Good news to kick off a season of thanksgiving: The Internal Revenue Service (IRS) has announced several increases to 401(k) contribution limits for 2023. For a detailed guide on 401(k) contribution and compensation thresholds, IRA deduction limits, and roth IRA contribution limits, click here (this document can also be found on our Guides page).
2022 has seen high inflation, rising costs of core aspects of daily living, and elevations in health and long-term care costs. To keep pace with these changes and anticipated future rate hikes, The IRS has increased contribution limits to 401(k) accounts for 2023. The Social Security Administration has also grown its 2023 cost of living adjustment (COLA), as noted in our previous blog post. The ability for people to contribute additional funds to their retirement accounts is a welcome update that has the potential to enhance the future of many.
Which Types Of Accounts Are Affected?
Contribution limit increases are not confined to pre-tax retirement accounts, but also applies to post-tax, or roth, IRAs. As 2022 draws to a close, calculate (or ask your financial advisor to calculate) how much you have put into all of your retirement accounts. Identify if you will be reaching, exceeding, or underfunding the annual cap. Be careful not to overfund your cumulative retirement savings accounts, however; overfunding these accounts in a tax year can trigger an excess tax** penalty. You have until Tax Day of 2023** to fully fund your 2022 retirement accounts.
What Else Can I Do Now?
Deciding between now and the beginning of the new year how much you’d like to contribute of each paycheck next year to your pre-tax retirement account(s) could help you take advantage of the new contribution limit increases. It can also make deposits made to reaching the contribution limit by the deadline less significant. Exploring whether roth conversions may better position you and your family for years to come is another opportunity to consider.
Elite Income Advisors, Inc. advisors welcome your questions and are happy to run analyses and discuss your options with you to make sure that your financial plan is up to date with your needs and goals and is maximizing your income. Please reach out to our client service team to schedule a meeting with an advisor.