We keep scrolling down to find the first non-callable CD. It pays 4.7%. This is the same rate we see in Fidelity but it’s from a different bank. Suppose we want to buy $50,000 in this CD. We click on that row and then the “Continue” button. We see this order page:

It doesn’t matter that the CD is from a bank we haven’t heard of because it has FDIC insurance. We also must buy in $1,000 increments. We enter 50,000 in the quantity box. Vanguard doesn’t offer an “Auto Roll” feature. We can set a reminder in Google Calendar to reinvest when our CD matures.

Secondary CDs

We’re also curious whether we can find a better bargain on the secondary market. Click on “Cancel” to go back to the previous page.

Click on the “CDs” tab. Uncheck the box for “New issue” and check the box for “Secondary” because we’re looking for secondary CDs. Enter a date range for the maturity date and click on “Search.”

We look carefully to skip the callable CDs. The second row in the “Yield to worst” column shows the yield when we buy. The search results show that the highest yield available in a non-callable CD on the secondary market is 4.772%. The second row in the “Qty” and “Min. qty” columns shows how much is available and the minimum purchase amount. 48 under “Qty” means $48,000 in face value is available and 25 under “Min. qty” means we must buy at least $25,000 in face value. The second row in the “Price” column shows the price we must pay. We want to see a number below 100 to get full FDIC insurance.

If we want to buy $50,000 worth of CDs, that CD from Cross River Bank only has $48,000 available. We’ll have to mix and match or go down to the next one from Discover Bank for a slightly lower yield at 4.754%. Either 4.772% or 4.754% still has to be reduced by the trading commission we must pay for buying secondary CDs.

We come to the same conclusion using Vanguard as we did using Fidelity:

3-year CD directly from a credit union5.13%3-year Treasury4.7% (tax-equivalent), 4.3% in IRA3-year new issue non-callable brokered CD4.7%3-year secondary non-callable brokered CD4.7%

Given these rates, if we prefer the convenience of keeping everything in the brokerage account, we’ll buy a 3-year Treasury note (see How To Buy Treasury Bills & Notes Without Fee at Online Brokers and How to Buy Treasury Bills & Notes On the Secondary Market). We’ll buy a CD directly from a credit union for a slightly higher yield if we don’t mind opening a new account there. If we’re buying in an IRA, we’ll consider a new issue brokered CD but we have to weigh it against the poor liquidity. Buying a brokered CD on the secondary market doesn’t give us a meaningful bargain at the moment we looked.

The tradeoffs will change as rates change. Sometimes brokered CDs are more competitive and sometimes they’re less competitive. Sometimes you find a bargain in a secondary CD and sometimes you don’t. The research process I’m showing in this example will stay the same.

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2023 2024 401k 403b 457 IRA FSA HSA Contribution Limits

[Updated on June 13, 2023.]

Retirement account contribution limits are adjusted for inflation each year. Inflation has moderated in recent months. Some contribution limits and income limits will go up in 2024.

Before the IRS publishes the official adjustments in late October or early November, I’m able to calculate them using the published inflation numbers and going by the same rules the IRS uses as stipulated by law. I’ve maintained a record of 100% accuracy ever since I started doing these calculations.

I offer preliminary projections before all the inflation data are available. These preliminary projections will become more accurate as we have more data.

Table of Contents2023 2024 401k/403b/457/TSP Elective Deferral Limit2023 2024 Annual Additions Limit2023 2024 SEP-IRA Contribution Limit2023 2024 Annual Compensation Limit2023 2024 Highly Compensated Employee Threshold2023 2024 SIMPLE 401k and SIMPLE IRA Contribution Limit2023 2024 Traditional and Roth IRA Contribution Limit2023 2024 Deductible IRA Income Limit2023 2024 Roth IRA Income Limit2023 2024 Healthcare FSA Contribution Limit2023 2024 HSA Contribution Limit2023 2024 Saver’s Credit Income LimitAll Together2023 Tax Brackets and Standard Deduction2023 2024 401k/403b/457/TSP Elective Deferral Limit

The 401k/403b/457/TSP contribution limit is $22,500 in 2023. It will likely go up by $500 to $23,000 in 2024.

