The question of retirement preparedness is always a difficult one to handle since there are differences in lifestyle expectations and income sources. Life is complicated. And financial decisions have consequences that don't necessarily come to light until years after the decisions are made. That's something to think about during a time of holiday gatherings like Thanksgiving -- not only for ourselves, but also for younger family members who learn from watching our behavior.

Take, for example, a recent study reporting that only 17% of workers age 50-plus were "very confident" that they would be able to keep a comfortable lifestyle after they retired. Only 17%. Would they do things differently if given the chance? What choices did they make about consuming versus saving? How important was current lifestyle versus future security?

What about retirees? Only 23% of retirees were very confident about maintaining their lifestyles. See "Life in Retirement: Pre-Retiree Expectations and Retiree Realities" (tinyurl.com/5e83w7j8), released in September 2023 by the nonprofit Transamerica Center for Retirement Studies, in collaboration with Transamerica Institute.

Lower that standard to "somewhat confident," and you'll find a larger group (45% of workers and 49% of retirees).

When asked about the greatest fears related to retirement, both workers and retirees reported "Outliving my savings and investments" (45%; 32%) and "Social Security will be reduced or cease to exist in the future" (42%; 39%).

Also under the category of greatest fears about retirement: "Declining health that requires long-term care" was cited by 41% of workers 50 and older, and by 35% of those who are retired. A similar category, "Possible long-term care costs," was selected by 35% of those 50-plus and 28% of those retired.

Another financial concern is debt. Among retirees surveyed, 48% agreed with the statement "Debt interfered with my ability to save for retirement." Among workers 50 and older, 35% cited "Paying off credit card debt" as a financial priority.

Along with planning for retirement, there is also planning for the inevitable, something most people do when thinking of others -- spouse, family, etc. According to the study, 69% of retirees and 56% of workers 50 and older have at least one or more key legal documents. The most common one is a last will and testament (51% of retirees and 39% of workers 50 and older). Only 25% of retirees and 15% of workers ages 50 and older have established funeral and burial arrangements.

There are many financial issues to consider when it comes to retirement. Examining them as early as possible can pay off in the long run.

What can you do? Importantly, what can you do now?

Here are three recommendations from the study that you can apply right now:

-- "Save as much as you can. Strive to live within your means and set aside additional savings."

-- "Prepare a written financial plan to help ensure that your savings last your lifetime. Factor in living expenses, debt repayment, savings and investments, sources of guaranteed retirement income, health care needs, insurance protections, investment returns, inflation, taxes, the possible need for long-term care, and a potential legacy. Seek professional advice, if needed."

-- "Put your financial affairs in order and establish legal documents, as needed, including a financial power of attorney, a power of attorney for health care or medical proxy, a HIPAA waiver, an advance directive or living will, a last will and testament, funeral and burial arrangements, and/or a trust."

If you follow my writing and listen to my talks, you'll know that I'm a fan of starting one's financial education early in life -- well before age 50 and certainly well before retirement. The fact is that our choices define our lives. Some choices need to be viewed in the context of the decades ahead that become history in the blink of an eye.

On another note: The deadline to apply for the 2023 401(k) Champion Award, which honors 401(k) participants who optimize their 401(k)s, has been extended to Dec. 14. To compete for the award, go to 401kchampion.com.

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A reader email involves a required minimum distribution that was not taken in a timely manner, but the error rested with the IRA's custodian and not the owner of the IRA.

"Franklin" put in the request with the custodian in early December of 2022 for the RMD for both his IRA and his wife's IRA ahead of the Dec. 31 deadline. While his RMD was executed properly, his wife's was not, an error that was not discovered by Franklin until early January 2023.

Franklin notified the custodian, which then carried out the instructions for disbursing his wife's RMD in January 2023.

Franklin completed the couple's joint tax return for tax year 2022 and attached Form 5329, "Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts," requesting a waiver of the penalty for a late disbursement. He included a letter of explanation, as well as a letter from the custodian that admitted the error.

He recently received a notice from the IRS saying he should file Form 1040-X (tinyurl.com/ymubbxjj), which would amend his 1040 tax return for 2022, along with a completed Form 5329, which he had already sent with his original tax return.

What should you do when you receive this type of notice?

I consulted with an IRS spokesperson, who, by law, cannot comment directly on any taxpayer's particular situation. But the spokesperson did offer the following general advice about receiving an IRS notice:

"When you receive an IRS notice, there is typically a phone number you can call. It is specific to that notice and not the general IRS taxpayer assistance hotline.

"You can call that number if you have questions about your notice. In some instances, you may even be able to resolve the issue by calling that number. In other instances, you may need to respond in writing."

Another reader, "Albert," has been researching zero rate tax treatment on investment income and capital gains on the IRS website, but to no avail. The IRS spokesperson offered these insights:

Start with the Qualified Dividends and Capital Gain Tax Worksheet in the instructions to Form 1040 (tinyurl.com/4fse779k). (Please note: The current version on the IRS website is for tax year 2022.) The result of calculation on the worksheet will take you to Form 1040, Line 16.

