It’s not too late to make these retirement moves for the New Year

A new year means fresh starts, and there are few things better to do than make sure you know exactly where you stand financially. This is especially true when it comes to retirement accounts, which are often done with a set-it-and-forget-it attitude.

Now is a good time to make the following pension plans for 2023 if you haven’t already.

Make your 2022 IRA contribution

An IRA can be a great tool to help you save and invest for retirement because of the tax breaks it provides. With a traditional IRA, you can withdraw your contributions, depending on your income, filing status, and whether you’re covered by a retirement plan at work. However, the amount is taxable upon withdrawal. With Roth IRAs, your contributions are not tax-deductible, but you receive tax-free withdrawals in retirement.

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For the 2022 tax year (which you’ll file for in April 2023), the maximum you can contribute to an IRA, whether Roth or traditional, is $6,000 ($7,000 if you’re 50 or older). For the 2023 tax year, the IRS raised the contribution limits to $6,500 and $7,500, respectively.

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You have until next year’s tax day to contribute to an IRA. In this situation, you have until April 18, 2023, to make your 2022 IRA contribution. Next year, you have until Tax Day 2024 to make your contribution in 2023, and so on. If you haven’t maxed out your IRA, consider taking your chance before it’s too late.

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If you’re saving for retirement, you can also take advantage of tax breaks along the way. It’s especially important to contribute to a Roth IRA if you qualify because it has income limits that you may not eventually meet.

It cannot be overstated how much you can save yourself by maximizing your investments and making tax-free withdrawals. It can be in the range of five or six, depending on when you start.

It's not too late to take these retirement activities into the new year

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Adjust your 401(k) election

Your risk tolerance is not set in stone. This can change over time, and your 401(k) selection should reflect that fact. As we begin the new year, it’s never too late to adjust your 401(k) election to make sure you’re comfortable with where your money is going.

For example, some may decide that with the economy not looking so good and a recession looming, they want to rely on large-cap stocks because they are historically more stable. If you have more time on your side until retirement, you can use this time to replenish the small savings that have been beaten for the potential of growth. Or you may prefer to focus more on international business to take advantage of emerging markets.

If you don’t make your election special, many plans will automatically put you in the fund at a target date, which is compounded based on your projected retirement age. As you get closer to retirement, shift your target date savings to become more conservative (ie, fewer stocks, more bonds). The target fund adjusts over time but may not match current economic and stock market conditions.

Take the Vanguard Target Retirement 2050 Fundfor example, which is currently available:

  • Total stock market share: 53.3%
  • International stock index: 37.3%
  • Bond II Index Fund: 6.6%
  • International Index Fund II: 2.8%

This fund may work for some investors, but for others who want to make a special adjustment or focus on certain groups of people — such as international or large–target funds are it does not give them the freedom to do so. . That’s why it’s important to have some of your money in a separate fund that you can adjust as you see fit.

Review the value of your contribution

A new year also means a fresh start for your 401(k) contribution limits. For the 2023 tax year, the 401(k) contribution limit is $22,500 ($29,000 if age 50 or older), an increase of $2,000 from last year. You don’t have to top up your 401(k) – that’s a difficult request for many people. But at the very least, contribute enough to get the latest user games if your job offers it. This is close to “free” money.

Finally, evaluate whether your current contribution percentage makes sense to you. Do you need to downsize to help with the high costs of inflation? Do you want to increase it so that you can share more “easily” now? Are you good at it? Whatever the case, make sure your current contribution percentage makes sense for you financially.

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