To help counter a year defined by rattled global and domestic markets and historically high inflation, consumer price and cost-of-living indexes, American workers will be permitted to squirrel away more money into retirement savings plans in 2023.
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The Internal Revenue Service (IRS) has announced increases to the amounts one can contribute to retirement savings in 2023. According to the agency’s news release, the maximum contribution that an employee can make to a 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan (TSP) is $22,500 for the 2023 tax year, an increase of $2,000.
Additionally, maximum Roth or traditional individual retirement account (IRA) contributions are now set at $6,500 (up from $6,000). The IRA catch-up contribution limit (a contribution that allows people aged 50 or older, or who have 15 years of service for a 403(b) plan, to make additional contributions) remains at $1,000, because it is not dependent upon cost-of-living adjustments.
So, those over 50 may contribute $7,500 to their IRA. Those older than 50 holding 401(k), 403(b), most 457 plans and TSP accounts can commit a maximum of $30,000 starting next year. The contribution limit for those who fund SIMPLE plans (tax-deferred, employer-provided Savings Incentive Match Plan for Employees retirement plans) is increased from $3,000 to $3,500, per the IRS.
Income Ranges Change in 2023 To Account for Inflation
For 2023, income ranges (used for figuring out how much you can contribute to traditional and Roth IRAs and benefit from a Saver’s Credit) and phase-out ranges (used for managing deductions and tax benefits), have changed to account for inflation.
The income phase-out range for single taxpayers making contributions to a traditional IRA is increased to between $73,000 and $83,000, up from between $68,000 and $78,000. For married couples filing jointly, the income phase-out range is increased to between $116,000 and $136,000, up from between $109,000 and $129,000 if you have a workplace retirement plan. If you don’t have a workplace retirement coverage, but your spouse does, the limit is between $218,000 and $228,000, up from between $204,000 and $214,000.
For Roth IRAs, the income phase-out range for taxpayers is increased to between $138,000 and $153,000 for singles and heads of household contributing, up from between $129,000 and $144,000. The income phase-out range is increased to between $218,000 and $228,000 for married couples filing jointly, up from between $204,000 and $214,000.
The phase-out for a married individual filing a separate return who makes contributions to a traditional or to a Roth IRA is not subject to an annual cost-of-living adjustment, so the range remains between $0 and $10,000, per the IRS news release.
According to SmartAsset, the Saver’s Credit (also known as the Retirement Savings Contributions Credit) was designed in the early 1990s to help low- and moderate-income individuals save for retirement. New income limits in terms of Saver’s Credit eligibility is $73,000 for married couples filing jointly, up from $68,000; $54,750 for heads of household, up from $51,000; and $36,500 for singles and married individuals filing separately, up from $34,000, per the IRS news release.
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