IRS on Friday Announced record increase in contribution limits for 401(k) and tax-deferred retirement plans by 2023
Starting next year, you will be allowed to contribute up to $22,500 in most of your 401(k), 403(b), 457 plans, or the Thrift Savings Plan for federal employees.
That’s $2,000 — or roughly 9.8 percent — more than the current $20,500 federal contribution limit. The jump is largely due to inflation, as contribution limits are indexed.
Catch-up contributions to 401(k)s and other work plans – Plan participants who are 50 years of age or older can save above the federal contribution limit; also, they will have a great boost. in 2023, It will rise to $7,500, up 15.4% from the current $6,500. This means that if you are 50 or older you can contribute up to $30,000 in 2023. And that doesn’t count the contributions your employer might make.
While the increases may help those hoping to cash in on their retirement savings, most 401(k) participants aren’t saving anywhere near the federal limit. Based on an analysis of 401(k) plans offered to employers, Vanguard estimates that only 14% of participants made contributions in 2021, and only 16% of those eligible to contribute took advantage.
Contributions to traditional IRAs and after-tax Roth IRAs will also increase — up to $6,500. From $6,000 today, up 8.3%. But the IRA contribution limit remains the same at $1,000.
To withdraw an IRA contribution or contribute to an after-tax Roth IRA is based on income and access to a retirement plan at work. (Here are the IRS rules.) But next year, more people will be able to take advantage.
To put money into a Roth in 2023, modified gross income must be less than $153,000 ($228,000 if married). submitting together). From there $144,000 ($214,000 for merged files) today.
For traditional IRAs, your AGI must be modified to deduct at least some of your contributions Less than $83,000 ($136,000 for joint filers) in the following year, up $78,000 ($129,000 for joint filers) this year
If you personally don’t have access to a workplace plan, but your spouse does, your modified AGI must be less than $228,000, up from $214,000 today, to get a deduction for your IRA contributions.
And watch out: The changes just announced by the IRS may not be the only ones in store for next year. More could be on the horizon if lawmakers pass popular legislation that would make several changes to tax-advantaged retirement plans, especially for workers 50 and older.
That said, negotiations may change once the provisions come into effect. “Some of the legislation’s problematic 2023 effective dates could be extended by a year or more, but lawmakers will be somewhat limited in how the bills are scored for budget purposes,” said Margaret Berger, a partner in the Law and Policy Group. Mercer, a benefits consulting firm.
Retirement contribution limits weren’t the only inflation-related news from the IRS this week. He also announced inflationary adjustments to federal income taxes and other provisions through 2023. The bottom line for anyone with earned income: a likely boost in take-home pay early next year.