If you are age 50 or over by December 31, the catch-up contribution limit is $7,500 in 2023. It will likely stay the same at $7,500 in 2024.

Employer match or profit-sharing contributions aren’t included in these limits. If you work for multiple employers in the same year or if your employer offers multiple plans, you have one single employee contribution limit for 401k, 403b, and the federal government’s Thrift Savings Plan (TSP) across all plans.

The 457 plan limit is separate from the 401k/403b/TSP limit. You can contribute the maximum to both a 401k/403b/TSP plan and a 457 plan.

2023 2024 Annual Additions Limit

The total contributions from both the employer and the employee to all defined contribution plans by the same employer is $66,000 in 2023. It will likely increase to $68,000 in 2024. If we get high inflation in the upcoming months, it might go up to $69,000 in 2024.

The age-50-or-over catch-up contribution is separate from this limit. If you work for multiple employers in the same year, you have a separate annual additions limit for each unrelated employer.

2023 2024 SEP-IRA Contribution Limit

The SEP-IRA contribution limit is always the same as the annual additions limit for a 401k plan. It is $66,000 in 2023, and it will likely increase to $68,000 or $69,000 in 2024.

Because the SEP-IRA doesn’t allow employee contributions, unless your self-employment income is well above $200,000, you have a higher contribution limit if you use a solo 401k. See Solo 401k When You Have Self-Employment Income.

2023 2024 Annual Compensation Limit

The maximum annual compensation that can be considered for making contributions to a retirement plan is always 5x the annual additions limit. Therefore the annual compensation limit is $330,000 in 2023. It will likely increase to $340,000 or $345,000 in 2024.

2023 2024 Highly Compensated Employee Threshold

If your employer limits your contribution because you’re a Highly Compensated Employee (HCE), the minimum compensation to be counted as an HCE is $150,000 in 2023. It will likely go up to $155,000 in 2024.

2023 2024 SIMPLE 401k and SIMPLE IRA Contribution Limit

Some smaller employers offer a SIMPLE 401K or a SIMPLE IRA plan instead of a regular 401k plan. SIMPLE 401k and SIMPLE IRA plans have a lower contribution limit than standard 401k plans. The contribution limit for SIMPLE 401k and SIMPLE IRA plans is $15,500 in 2023. It will likely go up to $16,000 in 2024.

If you are age 50 or over by December 31, the catch-up contribution limit in a SIMPLE 401k or SIMPLE IRA plan is $3,500 in 2023. It will stay the same at $3,500 in 2024.

Employer contributions to a SIMPLE 401k or SIMPLE IRA plan aren’t included in these limits.

2023 2024 Traditional and Roth IRA Contribution Limit

The Traditional IRA or Roth IRA contribution limit is $6,500 in 2023. It will likely go up to $7,000 in 2024.

If you are age 50 or over by December 31, the catch-up limit is $1,000 in 2023. It will stay the same at $1,000 in 2024.

The IRA contribution limit is shared between Traditional IRA and Roth IRA. If you contribute the maximum to a Roth IRA, you aren’t eligible to contribute to a Traditional IRA, and vice-versa.

The IRA contribution limit and the 401k/403b/TSP or SIMPLE contribution limit are separate. You can contribute the respective maximum to both a 401k/403b/TSP/SIMPLE plan and a Traditional IRA or Roth IRA.

2023 2024 Deductible IRA Income Limit

The income limit for taking a full deduction for your contribution to a Traditional IRA while participating in a workplace retirement plan in 2023 is $73,000 for single filers and $116,000 for a married couple filing jointly. The deduction completely phases out when your income goes above $83,000 in 2023 for singles and $136,000 for married filing jointly.

