Retirement Savings Goal in 2023
Retirement Savings Goal in 2023 is an important milestone for those planning to retire shortly. If you’re looking for ways to save more, after-tax contributions may be worth considering. While many people are familiar with traditional pre-tax or Roth 401(k) savings, after-tax contributions offer additional savings opportunities. In 2023, savers under 50 can defer up to $22,500 into their 401(k) plan. However, some programs allow even more through after-tax contributions.
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The difference between after-tax and Roth accounts is significant. According to CNBC, both involve deferring part of your paycheck after taxes, but after-tax contributions are different from Roth 401(k) savings. The percentage of plans offering a Roth 401(k) savings option has surged over the past decade, but after-tax contributions to traditional 401(k) plans are still less common among smaller companies.
Participation in after-tax 401(k) contributions declined in 2021, dropping to about 10% from nearly 13% the previous year, according to the Plan Sponsor Council of America. However, for those who want to maximize their savings, the “mega backdoor Roth” strategy may be worth considering. This strategy includes paying levies on growth and moving the funds for future tax-free growth. Depending on the plan rules, you may transfer the money to a Roth 401(k) within the plan or to a separate Roth individual retirement account.
Overall, working with an advisor may be worthwhile to ensure you fully understand the rules and possible downsides, such as losing access to institutional pricing and funds. There is no right or wrong approach, but understanding the advantages of each option is crucial. Retirement savings is an ongoing process that requires careful planning and consideration. With the help of after-tax 401(k) contributions and the “mega backdoor Roth” strategy, you can increase your retirement savings and reach your Retirement Savings Goal in 2023.
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