Investor Minute
Pay Yourself and Reduce Current Taxes by Fully Funding Your Retirement Accounts
The federal government has been periodically increasing the contribution limits for individual and workplace retirement accounts over time. Using the incentives of lower or deferred taxes, they are hoping that people will put away more money for retirement.
With the end of the year just around the corner, now is a good time to review your retirement contributions year-to-date and make sure you are taking full advantage of the potential incentives offered by the IRS.
IRA and Roth IRA
A traditional Individual Retirement Account (IRA) allows you to save for retirement while deducting your contributions from your taxes. For 2023 the maximum contribution is $6500 if you’re under 50, and $7500 if you’re 50 or older.
A Roth IRA allows you to pay taxes on the contribution in exchange for being able to withdraw the money tax-free in retirement.
Both IRA and Roth IRA have the same contribution limits. There are some exceptions so check with your tax professional for your specific situation.
Workplace Retirement Plans
If you or your spouse have a workplace retirement plan, such as a 401(k), again it’s a great opportunity to contribute as much as you can. First, you may save on current taxes. Second, if the plan sponsor (the employer) offers a matching contribution, it’s like being offered free money for being a consistent saver.
For 2023, the individual limit for a 401(k) is $22,500. Again, check with your tax professional for personalized tax advice.
Health Savings Account
A Health Savings Account (HSA) is a bank account specifically for paying health related expenses. These can be everything from dental care to travel costs for a medical procedure. An HSA is tied to a special, high deductible health insurance plan.
The triple advantage of an HSA is that you can deduct your current contributions, pay no tax on potential gains made by investing your excess HSA funds, and you can withdraw any money left over tax free in retirement.
For 2023, the HSA contribution limits are $3,850 for an individual and $7,750 for a family. And if you’re 55 or older, you can contribute an additional $1,000.
Don’t Wait Until the Last Minute
You must make all your 401(k) contributions for this year by December 31st. However, you can make IRA and HSA contributions for 2023 up until April 15th, 2024.
Your trusted advisor is ready to help you maximize your allowable contributions and answer any questions about reaching your long-term goal. Schedule a free call with me if you have any questions. Click here.