2023 Contribution Limits IncreaseBy Anne Zavaglia
Posted on October 24th, 2022
The IRS announced cost-of-Living adjustments for contribution limits to IRAs, 401(k)s and other qualified plans for 2023 on October 21. COLAs are indexed for inflation and the thresholds have jumped dramatically, much like increase to the 2023 federal income tax brackets. The increase creates an opportunity, particularly for those over age 50, to save more for retirement.
IRA Contribution Limits
The combined annual limit on contributions to traditional and Roth IRAs is $6,500 for 2023, an increase of 8.3% from 2022. The catch-up amount for those age 50 and older is the same at $1,000.
The limit on contributions to a Roth IRA begins to phases out after hitting certain modified adjusted gross income (MAGI) ranges. For individuals who are covered by a workplace retirement plan, the deduction for contributions to a traditional IRA also phase out for certain MAGI ranges.
The limit on non-deductible contributions to a traditional IRA is not subject to a phase-out based on MAGI.
Employer Retirement Plan Contribution Limits
There are limits on how much can be deferred or contributed to workplace retirement plans. Benefits can also not exceed certain limits. The deferral limit increased almost 10% for 401(k)s and the catch up amount for those over 50 increased 15%.
Despite the COLA increases, many people might feel that saving more will be hard to do with increasing costs due to inflation. However, saving for retirement is more important than ever. The inflation we are experiencing now will erode purchasing power in the future if savers aren’t increasing how much they put away for retirement. Inflation may be tamed over the next year or two, but the higher prices will be here to stay.