If you're someone who pushes yourself to max out your IRA year after year, that's actually a great thing. The more money you put into your IRA, the more retirement income you might enjoy down the line.
Plus, as you've probably heard, Social Security is facing some financial challenges that, in the coming years, could impact the program's ability to pay benefits. It's not that Social Security is in danger of completely going away. But benefit cuts may be inevitable if lawmakers don't manage to find a way to address the program's impending financial shortfall. So the more money you're able to pump into your IRA, the less worried you'll be about the future of Social Security.
Another good reason to always try to max out your IRA? Assuming you're saving in a traditional IRA and not a Roth, the more money you contribute, the less income you'll be taxed on by the IRS.
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But it may be that the end of 2023 is near and you're nowhere close to having maxed out your IRA. Maybe inflation got the better of you this year and forced you to scale back your contributions. Or maybe you were on track to max out but got derailed once your student loan payments started coming due again.
It may not be possible to finish maxing out your IRA by the end of 2023. But that's actually not a problem.
You may have more time than you think
If you're saving for retirement in a 401(k) plan, any contributions you want to count for 2023 purposes need to hit your account by December 31. But IRAs work differently.
With an IRA, you have until next year's tax filing deadline to finish funding your account for 2023. As long as you're able to max out by April 15, 2024, which is the upcoming deadline to submit taxes, you're all set. That gives you more than four months to find ways to free up money for your retirement plan.
As a reminder, the IRA contribution limit for 2023 is $6,500 for those under age 50 and $7,500 for anyone 50 or older. These limits will be rising slightly in 2024.
It's a good idea to finish funding your 2023 IRA by the end of December so you can focus on your 2024 IRA as soon as the new year begins. But if that's not doable, don't panic -- because it's not like you only have another few weeks to max out. You can take the first few months of 2024 to work toward that goal, and then spend the remainder of 2024 focusing on next year's IRA.
HSAs work the same way
You may be relieved to learn that you don't have to finish funding your 2023 IRA by December 31 for contributions to count for the current year. Well, you should also know that health savings accounts (HSAs) work the same way. If you have one of these accounts and don't think you'll be able to max out by the end of the year, you can continue to fund your HSA for 2023 purposes until April 15, 2024.
Like traditional IRAs, HSA contributions go in on a pre-tax basis. So if you're able to max out both accounts for 2023, you'll shield a nice amount of income from the IRS. That could lead to a lower tax bill or a larger refund when you file your taxes in 2024.
Plus, HSAs allow you to carry funds forward indefinitely. So having a robust balance, in addition to a large IRA balance, could set you up for a more secure retirement.
