Many people are experiencing the tough end of inflation where they are finding the need to adjust their spending allowances in order to cover the higher cost of living. Inflation can be frustrating, but for those who contribute to a retirement fund, that higher cost of living can enable them to save more for retirement this year if they have even a small amount of money to spare.
If you contribute to a retirement plan, or if you are interested in contributing to one, below is some information you should know regarding contribution limits in 2023:
What is different in 2023?
The contribution cap for those participating in retirement plans has increased.
What is the reason for the increase?
This increase is due to the cost-of-living adjustment, which is calculated based on inflation data.
What are the details?
According to the Internal Revenue Service:
- The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $22,500, up from $20,500.
- The limit on annual contributions to an IRA increased to $6,500, up from $6,000. The IRA catch‑up contribution limit for individuals aged 50 and over is not subject to an annual cost‑of‑living adjustment and remains $1,000.
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- The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $7,500, up from $6,500. Therefore, participants in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan who are 50 and older can contribute up to $30,000, starting in 2023. The catch-up contribution limit for employees aged 50 and over who participate in SIMPLE plans is increased to $3,500, up from $3,000.
- The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver’s Credit all increased for 2023.
- Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer’s spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. Reference this information from the IRS for the phase-out ranges in 2023.
Other Tips to Keep in Mind
When you put more of your income towards a 401(k) or similar retirement plan, your taxable income becomes less, reducing your tax payments. Even if you can increase your contribution by a few percent, you can benefit in multiple ways. Talk to your financial advisor about your options and what makes the most sense for your situation.
If you have questions about the information above, or if we can help with your financial planning in any way, call us today at 412-630-6000. Our experienced financial advisors are ready to help.