Time to review 403(b) and IRA contribution limits
Contribution limits for both the 403(b) and the IRA will increase in 2024. The contribution limit for the 403(b) will go from $22,500 to $23,000. The limit on annual contributions to an IRA will increase from $6,500 to $7,000.
2023 through year end: Current contribution limits for both the 403(b) and the IRA will continue through the end of the year. The contribution limit for the 403(b) is $22,500. The limit on annual contributions to an IRA is $6,500.
If you’re not maximizing your contributions, you may wish to re-evaluate the amount you’re putting toward retirement. Not only do you lower your taxable income, you ensure that you’re doing everything you can to reach your retirement goals.
If maxing out contributions is not realistic for you right now, remember: With compound interest, even a small amount invested today can grow to a large sum by retirement.
Elective 403(b) Contribution Limits
|Calendar year||Salary Reduction Contribution Limit||15 Years of Service Catch-Up||Age 50 and Over Catch-Up||Possible maximum|
- Not all districts offer the 15 years of service catch-up provision in their 403(b) plan. Contact your district office to learn more.
- Some employers only allow changes at the start of the school year and then again in January. Others allow more frequent changes. Call Member Benefits to assist you with updating your salary deferral amount.
- Some districts may allow Roth 403(b) contributions. Your Roth contributions and your pre-tax contributions combined must not exceed the $22,500 limit for participants under age 50, or $30,000 for participants age 50 and above.
IRA (Roth and Traditional) Contribution Limits
|Calendar year||Under age 50||Age 50 or older|
- You may contribute to both a Roth and Traditional IRA, but your combined contributions must not exceed the annual limits.
- You can start or modify IRA recurring contributions and/or submit a one-time lump-sum contribution in the yourMONEY portal. Learn more about making contributions in yourMONEY here.
- If you make automatic IRA contributions using SmartPlan or through payroll deduction (if available in your district), your contributions do not adjust automatically to meet the new limits. To make adjustments, call 1-800-279-4030 or print out an IRA Contribution Form.
NOTE: Because the maximum Roth IRA contribution may be reduced depending on MAGI (Modified Adjusted Gross Income), some high-income taxpayers may not be able to make Roth IRA contributions; however, they could make Traditional IRA contributions.
SECURE 2.0 changes age for required minimum distributions
As of January 1, 2023,the Internal Revenue Service requires you to start withdrawing money from your before-tax and Roth 403(b) account at the later of age 73 or the calendar year you retire from an employer through which you contributed. These withdrawals are called required minimum distributions (RMD). Your minimum distribution is a function of your account balance and your life expectancy.
Are there any ways to eliminate the need for an RMD in my 403(b)?
Under prior law, a Roth IRA account owner did not have to take lifetime RMDs, but no such exception existed for Roth monies under 403(b) and other employer-sponsored retirement plans. SECURE 2.0 ends lifetime RMDs for Roth designated accounts in employer sponsored plans effective for taxable years beginning January 1, 2024. However, for retirees who attain age 73 in 2023, RMDs on Roth 403(b) monies must still be made by April 1, 2024.
What about my IRA?
Traditional and SEP IRA accounts also require RMDs to start at age 73. However, unlike the 403(b), you cannot delay the RMD past age 73, even if you continue to work.
What if I don’t take my RMD?
If you miss taking your RMD, the penalty is 25%, but if corrected during the two-year correction window, it is further reduced to 10%.
How does Member Benefits help?
If you have an account with us, Member Benefits will send you an RMD notice at the appropriate time and can assist you in setting up your RMD schedule. We continue to send RMD notices on an annual basis.
Moved to a new school district this fall?
Moving to a new district requires you to open a new 403(b) account in order to contribute to your retirement savings. We can help you enroll in your new plan and assist with consolidating your accounts (if allowed by the plan).
Schedule a meeting here or all us at 1-800-279-4030.
Long-term investing in a time of instability
The sharp rise in interest rates led to a decline in the value of Silicon Valley Bank’s mortgage bonds and Treasuries. The bank’s business was concentrated in the tech industry and many of their depositors had large uninsured balances (over the $250,000 FDIC insurance limit) at the bank. When technology start-up funding began to dwindle, customers’ withdrawals increased, forcing the bank to sell investments at a loss.
