While December 31st is approaching quickly, you still have a chance to add to your tax-deferred retirement savings for this year (and lower your tax bill). If you have a 401(k), 403(b), or SIMPLE IRA, the maximum amount you can save for 2022 is $20,500. If you’re age 50 or over, you can add an additional $6,500 to that amount.
Retirement Saving for Year-End
If it looks like you won’t hit those numbers this year, you may be able to increase your savings percentage and increase that amount, if your plan allows it. Of course, deferring more income means you’ll receive a lower paycheck, so check your cash flow first.
In the past, I’ve seen people defer 100% of their final paycheck, so it’s possible to put more away!
If you’re self-employed and have a SEP IRA or Solo 401(k) plan, you can put away the lesser of $61,000 or 25% of your compensation. Why not make a distribution and save taxes while you’re at it?
Finally, if these are plans that aren’t available to you, there are always the venerable IRA and Roth IRA options. For 2022, the limit is $6,000 with a $1,000 catch-up option for those aged 50 and older.
Of course, the full Roth IRA contributions and deductible IRA contributions may not be available to you, depending on your income and access to other retirement plans. Fortunately, the deadline for these options is tax filing day – so you still have time to plan.
Retirement Saving for 2023
Finally, for 2023, the maximum contribution amounts are increasing again, so it’s time to start planning out your retirement savings for next year.
The savings limit for 401(k), 403(b), and SIMPLE plans increases to $22,500 next year. The catch-up contribution also increases to $7,500.
So, if you’re planning to max out your plans next year, simply divide $22,500 (or $30,000 if you’re age 50 or older) by your salary to calculate your target 401(k) savings rate. Set it now and let it ride in the new year.
If you need help saving for retirement, then click here to set up a quick, complimentary introduction call to see if Prana Wealth is a good fit. We do still have the capacity to take on new clients.
As a fee-only financial advisor in Atlanta, we can (and do) work virtually with clients all across the U.S. and we’re here to help you when you’re ready.