Are you currently maxing out your 401k savings? Or do you utilize your own personal IRA to save for retirement? If so, you will want to make sure to review your contributions and increase the amount starting in 2023.
The IRS announced cost of living adjustments last week for retirement plan contributions. The good news is that you will be able to save more for retirement! In fact, the increased contribution amounts are the largest increase in history.
The amount you can contribute to your 401k or workplace retirement account through elective deferrals increased from $20,500 to $22,500. Additionally, the catch-up contribution for those over age 50 increased from $6,500 to $7,500. The total contribution amount for other defined contribution plans (SEP IRAs, Solo 401ks, and after-tax contributions to 401ks) increased from $61,000 to $66,000 for high earners and dedicated savers. SIMPLE IRA contributions limits increased to $15,500 from $14,000 in 2022.
In addition to the increased amounts, the income phaseout range increased for eligibility to make Roth IRA contributions. In 2022, the income phaseout range for Roth IRA contributions was $204,000-$214,000 of modified adjusted gross income (for those Married Filing Jointly), but now the range is $218,000-$228,000. Similarly, the income phaseout was increased for those making deductible IRA contributions.
Below is a chart that outlines all the changes announced by the IRS. Even If these limits seem unattainable, it is important to review your contribution rate every year to see if you can increase your savings. If your employer has a company match, make sure to contribute enough to take advantage of the free money. If you have any questions about the new contribution limits and how it affects you, please don’t hesitate to contact a CERTIFIED FINANCIAL PLANNER™ at Thrive Wealth Management.