Episode 029:
Your Annual IRA Contributions – When, Why & How Much!

New Year Updates! Big ideas for the pod, craft cocktails, new countertops, pickleball and other hijinks on the horizon for 2023.

Then & Now: IRAs are a relatively new investment vehicle that has largely replaced the pensions that were retirement mainstays for generations.

Fun Fact: The first pension in the U.S. was established in 1875 by American Express and by 1960 half the private sector workforce had a pension.

The old pension framework started to unravel in the 1980s, due to regulatory changes that made them harder to administer and the increased incidence of job changes.

Employees today are statistically likely to hold at least 11 jobs between the ages of 18 and 48.

401k and IRA options were designed to make retirement savings portable while giving employees more control over time and reducing administrative costs for employers.

Reality Check: Many people don’t actually want to be in charge of their retirement investment choices and savings.

Rules of the Road:

• 401ks:
  • If you’re under 50, you can put in a maximum of $22,500 in 2023.
  • If you’re over 50, you are allowed “catch-up contributions” of up to $30,000.
  • Word of Advice: Save as much as you can, but don’t go into debt to save.
  • Employer sponsors can impose restrictions on account management.
  • Generally no income thresholds.
  • Some companies offer Roth 401k options.
• Traditional IRAs:
  • Funding source must be earned income.
  • Income thresholds apply.
  • Get to Know: Form 8606! Ask your tax specialist or see IRS details here!
• Roth IRAs:
  • Individuals making less than $138,000 of earned income are eligible to make direct contributions. The upper limit is $153,000 annually.
  • Couples making less than $218,000 can contribute with the upper limit at $228,000.
  • Make a contribution when you’re above the earned income limit and risk BIG penalties on earnings.
  • “Back Door” Roth: Put non-deductible earned income into a traditional IRA and then instantly convert it to a Roth. There are no limits.
  • #Josh Tips: Illinois residents are almost always better off putting money into an IRA (with its federal and state deductions), then converting.

Let’s Take a Break! And Get to Know Josh & Dave:

• What would you do with an extra hour in every day?
  • Dave has a list of things he wants to tackle in 2023, including learning Spanish and how to play the harmonica or guitar.
  • Josh: Read more! Business, motivational, fiction – all kinds of books!

Dave Relates to Retirees: Contributing to retirement accounts is like filling each other’s buckets in life – a good deed that yields rewards. But, uh, it’s a little more self-interested than selfless, so only kinda sorta the same? Josh clarifies.

Stay tuned for a fun-filled ‘23. No crystal ball predictions for retirees, but definitely the promise of lots of laughs and insights about all things financial planning.