Maxing out your IRA can go a long way toward improving your retirement readiness, especially if you plan to remain in the workforce for a while. The longer your money remains invested, the more it could be worth by the time you need it.
Even if you're nearing retirement age, beefing up your IRA a little further isn't a bad idea if you can afford it. Here are three things you must do if you hope to max out your account in 2023.
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1. Understand how much you can contribute
IRA contribution limits are rising in 2023, enabling you to set aside more money than ever before. Adults under 50 may contribute up to $6,500 next year while those 50 and older may set aside up to $7,500.
It's important to keep track of how much you've contributed throughout the year so you don't exceed these limits. If you do, you could rack up costly penalties until you take the excess contribution out of your account.
You also need to be aware of income limitations if you plan to contribute to a Roth IRA. High earners may have lower annual contribution limits or they may not be able to contribute directly to a Roth IRA at all. However, they can still do a backdoor Roth IRA, where you put the money in a traditional IRA and do a Roth IRA conversion in the same year.
2. Plan for your contributions
Decide how frequently you will contribute to your IRA and how much you will set aside at a time in order to max it out. You could contribute about $542 per month ($625 if 50+) or you could divide it up by pay periods.
If you get paid biweekly, you'll receive about 26 paychecks in 2023. That comes out to a $250 contribution per pay period if you're under 50 or about $288 per pay period if you're 50 or older.
You could also come up with your own contribution schedule. If you know you'll get a holiday bonus, you could plan to set aside more money toward the end of the year. Or if you want your savings invested as long as possible, you could even make one lump-sum deposit in January, assuming you have the cash on hand.
3. Automate your contributions
Automating your IRA contributions reduces the risk you'll forget to make them. Many IRA providers enable you to set up an automatic transfer so the money comes out of your account just like an automatic bill pay.
Doing this will give you one less thing to worry about in 2023, but don't let this automation cause you to lose track of how much you've put into the account. If you aim to max out your IRA before the end of 2023, don't forget to halt your automatic contributions once you've reached the limits above.
You may need to adjust your savings strategy if you change jobs or experience another budget shake-up during the year. But do your best to keep yourself on track. And if you're able to max out your IRA in 2023, consider doing it again in future years. The more you set aside, the more you'll have to fall back on in retirement.