"Some taxpayers need to use the longer worksheet, found in the Schedule D instructions," the spokesperson said, adding that if tax software is used to prepare a return, the worksheets will be reflected in the software's tax calculation. (Schedule D for tax year 2022 can be found at tinyurl.com/bdfwhp2s.)

The bottom line: Getting a zero tax rate on dividends and capital gains depends on your marginal tax rate. Dividends and capital gains are effectively tax-free when the taxpayer's marginal tax rate is below 15%.

"Under the current law's rate structure, that means people who are in the 0%, 10% or 12% marginal bracket," explained the IRS representative. "As reflected in the worksheets in the 2022 instructions, that means, for example, joint filers with taxable income below $83,350 and single filers with taxable income below $41,675."

For tax year 2023, the maximum zero rate figures are $44,625 for single filers and $89,250 for married couples filing jointly (tinyurl.com/4dz42m6e).

"For people whose taxable income is above those thresholds, part of their qualified dividends and capital gains may be taxed at the zero rate, even if the rest is taxed at higher rates," the spokesperson said.

"Note that taxable income is the amount you get after subtracting the standard deduction or itemized deductions and other deductions, so it is typically less (and sometimes much less) than gross income," the spokesperson added.

As always, be sure to consult your tax adviser, as taxes are unique to the individual.

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It’s time to review annual changes for retirement plan contribution limits.

On Nov. 1, the IRS released the new contribution limits for 2024 for 401(k)s and IRAs through Notice 2023-75 (tinyurl.com/4e697hue). The increase in limits is based on annual cost-of-living adjustments required under Section 415(d) of the Internal Revenue Code (tinyurl.com/y5ud48fk).

For 401(k)s, 403(b)s, most 457 plans and the federal government’s Thrift Savings Plan (defined contribution plans), the new limit is $23,000, up from $22,500 in 2023. The $500 increase is smaller than last year’s $2,000 jump from $20,500 to $22,500.

The catch-up contribution limit for employees 50 and older remains at $7,500 for 2024. For those employees, their total contribution can be as much as $30,500 in 2024.

The combined limit of employee and employer contributions increases by $3,000 in 2024 to $69,000 from $66,000 (the increase in 2023 was $5,000 more than in 2022). If you are eligible for catch-up contributions, the maximum combined limit is $76,500 in 2024.

Let’s turn to IRAs. The limit on annual contributions has increased to $7,000 in 2024 from $6,500 in 2023, the second consecutive year it has risen by $500 (tinyurl.com/znpvc7mb). Keep in mind that $7,000 is the total amount you can contribute to all of your traditional IRA and Roth IRA accounts in 2024.

If you are 50 or older, you can add $1,000 as a catch-up contribution in 2024 for a total maximum contribution of $8,000. This $1,000 has not increased from the 2023 limit despite the fact that the SECURE 2.0 Act of 2022 amended the rule for IRA catch-up contributions to include an annual cost-of-living adjustment.

Deductible contributions to traditional IRAs are based on modified adjusted gross income, or MAGI:

-- For a single taxpayer or head of household covered by a workplace retirement plan, the phase-out range is increased to between $77,000 and $87,000 (up from $73,000 and $83,000 in 2023).

-- For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is between $123,000 and $143,000 (up from $116,000 and $136,000 in 2023).

-- For a person who is contributing to an IRA and is not covered by a workplace retirement plan but is married to someone who is covered, the phase-out range is between $230,000 and $240,000 (up from $218,000 and $228,000 in 2023).

For contributions to Roth IRAs, the income phase-out ranges are:

-- Between $146,000 and $161,000 for singles and heads of households (up from $138,000 and $153,000 in 2023).

-- Between $230,000 and $240,000 for married couples filing jointly (up from $218,000 and $228,000 in 2023).

More people will be able to take advantage of the Saver’s Credit (also known as the Retirement Savings Contributions Credit), which is a retirement savings tax credit available for taxpayers in lower- or middle-income groups.

The income limit will be $76,500 in 2024 for married couples filing jointly (up from $73,000 in 2023); $57,375 for heads of household (up from $54,750); and $38,250 for singles and married individuals filing separately (up from $36,500).

You can see more details about the Saver’s Credit at tinyurl.com/368fvwp8.

If you are charitably inclined and over age 70 1/2, you’ll be able to contribute more to charity using the QCD (qualified charitable distribution). The limit in 2024 will be $105,000, up from $100,000 in 2023. The increase is due to “changes made under SECURE 2.0,” according to Notice 2023-75.

And, a reminder: Some people who are eligible but not participating in their 401(k)s desperately need someone to encourage them to study their plans. If you’ve done your homework and can mentor others, tell me your story by applying for the 2023 401(k) Champion Award. This is a pro bono initiative I sponsor to help employees help each other to save for retirement. Three 401(k) Champions receive $1,000 each. Apply at 401kchampion.com.

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