Amid the highest inflation rates in four decades, the Internal Revenue Service has raised the contribution limits of how much Americans can contribute into their 401(k) plans in 2023, by a record amount.
The contribution limits for tax-deferred retirement savings accounts will rise by $2,000 to a maximum of $22,500 in the 2023 tax year, up from $20,500 in 2022. It will be the biggest dollar increase since 2007, when the maximum contribution limit was $15,500.
What does this mean for retirement savers aged 50 and older? They can now save a total of $30,000 a year in their 401(k), 403(b), most 457 plans, and Thrift Savings Plan, with the catch-up contribution limit rising from $6,500 to $7,500.
The total employer plus employee contributions to all defined contribution plans by the same employer will increase by $5,000 from $61,000 in 2022 to $66,000 in 2023.
The IRS also increased annual contribution limits to Individual Retirement Arrangements from $6,000 to $6,500.
The contribution limits to individuals' SIMPLE accounts also increased to $15,500, from $14,000 in 2022. The catch-up contributions limit thus increased to $3,500 from $3,000.
The IRS also released new income phase-out ranges for making traditional contributions to an IRA and Roth IRA.
Phase out Ranges for IRAs and Roth IRAs:
The traditional IRA phase-out ranges for 2023 are:
- For single taxpayers covered by a workplace retirement plan, the phase-out range begins at $73,000 and ends at $83,000 (up from $68,000 and $78,000 in 2022).
- For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range increases to between $116,000 and $136,000 ($109,000 and $129,000 in 2022).
- For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range increases to between $218,000 and $228,000 ($204,000 and $214,000).
- For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.
The phase-out ranges for Roth IRAs are:
- For singles and heads of household, the phase out begins at $138,000 and ends at $153,000 (up from between $129,000 and $144,000 in 2022)
- For married couples filing jointly, between $218,000 and $228,000 (up from between $204,000 and $214,000 in 2022)
- For married couples filing separately, between $0 and $10,000.