Can’t Maximize Retirement Contributions? Strategies to Add Without Doing the Most

IRS contribution limits

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While the new contribution limits set by the Internal Revenue Service (IRS) will likely benefit high-income earners who can afford to stack away $22,500 to their retirement, where does it leave the rest of us?

Well, with the ability to at least try to save up to that amount.

The IRS’ 2023 contribution limits, announced in October, saw a $2,000 increase in 401k and 403b contribution limits, from a previous $20,500 to $22,500. The catch-up provision for participants aged 50 or over will increase from $6,500 to $7,500, totaling $30,000 in employee contributions alone. Annual individual retirement account (IRA) contributions have raised as well, from $6,000 to $6,500, with its catch-up provision remaining unaffected at $1,000.

Even if retirement savers can’t afford to stash over $20,000 to their 401k or 403b accounts, there are still strategies to ensure they’re getting the most out of their savings needs. One way? Invest in your retirement plan, says Keith Huber, Investment Advisor of OneDigital Retirement + Wealth. By investing in your 401k, investors are setting themselves up to generate the best returns, even if stock prices are at a premium. By investing in these down markets, investors have a higher chance of producing longer-term growth. “Historically speaking, this is the best time to be a buyer,” Huber said. “Being able to put more money in right now is more advantageous.”

Keith Huber, OneDigital

However, that’s easier said than done when you don’t consider other financial factors that could be plaguing savers. Think credit card debt, cost-of-living expenses, and student loans. Now that President Joe Biden’s student loan reimbursement plan has been vacated and given the fact that many debt borrowers are set to begin paying back their loans come June 2023, saving for retirement, or investing in your 401k, is in the back of many people’s minds.

Still, there are ways for workers to navigate these territories without having to do so alone. Financial advisors can determine an individual’s personal priorities and map out a plan to guide workers through their savings journeys, while ensuring that all needs are met. They can also generate each employee’s “magic number”—a term used to estimate the amount of money an individual will need to comfortably retire.

For example, if an employee lives and plans to retire in Maryland, it’s likely they’ll need to save more for their retirement years due to higher costs-of-living, raised taxes, etc., compared to an individual who is mapping out their retirement in Ohio, where expenses are generally lower, says Huber. “With our clients, we take them through a robust process to determine what their retirement income needs are going to be and what’s going to fulfill those needs,” he said.

Huber begins by asking clients what their expenses generally are, and from there, subtracts costs from different streams of income, like Social Security, pensions, and annuities. If the calculations result in a deficit, he’ll subtract those 401ks, individual retirement accounts (IRAs), and leftover savings. “That number is going to tell us all that we need and what that magic savings number actually is,” he said. 

Another way savers can meet their retirement goals is by utilizing help from their employers. One impactful form of help is matching an employee’s retirement contributions. The vast majority of Americans aren’t going to hit that number, Huber said, noting that while most workers won’t meet the $22,500 contribution figure, a company match will lift employee savings, to get as close to that figure as they can. “For Americans, the first goal should be to get the match.”

This can prove even more impactful if SECURE 2.0 is passed, as employers will be able to treat qualified student loan payments as 401k employee deferrals, and thus make matching contributions to their retirement accounts.

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