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Roth IRA Changes in 2023: What You Need to Know

The Roth IRA is one of the most popular retirement savings accounts out there, and for good reason. Unlike traditional IRAs, Roth IRAs allow you to contribute after-tax dollars, which means you won’t have to pay taxes on your withdrawals in retirement. However, there are some significant changes coming to Roth IRAs in 2023, and it’s important to understand how they might affect your retirement planning.

Here’s what you need to know about the Roth IRA changes in 2023:

1. Contributions will increase

Starting in 2023, the contribution limit for Roth IRAs will increase from $6,000 to $6,500 for those under age 50, and from $7,000 to $7,500 for those age 50 and older. This is good news for savers who want to put away more money each year, especially those who are nearing retirement and need to catch up on their savings.

2. Income limits will increase

Currently, Roth IRA contributions are limited based on your income. If you make too much money, you may not be eligible to contribute to a Roth IRA at all. However, in 2023, these income limits will increase. The phase-out range for single filers will now be $132,000-$147,000 (up from $125,000-$140,000 in 2022), and the range for married couples filing jointly will be $208,000-$218,000 (up from $198,000-$208,000 in 2022).

3. Conversion rules will change

Another big change coming in 2023 is how you can convert traditional IRA funds to a Roth IRA. Currently, there is no minimum age requirement for doing a conversion, and you can convert as much or as little as you want. However, starting in 2023, you will need to be at least age 59 1/2 to do a conversion, and there will be a minimum five-year holding period before you can take tax-free withdrawals from the converted funds.

4. Required minimum distributions will start later

If you have a traditional IRA or other retirement account, you are required to take distributions starting at age 72. However, Roth IRAs are currently exempt from this rule. In 2023, this will change: Roth IRA owners will be required to take distributions starting at age 72, just like with traditional IRAs. However, since Roth IRA withdrawals are tax-free, this rule won’t have as much impact as it does with traditional IRAs.

5. Backdoor Roth IRA contributions will be safer

One way that high-income earners can currently contribute to a Roth IRA is through a backdoor Roth IRA. This involves making a non-deductible contribution to a traditional IRA and then immediately converting it to a Roth IRA. However, there are concerns that this strategy could be challenged by the IRS as a form of tax evasion. The 2023 changes will make backdoor Roth IRA contributions safer by explicitly allowing them.

What to do now

If you are already contributing to a Roth IRA, these changes may not have a huge impact on your retirement planning. However, it’s always a good idea to review your contributions and make adjustments as needed to ensure you’re on track to meet your retirement goals.

If you are considering contributing to a Roth IRA in the future, it’s important to understand how these changes may affect your eligibility and contribution limits. Talk to a financial advisor or tax professional for guidance on the best strategies for your specific situation.

In conclusion, the Roth IRA changes coming in 2023 will provide more opportunities for savers to contribute and convert funds, but will also come with some new rules and requirements. Stay informed and stay on top of your retirement savings so you can enjoy a comfortable retirement.