When prices are on the rise and the cost of everyday goods keeps going up, you may be tempted to let your retirement savings fall low on your priority list. Fortunately, the IRS recently announced new expanded contribution rules for 2023 to help Americans get more out of their retirement funds.
According to an IRS news release, individual contribution limits will rise in 2023; meaning, you’ll have more opportunity to make the most of what you have now in order to boost the longevity of your retirement savings in the future.
How Much Are Limits Increasing in 2023?
The cost-of-living increase will vary depending on the type of investment vehicle. The increase will apply to individual contribution limits for 401(k)s, IRAs and other retirement savings plans for 2023.
401(k)s and IRAs
Contribution to workplace 401(k)s will go up from $20,500 to $22,500. That’s an extra $2,000 you can contribute to your future retirement in 2023.
The same limit of $22,500 will also apply to contributions to 403(b)s (for public school and non-profit employees), most 457 plans (for deferred compensation) and the Thrift Savings Plan (for federal and uniformed employees).
In 2023, your individual contribution limit for IRAs will rise up to $6,500, which is $500 more than last year.
There’s a “catch-up” provision in the tax code intended to help older workers — those who are 50+ — boost their retirement savings. In 2023, the catch-up contribution limit for 401(k)s, 403(b)s, 457s and the Thrift Savings Plan will rise to $7,500 — up $1,000 from 2022. So, if you’re 50 or older, you can contribute up to $30,000 total in 2023.
The catch-up contribution to regular IRAs will remain at $1,000. If you have an IRA SIMPLE (for small businesses), your catch-up contribution limit will go up to $3,500.
If your employer also contributes to your defined plan, then the combined maximum you can contribute in 2023 will be $66,000 if you are 49 years old or younger, or $73,500 if you are 50 or older, according to an article from AARP.
Why Are Contribution Limits Increasing?
The IRS sets limits for annual 401k contributions and can adjust those limits as needed. The 2023 contribution increase is a cost-of-living adjustment prompted by inflation.
Are Income Thresholds Also Increasing?
Yes, income thresholds are also increasing. The IRS sets the income range, which determines who can contribute to a traditional or Roth IRA. For example, if you file single, your 2023 income range will be $138,000 to $153,000. If you are married and file jointly, your 2023 income range will be $218,000 to $228,000
So, if your income falls below the range, then you can contribute up to the maximum. If your income falls anywhere inside the range, your ability to contribute is reduced. If you’re above the range, then you are not eligible to contribute at all.