It’s not too late to make these retirement moves for the New Year – Madison.com

It's not too late to make these retirement moves for the New Year - Madison.com

A new year means a fresh start and there are few better things than making sure you know exactly where you stand financially. This is especially true when it comes to retirement accounts, which are often approached with a set and forget mindset.

Now is a good time to make the following retirement measures for 2023, if you haven’t already.

Make your IRA contributions for 2022

IRAs can be great tools to help you save and invest for retirement because of the tax benefits they offer. Immediately traditional IR, you can deduct your contributions depending on your income, the status of your tax return and whether you are covered by a pension plan at work. However, the money is taxable upon withdrawal. Of Roth IRAsyour contributions are not tax deductible, but you will receive tax-free withdrawals upon retirement.

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For the 2022 tax year (which you will file in April 2023), the maximum you can contribute to an IRA, both Roth and traditional combined, is $6,000 ($7,000 if you are 50 or older). For the 2023 tax year, the IRS increased the contribution limits to $6,500 and $7,500, respectively.

You have until next year’s tax day to contribute to an IRA. In this scenario, you have until April 18, 2023 to pay your IRA contributions for 2022. Next year, you have until tax day 2024 to pay your 2023 contributions, and so on. If you haven’t maxed out your IRA yet, consider taking advantage of the opportunity before it’s too late.

If you’re saving for retirement, you might as well take advantage of tax breaks down the road. It’s especially important to contribute to a Roth IRA if you qualify because they did income limits you may not meet in the end.

It cannot be stressed enough how much you can save yourself by growing your investments and combining them with tax-free withdrawals. It can be well into the five or six figure range, depending on how early you start.







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Customize your 401(k) elections

Your risk tolerance is not set in stone. It will likely change over time, and your 401(k) elections should reflect that reality. As we start a new year, it’s never too late to adjust your 401(k) elections to make sure you’re happy with where your money is going.

For example, some may decide that with the less than ideal economic conditions and the looming recession, they want to lean on large capitalization stocks because they are historically more stable. If you have more time on your side until retirement, you can take this opportunity to get beaten up small cap stocks because of the growth potential. Or maybe you prefer to focus more on international companies to take advantage of emerging markets.

If you don’t personally determine your election, many plans will automatically enroll you in a target date fund, which is built based on your expected retirement year. As you approach retirement, funds are reallocated on the target date to become more conservative (i.e. fewer stocks, more bonds). A target date fund will adjust over time, but may not adapt to current economic and stock market conditions.

Take the Vanguard Target Pension Fund 2050for example whose current assignment is:

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

This allocation may work for some investors, but for others who want to make personal adjustments or focus on certain groups of stocks — such as international or large-cap stocks — target date funds don’t give them the freedom to do so. . That’s why it’s important that some of your money goes into standalone funds that you can customize as you see fit.

Check your contribution amount

A new year also means a fresh start for you 401(k) contribution limit. For the 2023 tax year, the 401(k) contribution limit is $22,500 ($29,000 if you are 50 or older), an increase of $2,000 from last year. You’re not required to max out your 401(k) — that’s a tough question for a lot of people. But at least contribute enough to get the maximum employer match if your job offers it. That’s as close to “free” money as you can get.

Finally, evaluate whether your current premium rate makes sense for you right now. Do you need to cut it to help cover higher expenses due to inflation? Do you want to increase it so that you can now grab more shares “cheaply”? Are you okay with where it is? In any case, make sure that your current premium percentage makes financial sense to you.


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