The full-deduction limits will likely go up in 2024 to $77,000 for single filers and $123,000 for a married couple filing jointly. The deduction will completely phase out when your income goes above $87,000 in 2024 for singles; and $143,000 for married filing jointly.

When you’re not covered in a workplace retirement plan but your spouse is, the income limit for taking a full deduction for your contribution to a Traditional IRA is $218,000 in 2023. The deduction completely phases out when your joint income goes above $228,000 in 2023.

The full-deduction limit will likely go up to $231,000 in 2024. The deduction completely phases out when your joint income goes above $241,000 in 2024.

2023 2024 Roth IRA Income Limit

The income limit for contributing the maximum to a Roth IRA depends on your filing status. It is $138,000 for singles and $218,000 for married filing jointly in 2023. These limits will go up to $146,000 for singles and $231,000 for married filing jointly in 2024.

You can’t contribute anything directly to a Roth IRA when your income goes above $153,000 in 2023 for singles and $228,000 in 2023 for married filing jointly. These limits will go up to $161,000 for singles and $241,000 for married filing jointly in 2024.

Your contribution eligibility is prorated in the income phase-out range.

2023 2024 Healthcare FSA Contribution Limit

The Healthcare FSA contribution limit is $3,050 per person in 2023. It will go up to $3,200 or $3,250 in 2024.

Some employers allow carrying over some unused amount to the following year. The maximum amount that can be carried over to the following year is set to 20% of the contribution limit in the current tax year. As a result, the carryover limit is $610 per person in 2023. It will go up to $640 or $650 in 2024.

2023 2024 HSA Contribution Limit

The HSA contribution limit for single coverage is $3,850 in 2023. The HSA contribution limit for family coverage is $7,750 in 2023. These limits will go up to $4,150 for single coverage and $8,300 for family coverage in 2024. The new limits were announced previously in the spring. Please see HSA Contribution Limits.

Those who are 55 or older by December 31 can contribute an additional $1,000. If you are married and both of you are 55 or older by December 31, each of you can contribute the additional $1,000 but they must go into separate HSAs in each person’s name.

You don’t need earned income to contribute to an HSA.

2023 2024 Saver’s Credit Income Limit

The income limits for receiving a Retirement Savings Contributions Credit (“Saver’s Credit”) in 2023 for married filing jointly are $43,500 (50% credit), $47,500 (20% credit), and $73,000 (10% credit). These limits in 2024 will likely be $46,000 (50% credit), $50,000 (20% credit), and $77,000 (10% credit).

The limits for singles are half of the limits for married filing jointly. The 2023 limits are $21,750 (50% credit), $23,750 (20% credit), and $36,500 (10% credit). The 2024 limits will likely be $23,000 (50% credit), $25,000 (20% credit), and $38,500 (10% credit)

All Together20232024 (Preliminary)IncreaseLimit on employee contributions to 401k, 403b, or 457 plan$22,500$23,000$500Limit on age 50+ catch-up contributions to 401k, 403b, or 457 plan$7,500$7,500NoneSIMPLE 401k or SIMPLE IRA contributions limit$15,500$16,000$500SIMPLE 401k or SIMPLE IRA age 50+ catch-up contributions limit$3,500$3,500NoneMaximum annual additions to all defined contribution plans by the same employer$66,000$68,000 or $69,000$2,000 or $3,000SEP-IRA contribution limit$66,000$68,000 or $69,000$2,000 or $3,000Highly Compensated Employee definition$150,000$155,000$5,000Annual Compensation Limit$330,000$340,000 or $345,000$10,000 or $15,000Traditional and Roth IRA contribution limit$6,500$7,000$500Traditional and Roth IRA age 50+ catch-up contribution limit$1,000$1,000NoneDeductible IRA income limit, single, active participant in workplace retirement plan$73,000 – $83,000$77,000 – $87,000$4,000Deductible IRA income limit, married, active participant in workplace retirement plan$116,000 – $136,000$123,000 – $143,000$7,000Deductible IRA income limit, married, spouse is active participant in workplace retirement plan$218,000 – $228,000$231,000 – $241,000$13,000Roth IRA income limit, single$138,000 – $153,000$146,000 – $161,000$8,000Roth IRA income limit, married filing jointly$218,000 – $228,000$231,000 – $241,000$13,000Healthcare FSA Contribution Limit$3,050$3,200 or $3,250$150 or $200HSA Contribution Limit, single coverage$3,850$4,150$300HSA Contribution Limit, family coverage$7,750$8,300$550HSA, age 55 catch-up$1,000$1,000NoneSaver’s Credit income limit, married filing jointly$43,500 (50%)
$47,500 (20%)
$73,000 (10%)$46,000 (50%)
$50,000 (20%)
$77,000 (10%)$2,500 (50%)
$2,500 (20%)
$4,000 (10%)Saver’s Credit income limit, single$21,750 (50%)
$23,750 (20%)
$36,500 (10%)$23,000 (50%)
$25,000 (20%)
$38,500 (10%)$1,250 (50%)
$1,250 (20%)
$2,500 (10%)

