IRS Announces 2023 401(k) and IRA Limit Increases

Presented by Marc Aarons

I thought I’d provide a quick reminder note regarding the IRS’s announcement in late October regarding retirement account limits for 2023 (IRS). I’m here to help with any questions you may have.

401(k), 403(b), 457 plans, and Thrift Savings Plan

• The amount individuals can contribute to their 401(k) plans in 2023 has increased to $22,500, up from $20,500 in 2022.
• The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan has increased to $7,500, up from $6,500.
• In total, participants 50 and over can contribute up to $30,000 ($22,500 + $7,500) beginning in 2023.

Traditional and Roth IRA

• The limit on annual contributions to an IRA increased to $6,500, up from $6,000 in 2022.
• The IRA catch-up contribution remains $1,000 for individuals 50 (and is not subject to an annual cost-of-living adjustment).
• The income phase-out range for taxpayers making contributions to a Roth IRA has increased to between $138,000 and $153,000 for singles and heads of household, up from between $129,000 and $144,000.
• The income phase-out range has increased for married couples filing jointly to between $218,000 and $228,000, up from between $204,000 and $214,000.

Reach out if I can help. I look forward to hearing from you.

Marc Aarons may be reached at 714-887-8000 or marc@ocmoneymanagers.com

www.ocmoneymanagers.com

This communication is from Money Managers, Inc.; a Securities and Exchange Commission registered investment advisor.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results.  Investments involve risk and are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here. This material was developed and produced by Levitate which is not affiliated with the named broker-dealer. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.

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Retirement income may come from a variety of sources.

Provided by Marc Aarons at Money Managers, Inc.
For many people, retirement income may come from a variety of sources. Here’s a quick review of the six main sources:

Social Security. Social Security is the government-administered retirement income program. Workers become eligible after paying Social Security taxes for 10 years. Benefits are based on each worker’s 35 highest earning years. (If there are fewer than 35 years of earnings, non-earning years may be counted in the calculation.) In mid-2018, the average monthly benefit was $1,413.^1,2

Personal Savings and Investments. These resources can also provide income during retirement. Personally, you may want investments that offer steady monthly income over vehicles giving you the potential for double-digit returns. But remember, a realistic understanding of your ability and willingness to stomach large swings in the value of your investments is a must. A quick chat with a financial professional can help you understand your risk tolerance as you approach retirement.

Individual Retirement Accounts. Traditional IRAs have been around since 1974. Contributions you make to a traditional IRA are commonly deductible. Distributions from a traditional IRA are taxed as ordinary income, and if taken before age 59½, may be subject to a federal income tax penalty. Once you reach age 70½, these accounts require mandatory withdrawals.³

Roth IRAs were created in 1997. Contributions you make to a Roth IRA are non-deductible, as they are made using money that has already been taxed. Sometimes, only partial Roth IRA contributions can be made by taxpayers with six-figure incomes; some especially high-earning individuals and couples cannot direct money into Roth IRAs at all. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Contributions may be withdrawn penalty-free at any time. Roth IRAs do not have any required minimum distribution rules.³

Defined Contribution Plans. Many workers are eligible to participate in a defined-contribution plan such as a 401(k), 403(b), or 457 plan. Eligible workers can set aside a portion of their pre-tax income into an account, and the invested assets may accumulate with taxes deferred, year after year. (Some of these accounts are Roth accounts, funded with after-tax dollars.) Generally, once you reach age 70½, you must begin taking required minimum distributions from these workplace plans.⁴

Defined Benefit Plans. Defined benefit plans are “traditional” pensions – employer-sponsored plans under which benefits, rather than contributions, are defined. Benefits are normally based on specific factors, such as salary history and duration of employment. Relatively few employers offer these kinds of plans today.⁵

Continued Employment. In a recent survey, 68% of workers stated that they planned to keep working in retirement. In contrast, only 26% of retirees reported that continued employment was a major or minor source of retirement income. Many retirees choose to continue working as a way to stay active and socially engaged. Choosing to work during retirement, however, is a deeply personal decision that should be made after considering your finances and personal goals.⁶«

Marc Aarons may be reached at (714)887-8000 or Marc@OCMONEYMANAGERS.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

MMI Disclosure 
Citations.
1 – waddell.com/explore-insights/market-news-and-guidance/planning/9-facts-about-social-security  [2018]
2 – cbpp.org/research/social-security/policy-basics-top-ten-facts-about-social-security [8/14/18]
3 – cnbc.com/2018/07/30/roth-vs-traditional-iras-how-to-decide-where-to-put-your-money.html [7/30/18]
4 – fool.com/retirement/2018/11/21/the-most-important-401k-rules-for-maximizing-your.aspx [11/21/18]
5 – investopedia.com/terms/d/definedbenefitpensionplan.asp [1/26/18]
6 – investopedia.com/articles/personal-finance/101515/planning-retiring-later-think-again.asp [10/25/18]

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Why you should refrain from making this move.

