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Whether young or close to retirement, recent legislation makes it easier to set money aside for your golden years
January 8, 2023
Please read the important disclaimers at the bottom of this post. Past performance is not indicative of future results. Not a recommendation to buy or sell securities. Nothing in this presentation is intended to be construed as investment advice.

It seems so rare these days that we can celebrate any news coming out of Washington. But two recent actions by the government should be celebrated, because they are helping Americans’ ability to save for retirement. Let’s breakdown two of the big changes:

1. You can now save more in tax-advantaged retirement funds (401k, IRA, Roth)

For employer-sponsored plans, such as 401k and 403b accounts, the annual contribution limit was increased from 20,500 to 22,500. This is a response by the government to high inflation, which clocked in at over 7% in November. While $2,000/year doesn’t seem like a big deal, it is, especially for early and mid-career professionals with many years until retirement. Over a long period of time (say 25 years), a $2,000 extra annual contribution could mean an additional $100k-$150k in retirement!

What about for savers closer to retirement? The IRS has something for you, too, with an improvement to the catch-up contribution amount. The catch-up contribution is an extra amount you can contribute to your retirement accounts if you’re over the age of 50. For 2023, the catch-up contribution limit was increased to $7,500 from $6,500 for 401k and 403b plans. So, if you’re over 50, the maximum amount you can contribute is $30,000, up from $27,000.

For people who have an IRA or Roth IRA, annual contribution limits have increased for both by $500 to $6,500 for eligible individuals. The IRS did not raise the catch-up contribution amount for traditional or Roth IRAs. Roth IRAs are available to certain income brackets only. In 2023, the amount you can contribute to an Roth is phased out once your income reaches $138,000 for single filers ($218,000 for Married Filing Jointly). Once income reached $153,000 for single filers ($228,000 for Married Filing Jointly), savers are not eligible for Roth IRA contributions at all.

2. SECURE 2.0 Act allows 529-to-Roth rollovers

Prior to the law’s passage, funds distributed out of a 529 college savings plan used for anything other than education expenses would incur penalties and taxes. This led savers to worry that if they overfunded their kids’ college education, or the kids end up not needing it, funds would be stuck in the 529 or subject to penalties.

The new provision gives parents a lot more flexibility with these education savings. Beginning in 2024, beneficiaries can roll up to $35,000 in total to a Roth IRA, subject to annual contribution limits. This means you can reallocate tax-advantaged funds set aside for education expenses towards your or your children’s retirement.  This is also an interesting way to “back-door” Roth contributions, because 529-to-Roth rollovers are not subject to the income limits discussed above. However, the 529 account does need to be open for at least 15 years prior to a Roth rollover.

The SECURE 2.0 Act has many other impacts on retirement savings, no matter your career stage. If you’d like to review your retirement plan, please schedule a call with one of our advisors for a no-obligation, no-pressure consultation.  

important disclaimers

The information contained in this presentation is qualified in its entirety by the following disclosures which must be read in conjunction with the presentation. The presentation is intended for sophisticated investors for informational purposes only and is not intended to constitute investment advice or recommendations by any party. Unless otherwise indicated, information, data, strategies and opinions included in the presentation are provided as of the byline date and are subject to change without notice. In accordance with relevant SEC advertising regulations, a full list of trades and investment recommendations is available upon request. Past performance is not a guarantee or a reliable indicator of future results. The views and strategies described herein may not be suitable for all investors. You should consult your financial advisor regarding such matters. The material contains the current opinions of the author, and such opinions are subject to change without notice. Forecasts, estimates, and certain information contained herein are based on proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. This material contains information that has been prepared from original sources and data believed to be reliable. However, no representations are made to the accuracy or completeness thereof. Investing involves a variety of risks and may be only appropriate for sophisticated persons who can afford a loss of all or a substantial portion of their investment. No part of this material may, without advance written consent, be copied or duplicated in any form by any means. There can be no assurance that any client’s investment objective will be achieved or that a client will not lose a portion or all of its investment account. The investment return and principal value of any investment will fluctuate over time. No chart, graph, or other figure provided should be used to determine which investment strategies to use or which securities to buy or sell. No figure above should be taken as a recommendation or endorsement of a specific security, sector, or strategy. References to market or composite indexes, benchmarks or other measures of relative market performance over a specified period of time are provided for information only and do not imply that any client account will achieve similar returns, volatility or other results. The composition of an index may not reflect the manner in which a client’s portfolio is constructed in relation to expected or achieved returns, portfolio guidelines, restrictions, sectors, correlations, concentrations, volatility or tracking error targets, all of which may change over time. An index’s performance does not reflect the deduction of transaction costs, management fees, or other costs which would reduce returns. You cannot invest directly in an index.

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