Retirement and Taxes: How Your 401(k) and IRA Could Be Impacted by 2023 Tax Changes
Although 2023 is entering its final stretch, there are still things you need to know about this year’s tax changes that can impact your retirement accounts. For the most part, the changes are designed to boost your ability to save money for retirement by increasing certain thresholds.
One of the biggest changes has to do with 401(k) contributions. The amount individuals can contribute to their 401(k) plans in 2023 rose to $22,500 from $20,500 in 2022, according to the IRS, meaning you can sock away more money in your nest egg. The new limit also applies to 403(b) plans, most 457 plans and the federal government’s Thrift Savings Plan.
Changes were also implemented for IRA plans. The limit on annual contributions to an IRA increased to $6,500 in 2023 from $6,000 in 2022. The IRA catch-up contribution limit for individuals ages 50 and over, which is not subject to an annual cost-of-living adjustment (COLA), stayed at $1,000 in 2023.
Here are other changes in 2023 involving catch-up contribution limits:
- The catch-up contribution limit for employees ages 50 and over who participate in a 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan rose to $7,500 from $6,500 in 2022. This means participants in these plans who are 50 and older can contribute up to $30,000 this year.
- The catch-up contribution limit for employees ages 50 and over who participate in SIMPLE plans increased to $3,500 from $3,000.
In addition, the income ranges for determining eligibility to make deductible contributions to traditional IRAs and Roth IRAs, and to claim the Saver’s Credit all increased for 2023.
According to the IRS, taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. For example, if during the year either you or your spouse was covered by a retirement plan at work, the deduction can be reduced or phased out until it is eliminated, depending on filing status and income. If neither you nor your spouse is covered by a retirement plan at work, the phase-outs of the deduction don’t apply.
Here are the phase-out ranges for 2023:
- For single taxpayers covered by a workplace retirement plan, the phase-out range rose to $73,000 to $83,000 in 2023, up from $68,000 to $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 increased to $116,000 to $136,000 in 2023 from $109,000 to $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 rose to $218,000 to $228,000 in 2023 from $204,000 to $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 COLA and remained between $0 and $10,000.
- The income phase-out range for taxpayers making contributions to a Roth IRA increased to between $138,000 and $153,000 for singles and heads of household, up from between $129,000 and $144,000 in 2022.
- For married couples filing jointly, the income phase-out range increased to between $218,000 and $228,000, up from between $204,000 and $214,000.
- The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual COLA and remained between $0 and $10,000.
The income limit for the Saver’s Credit for low- and moderate-income workers — also known as the Retirement Savings Contributions Credit — rose to $73,000 for married couples filing jointly in 2023, up from $68,000 in 2022. For heads of household, the limit rose to $54,750 from $51,000. For singles and married individuals filing separately, the limit rose to $36,500 in 2023 from $34,000 in 2022.
The amount individuals can contribute to their SIMPLE retirement accounts increased to $15,500 from $14,000.
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