When news of this loss broke, panicked customers rushed to pull out their money and the bank was not able to meet demands. Days later, Signature Bank was ordered to close to avert a bigger crisis after it faced an influx of withdrawals following the Silicon Valley Bank failure.
We understand that some of you may have some concerns or questions about the safety of our Guaranteed Stable Investment fund after what has happened in the banking world. Here are some answers to that question.
Banks: Short-term savings
Bank deposits are intended for short-term liquidity and not for long-term investment. Generally speaking, making a short-term investment means you plan to access your money in three years or less. FDIC-insured banks cover up to $250,000 per depositor, per insured bank, for each account ownership category. Bank deposits over this amount are at risk when a bank fails.
Guaranteed Stable Investment: Long-term savings
The Guaranteed Stable Investment (GSI) is intended as a long-term investment, not a short-term savings account. However, it offers benefits from both worlds by providing a long-term investment opportunity with some built-in stability and protections. The principal and accumulated interest of your GSI are fully guaranteed by Empower Annuity and Insurance Company (EAIC) with no limit.
EAIC strength and stability
The GSI fund is backed by EAIC. As of December 31, 2022, EAIC has $27.7 billion of total net assets, and is rated AA-/Aa3/AA- (the second highest of nine categories) by S&P, Moody’s, and Fitch rating agencies, respectively.
These ratings are subject to change and represent the opinions of the rating agencies regarding the financial strength of EAIC and its ability to meet ongoing obligations to its policyholders.
Participant level protections
As discussed in prior communications over the years, the GSI has protections in place to prevent harm to the fund and its investors in the event of high withdrawals during certain economic conditions. Prudential (now Empower) introduced participant level protections (PLP) in 2018 to increase the safety of members who are in the fund. You can read our 2018 article, “Protecting a legacy: Participant level protections,” for more information about how the protections work and what they mean to you.
These protections exist to ensure the long-term health of the GSI and kick in to preserve the guarantee of the fund. They are considered to be state of the art in terms of 403(b) plan participant protections.
If you have any questions about the GSI fund, give us a call at 1-800-279-4030.
Create or change IRA contributions online
You can choose between a one-time or a recurring contribution. A one-time contribution is a lump sum contribution, while a recurring contribution is a monthly scheduled contribution that is automatically pulled from your bank account on or around the 15th of each month.
It’s simple and straightforward to do:
- After logging into your yourMONEY portal, click on the Plans header.
- Hover your mouse over ‘Contributions’ and select either ‘One-Time Contribution’ or ‘Recurring Contribution.’
- Fill in the necessary information, including the name of your financial institution, routing number, and your account number.
You can modify or cancel your contribution choices at any time.
What is the ‘lifetime income illustration’ in your 403(b) statement?
The illustration shows the “value” of your retirement plan account balance as if it were received in the form of an annuity (an insurance product that pays out a series of regular payments over your lifetime) and the monthly income you’d get from that annuity.
It is meant to be an educational tool for investors by presenting an estimated monthly income stream in addition to the usual lump sum on your statement. However, it is based on the end of the quarter snapshot and with the assumption that you would start taking distributions now.*
Keep in mind there are many other factors that go into planning for your retirement income—your Wisconsin Retirement System pension, Social Security, your savings, inflation, assumptions about future rate-of-return on your investments, and more.
While the rules only require this disclosure once per year, to simplify and standardize the process, the lifetime income illustration is provided in all of Member Benefits’ quarterly statements.
Let us help you plan for your retirement income
An income strategy is crucial to keep your money working for you in retirement, especially as you start to withdraw from your retirement account(s).
Member Benefits offers several income management options to fit your unique goals and needs during retirement through yourINCOME PATH, a suite of options and support to help turn your retirement savings account balance into income during retirement. This includes a range of flexible withdrawal options to meet cash flow needs, required minimum distribution support, qualified charitable distributions, Roth conversion strategies, and more. There are no additional costs for these services.