Provided by Marc Aarons at Money Managers, Inc. 

 Thinking about borrowing money from your 401(k), 403(b), or 457 account? Think twice about that because these loans are not only risky, but injurious, to your retirement planning.

  A loan of this kind damages your retirement savings prospects. A 401(k), 403(b), or 457 should never be viewed like a savings or checking account. When you withdraw from a bank account, you pull out cash. When you take a loan from your workplace retirement plan, you sell shares of your investments to generate cash. You buy back investment shares as you repay the loan.¹

In borrowing from a 401(k), 403(b), or 457, you siphon down invested retirement assets, leaving a smaller account balance that experiences a smaller degree of compounding. In repaying the loan, you will likely repurchase investment shares at higher prices than in the past – in other words, you will be buying high. None of this makes financial sense.¹

Most plan providers charge an origination fee for a loan (it can be in the neighborhood of $100), and of course, they charge interest. While you will repay interest and the principal as you repay the loan, that interest still represents money that could have remained in the account and remained invested.^1,2

As you strive to repay the loan amount, there may be a financial side effect. You may end up reducing or suspending your regular per-paycheck contributions to the plan. Some plans may even bar you from making plan contributions for several months after the loan is taken.^3,4

Your take-home pay may be docked. Most loans from 401(k), 403(b), and 457 plans are repaid incrementally – the plan subtracts X dollars from your paycheck, month after month, until the amount borrowed is fully restored.¹

  If you leave your job, you will have to pay 100% of your 401(k) loan back. This applies if you quit; it applies if you are laid off or fired. Formerly, you had a maximum of 60 days to repay a workplace retirement plan loan. The Tax Cuts & Jobs Act of 2017 changed that for loans originated in 2018 and years forward. You now have until October of the year following the year you leave your job to repay the loan (the deadline is the due date of your federal taxes plus a 6-month extension, which usually means October 15). You also have a choice: you can either restore the funds to your workplace retirement plan or transfer them to either an IRA or a workplace retirement plan elsewhere.²

If you are younger than age 59½ and fail to pay the full amount of the loan back, the I.R.S. will characterize any amount not repaid as a premature distribution from a retirement plan – taxable income that is also subject to an early withdrawal penalty.³

Even if you have great job security, the loan will probably have to be repaid in full within five years. Most workplace retirement plans set such terms. If the terms are not met, then the unpaid balance becomes a taxable distribution with possible penalties (assuming you are younger than 59½.¹

Would you like to be taxed twice? When you borrow from an employee retirement plan, you invite that prospect. You will be repaying your loan with after-tax dollars, and those dollars will be taxed again when you make a qualified withdrawal of them in the future (unless your plan offers you a Roth option).^3,4

Why go into debt to pay off debt? If you borrow from your retirement plan, you will be assuming one debt to pay off another. It is better to go to a reputable lender for a personal loan; borrowing cash has fewer potential drawbacks.

You should never confuse your retirement plan with a bank account. Some employees seem to do just that. Fidelity Investments says that 20.8% of its 401(k) plan participants have outstanding loans in 2018. In taking their loans, they are opening the door to the possibility of having less money saved when they retire.⁴

Why risk that? Look elsewhere for money in a crisis. Borrow from your employer-sponsored retirement plan only as a last resort.

   Marc Aarons may be reached at 714-887-8000 or Marc@OCMoneyManagers.com.

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

^{MMI Disclosure}

^{Citations.
1 – gobankingrates.com/retirement/401k/borrowing-401k/ [10/7/17]
2 – forbes.com/sites/ashleaebeling/2018/01/16/new-tax-law-liberalizes-401k-loan-repayment-rules/ [1/16/18]
3 – cbsnews.com/news/when-is-it-ok-to-withdraw-or-borrow-from-your-retirement-savings/ [1/31/17]
4 – cnbc.com/2018/06/26/the-lure-of-a-401k-loan-could-mask-its-risks.html [6/26/18]}

The post Taking a Loan from Your Retirement Plan = Bad Idea appeared first on Money Managers, Inc..

