Will 2023 Finally Be the Year You Max Out Your IRA? It Could Be if You Do These 3 Things

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Maxing out could really work to your benefit. 

If you’ve never maxed out an IRA before, you’re no doubt in good company. A lot of people find it difficult to carve out room for retirement savings because they’re focused on making sure their near-term bills are covered. And also, this year, a lot of people had to put retirement plan contributions on the back burner to cope with higher living costs fueled by inflation.

But if you’re able to max out your IRA in 2023, it pays to do so. First of all, the more money you’re able to pump into that account, the more you stand to retire with.

Secondly, if you put money into a traditional IRA, as opposed to a Roth IRA, your contributions will be tax-free. So if you put $2,000 into your traditional IRA, the IRS won’t get to tax you on $2,000 of income. (To be clear, Roth IRAs have lots of benefits, but contributing to one in 2023 won’t lower your tax bill that year.)

Now, the definition of maxing out an IRA can change from year to year. In 2023, maxing out means contributing $6,500 if you’re under the age of 50. If you’re 50 or older, you get a $1,000 catch-up provision that raises your total maximum contribution to $7,500. And in case you’re wondering, you don’t have to be “behind” on retirement savings to make catch-up contributions.

Hitting these limits may seem like a challenge given how expensive living costs are these days. But if you take these three steps, you might manage to max out your retirement savings and enjoy the different benefits involved.

1. Follow a budget

You might think that budgeting is a needless thing to do. But you may be surprised at how eye-opening an experience it is.

Once you get on a budget, you’re apt to have a better sense of where your money goes every month. That could help you identify expenses worth cutting or find ways to trim your costs even in the context of essential bills.

2. Cut back on one thing you enjoy

You have to pay rent because you need a place to live. And you need to make your car payments to avoid having it repossessed. But you may be able to spend less on things like leisure or food. And cutting back in even one area could make it possible to boost your IRA contributions in a very big way.

3. Pick up a side hustle

Thanks to the gig economy, there’s plenty of opportunity to go out and find a second job that could help you boost your income substantially. In fact, it may be feasible to take all of your side hustle earnings and use that money to fund your IRA, since that income won’t already be earmarked for existing bills.

One thing you should know is that any income you earn from a side gig is considered taxable — meaning you have to report it to the IRS and pay taxes on it. But if you’re using your earnings to fund a traditional IRA, you may not have to worry about taxes.

So, let’s say your goal is to put $6,500 into your IRA. If you earn that much from a side hustle, you can technically use all of it for IRA contributions without having to reserve some of that money for tax purposes.

Maxing out an IRA is no easy feat. But if that’s a goal of yours, you may be pleasantly surprised to see how attainable it actually is.

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