A Little Good News for Your Retirement Accounts Next Year
There’s no sugarcoating it…
It’s been a rough year for anyone trying to invest for retirement.
Everyone knows stocks are in a bear market. The benchmark S&P 500 (SPX) was down 28% at its recent October low.
But even the typically boring bond market has done poorly, with various bond-market indexes falling as much as 17% through October. According to Bank of America Global Investment Strategy research, that’s on track for the fourth-worst annual performance for bonds in all of financial history. Only the years 1721, 1865, and 1920 were worse.
And, of course, I don’t need to remind you those dismal returns are before inflation, which has been running well over 7% all year.
Unfortunately, I can’t tell you the markets are certain to perform better next year. But I can pass along a little bit of good news for your retirement accounts in 2023.
You see, late last month, the Internal Revenue Service (IRS) announced it is significantly increasing 401(k) and IRA contribution limits next year, allowing investors to protect more of their savings from taxes.
Specifically, it is raising the limit on individual 401(k) contributions to $22,500. That’s an increase of $2,000 (or nearly 10%) from last year’s limit. It’s also raising the limit for “catch-up” contributions to $7,500 – the first such increase since 2020 – meaning folks aged 50 and older can now contribute up to $30,000 per year.
The IRS is also increasing the limits on individual retirement accounts (IRA) by $500 (more than 8%) to $6,500. Those aged 50 or older are also eligible for an additional $1,000 in catch-up contributions.
Finally, it is also significantly increasing the income limits for Roth IRA contributions, meaning more folks may now be eligible for these tax-free retirement funds.
The so-called “income phase-out” range for Roth IRAs will rise to $138,000 to $153,000 in 2023, from the current range of $129,000 to $144,000.
These increases could allow you to save a little more for retirement while also potentially reducing your tax bill next year.
However, before you consider increasing your retirement contributions, I urge you to ensure you’re already getting the most benefit from these plans.
I covered the basics of good 401(k) investing in a short series earlier this year. You can review it at the links below.
Stories You May Have Missed
In this week’s TradeSmith Daily, we covered a variety of topics you may find interesting. I hope you’ll take a moment to review them.