Companies are luring & retaining employees with this key perk.

Provided by Marc Aarons @ Money Managers, Inc.

What do your retirement plan participants wish you would offer? Besides the chance to save and invest part of their paychecks, that is?

The answer could be “a little more help.” Last year, Charles Schwab surveyed workers contributing to the 401(k) programs it provides, and 46% wanted help “calculating how much I need to save for retirement.” Forty-three percent wanted assistance in “determining at what age I can afford to retire,” and 39% listed “figuring out what my expenses will be in retirement” as an item on their financial to-do list. Others wanted help with day-to-day financial matters, such as debt management and budgeting.

Companies with 401(k), 403(b), and 457(b) plans are starting to respond. At some firms, basic enrollment pep talks on consistent contribution and explanations of asset allocation have been supplemented by degrees of financial coaching. This year, 59% of employers responding to an Aon Hewitt survey on the topic said that they were very likely to offer workers some form of financial wellness program beyond basic retirement saving instruction. This is up from just 30% of employers in 2014.

Financial wellness programs can promote employee retention. When workers have money issues in their lives, both their health and performance may suffer. They may try to find a higher-paying job, effectively reducing their commitment to their current one.

Fundamentally, these programs teach financial literacy. Most people need more of that, including high earners. Corporations such as Activision Blizzard, Havertys Furniture, Home Depot, and Waffle House have installed such programs, and made them free to employees wanting insight on everything from handling student loan debt to college planning to make long-term care insurance choices.

Small businesses are offering these programs, too. Financial services professionals are coming forward to work with established and emerging companies seeking a perk to attract first-rate employees. This financial coaching can take many forms, from group education to highly individualized counseling with the financial consultants assuming a fiduciary duty. Businesses would do well to ask about it, as employee loyalty is priceless.

Plan sponsors may also potentially lower their fiduciary risk by putting such programs into place. If employees change their financial behaviors and believe that they are improving their personal finances as an effect of a financial wellness program, they may be less inclined to complain about a company’s retirement plan offering – or worse, initiate legal action on grounds that the plan sponsor failed to meet its fiduciary responsibility. No business wants that.

Does your company lack a financial wellness program? Consider establishing one in the near future. If your competitors have not yet taken that step, chances are they soon will.

«representative name» Marc Aaron, 714-887-8000 or marc@ocmoneymanagers.com

^{MMI Disclosures}

 ^Citations.

^{1 – tinyurl.com/yapwrg4d [6/11/17]}

^{2 – marketplace.org/2017/07/11/business/companies-offering-financial-wellness-programs-perk-job [7/11/17]}

 ^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

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Some retirement savers choose this option in their 401(k) plan.

Provided by Marc Aarons @ Money Managers, Inc.

Ever hear of an SDBA? That acronym stands for self-directed brokerage account. If you are enrolled in a 401(k), 403(b), or 457 plan, you might want to see if your plan gives you this option, which is often unnoticed.

About 40% of workplace retirement plans now have SDBAs. These accounts can connect you to a wider variety of investment choices than the default ones presented in your plan, meaning potentially greater flexibility for your portfolio.

Why are SDBAs underutilized? Simply put, they are not for every retirement saver. They are geared toward the pre-retiree who works with an investment professional and/or the investor comfortable with managing his or her level of risk. According to Aon Hewitt research, only about 3% of retirement plan participants use SDBAs – and the average account balance of those who do is around $250,000.

If you are a high earner who is well acquainted with investing, an SDBA may really appeal to you. Through an SDBA, you can usually access a wide variety of equity and fixed-income investment options, plus professional investment management. All of your core account need not go into an SDBA; if you wish, you may transfer just a portion of those assets into it.

Can you handle the responsibility of a self-directed account? That will depend on a few factors: your knowledge, your tolerance for risk, your time horizon, your outlook on saving and investing, and your ability to devote time to your portfolio. You will also want to look at your plan’s fee disclosure, as fees may be slightly higher with a brokerage-enabled account.

If the basic investment choices in your workplace retirement plan leave you dissatisfied, an SDBA might lead you to some good alternatives. If you like being hands-on, an SDBA will give you the chance to fine-tune your allocations in various investment classes.