*For illustrative purposes only as required by the new rule. This does not mean you must take your money out in the form of an annuity.
How the Guaranteed Stable Investment credited rate is determined
Each year the announcement of the Guaranteed Stable Investment (GSI) (formerly the Prudential Guaranteed Investment) credited rate prompts questions from participants such as: Who decides the rate? How is it calculated? Does the Federal Reserve (Fed) rate influence the decision? We have some answers to these questions and more.
Why isn’t the rate higher?
Stable value funds like the GSI are not built to pivot quickly along with changes in interest rates. Stable value fund crediting rates typically take longer to respond to changes in market interest rates—both during times of rising and falling interest rates. This is a benefit to participants when interest rates are dropping or at a sustained low level, because participants continue to benefit from a higher crediting rate for a longer period.
For example, the average 12-month certificate of deposit yield was below 1% throughout the entirety of the 2010’s and into the 2020’s (bankrate.com). During the 2010’s, the GSI crediting rate ranged from 3.15% to 5%. We were fortunate to benefit from conditions where stable value funds offered exceptional value for so long.
The other side of the coin is that when market interest rates rise—especially when they rise rapidly—the crediting rate takes time to respond. Rates have been low for a long time, so the investments within the GSI portfolio still carry those lower interest rates. This will change as those investments reach maturity.
Who decides on the rate?
The Board of Trustees at Member Benefits has the final say on the guaranteed rate. They base their decision on the analysis and reports provided by Member Benefits’ professional staff and GSI fund investment managers. Empower Capital Management manages the GSI for the WEA TSA Trust and WEAC IRA programs.
In addition, because the contributions made to the GSI are invested in the bond market, investment managers pay close attention to factors that influence the price of bonds.
To determine the upcoming year’s crediting rate, managers analyze the expected return on the money currently invested. Next, they look at maturing investments and anticipate how that money will be re-invested and how much it might earn. Finally, they consider new contributions such as how much new money will be available for investment, where it will be invested, and the anticipated rate of return.
What goes in to evaluating the quality and stability of the fund?
Analysis and comparison of stable value contracts goes well beyond the current year crediting rate. Among the things we consider are investment performance, contract language and provisions, financial stability of the issuer, and management cost. We evaluate management performance as well as our contract in general on a regular basis. Historically, Prudential’s investment management track record has been excellent.
This year we applied an additional layer of scrutiny to our review due to Empower Retirement’s purchase of Prudential’s retirement and stable value business. We found that the contract represents an excellent value for our members, and that we have contract provisions that are difficult to find elsewhere. Those factors are not always apparent in the current year crediting rate, but are equally important to the long-term success and stability of the fund.
I hear about the Fed raising rates. What does that mean?
The Fed sets the interest rate that member banks charge each other to borrow money. The Fed adjusts the rate to stimulate economic growth or slow the economy in order to control inflation. The Fed has been consistently raising rates this year to fight inflation.
How does the Fed rate affect investments in stocks, bonds, and the GSI?
The stock market responds quickly to interest rate changes by the Fed. Bonds are also sensitive to interest rates. Bond prices move opposite to interest rates, rising when rates fall and falling when rates rise. However, this has the greatest impact on bonds traded on the open market. GSI portfolio managers do not trade bonds on the open market. In their case, bonds are bought and held until maturity to provide the stability needed to generate a consistent rate of return. Because rates have risen sharply and quickly, bonds held within the GSI portfolio still carry those lower interest rates. Again, this will change as those investments reach maturity.
History of the GSI
From time to time we field questions regarding our GSI interest rate, especially in environments when interest rates are on the rise. The general question people ask is: How is it that the current guaranteed rate can ever be lower than short-term certificate of deposit (CD) or money market rates?
Not apples to apples
The GSI rate and CD or money market account rates are not an apples to apples comparison. Our GSI account is a long-term savings vehicle, with goals and strategies fit for long-term investing. And unlike CDs, you do not need to tie up your money for a specified length of time in order to earn the crediting rate. Be cautious with investment vehicles that require long holding periods and/or carry penalties for getting out early—as the current economic environment illustrates, sometimes things change very quickly.
