The IRS rolled out major changes to 401(k) contribution limits last week, including catch-up contributions for workers aged 50 and older. In an Oct. 21 announcement, the tax agency said the amount individuals can contribute to their 401(k) plans will rise to $22,500 in 2023 from $20,500 in 2022. The same increase applies to 403(b) plans, most 457 plans and the federal government’s Thrift Savings Plan.
Those increases are the biggest ever, Forbes reported, citing data from benefits consultant Mercer. The reason they’re so big is because of this year’s soaring inflation rate.
The catch-up contribution limit for employees 50 and over increases to $7,500 in 2023 from $6,500 in 2022. That applies to 401(k) and 403(b) plans, most 457 plans, and the federal government’s Thrift Savings Plan. The increase means participants can contribute a total of up to $30,000 starting in 2023 — a $3,000 boost from 2022.
The $7,500 catch-up contribution limit applies to anyone who turns 50 or older in 2023, according to the Society for Human Resource Management (SHRM).
The catch-up contribution limit for employees aged 50 and over who participate in SIMPLE plans increases to $3,500 in 2023 from $3,000 in 2022. The IRA catch-up contribution limit for workers 50 and over is not subject to an annual cost-of-living adjustment and remains at $1,000.
Catch-up provisions provide a great opportunity for workers 50 and older to contribute more to their retirement savings, according to Principal Financial Group. The provision is especially helpful if you haven’t always been able to contribute the maximum amount in the past. Pre-tax contributions also let you reduce your current taxable income even further.
Another change is that the overall limit (including employer contributions) on how much can go into your 401(k) each year will rise to $66,000 in 2023 from $61,000 in 2022 for workers younger than 50. For those 50 and older, that limit increases to $73,500 in 2023 from $67,500 in 2022.
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