They IRS announced a record increase in contribution limits to 401(k) and other tax-deferred retirement plans for 2023.
The IRS has some good news for workers who use traditional or Roth IRAs two save for retirement. In 2023, you’ll be able to contribute an additional $500 to either account. It’s the first increase since 2019, bringing the total annual contribution limit to $6,500. Those age 50 and older can contribute an additional $1,000.
Contributions to tradition IRAs and after-tax Roth IRAs will increase as well – to $6,500 from $6,000 currently, an 8.3% rise. But the IRA catch-up contribution limit remains the same at $1,000.
Workers looking to take maximum advantage of their retirement accounts will be excited that the IRS increased the annual contribution limits on IRAs by $500, bringing the total to $6,500.
Those aged 50 and older can contribute an additional $1,000 as a catch-up contribution, the
same amount as 2022.
“The big news here is the amounts that can be contributed to retirement plans,” Lisa Featherngill, national director of wealth planning at Comerica Bank, told Yahoo Money. “The benefit of saving through a retirement plan is twofold: the current reduction in taxes and the tax-deferred growth inside the plan. Although the funds are taxed when withdrawn, the compounding of the enhanced (tax-deferred) rate of return can mean significantly higher balances than taxable accounts with the same investments.”
Workers who have a 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan can contribute up to $22,500 next year, up from $20,500. That’s a 9.7% increase. For those 50 and over, they can save an additional $7,500, up from last year’s $6,500 catch-up contribution limit. In total, workers who are 50 and older can contribute up to $30,000, starting in 2023.
Additionally, the amount individuals can contribute to a SIMPLE retirement account-which is a retirement account used by small businesses-in 2023 is $15,500, up from $14,000 this year.