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2023 Retirement Plan Changes

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Retirement planning is the process of evaluating and assessing how much you need to save and invest in order to have a comfortable retirement. It involves determining your financial goals and the resources you have available to achieve those goals, as well as considering factors such as your age, life expectancy, and potential future expenses. Proper retirement planning can help you live a secure and fulfilling life after you stop working, while also allowing you to avoid financial difficulties later in life.

Staying informed about retirement planning can help you make informed decisions about your retirement savings and investments and ensure that you take advantage of all available opportunities to maximize your retirement income. It can also help you avoid pitfalls and make the most of your retirement years. Additionally, being aware of the latest retirement planning policies and provisions can help you understand how different choices and actions may impact your retirement prospects. For example, understanding the rules surrounding Social Security, 401(k)s, and other retirement savings vehicles can help you make informed decisions about allocating your resources and planning for your financial future. If you need guidance on how to create a customized retirement plan based on your needs and goals, consult with a professional financial advisor who can advise you on the same.

Here are some things to know about retirement plan changes in 2023 to help you stay up-to-date and accurately plan for a financially secure retirement.

1. 401k changes to contribution limits

401k contributions are one of the first things to check in retirement planning. Most employers offer a 401k retirement plan, and maximizing your contributions to the account can significantly speed up your progress. The Internal Revenue Service (IRS) sets the contribution limits for retirement accounts like the 401k. These are subject to changes every year to help investors keep up with inflation and evolving financial needs. As of 2023, you can contribute up to a maximum of $22,500 annually, a jump of $2,000 from $20,500 in 2022. The catch-up contribution limit for those aged 50 and above has also increased from $6,500 in 2022 to $7,500 in 2023.

Since many employers provide an employer match on a 401k, it can benefit you to ensure you contribute as much as you can within the permissible limits. The more you contribute, the more you receive in employer contributions. This can help you save more for retirement and potentially retire earlier or with a higher standard of living. Additionally, you also get to benefit from tax advantages.

2. IRA change to contribution limits

Just like the 401k, there have been changes to retirement plans like the Individual Retirement Account (IRA), too. The IRA is similar to the 401k. However, it is not a workplace account, and you can open it on your own with a broker, insurance company, credit union, or bank. An IRA has no employer contributions, but you can still benefit from maximizing your contributions. The contribution limits for an IRA have been increased in 2023. You can contribute up to $6,500 in 2023. This is a $500 increase from 2022. Further, those aged 50 and above can make a catch-up contribution of $1,000. This is the same as in 2022.

3. IRA phaseout limits

An IRA phaseout limit is the level at which your IRA contribution can be phased out or, in other words, reduced. So, if you earn a certain amount of money, you may be able to contribute less to your IRA. As of 2023, the phaseout limit for a traditional IRA is as follows:

  • The IRA phaseout limit is between $73,000 and $83,000 for a single taxpayer covered by a workplace retirement plan, such as a 401k. This has been increased from a limit of $68,000 and $78,000 in 2022. So, in 2023, if you have a 401k plan and earn more than $83,000 annually, you will not be able to contribute to a traditional IRA.  
  • The IRA phaseout limit is between $116,000 and $136,000 in 2023 for married taxpayers filing jointly if the spouse contributing to the IRA is also covered by a workplace retirement plan. This has been increased from $109,000 and $129,000 in 2022. In the case where only one of the spouses has a workplace retirement plan, the spouse without a workplace plan has a phaseout limit of $218,000 and $228,000 compared to a range of $204,000 to $214,000 in 2022.
  • The IRA phaseout limit is between $0 and $10,000 for married taxpayers filing separately who are also covered by a workplace retirement plan.

As of 2023, the phaseout limit for a Roth IRA is as follows:

  • The IRA phaseout limit is between $138,000 and $153,000 for a single taxpayer contributing to a Roth IRA. This has been increased from a limit of $129,000 and $144,000 in 2022.
  • The IRA phaseout limit is between $218,000 and $228,000 in 2023 for married taxpayers filing jointly, also covered by a workplace retirement plan. This has been increased from $204,000 and $214,000 in 2022.
  • The IRA phaseout limit is between $0 and $10,000 for married taxpayers filing separately who are also covered by a workplace retirement plan.

Please keep in mind that the IRA phaseout limits can be a consequential consideration when selecting between a traditional and Roth account, along with the tax benefits of both types.


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4. Social Security Changes

The Social Security program provides retirement, disability, and survivor benefits to eligible workers and their families. The program is funded by payroll taxes paid by workers, employers, and self-employed individuals. While Social Security may not be useful alone to prepare for a financially secure retirement, it can immensely help you build your savings over time. The Social Security Administration (SSA) has announced an increase in the benefits check in 2023. The average Social Security payout will increase by 8.7% in 2023 compared to 5.9% in 2022. This is the highest Cost Of Living Adjustment (COLA) increase since 1981. This translates to $146 more in monthly benefits. The maximum Social Security benefit will also increase in 2023. An individual retiring at the full retirement age will receive $3,627 compared to $3,345 in 2022. However, please note that the maximum Social Security benefit can differ for those who retire before and after the full retirement age.

