2023 Retirement Planning

Posted on Wednesday, March 15, 2023

A common concern for a lot of folks is if and when they will have enough money saved to retire.  Here are some ways you can plan for your retirement in a tax-advantaged way. 

401(k)

If your employer offers a §401(k) or other retirement plan, this can be a great way to save for that nest egg.  Generally, any contributions you make are tax-deferred.  Employers often will match your contribution up to a certain amount.  Putting in enough to earn the full match is an easy way to get a quick return on your investment. 

If you aren’t making the maximum $22,500 §401(k) contribution for 2023, you still have time to increase contributions for the remainder of 2023 to lower your AGI in order to take advantage of some of the tax breaks described herein. Maximizing pre-tax retirement contributions generally is a good tax-saving move. 

IRA

Individuals who are not active participants in an employer pension plan may make deductible contributions to an IRA. The deadline for 2023 contributions is April 15, 2024. The annual deductible contribution limit for an IRA for 2023 is $6,500. A $1,000 “catch-up” contribution is allowed for taxpayers age 50 or older by the close of 2023, making the total limit $7,500 for these individuals. 

Individuals who are active participants in an employer pension plan also may make deductible contributions to an IRA, but the deduction is limited in amount depending on their AGI. For 2023, the AGI phase-out range for deductibility of IRA contributions is between $73,000 and $83,000 of modified AGI for single persons (including heads of households), and between $116,000 and $136,000 of modified AGI for married taxpayer filing jointly. Above these ranges, no deduction is allowed. A married taxpayer filing a separate return may not deduct IRA contributions if his/her modified AGI is $10,000 or more. 

Roth IRA

A Roth IRA allows individuals to make nondeductible contributions of up to $6,500 ($7,500 if making an eligible catch-up contribution) for 2023. Earnings grow tax-free, and distributions are tax-free provided no distributions are made until more than five years after the first contribution and the individual has reached age 59 1/2. Distributions may be made earlier on account of the individual's disability or death.  These rules only apply to the earnings in your account.  You may withdraw your principal at any time without paying tax. 

The maximum Roth IRA contribution is phased out in 2023 for persons with an AGI from $218,000 to $228,000 for married taxpayers filing jointly, $138,000 to $153,000 for single taxpayers (including heads of households), and between $0 and $10,000 for a married taxpayer filing separately who lived with the spouse during the year.  If your income is too high to make a Roth IRA contribution and you do not have a traditional IRA, you can establish a traditional account and make a nondeductible contribution. You can then convert the traditional account to a Roth IRA but will have to pay income tax on part or all of the converted amount.  However, in doing so you set yourself up for tax-free growth on the amount converted.  Please consult your financial or tax advisor before attempting a Roth conversion for a more complete explanation. 

Roth IRA Conversion

It can be advantageous to execute a Roth IRA conversion, particularly if you are in a lower tax bracket.  Doing so can guarantee that further asset appreciation is sheltered from income tax.  Funds in a traditional IRA (including SEPs and SIMPLE IRAs), §401(a) qualified retirement plan, §403(b) tax-sheltered annuity, or §457 government plan may be rolled over into a Roth IRA. Such a rollover, however, is treated as a taxable event, and you will pay tax on the amount converted. No penalties will apply if all the requirements for such a transfer are satisfied. 

If you are eligible, take advantage of catch-up contributions to your retirement plan.  If you will be 50 years old by December 31, 2023, an additional $7,500 can be contributed to a §403(b) plan, SEP, or eligible §457 government plan. 

Hopefully, you will be able to take advantage of some of these ideas to help build your retirement nest egg.  Your DWD accountant can help you determine which of these and other strategies may be right for you. 

Contributed By: Mark Westerhausen, CPA, MST

Posted in Tax Topics For Individuals

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.