Tune-Up your Savings Plan for the Year

Is your goal to max out your retirement savings contributions in 2023?    Are you on track with salary deferrals or accumulating savings to do that?   This writing is a mid-year reminder to check on your progress with income deferrals and to provide the contribution limits for 2023 (see below).

There are increases in contribution limits to multiple retirement plan types this year due to Cost of Living Adjustments made by the IRS.

For example, the maximum contribution to a 401(k), 403(b) or 457 plan increased from $20,500 in 2022 to $22,500 in 2023.  Additionally, the age 50+ catch-up contribution for these plans increased from $6,500 in 2022 to $7,500 in 2023.  Employer matching contributions are in addition to employee salary/income deferrals.

A RETIREMENT SAVINGS STRATEGY FOR SALARY + BONUS: 

A worker age 50+ can contribute $30,000 to their 401(k) plan this year.  For some households, this is a lot to handle per pay period. When bonus income is a normal part of compensation It may be possible to use gross bonus income to bridge a funding gap with a lump sum contribution.  If you are interested in putting this in place here are my suggested steps.

• Establish your regular salary deferrals to your retirement plan that work for your household.
• Consider using bonus income to cover funding gaps in the 401k in whole or in part. This has to be evaluated by the employee/household.  Of course, bonus income may not be reliable, and it may vary in amount.  You’ll need to make a good assessment about this.
• Ask your HR or payroll department if they will allow gross bonus to fund the 401k in a lump sum in addition to regular salary deferrals. Because this is a special arrangement, not all employers will do this.  Smaller firms may be more likely to accommodate such a request.  Larger firms have many employees to attend to and often will not agree.   It is worth asking about if you are interested in this strategy.
• Once the 401k is fully funded, HR and payroll departments will stop salary deferrals.
• Of course, I’m always available to help with any questions that you may have.

For self-employed people the retirement savings opportunity is up to $66,000  for a SEP IRA or Individual 401(k).  A best practice to maximize this higher savings goal is to set aside funds at each pay period.

WHAT IS A PLAN DOCUMENT?

Employers that sponsor 401k or other retirement plans will have a “Plan Document” containing the terms and conditions of their plan.  It is an excellent idea to review your company Plan Document so that you are familiar with their terms.  Your company website or HR department can provide this to you.

Plan Documents include information on eligibility, contributions, vesting, loans, distributions and more.

2023 MAXIMUM CONTRIBUTIONS LIMITS: 

Opes Wealth is a financial advisory and wealth management firm and cannot provide tax advice.  Please call to learn more about Opes Wealth’s services and how we may be of help in your planning and wealth building goals.  Services are available nationwide.

I hope you find this information to be timely and useful!  Please consult with your tax professional for specific tax advice and your HR department for guidance.

Ann Timoney

Personal Financial Advisor, CFP®

408-981-1335 C / atimoney@opeswealth.com

Disclaimer: Client tax situations are unique and specific, and you are encouraged to consult a tax professional to analyze your specific situation.  This material has been prepared for informational purposes only, and is not intended to provide tax, legal or accounting advice; nothing contained in these materials should be taken as such. The opinions expressed in this article are not intended to provide specific advice or recommendations for any individual or on any specific tax strategy or security. The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Opes Wealth Management cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Advisory services are only offered to clients or prospective clients where Opes Wealth Management and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Opes unless a client service agreement is in place.