Tessa O. from Lewiston, ID asks: Hello Mitch, I’m wondering if you could provide a “need to know” rundown of retirement plan changes. Like how much folks can save, what’s different from before, and so on. I know there is new legislation, but I get lost in the details. Any help would be appreciated!
Mitch’s Response:
Thanks for emailing your question, Tessa, and not to worry! Even financial experts can find new legislation a bit head-spinning, especially when there are myriad rule changes as we saw recently with SECURE 2.0 Act (which includes the retirement plan changes Tessa refers to in her question).1
In fact, SECURE 2.0 contains over 90 different provisions that affect retirement-savings plans like IRAs, Roth IRAs, and employer-sponsored retirement plans. It’s also true that not all of the changes take effect this year or even next – they are spread out between now and 2027.
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In short, it’s understandable that the details of the new law are overwhelming. To keep things straightforward, I’ll focus my response solely on what you need to know for 2023.3
Let’s start an overview of retirement plan contribution limits for 2023:
- 401(k), 403(b), and 457 plans – contribution limit increased to $22,500
- For those over 50, the catch-up contribution limit is increased to $7,500
- Traditional IRAs – contribution limit increased to $6,500
- Over 50 catch-up contributions of $1,000 allowed
- If you’re covered by a retirement plan at work, your contributions to traditional IRAs may not be fully tax deductible, depending on your income level
- Roth IRA contribution limits are the same as Traditional IRAs
- A person’s ability to contribute to a Roth IRA depends on their income level. For single filers, any income above $153,000 means you can’t contribute.
- For married filing jointly, the top income limit is $228,000.
The above contribution limits are for 2023 as per the IRS – they were not adjustments made by SECURE 2.0. Here’s a summary of 2023 rule changes from the legislation, which I would say are “need to know”:
- The Required Minimum Distribution (RMD) age increases to 73, and will increase again to 75 starting in 2033.
- The $1,000 catch-up contribution limit for IRAs and 401(k)s (for those age 50 and older) will be indexed for inflation starting next year.
- The penalty for missing an RMD payment was formerly 50%, but that has been reduced by half to 25% and can be pulled down to 10% if a person tries to resolve the issue on a timely basis.
- For small business owners, Roth (after tax) contributions can be made to SEP IRA and Simple IRA plans.
There are of course several more provisions to note, but since it seems that you’re still focused on saving, I’d say these are the key ones to note.
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Disclosure
1 Wall Street Journal. June 2, 2023. https://www.wsj.com/articles/retirement-savings-changes-2023-1b2e99f0?mod=Searchresults_pos8&page=1
2 IRS. October 21, 2022. https://www.irs.gov/newsroom/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500#:~:text=Highlights%20of%20changes%20for%202023,to%20%246%2C500%2C%20up%20from%20%246%2C000
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