Planning for retirement is one of the most important financial tasks most Americans face. Hardly anyone wants to work forever, but those who don’t plan their retirement properly will find themselves either working until they reach their golden years or unable to afford the kind of life they want as they age. While the basics of retirement are quite simple – save money, invest it wisely, withdraw it strategically – there are many moving parts that savers need to be aware of. To complicate matters, there are frequent changes you need to be aware of to ensure you get the most out of your retirement plan. Here are five changes to the retirement landscape you should be aware of in 2023. To help you plan for retirement or any other financial considerations you may have, consider working with a financial advisor.
Retirement Change 1: New 401(k) Limits
Workplace retirement plans like 401(k) accounts are the most popular ways for Americans to save. If you have access to it, it’s a very convenient way to put money aside for your years to come. You decide a percentage of each salary to put into a tax-free account and invest from a menu of options; later, you take the money in scatter once you retire, paying taxes on it as regular income at that time.
There are, however, limits to the amount of money you can set aside each year. The limit is adjusted every year. In 2022, the limit was $20,500; for 2023, that goes up to $22,500. In addition, people age 50 and over can make special catch-up contributions on the total. In 2022, the catch-up amount was $6,500. In 2023, it will be $7,500, which means people age 50 and over can contribute a total of $30,000.
Retirement Change 2: IRA Limits
If you don’t have access to a workplace pension plan, an individual pension plan is another good option. You lose some of the benefits, such as the ability to match your employer contributions, but an IRA is still a good option if you don’t have a workplace retirement plan.
An IRA works the same way as a 401(k), except you open it yourself without your employer’s involvement. The limit for IRA contributions in 2022 was $6,000, increasing to $6,500 in 2022. Total catch-up contributions remain at $1,000.
Retirement Amendment 3: IRA Income Phase-Out Range
Americans who earn a certain amount of money begin to see their IRA contribution limits drop, if they are otherwise covered by a workplace plan.
For traditional IRAs, the 2023 phase-out range starts at $73,000 and ends at $83,000 for single taxpayers covered by a workplace pension plan, which means single filers who earn more $83,000 in 2023 cannot contribute to an IRA if covered by a work plan. . In 2022, the range was $68,000 to $78,000.
For married couples filing jointly in 2023, the IRA phase-out range is $116,000 to $136,000 if the contributing spouse is covered by a workplace plan. In 2022, this range was $109,000 to $129,000.
If one spouse does not have a workplace plan but the other does, the spouse without a plan has a 2023 phase-out range of $218,000 to $228,000 $. This range was $204,000 to $214,000 in 2022.
A married person filing separately and covered by a workplace plan has a phase-out range of $0 to $10,000, unaffected by annual adjustments.
Note that these limits only apply to savers with access to a workplace pension plan.
Retirement Change 4: Roth IRA Income Phase-Out Range
Roth IRAs work the same way as traditional IRAs, but the money is invested after tax and no tax is applied when the money is withdrawn in retirement.
For singles and heads of households, the 2023 phase-out range is $138,000 to $153,000, compared to $129,000 to $144,000 in 2022.
For married couples filing jointly, the 2023 range is $218,000 to $228,000. In 2022, it was $204,000 to $214,000.
For married couples filing separately, the phasing out range remains $0 to $10,000.
Retirement Change 5: Social Security Changes
Although Social Security is generally not enough for anyone to retire on their own, it is an important part of many retirement plans. Social Security payments are also expected to increase in 2023.
The cost of living adjustment (COLA) for Social Security payments in 2023 is 8.7%. On average, Social Security payments will increase by $140 starting in January.
The essential
Retirement planning is important, but there are a lot of moving parts that are important to be aware of. Whether it’s increased government payments or higher savings limits, make sure you know what’s coming so you can plan accordingly.
Retirement Planning Tips
-
To help you plan for your retirement, consider finding a financial advisor. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three financial advisors who serve your area, and you can interview your matching advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
-
If you use a 401(k), be sure to take advantage of any employer correspondence available to you.
Photo credit: ©iStock.com/kate_sept2004, ©iStock.com/Charday Penn, ©iStock.com/milan2099
The post 5 retirement changes to know about in 2023 first appeared on the SmartAsset blog.
#retirement #coming