Tax Changes Boost Retirement Contribution Limits For 401(k)s, IRAs In 2023

Given the high inflation of 2022, the Internal Revenue Service (IRS) has boosted the amounts that you can contribute to retirement saving in 2023.

The amount that you can contribute to a 401(k) has risen to $22,500 which is a $2,000 increase. The limit on IRA contributions is $6,500 up by $500.

Retirement Savings Increase

If you have a retirement savings plan, whether its a 401(k), 403(b) most 457 plans or the Thrift Saving Plan (TSP) you can now save $22,500 during the calendar year. That’s up from $20,500 for 2022.

401(k) plans, or similar, are often considered an effective way to save for retirement, because your money can grow tax-free. Employer matching can help too. Often your employer will provide an incentive to save, by matching your contributions in full, or in part, up to a certain level. Also, since contributions to a 401(k) generally don’t incur income tax, contributions into a 401(k) plan may lower your current tax bill as well.

Boost To IRAs

There’s effectively a double boost for IRA savings in 2023. The amount you can save into an IRA plan increases to $6,500 from $6,000. Also as income tax thresholds have gone up, the income limits for IRA contributions have risen too.

Similar to a 401(k) an IRA can be another way to save tax-free for retirement. If you use a traditional IRA, then withdrawals in retirement may be taxed, but contributions can be tax deductible when you contribute. If you use a Roth IRA you pay the tax on the money going in, but withdrawals in retirement should then be free from tax.

Traditional IRA Contribution Phase Outs

For single tax payers, the phase for traditional IRA contributions starts at $73,000 and for those married filing jointly, the phase out now starts at $116,000 if you have a workplace retirement plan, and $218,000 if you don’t.

Roth IRA Contribution Phase Outs

For a Roth IRA, single tax payer phase outs for 2023 start at $138,000 of income. For those married filing jointly, it’s $218,000.

So high inflation does have one positive in that you may now be able to save more tax-free for retirement in 2023.