Designer 491 | In Stock | Getty Images
If you’re looking to increase your retirement savings, there’s good news for 2023. And now is the time to adjust the postponement, financial experts say.
you can funnel $22,500 to 401(k)403(b) and other similar plans for 2023. $20,500 limit in 2022Employees age 50 and older can contribute an additional $7,500 from $6,500 in 2022.
In 2021, about 14% of investors took full advantage of employee deferrals, according to the company. Estimate for 2022 Based on 1,700 plans and nearly 5 million participants.
Details from Personal Finance:
Five tax and investment changes could boost public finances in 2023
These states will raise minimum wages in 2023
Tips to increase your emergency savings in the new year
“It’s smart to jump on this one,” says Catherine Valega, a certified financial planner and founder of Boston’s Green Bee Advisory. [401(k) contributions] Never look back. “
If you aim to maximize your 401(k) contribution in 2023, starting early may pay off, as it may be easier to spread the word than contribute more this year. I have.
And a longer stay in the market could increase growth potential, said Marguerita Cheng, Gaithersburg, Maryland-based CFP and CEO of Blue Ocean Global Wealth. .
“The sooner we increase our donations, the sooner we can spend the money,” says Cheng. CNBC Advisory Council.
Know Your 401(k) Match Before Frontloading
High-income earners may also consider prepaying their 401(k) contributions to reach the deferral limit by the end of the year.
For example, if you received your October bonus, you can prepay your 401(k) contribution to get the most out of your plan and free up more take home in November and December.
But before you can get the most out of your plan early, you need to know how 401(k) matching works, Valega said. Many companies only start matching funds if they defer a portion of their salary.
The sooner you increase your donation, the sooner you can make the money work for you.
Margherita Chen
CEO and Co-founder of Blue Ocean Global Wealth
In that case, you will not receive a full employer match unless you make a 401(k) contribution for each pay period.
However, other plans have something called “True Up”. In other words, the company calculates 401(k) matches on an annual basis rather than every payment period.
“It’s that they don’t care when you put the money in,” Varega explained. “They make sure you get a full match at the end of the year.”
You can learn more about matching by reviewing the 401(k) overview plan description, which explains how your account works, or by reviewing the documentation with your financial advisor.
When to Limit 401(k) Contributions
Maximizing your 401(k) contribution is a lofty goal, but there are reasons to decide to limit deferrals after receiving a full corporate match.
“Of course, this can vary depending on your goals,” said Marianela Collado, CFP and CPA at Tobias Financial Advisors in Plantation, Fla.
For example, if you’re saving for a home down payment, you can temporarily divert funds to meet short-term goals, she said.
Similarly, if you have high-interest credit card debt or don’t have emergency funds, you can allocate funds elsewhere before increasing your 401(k) deferral.
