How to make the most of your IRA in 2023

Tax season is in full swing, financial markets are still churning and a new law is poised to enhance how people can save for retirement. This all makes for an excellent time to consider your IRA strategy: Whether you have years left to save or are already taking required minimum distributions (RMDs), there are actions you can take with your IRA to keep on the path toward financial well-being. 

How IRAs work

IRAs are tax-advantaged accounts; they allow you to save on taxes, either now or in the future. There are two primary types of IRA, traditional and Roth. Contributions to traditional IRAs may be tax-deductible now, depending on your income and access to a workplace retirement plan. The money grows tax-deferred, meaning there’s no annual tax bill on investment gains. Withdrawals are subject to income tax, and if you pull money out before you’ve turned age 59 ½, there may be an additional 10% penalty. Savers are required to take RMDs by age 73. Anyone is eligible to contribute to a traditional IRA, regardless of income, though not everyone can deduct their contribution from their taxable income. 

Roth IRAs work differently. Savers make non-deductible contributions and then never pay taxes on investment growth or on qualified withdrawals after age 59 ½, so long as the account has been open for five years. Roth IRA eligibility is based on how much you earn: In 2023, income cannot exceed $153,000 for singles and $228,000 for couples filing a joint tax return.

Make a 2022 contribution

First things first: The clock is ticking on the chance to make an IRA contribution that counts for last year—and nab a deduction on your 2022 tax return if you are eligible. Contributions made prior to this year’s April 18 tax-filing deadline can be designated as a 2022 contribution. 

How much you earnOpens in a new window, and whether or not you have a retirement plan with your employer, can affect how much of your contribution is deductible. The 2022 annual contribution limit is $6,000 ($7,000 if you're age 50 or older). That limit rises to $6,500 ($7,500 if you're age 50 or older) for 2023. 

Convert to a Roth IRA

Last year delivered big losses in both the stock and bond markets. There is a silver lining, to smaller IRA account balances, though: Investors could convert all or part of their traditional IRA to a Roth account, and pay less in income tax now, and potentially reap larger tax benefits in the future. 

Any amount you convert that you haven’t paid tax on—such as contributions that were deductible and investment gains—is added to your taxable income. A lower balance means lower taxes, and more potential for tax-free growth once it’s in a Roth account. “The lower the asset prices, the lower your tax bill,” says Mark Schrader, Financial Planning Strategist at TIAA. “This can be an especially great time to convert if you think you’ll be in a higher tax bracket in future years.”

You may be able to roll over more assets this year without bumping into a higher tax bracket, thanks to a 7% inflation adjustment to 2023’s tax bracket income thresholds, the largest in history.

There’s some nuance that goes into converting a traditional IRA to a Roth IRA, so touch base with your financial advisor before getting started. 

Check out TIAA’s Roth IRA conversion calculator. 

Tweak your IRA asset allocation 

Given the severity and breadth of last year’s stock and bond declines, take the time to assess your asset allocation to ensure it reflects your long-term plan and the amount of risk you are comfortable with. Don’t rule out stocks, though; they’re necessary for long-term growth. An allocation to fixed annuities can protect some of your portfolio from market drops, enabling you to take a bit more risk in the rest of your portfolio. 

Consider consolidation

If you and your partner’s retirement savings are scattered across many plans and accounts, consider rolling your retirement assets into a single IRA. This could make it simpler to monitor risks and ensure you’re invested the way you want to be. And when it nears time to make withdrawals, you’ll appreciate that investments are organized in a way that makes it easy to assess the tax implications. The situation will be simpler for beneficiaries, too. 

Think about rolling 529 plan assets into an IRA

A provision in the SECURE Act 2.0 will soon give an option for people with unused 529 account balances. For the first time, untapped assets in a 529 plan that has been open for at least 15 years can be rolled into a Roth IRA for the beneficiary. Up to $35,000 per beneficiary can be rolled over the course of multiple years. Currently, funds not used for qualified education costs are subject to income taxes and penalties upon withdrawal. The new rule is effective starting in 2024.