There has been a fair amount of press coverage over the past two weeks about potential changes to retirement accounts in 2023.  All of this of course is subject to being passed by Congress and signed into law by the President, but a number of the changes discussed below will probably be implemented.  So here’s what you should know:

One proposal for traditional IRAs is to increase the age at which a required minimum distribution (RMD) kicks in.  The current age is 72.  In 2023, this may increase to 73.  The age could also be increased again in 2033, to age 75.  We’re working longer now, so the government is looking to give people more time to accumulate funds in their retirement accounts.

Some changes to 401(k) and 403(b) retirement plans could be an increase in the “catch-up” provision for anyone over age 50.  In 2022, the maximum “catch-up” contribution is $6,500.  In 2023, it is likely to increase to $7,500.  Future additional contributions for people 60 to 63 may be increased to $11,250 starting in 2025.

Another change has been proposed for these types of plans.  While participation in 401(k) and 403(b) plans has been mostly voluntary in the past, the government may require employee participation in new plans starting in 2025.  If so, employees could be required to contribute between 3% to 10% of their annual salary to these retirement plans.  In the past, employees have been required to contribute to defined benefit plans, but not commonly to defined contribution plans, like a 401(k) or 403(b).  This proposal would mark a significant change.

Finally, the new law may provide employees with the opportunity to contribute to a Roth retirement account that could be used for emergencies.  The contributions to these accounts would be capped at $2,500 but the funds could be utilized without paying ordinary income taxes or penalties on the withdrawals.

These proposals are based upon the fact that the majority of Americans are not adequately prepared for retirement.  Many of the proposals are designed to encourage people to save more for their future.  The proposals also are a recognition that some mandatory actions to force greater savings are needed. 

In summary, I believe that several of these proposals or some variation of them will become effective in 2023.  And that’s probably a good thing.  Retirement accounts have tax advantages and can be a source of financial strength during our later years.  It’s incumbent for all to take individual responsibility for our financial well-being. 

If you have questions about planning and investing for you and your family, please schedule a call or meeting with us.  We are here to help you move toward a bright future.

Happy holidays!