Goals and strategies
Empower Capital Management manages the GSI. Their description for the goals and strategies of this fixed income account are:
The goal of this portfolio is to maximize the long-term rate of return consistent with insuring the safety of invested assets. By carefully structuring a portfolio of commercial mortgages plus privately placed and publicly traded debt securities, the portfolio manager seeks to achieve higher long-term yields than are available from public offerings, as well as an essential degree of liquidity.
In short, the GSI account has a long-term strategy designed to earn investors a higher return over time than could be realized by investing in the CDs or money markets offered commercially.
Some final considerations
We recognize that the current interest rate environment is affecting how the GSI crediting rate compares to some other fixed-rate investments. This is not a surprise given the set of circumstances that have played out in the economy. No investment category—stocks, bonds, real estate, etc.—thrives in every set of economic conditions.
But it is important not to allow short-term circumstances to interfere with your long-term best interests. The economy moves in cycles, and the lower-yielding investment holdings within the GSI will eventually cycle through. As interest rates level out, we will return to an environment where long-term investment managers tend to outperform the short-term approach.
Here is a final factor to consider. Members have left our 403(b) or IRA programs in the past when interest rates have risen quickly, creating a similar temporary spread between stable value and external fixed investment rates. Eventually, when the interest rate environment normalized, those members wanted to return for the better crediting rate offered in our program. Unfortunately, many who moved their full account balance out of the program were unable to qualify because they no longer met eligibility requirements.
Our program is “once in, always in.” If you retain a balance within the program, you do not need to re-satisfy eligibility requirements to bring money back into the program—so you can stay with us.
Interest is compounded daily to produce a yield net of Empower’s administrative fee of 0.60%. Empower Annuity Insurance Company (EAIC) is compensated in connection with this product by deducting an amount for investment expenses and risk from the investment experience of certain assets held in EAIC’s general account.
All earnings on investments are credited gross of 403(b) and IRA program fees.
The Guaranteed Stable Investment Fund is a group annuity insurance product issued by EAIC. Amounts contributed to the contract are deposited in EAIC’s general account. Payment obligations and the fulfillment of any guarantees specified in the group annuity contract are insurance claims supported by the full faith and credit of EAIC. EAIC periodically resets the interest rate credited on contract balances, subject to a minimum rate specified in the group annuity contract and subject to change. Past interest rates are not indicative of future rates. Participant Level Protections (PLPs) are in place to help preserve the guarantee of the fund. PLPs may limit your ability to withdraw funds from the fund. For more information on the PLPs and how it may affect your account, please call Retirement and Investment Services at 1-800-279-4030, Extension 8568.
This article is for informational purposes only and should not be construed as a recommendation.
Keep track of your beneficiaries
While saving as much as you can for retirement is important, it’s just as important to determine the beneficiaries of your account—and keep them up to date.
Naming beneficiaries for your retirement accounts is an important first step in your estate planning. Without careful consideration, your decision may have unexpected tax and estate planning implications.
There are two basic types of beneficiaries. Primary beneficiaries are entitled to receive any undistributed assets in your account following your death. They share equally in your account unless you specify different percentages. If a beneficiary predeceases you, his or her share of your account is divided proportionately among the surviving beneficiaries.
Contingent beneficiaries are entitled to receive any undistributed assets in your account only if you have no surviving primary beneficiaries at the time of your death. If there are no surviving primary beneficiaries, your contingent beneficiaries share equally in your account unless you specify different percentages.
You may name anyone as a beneficiary of your account. Although spousal beneficiaries have the most flexibility with an inherited retirement account, for many reasons you might find it more appropriate to name someone other than your spouse as your primary or contingent beneficiary. You may also name a trust or charity, as well as other options. However, these options may have different financial consequences. Consult an attorney or tax advisor if you have questions about your beneficiary designations.
Types of accounts
The types of accounts that may require beneficiaries include:
- Retirement accounts such as a 403(b) and IRA.
- Wisconsin Retirement System (WRS) accounts.
- Other types of investment accounts, such as Member Benefits’ Personal Investment Account.
