You may have heard about the big changes coming to retirement plans and savings options in 2023. Both changes, made by the IRS, benefit employees or those saving for retirement. These changes were driven by inflation and the associated macroeconomic impacts. In this blog post, we’ll discuss what to expect in 2023 and how to handle these retirement plan changes.
Every type of retirement account has maximum contributions you can make annually and/or maximum income levels that allow you to contribute.
For 2023, the IRS has increased the maximum you can contribute to retirement accounts. This increase is historically one of the biggest jumps that we have ever seen. Specifically:
401K employee deferrals are increasing from $20,500 to $22,500.
– Those over 50 years of age can contribute an additional $6,500.
– IRA and Roth IRA maximum contributions are increasing from $6,000 to $6,500.
Those over 50 years of age can contribute an additional $1,000.
– The max income you can have to contribute to a Roth IRA has changed from $138,000 to $153,00 for head of household or single filing status.
– The maximum is $228,000 for joint filers.
While this seems like positive news, you might wonder how this impacts your retirement savings strategy. As mentioned, these changes keep retirement needs in line with costs of living, considering inflation. With these changes, it is encouraged for employees to max out their 401K and IRAs if their budget permits. It’s almost always recommended that employees max out their 401K to the point of getting a full employer match (which can be 1-10%) and is important to review with your financial advisor.
Everyone’s financial situation is unique and by working with a financial advisor to create a budget that takes into account all your financial obligations, from mortgage payments to student loans, you can best take advantage of this change and its related tax benefits.
Employer-Mandated Retirement Plans
In the state of Colorado, there is a new mandate that employers with five or more employees must provide a retirement plan to employees. This plan is called the Colorado Secure Savings Program and it is essentially a Roth IRA with no required employer match. While it might not appear to provide direct benefits to small business employees who didn’t previously have a plan, it is a step in the right direction for those employed by a small business without retirement benefits.
For example, many divorcees who work for small employers may not have previously had the ability to participate in a retirement savings plan therefore they didn’t save for retirement. Some of these employees may have previously been stay-at-home moms and don’t understand how to begin a retirement savings plan. While no employer plan can provide retirement resources to women who are simply stretched too financially thin to save, this new mandated plan is a great opportunity for women who work for small businesses to have access to the resources they need to increase their retirement savings. It’s an easily accessible way for more people to save in general. As always, it is always best to review your savings strategies with your financial advisor to determine what is best for you.
While there are big changes coming to retirement accounts in 2023, they may not require significant changes to retirement planning on your end. However, even minor changes can have a big impact overtime. That’s why it is important to work with a financial planner to get all the benefits of these inflation-driven updates to retirement savings limits, and the new year is a great time to start thinking about saving in new ways.