great-year

Why It’s Going to be a Great Year

Loren Merkle, CFP®, RICP®, Certified Financial Fiduciary

2022 was a good year. I’m serious. I know, I know. There was a market correction, interest rates pushed borrowing costs to levels we haven’t seen since 2008, and inflation reached a 40-year high. The great news is that this year you either retired, remained retired, or stayed on track for retirement despite it all.

It was a lot of fun helping so many of you live out your retirement vision in 2022. We enjoyed hearing the stories about trips to Disney with grandkids, the winter away in Arizona, the vacations to Yellowstone, and much more. We love hearing about how you are enjoying retirement. It is truly one of my favorite things about being a Retirement Planner.

There were some tough moments too. A few times, we got the sad news that a spouse or individual we helped build a retirement plan for had passed away. Our goal when this happens is to provide support by executing the spousal succession plan or working with the children or relatives to fulfill their loved one’s wishes.

As a new year begins, I reflect on what we all went through in 2022, the good and the bad; I am reminded of what an honor and privilege it is to be a part of your retirement journey. Thank you, and cheers to 2023. It’s going to be a great year. 

2023 Contribution Limits 

The IRS boosted 2023 contribution limits by record amounts due to inflation.

401(k)s 

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increases to $22,500, up from $20,500 in 2022. The $2,000 increase is the biggest inflation adjustment since 401(k) plans began indexing for inflation in 2007. Typically, the IRS has increased the contribution limits by either $500 a year or kept it at the same level.

The catch-up contribution limit for those age 50 and older is $7,500, up from $6,500 in 2022. In total, if you are age 50 or older you can contribute up to $30,000 to your 401(k) or employer-sponsored plan. 

Traditional IRA 

You can contribute up to $6,500 to an IRA this year, up from $6,000 in 2022. The IRA catch-up contribution limit for those age 50 and over is still $1,000.

The income ranges for determining eligibility to make tax deductible IRA contributions have increased: 

  • For single taxpayers covered by an employer-sponsored retirement plan, the phase-out range has increased to between $73,000 and $83,000, up from $68,000 and $78,000 
  • For married couples filing jointly, if the spouse making the IRA contributions is covered by an employer-sponsored retirement plan, the phase-out range has increased to between $116,000 and $136,000, up from between $109,000 and $129,000. 
  • For an IRA contributor who is not covered by an employer-sponsored retirement plan but you are married to someone who is, the phase-out range has increased to between $218,000 and $228,000, up from $204,000 and $214,000. 

Roth IRA 

To contribute directly to a Roth IRA single tax filers must have a Modified Adjusted Gross Income (MAGI) of less than $153,000 in 2023. If married and filing jointly, your total MAGI must be under $228,000. The contribution limit for both tax types of filers is $6,500. Those 50 and older can contribute $1,000.

Roth Conversions 

Income limits do not apply to a Roth conversion. A Roth conversion involves transferring funds from a traditional IRA or 401(k) into a Roth account. The year you make the conversion, you pay income tax on the amount rolled over, but you never pay taxes on the money again. Not the growth or the qualified distributions. 
There is no limit on how much you can convert from tax-deferred accounts to a Roth IRA in a single year. Before taking this step, you must understand how the conversion impacts your 2023 taxable situation and how it fits with the other components of Your Merkle Plan. 

*This Just In 

Congress has passed the SECURE Act 2.0. Here are a few key takeaways: 

  • The IRA and 401(k) Required Minimum Distribution (RMD) age has increased to 73 this year and 75 in 2033. 
  • The penalty for failing to take an RMD has decreased to 25% of the RMD amount (from 50%) and 10% if corrected in a timely manner. 
  • Catch-up contributions will increase in 2025 for 401(k), 403(b), governmental plans, and IRA account holders. 

If you turned 72 in 2022 or earlier, you will need to continue taking RMDs as scheduled. If you’re turning 72 in 2023 and we’ve already scheduled your withdrawal, we may need to update Your Merkle Plan
We are studying the legislation and will continue communicating about how these changes could impact your retirement in this Retirement Report, our monthly newsletter, and our TV show and podcast Retiring Today. If you have any questions, please don’t hesitate to reach out to us today! 
You understand the power of a customized retirement plan – but do your friends? Help your friends and family start their retirement journey by forwarding them this important retirement information today! 

Sources: IRS.gov and CBSnews.com

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