Alternately, you could ask an investment professional to manage the assets in the SDBA and consult you to weigh decisions. This is a smart, rational choice. When you “fly solo,” you risk succumbing to impulsive investment moves, which may backfire.

An investment professional can also help you set metrics for your SDBA and assist you in defining your investment style and risk tolerance. Any SDBA should be viewed in the context of your overall retirement planning strategy, and if its performance really lags, it should be thoroughly reassessed.

Financially literate legal, medical, and consulting professionals are often interested in the potential of SDBAs. So are other well-compensated retirement plan participants. If your 401(k), 403(b), or 457 plan has a brokerage window, you may want to talk with an investment professional to explore the option of using an SDBA as you save for retirement.

«representative name» Marc Aarons, 714-887-8000 or marc@ocmoeymanagers.com

_{MMI Disclosures}

_Citations.

_{1 – money.usnews.com/investing/articles/2017-04-12/pros-and-cons-of-401-k-brokerage-options [4/12/17]}

_{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

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2017 Retirement Account Limits

How much can you contribute this year?

Provided by Marc Aarons

In 2017, you have another chance to max out your retirement accounts. Here is a rundown of yearly contribution limits for the popular retirement savings vehicles.

IRAs. The 2017 limits are the same as in 2016: $5,500 for IRA owners who will be 49 and younger this year, $6,500 for IRA owners who will be 50 or older this year. These limits apply to both Roth and traditional IRAs.¹

What if you own multiple IRAs? This $5,500/$6,500 limit applies to your total IRA contributions for a calendar year. So, for example, should you happen to have five IRAs, you could make an equal contribution of $1,100 (or $1,300) to each of them in 2017, or unequal contributions to them not exceeding the applicable $5,500/$6,500 limit.¹

Keep in mind that you can fund your 2016 IRA(s) until April 18, 2017 (the 2017 federal income tax deadline). It is best to fund your IRA for a particular year right as that year starts, but if you procrastinated for any reason in 2016, you still have time.²

High earners may find their ability to make a full Roth IRA contribution restricted. This applies to a single filer or head of household whose modified adjusted gross income (MAGI) falls within the $118,000-133,000 range, and to married couples with a MAGI of $186,000-196,000. If your MAGI exceeds the high ends of those phase-out ranges, you may not make a 2017 Roth IRA contribution. (For tax year 2016, the respective phase-out ranges are $117,000-132,000 and $184,000-194,000.)³

401(k)s, 403(b)s, & 457s. Each of these workplace retirement plans have 2017 contribution limits of $18,000, $24,000 if you will be 50 or older this year. If you are a participant in a 457 plan and within three years of what your employer deems “normal” retirement age, you can contribute up to $36,000 annually to your plan during the last three years preceding that “normal” retirement date.^3,4

SIMPLE IRAs & SEP-IRAs. In 2017, the contribution limit for a SIMPLE IRA is $12,500; those who will be 50 or older this year may contribute up to $15,500. Federal law requires business owners to match these annual contributions to at least some degree; self-employed individuals can make both employee and employer contributions to a SIMPLE IRA.⁵

Business owners and the self-employed can contribute to SEP-IRAs, which accept contributions of pre-tax dollars. As a consequence of contributing pre-tax dollars, you reduce your taxable income. The annual contribution limit on a SEP-IRA is very high – in 2017, it is either $54,000 or 25% of your income, whichever is lower.⁵

Marc Aarons may be reached at (714)887-8000 or marc@ocmoneymanagers.com

www.ocmoneymanagers.com

^Citations.

^{1 – fool.com/retirement/2017/01/17/roth-vs-traditional-ira-which-is-better.aspx [1/17/17]}

^{2 – money.usnews.com/money/retirement/iras/articles/2016-12-19/how-saving-in-an-ira-can-reduce-your-2016-tax-bill [12/19/16]}

^{3 – forbes.com/sites/ashleaebeling/2016/10/27/irs-announces-2017-retirement-plans-contributions-limits-for-401ks-and-more/ [10/27/16]}

^{4 – fool.com/retirement/2016/12/19/457-plan-contribution-limits-in-2017.aspx [12/19/16]}

^{5 – money.cnn.com/2017/01/13/retirement/ira-myths/ [1/13/17]}

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

_{Marc Aarons Disclosures}

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