How to Save More in 2023 With a 401(k)
Siân Killingsworth / 18 Jan 2023 / 401(k) Resources, Business, Small Business 401k
Small business employers and employees with a 401(k) plan can save more in 2023 in more ways than one:
Increased Savings Opportunity: The IRS has increased annual contribution limits to help you can more. You may want to consider adjusting your paycheck deduction in accordance with the increased limit and to an amount that works for you.
Smart Savings Strategy: Ubiquity plans have defaults to include bonus pay in employee contributions because the bonus is included in compensation on W2 forms. Employers may make alternate arrangements in writing with employees who choose other options. Employees can also change their deduction online for a specific payroll.
Lower Your Taxes: Any money you contribute to a 401(k) has taxes deferred until withdrawal in retirement, so your taxable income is reduced by the amount you contribute to your 401(k)!
A small business 401(k) is the ideal way to generate considerable wealth for retirement using investment returns and compounding interest. The wise use of pre-tax dollars can ease your 2023 income tax burden as well.
How to save more for retirement with a 401(k) in 2023
The IRS 401(k) savings limit increased $2,000 in 2023 to $22,500. The catch-up contribution for those age 50 and over will increase by $1,000 in 2023, letting those who qualify add another $7,500 in savings. It’s important to note that 401(k) plan contributions can be made with pre-tax dollars, so the more you contribute, the lower your annual taxable income. Even $1,000 contributed can be enough to lower your tax bracket and the percentage of your income paid to the IRS.
Employers have the option to add a discretionary contribution of up to $43,500 to an employee’s account. Also, if you are a small business owner with a Solo 401(k), you’re able to contribute to your plan as both employee and employer – to a maximum amount of $66,000 in 2023. Your spouse may join the plan, potentially bringing your household maximum to $132,000. The $7,500 catch up contribution (for individuals age 50 or older) is allowed in addition to these maximum limits.
IRA limits are also increasing for 2023. The new maximum for savers age 49 and younger is $6,500. Those age 50 and older can put away an additional $1,000. Using a 401(k) instead of an IRA can help you save more and combat any inflation.
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How much should I set aside to max out my 401(k) in 2023?
Investors under age 50 who are on a biweekly pay schedule will need to save approximately $845 per paycheck to reach the $22,500 retirement plan contribution limit in 2023.
Anyone 50 or older looking to capitalize on the catch-up bonus will need to save approximately $1,153 per paycheck.
What strategies do people use to maximize retirement savings?
There are numerous strategies that may help you save more for retirement in 2023, such as:
- Consider setting up an automatic deduction from your paycheck directly into your retirement account, so the savings happen without you even having to think about it.
- Set up an automatic transfer of profit shares and bonuses into your 401(k) through paycheck deduction
- Examine your monthly spending carefully and create a budget that helps you pay down any credit card debt so you can escape those pesky interest rates
- Cancel unnecessary or unused membership subscriptions
- Use shopping apps to take advantage of sales and promotions to save money on costs that have been hit by inflation (hello, $8 carton of eggs)
How can I change my 401(k) deferral elections in 2023?
Employees can log in to their Ubiquity account at any time modify their deferral election. Sponsors will receive notification or check their employer dashboard to review the respective updates so they can relay those changes to the payroll provider.
As a provider and administrator, Ubiquity offers 401(k) plans geared toward small businesses. Contact us to learn more about maximizing your 401(k) savings this year.