Big changes are likely coming for Americans' retirement savings. From RMD changes to 401(k) financial incentives, here's what you need to know.
Many retirement savings accounts have slowly dwindled down due to rising inflation. The cost of food, gas and even rent have skyrocketed. Older Americans and those looking to retire soon are left dealing with the aftermath of trying to find a retirement solution to counteract the damages of 2022.
Here is what you need to know about retirement in 2023 and how to make the most of the new changes to your retirement plan.
Retirement reforms were passed by Congress in order to help relieve the pressure of rising inflation for retirees. In 2023, retirees must take out RMDs from their tax-advantaged retirement accounts when they turn 73. This is up from 72, and that age will bump up to 75 in 2033.
Legislation also provides a 500 tax credit for small businesses that meet the following criteria:
- Allow military spouse employees to become eligible for the employer’s retirement plan within two months of starting a job.
- Allow these workers to get employer matches before two years of service.
- Make these workers 100% immediately vested in all employer contributions.
The new bill includes a host of other changes to the retirement system. Which will go into effect later than 2023.
Key Medicare Changes
Medicare is becoming cheaper for millions of retirees, in 2023.
The monthly premium for Medicare Part B will be $164.90 in 2023, a decrease of 3%, or $5.20 a month, from $170.10 in 2022. The annual deductible for all Medicare Part B beneficiaries will be $226 in 2023, down from the annual deductible of $233 in 2022.
Thanks to provisions in the Inflation Reduction Act, 3.3 million Medicare Part D beneficiaries with diabetes will benefit from a guarantee that copays for insulin will be capped at $35 for a month’s supply. Another huge change in 2023? Vaccines covered under Part D will come with no copays or deductibles. That will ease the cost of pricey vaccinations, such as the shingles vaccine.
Social Security Increase
If you receive Social Security benefits, you might be getting a raise next year.
The Social Security Administration announced that the cost-of-living adjustment (COLA) for 2023 will be 8.7%, the largest since 1981. The COLA increase means that average monthly benefits will go up by more than $140 per month in January, according to the SSA.
This is great news for people who depend on their Social Security checks to pay their bills and make ends meet, especially since the U.S. economy has been growing at a slow pace recently and many retirees are struggling to make ends meet with their current income levels.
Retirement Plan Contributions
The Internal Revenue Service announced the annual contribution limits for 401(k)s, IRAs, and other retirement accounts for 2023. If you have one of these accounts, this is good news!
Workers who have a 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan can contribute up to $22,500 next year—that's up 9.8% from this year's limit of $20,500. For those 50 and over, they can save an additional $7,500 in their 401(k), up from last year's $6,500 catch-up contribution limit. In total, workers who are 50 and older can contribute up to $30,000 starting in 2023.
The annual contribution limit for IRAs next year also increased to $6,500 from $6,000—an increase of 8.3%. Individuals 50 and over can save an additional $1,000 in their IRAs as well—this remains unchanged from last year.
Since the start of the year, Congress has been busy making changes to your retirement options. Here are some of the most important ones:
- If you're looking to set up a traditional IRA, you can make contributions that are tax-deductible as long as you meet IRS rules, including income limits. IRA contributions are fully deductible if you (and your spouse) aren't covered by a retirement plan at work.
- For 2023, IRA deductions for singles covered by a retirement plan at work aren't allowed after their modified adjusted gross income (MAGI) hits $83,000, versus $78,000 in 2022. The deduction disappears for married couples filing jointly when their MAGI hits $136,000, up from $129,000 in 2022.
- Individuals can only contribute to Roth IRAs if they meet certain income conditions. The income phase-out for Roth IRA contributions next year for singles and heads of household will be from $138,000 to $153,000, up from $129,000 to $144,000 in 2022. Married couples filing jointly will see the phaseouts starting at $218,000 to $228,000, up from $204,000 to $214,000.
Health savings accounts just got a little more generous. The IRS announced that the annual inflation-adjusted limit on HSA contributions for self-only coverage under a high-deductible health plan will be $3,850, up from $3,650 in 2022. The HSA contribution limit for family coverage will be $7,750, up from $7,300.
That’s a 5.5% increase over 2022 contribution limits. A health savings account option is available for people enrolled in a high-deductible health care plan. You can also open an account as a self-employed freelancer or business owner if you have an HDHP.
The IRS sets the parameters for these accounts annually. With a high-deductible plan, you pay a lower premium per month than other types of plans but a higher annual deductible — the amount you pay for covered medical costs before insurance kicks in. Money you don’t use can roll over year after year and can be used for non-qualified expenses after turning 65.
While there are a lot of notable changes happening to retirement plans this year, it's important to have a sound understanding and strategy in place to prepare for 2023.
With this in mind, it's important to have a financial advisor you can trust. At Agemy Financial Strategies, we specialize in investment strategies and retirement planning. These two go hand in hand when it comes to planning your retirement –present and future!
For over 30 years, Agemy Financial Strategies has helped our clients plan and prepare. This way, when the unforeseen occurs like in 2022, our clients are uniquely positioned for success. We work hard to deliver a dependable retirement income strategy, in any market, so that you can enjoy the “best” of their lives during retirement.