Building a nest egg is an important thing to do if you want to retire comfortably. Sure, you can tell yourself you’ll fall back on Social Security, but doing so could lead to a severe lack of income across the board.
Now, when it comes to saving for retirement, you have options. If your employer sponsors a 401 (k) plan, they may pay to contribute. This is because many of the companies offering these plans also match employee contributions to some extent. Plus, 401 (k) come with generous contribution limits, so if you’re able to put a sizable portion of your income into retirement savings, you have a solid opportunity.
But not everyone has access to a 401 (k). Maybe you work for a company that doesn’t offer one. Or maybe you are self-employed, and therefore it is up to you to finance your retirement savings without the help of a corporate match.
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If so, the good news is that you can do well enough for yourself by saving in an IRA. And next year, the annual contribution limits for IRAs will increase, so you’ll have an even greater opportunity to withdraw retirement funds and enjoy some tax breaks along the way.
You can save more in your IRA next year
In 2022, the annual contribution limit for 401 (k) plans increased by $ 1,000. But the contribution limit for IRAs remained the same as in 2021: $ 6,000 for workers under the age of 50 and $ 7,000 for those aged 50 and over.
Next year, the annual IRA contribution limit will increase from $ 6,000 for savers under 50 to $ 6,500. The recovery limit, however, will remain stable at $ 1,000, meaning savers aged 50 and over can invest up to $ 7,500 in an IRA in 2023.
Interestingly, the IRS just announced that recovery contributions for older 401 (k) savers will increase from $ 6,500 to $ 7,500. Unfortunately, IRA recoveries are not subject to cost of living adjustments, so those will stay where they are. But in any case, if you are able to maximize your IRA in 2023, it is worth doing so. The more money you save in the short term, the more you can retire.
That tax break is worth taking
Retiring with a solid nest egg isn’t the only reason to try and maximize your IRA next year. You should also aim to take advantage of the opportunity to get a great tax break.
Traditional IRA contributions are tax free, so if you manage to put $ 6,500 into your IRA next year, that’s $ 6,500 of income that the IRS won’t tax you on. Now, if you decide to fund a Roth IRA, you won’t get that immediate tax break. But you want enjoy tax-free investment earnings in your retirement plan, as well as tax-free withdrawals once retirement comes.
Additionally, Roth IRAs are the only tax-favored retirement plan that does not subject savers to the required minimum distributions. This means you have a lot more say in your savings and the ability to continue benefiting from tax-facilitated growth in recent years as well.
The $ 18,984 Social Security Bonus that most retirees completely overlook
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