401(k) Planning and Retirement Plan 2023 Changes Summary
Here are some ways to protect your hard-earned 401(k) when the market heads south.[i]
The first step during an impending market crash is to avoid panicking. Market corrections and cyclical downturns can happen every few years, and they are likely to occur several times throughout the life of your 401(k). While it can be uneasy, market crashes are an important time to stay invested in longer-term investment accounts and not make emotional short-term decisions that could cost you dearly later.
Experts seem to resoundingly agree that staying the course in your 401(k) is important, even during times of uncertainty.
Taking money out of the market during times of volatility can have the opposite effect of what you might be trying to accomplish in the long run.
“We believe the key thing to do is to keep your 401(k) funds invested,” says Eric Phillips, CFA, senior director at San Francisco-based 401(k) provider Human Interest. “If you take them out of the market, you may lock in losses and could miss out on opportunities for market rebounds.”
One good way to align your retirement planning goals with your investments is dollar-cost averaging. This method involves investing a fixed amount of money(or a set percentage of your pay) into your 401(k) each month, regardless of outside market conditions. And for most people participating in a 401(k), this already happens automatically based on how they make their contributions.
“Adding to your 401(k) per paycheck along with any employer contributions isa good way to buy some shares at a lower price to help reduce your cost basis on your investments,” says Dean Elliott, CPFA, managing partner at Global Wealth Advisors, a Texas-based advisory firm.
For a complete list of planning ideas recommended by The CPA Practice Advisor is to go to: https://www.cpapracticeadvisor.com/2022/10/24/how-to-protect-your-401k-from-a-market-crash/72032/?utm_source=CPA+Practice+Advisor&utm_cam…
Here are some changes coming in 2023 for 401(k)s.[ii]
The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is increased to $22,500, up from $20,500.
The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is increased to $7,500, up from $6,500. Therefore, participants in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan who are 50 and older can contribute up to $30,000, starting in 2023. The catch-up contribution limit for employees aged 50 and over who participate in SIMPLE plans is increased to $3,500, up from $3,000.
Here are some changes coming in 2023 for IRAs[iii]
The limit on annual contributions to an IRA increased to $6,500, up from $6,000. The IRA catch‑up contribution limit for individuals aged 50 and over is not subject to an annual cost‑of‑living adjustment and remains $1,000.
The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver's Credit all increased for 2023.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer's spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase‑out ranges for 2023:
For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to between $73,000 and $83,000, up from between $68,000 and $78,000.
For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $116,000 and $136,000, up from between $109,000 and $129,000.
For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is increased to between $218,000 and $228,000, up from between $204,000 and $214,000.
For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.
The income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $138,000 and $153,000 for singles and heads of household, up from between $129,000 and $144,000. For married couples filing jointly, the income phase-out range is increased to between $218,000 and $228,000, up from between $204,000 and $214,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.
The income limit for the Saver's Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $73,000 for married couples filing jointly, up from $68,000; $54,750 for heads of household, up from $51,000; and $36,500 for singles and married individuals filing separately, up from $34,000.
The income limit for the Saver's Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $73,000 for married couples filing jointly, up from $68,000; $54,750 for heads of household, up from $51,000; and $36,500 for singles and married individuals filing separately, up from $34,000.
The amount individuals can contribute to their SIMPLE retirement accounts is increased to $15,500, up from $14,000.
I hope this Summary is useful for your 401(k) planning and changes to your retirement plans. As always, if you should have any additional questions, please do not hesitate to contact us.
[i] How to Protect Your 401(k) From a Market Crash - CPA Practice Advisor
[ii] Internal Revenue Service Notice 2022-55
[iii] Internal Revenue Service Notice 2022-55