In 2022, taxpayers are eligible to contribute up to certain amounts for 401(k), 403(b), 457, and TSP plans, as well as IRAs. The limit is $20,500 for a 401(k), and $6,000 for an IRA ($7,000 for those over 50). Today, the IRS announced updated retirement contribution limits for 2023.
Inflation has been hitting us all hard. The Consumer Price Index as of September is at 8.2%. Food is up 11.2%, and energy is up an astounding 19.8%. And this does not appear to be slowing down any time soon.
This economic trend has prompted changes to what we can contribute to retirement starting next year.
IRS Notice 2022-55 lays out a host of different updates to what we can contribute to our retirement plans.
Let’s walk through the new limits as they will take effect in 2023 and talk about how they will affect you.
Changes to Employer-Sponsored Retirement Plans in 2023
Eligible employees will be able to contribute up to $22,500 to their retirement plans in 2023. That’s a $2,000 jump from 2022.
This includes contributions made to your 401(k), 403(b), 457(b), and the federal TSP.
For those over 50, the catch-up amount for employer-sponsored programs will increase to $30,000 in 2023.
The catch-up provision increases by a total of $7,500 for 2023. That’s up from $6,500 in 2022.
Additionally, for small business owners, the contribution limit to a SIMPLE retirement account increases from $14,000 to $15,000.
Changes to Roth and Traditional IRA Contributions in 2023
Additionally, the IRA contribution limit is increasing. The new limit is $6,500 for those under 50. Those over 50 may contribute up to $7,500 starting next year.
Traditional retirement contributions are pre-tax, meaning you have a tax advantage for the year you make the contribution. But this tax deduction is subject to certain income limits.
On the other hand, Roth contributions are after-tax, which means there is no upfront tax benefit. But your contributions grow tax-free for your retirement years. Roth IRA contributions also have an income limit.
For those who are single and covered by an employer-sponsored plan, the traditional IRA deduction phaseout increases to between $73,000 to $83,000 for 2023. This is up from between $68,000 and $78,000 in 2022.
For married couples filing jointly, if the spouse making the contribution is covered by an employer-sponsored plan, the phaseout increases to between $116,000 and $136,000. That’s up from between $109,000 and $129,000.
For Roth contributions, the new income phaseout range is between $138,000 and $153,000 for singles and heads of household. This is an increase from between $129,000 and $144,000. In 2022.
For married couples filing jointly, the new phaseout will be between $218,000 and $228,000. The 2022 level was between $204,000 and $214,000.
Closing Thoughts on the 2023 Retirement Contribution Limits
I am glad to see these retirement contribution limits increase in 2023. The more we save and invest for the long-term, the larger our nest egg will be.
That said, there are still economic woes happening right now. I am sure you’re thinking about your 401(k) right now and are concerned about the loss in value you’re seeing.
At this time, I strongly encourage you to not make hasty decisions. Here is my guide to protecting your retirement nest egg in volatile times. The basic point is not to jump ship even though it hurts looking at your account right now.
After all, the only ones who get hurt on a rollercoaster are the ones who jump off in the middle of the ride.
The new 2023 retirement contribution limits make it a great time to take advantage of a sale. The wealth mentality sees the current situation as an opportunity. The poverty mentality sees this situation as a disaster.
As a result of adopting the wealth mentality, you will make different decisions with your retirement investments. And remember to have a solid financial advisor in your corner to help you make good fund selections!