This Week’s Blogger: Scott D. Heins, CFP®, IAG Chief Investment Officer
A new year always bring some changes to your life.
Some of 2023’s changes will likely have little impact on your day-to-day life. For example, it is now legal (but still risky) to jaywalk in California, Mississippi has a catchy new state song, and you may no longer release lighter than air balloons in Hawaii.
Other changes provide opportunities for planning that could be more impactful on your financial life.
Thanks to significant inflation, contribution limits for retirement accounts jump in 2023. If you are under age 50 at the end of 2023, you may contribute up to $22,500 to your employer-sponsored 401(k), 403(b), or 457 retirement plans. This is $2,000 more than 2022.
As life tends to go, it gets even better for you if you are age 50 by the end of 2023. Your contribution limit jumps to $30,000 – a $3,000 increase. Annual IRA and Roth IRA contribution limits also bump up by $500 to $6,500 (or $7,500 if age 50 or better).
Now is the time to adjust your contributions to take advantage of these higher limits.
Congress also used the end-of-year SECURE Act 2.0 to create employer Roth contributions starting January 1. You may now request that your employer matching contributions be designated as Roth contributions. Of course, if you opt to request this your matching contribution will show up as taxable income on your tax return. And just because it is legal does not mean plan providers have the infrastructure in place to accommodate these requests quite yet.
The same is true for the brand-new SEP and SIMPLE Roth IRA accounts. While newly legal in 2023, it will take some time before they are actually available.
Changes are afoot not only for retirement plan contributions, but distributions as well.
If you turn 72 in 2023 and were all fired up about taking your first Required Minimum Distribution this year, you will have to wait. The SECURE Act 2.0 bumped your Required Minimum Distribution age to 73. Next year will come soon enough.
Congress also felt a bit less punitive at the end of last year. In 2023 one of the harshest penalties in the tax code (for missing your Required Minimum Distribution) drops from 50% to 25%. If you resolve the issue in a timely manner, they cut the penalty to a bargain basement penalty of 10%. We still recommend taking your Required Minimum Distribution every year.
In Wisconsin, 2023 ushers in a brand-new business entity law. If you have not done so already, you may wish to touch base with your business attorney to determine if there will be an impact to your business.
And finally, perhaps the biggest change for 2023 for retirees will be the unprecedented confluence of a substantial 8.7% increase in Social Security benefits AND a 3% decrease in Medicare premiums. This is likely a once-in-a-lifetime experience, so please enjoy it to the fullest.
Change is inevitable. As much as we would love to plan for the future with certainty, we must always be ready to adapt to the curve balls life brings.
Our commitment to our clients is to help them plan, adapt, and optimize their strategy for persistently building the future to which they aspire. If you know of a friend or family member that would benefit from our passion, please be sure to share us with them.
Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through IAG Wealth Partners, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. No strategy assures success or protects against loss. Investing involves risk including loss of principal.
Quote of the week:
Winston Churchill: “To improve is to change; to be perfect is to change often.”