- Life insurance policies and health savings accounts.
- Some banks will allow you the option of naming a beneficiary on your checking account so that it passes directly to that person.
It’s important to keep your account with Member Benefits up to date as well as any other accounts you may have. When members don’t update their beneficiaries after a major life event and then pass away, those named beneficiaries can no longer be changed. If members have no beneficiaries named on their account, the account will go to their estate. Unfortunately, that can cause many issues and delays in accessing those funds if they are needed.
Be sure to name and update your account beneficiaries on all of your accounts—and make sure they match up with your estate plan as well.
Proposed changes to required minimum distributions (RMD)
Let’s break it down into:
- Changes that took place in 2020.
- Changes that may be coming.
What happened in 2020?
The Setting Every Community Up for Retirement Enhancement (SECURE) Act was enacted on December 20, 2019, with many provisions effective beginning January 1, 2020. The law included changes to RMDs for both account holders and their beneficiaries.*
Account owners who turned age 70½ after December 31, 2019, now start taking their RMDs at age 72. The SECURE Act provides additional time to do Roth IRA conversions without having to worry about the impact of RMDs. However, once RMDs begin, those RMDs cannot be converted to a Roth IRA.
Certain beneficiaries who inherit from someone who died after December 31, 2019, must take the money out and pay any taxes due within 10 years. The rule generally exempts surviving spouses, minors, and some others (eligible designated beneficiaries (EDBs)). The 10-year rule only affects beneficiary accounts of those not considered EDBs. EDB account owners can still stretch their accounts according to their life expectancy.
For more in-depth information about the 2020 provisions that impact beneficiary accounts, read our SECURE Act 2020 FAQs.
*This provision is not retroactive, so it does not affect those who inherited a retirement account and/or IRA in 2019 or in prior years.
What changes might be coming?
At this time, no action is needed. In March 2022, the U.S. House of Representatives passed the Securing a Strong Retirement Act of 2022. In June, The Enhancing American Retirement Now (EARN) Act and the Retirement Improvement and Savings Enhancement to Supplement Healthy Investment for the Nest Egg (RISE & SHINE) Act achieved approval. These three bills are collectively known as the SECURE Act 2.0. There are similarities between all three bills that must be reconciled into one bill before a vote on the final bill.
Some of the proposed provisions** that may impact retirees or those close to retirement include:
- The age required to begin taking RMDs may be pushed back from age 72 to age 73, then age 74 starting in 2029, and to age 75 in 2032.
- Employees between the ages of 62 and 64 would be able to contribute additional catch-up contributions up to $10,000 to their employer retirement plan. This is an increase from the current age 50 catch-up contribution of $6,500.
- All age-based catch-up contributions made to a retirement plan would be required to be designated as Roth contributions and will be subject to the Roth rules for distribution purposes.
- Part of the RISE and SHINE Act includes a provision that would amend the cash-out limit from $5,000 to $7,000. Employers would be allowed to transfer employee’s retirement accounts out of the employer plan to an IRA if their balance is between $1,000 and $7,000. Very few school districts have a cash out provision in their plan.
- Reducing the required years of service from three to two for part-time employees to be allowed to participate in an employer’s retirement savings plan.
**Subject to change through the legislative process.
Questions or concerns? Talk to us
Email our Retirement and Investment Specialists
How can you keep your money working for you in retirement?
Member Benefits offers several strategies to help you manage your assets in retirement through yourINCOME PATH.
What is yourINCOME PATH?
yourINCOME PATH is the suite of options and support we offer to help turn your retirement savings account balance into income during retirement. Examples include:
- A range of flexible withdrawal options to meet cash flow needs.
- Required minimum distribution (RMD) support.
- Qualified charitable distributions (QCD).
- Roth conversion strategies.
- And more.
There are no additional costs for these services.
Learn more about yourINCOME PATH
Retirement income strategies aren’t one-size-fits all. A personal income strategy is crucial to keep your money working for you in retirement, even as you start to withdraw from your retirement account(s).
Visit the yourINCOME PATH page to learn more about retirement income management strategies available and how we can help you set up your own strategy.