Saving for retirement is a crucial component for financial planning – not only does it allow you to build a solid nest egg for the future, it ensures that you will be able to live comfortably and afford expenses when you end your career, including with the cost of inflation.
The Internal Revenue Service (IRS) increases 401(k) contribution limits annually to account for inflation, higher costs of living, and other financial factors that affect retirement savings for participants.
When the limit changes every year, it’s important to review your monthly budget to ensure you can afford to make additional contributions to maximize your savings. You can also meet with a financial advisor who can assist with building a financial strategy and retirement planning, helping you optimize your contributions.
Read on to learn about the 2023 contribution limits and how to maximize contributions in the new year.
New 401(k) Contribution Limit for 2023
The IRS recently announced that the 401(k)-contribution limit for plan participants has increased from $20,500 to $22,500 for 2023. In addition, catch-up contribution limits for participants over the age of 50 have increased from $6,500 to $7,500.
The contribution increases are a great opportunity to boost your retirement nest egg, helping you plan for future expenses and decrease stress in your post-career life. But while the limits increase, people’s currently salary may not. That’s why Slavic401k has financial calculators to help participants plan for the future while considering their current budget restrictions and salary. Learn more about the contribution increase on our website.
Using a Retirement Calculator
Retirement planning calculators can help you visualize retirement savings with contribution adjustments. For example:
A 30-year-old employee making $50,000 per year who increases their retirement contributions from 3% to 6% will only see an additional $25 paycheck deduction every cycle. By the retirement age of 65, that employee’s retirement savings will increase by approximately $334,000.
This example showcases how a small adjustment can make a big difference over time, regardless of what your salary compensation is currently. The calculator has additional features to help you determine contribution changes, including current balance, plan type, annual rate of return, employer match, pre- and post-tax deductions, annual salary changes, and more.
Combined, these factors will help participants determine what kind of differences they can see in a plan and what kind of monetary contributions are required. View and use our retirement planning calculators and read more about the benefits of using financial calculators for retirement in our blog.
How to Maximize 401(k) Contributions
After using the calculator, you will have a better idea of the contribution changes you need to make in order to meet your goals. If you’re in need of more money to help along the way, below are a ideas:
- Use bonuses and pay increases to enhance 401(k) plan contributions.
- Review your monthly expenses and see where there is room to make adjustments, i.e., reducing subscriptions, or dining out less.
In addition to finding ways to earn and contribute extra funds, you should be reviewing your monthly bank statements to see where you may be overspending and under-saving. Utilizing a budget, managing it through an easily accessible source (like a mobile app on your phone), or sitting down with a financial advisor will help you optimize your finances for today and the future.
For more financial tips and investment education, visit the Slavic401k blog.