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By Brad Shook, Associate Financial Advisor
Changing course or making adjustments early into a journey is much easier than trying to make a correction or a change later. Think about being on a ship. If your calculations at the start of your voyage were two or three degrees off and wasn’t noticed the ship could end up hundreds of miles off course. The same thing can happen with Retirement Planning and Investing. That is why at the beginning of the year, it is always best practice to revisit and reevaluate your strategy for the next 12 months. Here are five ways that you can seek to enhance your Retirement Plan, for 2023.
1. Adjust your 401k Contributions: Did you receive a raise last year? Did you max out your 401k Contributions in 2022? Consider adding a boost to your contribution amount, some plans will automatically step-up your contributions 1% annually, but it is good to make sure that you are fully taking advantage of your 401k, without stressing your budget. The maximum 401k contribution amount for 2023 is $22,500 or $30,000 for those 50 and older.
2. Adjust your HSA contributions: Similar to the 401k, HSA contribution limits have increased. For 2023, Single plan limit is $3,850, while Family limits are $7,750 (1). Don’t forget there is an additional $1,000 catch up contribution for those over 50.
HSAs are tax-efficient making them an effective savings and investment account:
1. Withdrawals for qualified medical expenses are income tax-free.
2. All contributions to an HSA are income tax-free.
3. Any interest earnings and investment growth from deposits are income tax-free.
4. Additionally, HSA contributions come out before going through payroll, so they have the advantage of avoiding Medicare and Social Security Tax.
3. Consider contributing to an IRA: One way to possibly save on your 2022 taxes and put away additional savings is to an Individual Retirement Account (IRA). Max contributions into an IRA for 2022 is $6,000 with a $1,000 catchup contribution for those aged 50 or older. Contribution limits in 2023 have increased by $500. Additionally the deadline to complete IRA contributions for 2022 is April 15, 2023.
4. Consider an automatic investment plan: An additional way to get your dollars working for you is by setting up monthly automatic deposits into your investment accounts. Remember the phrase “Time in the market, is more important than timing the market.”
5. Set up a Financial Review: Did you skip 2022 or maybe even 2021 for your review? Likely, you have had some changes that may have impact on your finances. 2021 and 2022 were nothing short of changing tides for many, so schedule an appointment with us today and make sure your ship is still on course during your financial journey.
(1) Consult a professional for eligibility requirements. Note that over-contributions are subject to an excise tax of 6% if not corrected before the tax deadline, while withdrawals to pay for ineligible expenses (as defined by the IRS) are subject to a 20% tax (as well as ordinary income tax) when under the age of 65.
Wells Fargo Advisors Financial Network is not a legal or tax advisor.
This information is made available with the understanding that Wells Fargo Advisors Financial Network and its affiliates are not engaged in rendering legal, accounting or tax advice.
Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. Any other referenced entity is separate from WFAFN.