2023 Retirement Contribution Limits Increased
As you probably already know, contributing to your retirement plan helps you in multiple ways. Obviously, the more you add to your retirement and the earlier you add it, the more financial resources you will have to make your retirement secure and comfortable. If your employer offers a matching contribution up to a certain amount, and you fail to contribute, or to contribute enough, you could be leaving free money on the table. And, of course, contributing pre-tax dollars to a retirement plan such as an IRA or 401(k) will reduce your taxable income in the year in which you contribute.
Most retirement contribution limits are adjusted to keep pace with the cost of living, and while these do not necessarily increase every year, it is wise to pay attention to increases in limits so that you can get the maximum benefit. Here are some of the increased retirement contribution limits for 2023.
401(k) Contribution Limits for 2023
The 2023 individual contribution limit for 401(k) plans is $22,500. That represents an increase of $2,000 over the maximum contribution in 2022. If you are 50 and older, you are also eligible for a “catch-up” contribution of an additional $7,500. In other words, workers over the age of 50 who have a 401(k) can contribute up to a total of $30,000. That’s not counting employer contributions, which often range from 3-6% of an employee’s salary. Total contributions to a 401(k) for 2023 are $66,000 or 100% of the employee’s salary, whichever is less.
Traditional IRA Contribution Limits for 2023
Individual retirement account (IRA) contribution limits will go up in 2023 as well. Taxpayers will be able to contribute $6,500 to their retirement plans, which is an increase of $500 from the 2022 maximum contribution. As with 401(k)s, taxpayers aged 50 and older who contribute to a traditional IRA can make a catch-up contribution: $1000 in 2023. The catch-up amount for IRAs remains the same as it was in 2022.
Roth IRA Contribution Limits for 2023
A Roth IRA differs from a traditional IRA in that contributions to a Roth IRA are made with after-tax dollars, so contributions do not reduce taxable income in the year in which they are made (however, funds in a Roth IRA grow tax-free and qualified withdrawals are tax-free). Taxpayers whose incomes exceed a certain level cannot contribute to a Roth IRA.
For 2023, the income range at which the ability to contribute to a Roth IRA phases out is $138,000-$153,000 for taxpayers filing as single or head of household. Income phase-out for married couples filing jointly will be from $218,000 to $228,000. The range for married individuals who file income tax separately is $0-$10,000.
Assuming the ability to make the maximum contribution to a Roth IRA, the 2023 contribution limit for an individual is $6,500. This is $500 more than the Roth IRA limit in 2022.
Retirement Plan Contribution Limits for 403(b)s, (Most) 457s, and Thrift Savings Plans
A 403(b) is a retirement plan for employees of public schools and certain tax-exempt organizations. A 457 plan is a retirement plan that is available to certain government employees and some tax-exempt organizations. A Thrift Savings Plan is a retirement savings and investment plan available to some federal employees and military service members.
In 2023, the same cost-of-living adjustments that apply to 401(k)s will apply to 403(b)s, Thrift Savings Plans, and most 457 plans. Individuals will be able to contribute a maximum of $22,500, or $30,000 if they are 50 or older.
SIMPLE Contribution Limits in 2023
SIMPLE accounts are savings incentive match plans for employees of small employers. SIMPLE accounts may be established by employers with 100 or fewer employees, including self-employed individuals. These plans will allow maximum individual contributions of $15,500 in 2023. This represents a $1,500 increase from the $14,000 maximum 2022 individual contribution.
The Bottom Line
If you are not adjusting your retirement contributions to keep pace with cost-of-living adjustments, you could be losing out. Tax-advantaged plans can help you save on your taxes today, and enjoy more financial security in retirement. If you are not sure how to best take advantage of the retirement plans that are available to you, schedule an appointment today with the accounting and tax preparation professionals at Gudorf Tax Group.
