All articles tagged with #high earners
In Q2, the top 10% of American earners accounted for nearly half of consumer spending, highlighting growing income inequality and economic disparities, with high earners benefiting from record stock and home prices, while overall consumer spending remains fragile and could threaten a recession if high earners pull back.
The article discusses how Trump's new legislation caps the SALT deduction at $40,000, but introduces a 'SALT torpedo' that could result in a 45.5% tax rate for high earners with modified adjusted gross income between $500,000 and $600,000. It offers strategies such as managing income, using ETFs, adjusting retirement contributions, and avoiding large gains to mitigate this impact.
Florida has enacted a law allowing non-compete agreements of up to four years for high-earning employees with access to confidential information, benefiting companies like Citadel and attracting finance firms to the state, despite criticism from some think tanks.
The Social Security Administration has announced a 2.5% cost-of-living adjustment (COLA) for 2025, increasing benefits by about $50 per month for the average retiree. Additionally, the maximum taxable earnings limit will rise from $168,600 to $176,100, impacting higher earners who will face taxes on more income. While this may increase tax bills, it also means potentially larger future benefits, with the maximum monthly payment increasing to $5,108. Strategies like delaying benefits and working longer can also help boost Social Security payments.
Mega backdoor Roth conversions allow high earners to bypass Roth IRA income limits by shifting after-tax 401(k) contributions to a Roth account, offering significant tax-free growth potential. This strategy is particularly beneficial after maximizing other tax-advantaged options, though not all 401(k) plans permit it. Experts advise reviewing plan details and converting funds regularly to minimize taxes on growth.
In 2024, high earners will pay more in Social Security taxes due to an increase in the salary limit subject to the tax, from $160,200 in 2023 to $168,600. This could result in an additional $1,041.60 in taxes for those at the threshold. Strategies to manage this increase include adjusting income through deferred compensation plans or, for self-employed individuals, structuring income between salary and distribution of earnings. However, these strategies must be carefully managed to avoid IRS penalties and to ensure adequate retirement benefits.
Despite the average household's net worth increasing by 37% between 2019 and 2022, many high earners still consider themselves "not rich yet" due to a higher cost of living, growing savings shortfall, and the impact of inflation and instability. Only 14% of Americans consider themselves wealthy, with the majority feeling financially stretched and living paycheck to paycheck. A recent report found that 67% of Americans would need at least $1 million to feel rich, up from 57% the previous year. Many people rely on credit cards to cover expenses, leading to a spike in credit card debt. High-cost debt is now seen as the biggest obstacle to building wealth. Feeling financially secure is more about spending less than you make, and setting long-term goals can help achieve this balance. Homeownership, historically tied to feeling wealthy, has become a source of stress due to skyrocketing housing prices and higher mortgage rates.
High earners, known as HENRYs, are feeling the economic pinch as their wage and job growth lags behind lower earners, they accumulate debt, and childcare costs soar. They are adjusting their spending habits, turning to cheaper brands and prioritizing essentials. While their net worth may have increased due to rising home prices, it doesn't necessarily translate to financial well-being. HENRYs face the challenge of balancing multiple financial goals with limited resources, leading to concerns about retirement savings and financial hardships. Despite these worries, some still allocate funds for travel, reflecting a blend of caution and selective indulgence in the fragile economy. However, as the labor market slows and childcare costs rise, it may continue to be a challenging time for HENRYs.
High earners aged 50 and above have been granted a two-year extension by the IRS on a rule that limits the amount of money they can contribute to their 401(k) retirement accounts. The rule, known as the "catch-up contribution," allows individuals aged 50 and above to contribute an additional $6,500 to their 401(k) plans. However, due to the economic impact of the pandemic, the IRS has decided to delay the enforcement of this rule until 2023, providing high earners with more flexibility in saving for retirement.
Generative AI could have the biggest impacts on high earners, particularly those in knowledge work involving decision-making and collaboration, according to a McKinsey report. Recent iterations of generative AI have focused on improving cognitive skills, which could automate work activities that consume between 60% and 70% of employees' time. However, workers may need help retraining to move to different work activities or even another job. The report also suggests that generative AI could act as a "virtual expert" to help workers quickly access internal information.
SoFi CEO Anthony Noto says that high earners, not yet rich, face challenges in living the American Dream and need a relationship bank to help them borrow, save, spend, protect, and invest better. SoFi's banking charter is helping the company get more involved in its customers' broader financial lives by allowing it to capture direct deposits more easily and appeal to customers with its interest rates on savings and checking. The company remains on track to meet its target of at least $2 billion in deposits each quarter.