Source: IRS Notice 2022-55, author’s calculation.

2023 Tax Brackets and Standard Deduction

I also have the 2023 income tax brackets, standard deduction, capital gains, and gift tax exclusion limit. Please read 2023 Tax Brackets, Standard Deduction, Capital Gains, etc.

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2024 Social Security Cost of Living Adjustment (COLA) Projections

Retirees on Social Security receive an increase of their Social Security benefits each year known as the Cost of Living Adjustment or COLA. The COLA was 8.7% in 2023, which was the largest in 40 years. Retirees on Social Security will once again receive a COLA in 2024 but it won’t be as big as the one in 2023.

Table of ContentsAutomatic Link to InflationCPI-WQ3 Average2024 Social Security COLAMedicare PremiumsRoot for a Lower COLAAutomatic Link to Inflation

Some retirees think the COLA is given at the discretion of the President or Congress and they want their elected officials to take care of seniors by declaring a higher COLA. They blame the President or Congress when they think the increase is too small.

It was done that way before 1975 but the COLA has been automatically linked to inflation for nearly 50 years. How much the COLA will be is determined strictly by the inflation numbers. The COLA is high when inflation is high. It’s low when inflation is low. There’s no COLA when inflation is zero or negative, which happened in 2010, 2011, and 2016.

CPI-W

Specifically, the Social Security COLA is determined by the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). CPI-W is a separate index from the Consumer Price Index for All Urban Consumers (CPI-U), which is more often referenced by the media when they talk about inflation.

CPI-W tracks inflation experienced by workers. CPI-U tracks inflation experienced by consumers. There are some minor differences in how much weight different goods and services have in each index but CPI-W and CPI-U look practically identical when you put them in a chart.

CPI-W and CPI-U 1993-2023

The red line is CPI-W and the blue line is CPI-U. They differed by only smidges in 30 years.

There’s also a research CPI index called the Consumer Price Index for Americans 62 years of age and older, or R-CPI-E. This index weighs more by the spending patterns of older Americans. Some researchers argue that the Social Security COLA should use R-CPI-E, which has increased more than CPI-W in the last 30 years.

CPI-W and R-CPI-E 1993-2023

The green line is R-CPI-E. The red line is CPI-W. R-CPI-E outpaced CPI-W in 30 years between 1993 and 2023 but not by much. Had the Social Security COLA used R-CPI-E instead of CPI-W, Social Security benefits would’ve been higher by 0.1% per year, or a little over 3% after 30 years. That’s still not much difference.

Regardless of which exact CPI index is used to calculate the Social Security COLA, it’s subject to the same overall price environment. Congress chose CPI-W 50 years ago. That’s the one we’re going with.

