Retirement Contribution Limits for 2022
With Tax Season in full swing, now is the opportunity to review your retirement accounts and ensure you’ve reached your contribution limits.
For 2022, the contribution limit for traditional Individual Retirement Accounts (IRAs), was $6,000, with a $1,000 catch-up contribution. Roth IRA contributions were set as the same numbers as traditional IRAs. However, you must fall below the income eligibility requirements to contribute to a Roth IRA.
Modified adjusted gross income, MAGI, for Roth IRA contribution eligibility was increased for 2022. Single filers and heads of households have a phase-out table that begins at $129,000 to $144,000 and $204,000, while those filing jointly as married couples become ineligible at $214,000.
For 2022 SIMPLE IRA Plans (SIMPLE is an acronym for Savings Incentive Match Plan for Employees), contributions were increased from $13,500 to $14,000.
The 2022 Roth and Traditional IRA contributions deadline is April 18th, though we do not recommend waiting. A SEP-IRA can be opened, and contributions made until the employer's actual tax-filing deadline, generally April 15th.The 2022 SIMPLE IRA Contribution Deadline for employers is April 18th.
It is still possible to establish an account or make 2022 contributions. It is important to note that your income may prohibit you from contributing to a Roth account or receiving a tax deduction for a Traditional IRA. Mapping scenarios out within a financial plan and then confirming with a CPA is typically the best approach when you are unsure about what type of contribution to make.
Don't hesitate to get in touch with your advisor today if you have any questions or would like to contribute to your account.
New Retirement Contribution Limits for 2023
The Internal Revenue Service (IRS) has released new limits for certain retirement accounts for the coming year. After months of high inflation and financial uncertainty, some of these cost-of-living-based adjustments have reached near-record levels.
Remember that this update is for informational purposes only, so please consult with an accounting or tax professional before making any changes to your 2023 tax strategy. You can also contact your RMR Financial Advisor, who may be able to provide you with information about the pending changes.
When to Contribute
The tax filing deadline is the last day to make contributions to your account, but does that mean you should wait? The time value of money and compounding returns build a strong case for making contributions at the beginning of the year. By maxing out your IRA in the first few months, rather than waiting for the deadline, you are giving that money up to 15 extra months to compound returns, tax deferred.
Individual Retirement Accounts (IRAs)
Traditional IRA contribution limits are up $500 in 2023 to $6,500. Catch-up contributions for those over age 50 remain at $1,000, bringing the total limit to $7,500.
Remember, once you reach age 73, you must take the required minimum distributions from a Traditional IRA in most circumstances. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
Roth IRAs
The income phase-out range for Roth IRA contributions increases to $138,000-$153,000 for single filers and heads of household, a $9,000 increase. For married couples filing jointly, phase-out will be $218,000 to $228,000, a $14,000 increase. Married individuals filing separately see their phase-out range remain at $0-10,000.
To qualify for the tax-free and penalty-free withdrawal of earnings, Roth 401(k) distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawals can also be taken under certain other circumstances, such as the owner's death.
Workplace Retirement Accounts
Those with 401(k), 403(b), 457 plans, and similar accounts will see a $2,000 increase for 2023, the limit rising to $22,500. Those aged 50 and older will now have the ability to contribute an extra $7,500, bringing their total limit to $30,000.
Once you reach age 73, you must take the required minimum distributions from your 401(k) or other defined-contribution plans in most circumstances. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
SIMPLE Accounts
A $1,500 increase in limits for 2023 gives individuals contributing to this incentive match plan a $15,500 stop light.
Much like a traditional IRA, once you reach age 73, you must take the required minimum distributions from a SIMPLE account in most circumstances. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
SECURE ACT
In the final days of 2022, Congress passed a new set of retirement rules designed to make it easier to contribute to retirement plans and access those funds earmarked for retirement.
Here are some changes starting in 2023 that may affect your retirement plan.
RMD age will rise to 73 in 2023 (Section 107). By far, one of the most critical changes was increasing the age at which owners of retirement accounts must begin taking required minimum distributions (RMDs). Starting in 2033, RMDs may begin at age 75. If you have already turned 72, you must continue taking distributions. But if you are turning 72 this year and have already scheduled your withdrawal, we may want to revisit your approach.
Reduced penalty (Section 302). Also, starting in 2023, if you miss an RMD for some reason, the penalty tax drops to 25% from 50%. If you fix the mistake promptly, the penalty may drop to 10%.
SIMPLE and SEP (Section 601). From 2023 onward, employers can make Roth contributions to Savings Incentive Match Plans for Employees or Simplified Employee Pensions.
Disclosure:
Investment advisory services offered through RMR Wealth Builders, Inc. RMR Wealth Builders, Inc. is not engaged in the practice of law or accounting. The information in this material is not intended as tax or legal advice. All investment strategies have the potential for profit or loss.
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The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.