Happy New Year: You are one calendar year closer to the year in which you retire! If you are consistently contributing any amount to a retirement plan, you are already doing much better than all the folks who have no retirement savings at all. If you can raise the amount you contribute to any retirement funds a bit, you are doing even better. Incremental improvement from year to year goes a long way towards building a stable financial foundation for your later years.
This article is for those looking to take things one step further. Maybe you want to retire wealthy or retire early. Maybe you are risk averse, generally considered an over-achiever, an admirer of compound interest, or someone who sleeps better knowing they have a large pot of money in case something unpredictable happens.
Since I am all of the things on that list, I am one of the crazy few that maximizes my contributions to my (1) 401(k), (2) HSA, and (3) IRA. Each year the IRS changes the contribution limits to these retirement vehicles to account for inflation. If you are also looking to maximize contributions to any or all these accounts in 2023, here is a breakdown of how to max out:
1. 401(k)/403b/457/TSP
The 401(k), 403(b), 457, and TSP plans are retirement accounts offered through your employer. (Self-employed individuals also have the option to “offer” themselves a solo 401(k) plan that has its own set of requirements.) In 2022, the maximum contribution limit for an individual was $20,500. In 2023, the contribution limit has been raised to an astounding:
$22,500
Additionally, individuals who are age 50 or older by the end of the year may contribute an extra $7,500 as a “catch-up” contribution. If you are 50 or older, this brings your total contribution limit to $30,000.
These limits only include your contributions. It does not include any employer match. That means, if you are under age 50, make $100,000, and your employer matches your contributions up to 5% of your salary, you can contribute $22,500, and your employer can contribute another $5,000, for a total of $27,500!
Your choice to contribute to a traditional 401(k), Roth 401(k), or both does not impact the limit. Also, the $22,500 limit applies to each individual for the entire calendar year, not per account (i.e., traditional or Roth) or per job. If you contribute to a 401(k) at multiple jobs during the year, whether or not those jobs overlap, you need to make sure you stay within the annual limit.
While you can front load contributions at the beginning of the year, most employees contribute a consistent portion of each paycheck to their 401(k) or other retirement vehicle. Additionally, some employers match contributions on a per-pay period basis, so it may be wise to contribute all year long.
If you want to maximize your contributions this year, here is a breakdown for how much you should contribute each paycheck, based on your pay schedule*:
Monthly (12 paychecks): $1,875.00
Semi-Monthly (24 paychecks): $937.50
Bi-Weekly (26 paychecks): $865.38**
Weekly (52 paychecks): $432.69**
If you are 50 years old or older and want to maximize your catch-up contributions, here is a breakdown for how much you should contribute each paycheck (in addition to the above amounts), based on your pay schedule*:
Monthly (12 paychecks): $625.00
Semi-Monthly (24 paychecks): $312.50
Bi-Weekly (26 paychecks): $288.46**
Weekly (52 paychecks): $144.23**
2. Health Savings Account (HSA)
The HSA is an account where you can contribute money completely tax-free and use it tax-free for qualified medical expenses. You can also allow it to grow tax-free and even eventually use it as a retirement account (similar to a traditional IRA). You must be enrolled in an HSA-eligible (i.e., high-deductible) health plan to contribute to an HSA. In 2022, the HSA contribution limit for individuals with self-only coverage in an HSA-eligible health plan was $3,650, and for household coverage the contribution limit was $7,300. For 2023, that contribution limit has been raised to:
$3,850 for self-only
$7,750 for household
Additionally, individuals who are age 55 or older by the end of the year may contribute an extra $1,000 as a “catch-up” contribution. (Note that the age eligibility for catch-up contributions is different for an HSA versus a 401(k) or IRA.) This brings the total for individuals age 55 or older to $4,850 for self-only coverage and $8,750 for household coverage.
If you want to maximize your contributions this year for yourself only, here is a breakdown for how much you should contribute each paycheck, based on your pay schedule*:
Monthly (12 paychecks): $320.83**
Semi-Monthly (24 paychecks): $160.41**
Bi-Weekly (26 paychecks): $148.07**
Weekly (52 paychecks): $74.03**
If you want to maximize your contributions this year for a household/family, here is a breakdown for how much you should contribute each paycheck, based on your pay schedule*:
Monthly (12 paychecks): $645.83**
Semi-Monthly (24 paychecks): $322.91**
Bi-Weekly (26 paychecks): $298.07**
Weekly (52 paychecks): $149.03**
If you want to maximize your catch-up contributions, here is a breakdown for how much you should contribute each paycheck (in addition to the above amounts), based on your pay schedule*:
Monthly (12 paychecks): $83.33**
Semi-Monthly (24 paychecks): $41.66**
Bi-Weekly (26 paychecks): $38.46**
Weekly (52 paychecks): $19.23**
3. IRA
The IRA is an individual retirement vehicle that you can set up on your own, regardless of your employment location or status. In 2022, the contribution limit for an individual was $6,000. In 2023, that contribution limit has been raised to:
$6,500
Additionally, individuals who are age 50 or older by the end of the year may contribute an extra $1,000 as a “catch-up” contribution. This means any individual age 50 or older may contribute $7,500 to an IRA in 2023.
These are the 2023 contribution levels whether you contribute to a traditional IRA or a Roth IRA (or both). Roth IRAs are taxed initially but grow and can eventually be withdrawn tax-free. Traditional IRAs are not taxed initially but are taxed based on your income level at the time of withdrawal. Whichever choice is right for you, $6,500 is the contribution limit for all IRA contributions in 2023. This means you can contribute all $6,500 to a traditional IRA, all to a Roth IRA, or split it between the two. You cannot contribute $6,500 to each: it is a cumulative amount.
If you want to maximize your contributions this year, here is a breakdown for how much you should contribute each paycheck, based on your pay schedule*:
Monthly (12 paychecks): $541.66**
Semi-Monthly (24 paychecks): $270.83**
Bi-Weekly (26 paychecks): $250.00
Weekly (52 paychecks): $125.00
If you want to maximize your catch-up contributions, here is a breakdown for how much you should contribute each paycheck (in addition to the above amounts), based on your pay schedule*:
Monthly (12 paychecks): $83.33**
Semi-Monthly (24 paychecks): $41.66**
Bi-Weekly (26 paychecks): $38.46**
Weekly (52 paychecks): $19.23**
To max out or not to max out?
If you maximize all these accounts next year, that means you will invest $36,750 towards your future, assuming you are contributing to an HSA for your entire household and are not yet old enough to make additional catch-up contributions. In a few unique employment situations, you can contribute more, but maximizing these contributions will already put you in a good position for investing for retirement.
If you cannot contribute the maximum contribution to all these accounts, that is okay! Challenge yourself to raise your contributions a bit to a preexisting account, or open one of these accounts that you do not have yet. Thanks to compound interest, every dollar you contribute now will be $2 in 2030!
*Some employers will only let you contribute a whole dollar amount or only a specific percentage. If this is the case for you, you can make your contribution slightly higher or lower and adjust it for a single paycheck to maximize your contributions. For example, I must contribute a percentage for my 401(k), so I contributed the same percentage all year and brought the percentage down 1% for my final paycheck so I am just under the maximum.
**Numbers are rounded down rather than to the closest cent to prevent exceeding the contribution limits.
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