The Color of Money

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By Michelle Singletary with Rivan Stinson Email

I’m a huge advocate of using tax-advantaged plans to prepare for retirement. There’s little downside to such accounts, especially when the government raises the contribution bar, creating even more incentive to save.

Except that those higher limits typically favor the well-off.

Next year, people with 401(k), 403(b), government 457 plans and the federal government’s Thrift Savings Plan (TSP) can contribute as much as $23,500 pretax into their workplace retirement accounts, according to the IRS. That’s a $500 increase over the current cap.

For individual retirement accounts (IRAs), the annual contribution max will remain at $7,000. 

Here’s some good news for older workers who might have gotten a late start in saving for retirement or who want to take advantage of their years with higher earnings. Under a change in the Securing a Strong Retirement Act of 2022, or Secure 2.0, the “catch-up” provision in the tax code will allow them to supersize their savings.

Starting in 2025, individuals 50 to 59, or those 64 and older, are eligible for an additional $7,500 in catch-up contributions, for a maximum limit of $31,000 in 2025.

But those 60 to 63 years old can contribute an extra $11,250, or as much as $34,750, before taxes.

If you’re 50 and older, the catch-up contribution for an IRA remains at $1,000, for a cap of $8,000.

The income cutoffs determining who can contribute to traditional IRAs and Roth IRAs will also increase next year. 

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These higher contribution limits are a great bonus for people with the financial means to max out. 

But what if you can’t afford to max out? Click the link below for advice on managing your concern about saving enough for retirement. 

Feeling Green

Communication is critical, especially when it comes to money. Here’s a question from a colleague. 

How do I avoid resenting my sister, a poor money manager, who won't be able to help with the financial responsibility of caring for our parents should they need assistance?

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Caregiving and inheritance issues can often cause a rift between siblings. 

If you suspect or know that you’ll have to carry most of the responsibility of caring for your parents — either for their healthcare or financial needs or both — start planning now. Collect information from community organizations and nonprofits about long-term care help. Ask questions about your parents’ finances so you have an idea of how much financial assistance they may need.

Talk to your sibling or siblings about what they can do. Maybe they can’t contribute money but could help in other ways, such as with doctor visits or household chores.

Here’s something I realized after being a caregiver for my disabled brother and then my father-in-law: You have to get help for yourself. This may mean getting therapy to address your feelings of resentment. 

Caregiving can be rewarding but also overwhelming and frustrating. 

Many caregivers go it alone, and that’s going to lead to burnout unless you seek assistance. 

AARP has a toll-free family caregiving support line. Call 1-877-333-5885.

Check for local services by going to eldercare.gov. Check to see if your workplace employee assistance program has resources you can tap.

If you can’t get help from siblings or other family members, check for community resources. Call in support from your network of friends. Don’t go it alone.

New data from the New York Fed show that credit card debt hit a record of $1.17 trillion. Although incomes are up, many Americans are straining to pay this debt on time. It’s a troubling trend that I wrote about in a recent column. 

Here’s what readers had to say in the comment section (some responses have been edited for clarity).

Random Skeptic wrote: “I ran up just over $32,000 in credit card debt over the course of several years. Some of it was for necessities; some of it was for things that in retrospect I shouldn’t have bought. I never had any missing or late payments, and my credit cards had relatively low interest rates, but even so, the debt burden was becoming crushing. I have spent the last three years paying it off. I am happy to say that I am making my final payment this month. From here on out, I will be paying the balance in full every month. It's a great feeling.”

TCGrimes wrote: “Credit card companies entice people with special offers that last less than six months, and then the cardholder is smacked with higher interest rates or lower cash back points. It’s like offering people free cake for a month and then telling them, sorry you reached your limit. We have five cards. I have locked three of them; four have very low spending allowances; and one is for emergencies only. People do not have self-control, and credit card companies take advantage of that. If a person's saving account pays 1 percent interest but their credit card charges 23 percent, it is wise to take out of savings, pay down the credit card, lock it or close it altogether.”

Only the truth will do wrote: “A factor that no one talks about is that lenders are happy to give you a far bigger mortgage than what you can actually afford. Every time I’ve bought a house, I was amazed by how much I was approved for. DO NOT take a mortgage lender’s word for how much mortgage you can afford. Do your own math and stick to looking only at houses that have payments you can afford. I’ve seen several people fall for the ‘But the bank says I can afford it!’ trap. DON'T DO IT.”

Arnie J wrote: “My monthly charge card debt has gone up considerably. I charge groceries now and almost everything else. Almost never pay in cash or by check. The reason is the rewards. I’m not a ‘revolver.’ I budget and pay the three cards off each month, never pay interest and get a good amount in rewards. We never did this until a few years ago, but maybe this is why credit balances have gone up.”

Send your comments and questions to colorofmoney@washpost.com, but due to the volume of mail, personal responses may not be possible. Please also note comments or questions may be used in a future column, with the writer’s name, unless a specific request to do otherwise is indicated.