If you have a 401(k) or IRA you can thank the IRS for making some changes primarily based on the effects of inflation on the economy.
401(k) and IRA Plans
401(k) plans help people save money for when they stop working. Your employer might help you save money by giving you extra money to put into your 401(k) plan. When you put money into a 401(k), you don’t have to pay taxes on that money. This means that you can keep more of your own money now. However, the effects of inflation have delivered a hit to savings.
An IRA is another way to save money for retirement without having to pay taxes on it. If you use a traditional IRA, then you may have to pay taxes on the money when you retire. But if you use a Roth IRA, you pay taxes on the money when you put it into the account. Then when you retire, you should not have to pay taxes on the money again.
Investors in both 401(k) and IRAs are feeling pain as a result of inflation and stock market declines in 2023.
Changes to IRA and 401(k) Contributions
The IRS has announced that you can begin to contribute more money to your retirement savings starting in 2023. The amount you can contribute to a 401(k) has increased to $22,500, and the limit on IRA contributions has increased to $6,500.
There are two ways that saving in an IRA will be better in 2023.
- The amount you can save in an IRA plan will increase to $6,500 from $6,000.
- The income limits for IRA contributions have risen. This means that more people will be able to save money in an IRA.
If you are a single taxpayer, you can contribute to a traditional IRA starting at $73,000. If you are married and filing jointly, you can contribute starting at $116,000 if you have a workplace retirement plan, or $218,000 if you don’t have one.
Conclusion
The IRS is aware of the stress that inflation has been causing on 401(k) and IRA investors, and they have made a few changes to help people save for retirement. While these changes are a step in the right direction, it’s important to remember that you are still responsible for your own financial security in retirement. Let us know how inflation is affecting your retirement savings in the comments below, and be sure to check out our other blog posts for more helpful tips.