It's time to boost 401(k) contributions for 2023: 'You're smart to jump on this,' says advisor (2024)

FAQs

Is 2023 a good time to contribute to a 401k? ›

In 2023, Americans will be able to contribute more money to their 401(k)s than at any point in the last 30 years. The maximum contribution limit for 401(k)s increases from $20,500 in 2022 to $22,500 in 2023—the highest since 1985. This means that Americans can save more money for retirement than ever before.

You may still be a few decades away from retirement, but it's never too soon to ramp up your savings for your life as a retiree. And one of the best ways to do so is to increase your contributions to your 401(k)—or whatever retirement account you have access to—whenever your salary increases.

Individuals who are age 50 or over at the end of the calendar year can make annual catch-up contributions. Annual catch-up contributions up to $7,500 in 2023 and 2024 ($6,500 in 2021-2020; $6,000 in 2015 - 2019) may be permitted by these plans: 401(k) (other than a SIMPLE 401(k)) 403(b)

Even a 1% annual increase in your retirement savings could mean thousands of dollars decades later, thanks to compound interest and time in the market. By increasing your 401(k) contributions now, you can give your money more time for potential growth and help put yourself on a path to a more secure financial future.

If your retirement timeline and cash reserves allow it, continuing to invest now could reap big rewards later. And seeing big, unrealized gains in your 401(k) is probably the best way to get that awesome feeling about investing.

Although contributing the maximum amount to a 401(k) is a great way to stay on track for retirement, it isn't always the best option. Consider the full picture of your financial future before you max it out.

One of the best things to do during a stock market crash or a low financial point is to stay the course and not reduce your 401(k) contributions. In fact, some believe a bear market is the right time to increase the percentage of income you funnel into your savings if you can afford it.

You should aim to contribute enough from each paycheck to take advantage of any employer match. If your employer offers a 3% match, contribute at least 3% of each paycheck to your 401(k). After you reach the match, increase your contributions when you can afford to, aiming for 10% to 20% of your paycheck each month.

A general rule of thumb says it's safe to stop saving and start spending once you are debt-free, and your retirement income from Social Security, pension, retirement accounts, etc. can cover your expenses and inflation. Of course, this approach only works if you don't go overboard with your spending.

If you participate in an employer's retirement plan, such as a 401(k), and your adjusted gross income (AGI) is equal to or less than the number in the first column for your tax filing status, you are able to make and deduct a traditional IRA contribution up to the maximum of $7,000, or $8,000 if you're 50 or older, in ...

At what age can you no longer contribute to a 401k? ›

RMD rules—the biggest change

(And in 2033, the RMD age will increase to 75.) This age 73 requirement applies to most retirement accounts, including traditional, SEP and SIMPLE IRAs, and qualified plans such as a 401k, 403b, and 457. Roth IRAs—and starting in 2024 Roth 401(k)s—are exempt.

Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit: $23,000 in 2024 ($22,500 in 2023; $20,500 in 2022; $19,500 in 2020 and 2021), or $30,000 in 2023 ($27,000 in 2022; $26,000 in 2020 and 2021) if age 50 or over; plus.

It may take some courage, but increasing your contributions to retirement accounts during a recession can be a great financial move. You benefit by buying a lot more when prices are down, setting your portfolio up for future success when the economy recovers.

How Does a 401(k) Protect From Inflation? Continuing to invest in a 401(k) during periods of higher inflation can offer some protection if you hold investments that move in tandem with rising prices.

By age 40, you should have three times your annual salary already saved. By age 50, you should have six times your salary in an account. By age 60, you should have eight times your salary working for you. By age 67, your total savings total goal is 10 times the amount of your current annual salary.

401(k) Savings Rate in 2023

According to a recent study by retirement plan record keeper Empower, savings rates have hovered around 8% since at least 2021.

If you decide that you want to get your money into the market as soon as you effectively can by maxing out your 401(k) early, that's a legitimate strategy and most of the time you'll be better off for it in the long term.

The average 401(k) balance ended 2023 up 14% from a year earlier to $118,600, Fidelity found. The average individual retirement account balance also gained 12% year over year to $116,600 in the fourth quarter of 2023.

A general rule of thumb says it's safe to stop saving and start spending once you are debt-free, and your retirement income from Social Security, pension, retirement accounts, etc. can cover your expenses and inflation.