Although it is straightforward to start planning for your retirement, it is also essential to remember that there are various moving parts you need to take into account. Proper knowledge about these changes can help you get the most out of your plan. To help you out, here are five things you should know about retirement planning in 2023.
New Limits on 401(k)
A workplace retirement plan like a 401(k) is popular among Americans. You can set aside money for your financial needs through a plan which allows people to invest a portion of their paycheck. You can also choose to spread the funds among various options, and you will pay taxes on the earnings once you retire.
The limit is adjusted yearly; in 2022, it was $20,500; in 2023, it was $22,500. Also, those 50 and above can make catch-up contributions. In 2022, the catch-up was $6,500, and in 2023, it will be $7,250. This will allow individuals with a total of $30,000 to make contributions.
An individual retirement account is a good choice if you cannot access a workplace retirement plan due to certain factors. An IRA is a type of retirement plan that works similarly to a traditional pension, except that it is operated by yourself. In 2022, the maximum amount individuals can make in contributions to an IRA is $6,000; in 2023, the limit will go up to $6,500.
Phase-Out Range on IRA Income
People who make large contributions to their IRAs will see their limits go down if a workplace retirement plan also covers them. The phaseout range for traditional IRAs starts at $73,000 for individuals with a taxable income of $83,000 in 2023. This means that if an individual’s earnings exceed this amount, they will not be able to contribute to their retirement accounts.
Roth IRA Income Phase-Out Range
Traditional IRAs work similarly to Roth IRAs, except that money is withdrawn once you retire. No taxes are applied when this happens. The phase-out range for individuals’ retirement accounts in 2023 is $138,000 for singles and $153,000 for heads of household. In 2022, it was $129,000. In 2023, the maximum amount couples filing jointly can make in retirement accounts is $218,000. In 2022, the figure was $204,000.
Social Security Update
Although Social Security is not always enough to retire on your own, it is a vital part of many people’s retirement plans. In 2023, the monthly payments will increase. The cost of living adjustment, or the “COLA,” for Social Security payments will be 8.7% in 2023. This will increase the payments by around $140.
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