The Social Security benefits will also increase for people with disabilities, widows, and widowers. A widowed individual who is also a mother with two children can receive up to $3,520 in 2023. Elderly widows and widowers living alone can receive increased benefits of up to $1,704. Further, disabled workers with a spouse and children will receive up to $2,616 in Social Security in 2023.  

The maximum taxable earnings subject to Social Security taxes have also increased in 2023. From $147,000 in 2022, the figure is now increased to $160,200 in 2023. This refers to the amount of money from a person's income that will be subject to tax.

People who plan to continue working even after claiming their Social Security benefits must note that there have been changes to the amount of money Social Security will withhold from your benefits. As of 2023, if you are earning and start withdrawing your Social Security check before the full retirement age (67 for those born after the year 1960), you will earn $21,240 annually before the SSA withholds your benefits. The SSA can withhold $1 for every $2 dollar you earn above this limit. This has been increased from $19,560 in 2022. If you reach the full retirement age, you can earn up to $56,520 per annum before the SSA withholds $1 for every $3 you earn above the limit. This, too, has been increased from $51,960 per year in 2022. 

5. Changes to retirement plans under the Securing a Strong Retirement Act of 2022 (SECURE 2.0) 

The SECURE Act 2.0 has been passed, and the proposed changes to retirement plans are now a law in the country. Here are some highlights of the act:

1. Changes in Required Minimum Distributions (RMDs): 

RMDs are mandatory withdrawals that retirees must make from their retirement accounts to avoid penalties. Earlier the age for RMDs was 72. However, starting January 1, 2023, the age has been changed to 73. This gives you one extra year to defer taxes on your withdrawals. The SECURE Act 2.0 further extends the RMD minimum age to 75 years from 2033. Another noted change has been made to the penalty charged on late withdrawals. Till 2022, you had to pay a 50% penalty of the RMD amount if you did not make timely distributions. However, in 2023, you will pay a 25% penalty of the RMD amount for failing to make a distribution. The RMD rules will not apply to Roth accounts starting in 2024, and Roth account holders will be exempt from all RMD regulations.

2. Catch-up contributions: 

Knowing what changes are coming to 401k plans in the future is essential. While the contribution limits for 2023 have been mentioned above, the same is expected to change from January 1, 2025. Those aged between 60 and 63 years will be able to make catch-up contributions of up to $10,000 to a 401k workplace plan, indexed to inflation. Moreover, the catch-up contribution for IRAs will also be indexed to inflation starting in 2024.

3. Qualified Charitable Distributions (QCDs): 

Individuals aged 70.5 and older will be able to use a one-time gift of up to $50,000 as part of their QCD towards a charitable annuity trust, charitable gift annuity, or a charitable remainder unitrust. QCDs can be accounted as an annual RMD. Therefore, this will be instrumental in RMD planning for retirees. 

4. Financial incentives from employers: 

Employers can offer small financial incentives like gift cards to employees under the SECURE 2.0 Act to encourage more and more employees to contribute to workplace retirement plans. This is expected to boost contributions and help employees plan for their retirement more efficiently. Starting in 2025, the SECURE 2.0 Act will also start automatic enrollments in retirement plans.

5. Emergency 401(k) and 403(b) withdrawals: 

From 2024, investors will be able to make early withdrawals from their retirement plans under the SECURE 2.0 Act. The withdrawals will be permitted in the case of an emergency. The act allows an emergency distribution of up to $1,000. This can be withdrawn once a year without incurring any tax penalties. However, the amount withdrawn has to be contributed back into the plan. In case the investor fails to do so within a specific time, they will not be able to make other emergency distributions for the next three years.

6. Lost and found database: 

The SECURE 2.0 Act also aims to create a database of lost and found 401k accounts to help people find retirement benefits and accounts they may have lost track of due to switching jobs, unemployment, etc. The database should be created in the next two years.  

The Senate responded to the SECURE Act 2.0 with the Enhancing American Retirement Now (EARN) Act. The act has also proposed changes to catch-up contributions, RMDs, etc. However, this is a proposed act and has not been implemented yet.

To conclude

Retirement planning is a dynamic process, and it is crucial to be on top of the latest policies and provisions that may impact your retirement savings and income. This is especially true in today's rapidly changing economic and political environment, as retirement policies and conditions can change frequently. By staying informed and proactive, you can take control of your retirement planning and work towards a financially secure and comfortable retirement.

Reach out to a financial advisor who can help stay up to date with the latest 401k retirement bill amendments, Social Security changes, as well as other changes that can affect your future. 
Use the free advisor match service to get matched with 1-3 financial advisors based on your retirement goals. Answer a few simple questions based on your financial needs, and the match tool can help connect you with advisors that are best suited to help you.

The blog articles on this website are provided for general educational and informational purposes only, and no content included is intended to be used as financial or legal advice.
A professional financial advisor should be consulted prior to making any investment decisions. Each person's financial situation is unique, and your advisor would be able to provide you with the financial information and advice related to your financial situation.