Q3 Average

More specifically, Social Security COLA for next year is calculated by the increase in the average of CPI-W from the third quarter of last year to the third quarter of this year. You get the CPI-W numbers in July, August, and September. Add them up and divide by three. You do the same for July, August, and September last year. Compare the two numbers and round the change to the nearest 0.1%. That’ll be the Social Security COLA for next year.

The government releases the CPI-W for September in mid-October each year. The Social Security Administration makes the calculation and announces the Social Security COLA for the following year at that time.

2024 Social Security COLA

Although we won’t know for sure what the Social Security COLA will be in 2024 until we have the CPI-W for September, we can make educated guesses based on the inflation numbers in recent months and different scenarios for inflation in the coming months.

I project the CPI-W under three scenarios – low, mid, and high. If inflation in the coming months through September is 0%, meaning that prices freeze at the latest level, that’s our low inflation scenario. If inflation in the coming months is 3% per year, which means that prices will increase by approximately 0.25% per month through September, that’s our mid-line scenario. Finally, if inflation in the coming months is 5% per year, which means that prices will increase by approximately 0.4% per month through September, that’s our high scenario.

Here’s what the Social Security COLA will be in each scenario:

Inflation through SeptemberProjected 2024 Social Security COLA0% annualized2.2%3% annualized3.0%5% annualized3.5%Projected 2024 Social Security COLA

In the low inflation scenario, even though prices will freeze at the latest level, Social Security recipients will still receive a 2.2% COLA in 2024 because current prices are already higher than prices in the third quarter of last year. As we progress toward September and we see positive inflation, this 2.2% number will go up.

The mid-line is probably the most likely scenario. Inflation in recent months is down but not zero. If inflation continues at a moderate pace, Social Security recipients will see approximately a 3% COLA in 2024.

The high scenario requires a 0.4%/month increase in the CPI-W through September. This isn’t out of the question. If inflation stays high, Social Security will have a 3.5% COLA in 2024.

The differences in these three scenarios aren’t huge. Between a 2.2% COLA in the low inflation scenario and a 3.5% COLA in the high inflation scenario, it comes down to a difference of about $25/month on a $2,000/month Social Security benefit or a difference of about $40/month on a $3,000/month benefit.

Medicare Premiums

If you’re on Medicare, the Social Security Administration automatically deducts the Medicare premium from your Social Security benefits. The Social Security COLA is given on the “gross” Social Security benefits before deducting the Medicare premium and any tax withholding.

Medicare announces the premium for next year around the same time Social Security announces the COLA but not necessarily on the same date. The increase in healthcare costs is part of the cost of living that the COLA is intended to cover. You’re still getting the full COLA even though a part of the COLA will be used toward the increase in Medicare premiums.

Retirees with a higher income pay more than the standard Medicare premiums. This is called Income-Related Monthly Adjustment Amount (IRMAA). I cover IRMAA in 2023 2024 2025 Medicare IRMAA Premium MAGI Brackets.

Root for a Lower COLA

People intuitively want a higher COLA but a higher COLA can only be caused by higher inflation. Higher inflation is bad for retirees.

Whether inflation is high or low, your Social Security benefits will have the same purchasing power. It’s the purchasing power of your savings and investments outside Social Security that you should worry about. When inflation is high, even though your Social Security benefits get a bump, your other money loses more value to inflation. Your savings and investments outside Social Security will last longer when inflation is low.

You want a lower Social Security COLA, which means lower inflation and lower expenses.

Some people say that the government deliberately under-reports inflation. Even if that’s the case, you still want a lower COLA.

Suppose the true inflation for seniors is 3% higher than the reported inflation. If you get a 1% COLA when the true inflation is 4% and you get a 5% COLA when the true inflation is 8%, you are much better off with a lower 1% COLA together with 4% inflation than getting a 5% COLA together with 8% inflation. Your Social Security benefits lag inflation by the same amount either way, but you’d rather your other money outside Social Security loses to 4% inflation than to 8% inflation.

Root for lower inflation and lower Social Security COLA when you are retired.

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