Planning for retirement is one of the most important financial tasks most Americans have to consider. Almost no one wants to work forever, but those who fail to plan adequately for their retirement will find themselves either working into their golden years or unable to afford the type of life they want as they grow old. While the basics of retirement are fairly simple — save money, invest it wisely, withdraw it strategically — there are a lot of moving parts retirement savers have to be aware of. To make things more complicated, there are frequent changes that you have to be aware of to make sure you’re getting the most out of your retirement plan. Here are five changes to the retirement landscape that you should be aware of in 2023. For help planning your retirement or with 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 one, it’s a very convenient way to put aside money for your later years. You decide a percentage of each paycheck to put into an account tax-free, and invest in a menu of options; later, you take the money in dispersals once you’ve retired, paying taxes on it as regular income at that time.
There are limits, though, to how much money you can put aside each year. The limit is adjusted each year. In 2022, the limit was $20,500; for 2023, that goes up to $22,500. Furthermore, those 50 and older can make special catch-up contributions over the total. In 2022 the catch-up amount was $6,500. In 2023 it will be $7,500, meaning those 50 and older can contribute a total of $30,000.
Retirement Change 2: IRA Limits
If you don’t have access to a workplace retirement plan, an individual retirement plan is another good option. You lose some of the benefits, such as the possibility of having your employer match contributions, but an IRA is still a good option if you don’t have a workplace retirement plan.
An IRA works similarly to a 401(k), except you open it by yourself with no involvement from your employer. The limit for IRA contributions in 2022 was $6,000, which goes up to $6,500 in 2022. The catch-up contribution total remains $1,000.
Retirement Change 3: IRA Income Phase-Out Range
Americans who make a certain amount of money start to see their IRA contribution limits go down, if they are otherwise covered by a workplace plan.
For traditional IRAs, the phaseout range for 2023 starts at $73,000 and ends at $83,000 for single taxpayers covered by a workplace retirement plan — meaning that single filers who earn more than $83,000 in 2023 cannot contribute to an IRA if they are covered by a workplace plan. In 2022, the range was $68,000 to $78,000.
For married couples filing jointly in 2023, the IRA phaseout range is $116,000 to $136,000 if the spouse making the contribution 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 who does not have a plan has a 2023 phase-out range of $218,000 to $228,000. That range was $204,000 to $214,000 in 2022.
A married individual filing a separate return who is covered by a workplace plan has a phaseout range of $0 to $10,000, unaffected by annual adjustments.
Note that these limits only apply to savers with access to a workplace retirement plan.
Retirement Change 4: Roth IRA Income Phase-Out Range
Roth IRAs operate similarly to traditional IRAs, but money is put in after taxes and no taxes are applied when money is withdrawn in retirement.
For singles and heads of household, the 2023 phaseout range is $138,000 to $153,000 — up from $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 phase-out range remains $0 to $10,000.
Retirement Change 5: Social Security Changes
While Social Security is not generally going to be enough for anyone to retire on alone, it is an important part of many retirement plans. Social Security payments are also set 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 go up by $140 starting in January.
The Bottom Line
Retirement planning is important, but there are a lot of moving parts that are important to know about. From increased government payments to higher limits for savings, make sure you know what’s new ahead so you can plan accordingly.
Retirement Planning Tips
For help planning your retirement, consider finding a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you use a 401(k), make sure you’re taking advantage of any employer match available to you.
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Source: https://finance.yahoo.com/news/5-retirement-changes-know-2023-164658275.html