Tip number four for maximizing your financial plan in 2023, according to Matt Blocki, is to be aware of allowable income in your retirement plan. The maximum allowable income for matching or profit-sharing contributions in 2022 was $305,000, but it has been increased to $330,000 for 2023.
This means that if you earn $200,000 and your employer offers a 3% match, you will receive a $6,000 contribution to your retirement plan. However, if you earn $350,000, only the first $330,000 will be matched at 3%, resulting in a maximum match of $9,900. Any income above $330,000 will not be matched.
It’s essential to understand this limit, especially if you’re aiming to maximize your contributions to your 401(k) and potentially hit the $66,000 limit discussed in tip number one. Additionally, some employers offer deferred compensation plans that may continue to match contributions above the $330,000 threshold. However, it’s important to consider the implications of such plans, including the risk of bankruptcy affecting your deferred compensation in case the company faces financial difficulties.
Hello, Matt Blocki with EWA. Today we are talking through ten tips for 2023 and how to maximize your financial plan. Tip number four for 2023 is to be aware of allowable income when it comes to your plan.
So in 2022, the max maximum allowable income for matching or profit sharing contributions was 305,000. That has now been raised to $330,000. So what that means is if you are making $200,000 and you get a match of 3%, you’re going to get $6,000 in the plan, no questions asked.
If you’re making 350, only 330 of that 350 will be matched at 3% for a maximum 9900. Anything above that 330 doesn’t get matched. Something important to consider if you’re going back to tip number one and trying to reach that four one five C limit of 66,000 in the 401.
For example, if you’re a million dollar income earner and getting a 3% match thinking you’re getting $30,000, that’s not the case. You’re going to be capped at the 9900 again because they only match you in the first 330.
So this can come into play in trying to reverse engineer how much needs to be put into an after tax account to reach the four one five C limit. This can also come into play as some employers will offer a spillover deferred compensation plan where they’ll match into your 401 up to the 330,000 and then they’ll continue to match if you enroll in a deferred compensation plan above and on the 401K.
So something we would recommend to do if there’s free money, something we may not recommend to do because deferred compensation plans would be subject to bankruptcy if the company goes underneath.
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