New Contribution Limits for 2023!
The IRS has raised contribution limits on employer plans such as 401(k), 403(b) and 457 plans, and (Individual Retirement accounts) IRAs in year 2023 because of recent high inflation data. With inflation averaging 8.2% over the past year, government agencies are implementing changes to account for the higher cost of living. The Social Security administration recently announced an 8.7% cost-of-living adjustment for retirees in 2023.
For year 2023, the annual contribution limit for 401(k)s, 403(b)s, most 457 plans, and Thrift Savings Plans is $22,500, up from $20,500 in 2022. That’s a $2,000 increase!
Individuals above the age of 50 are also eligible for catch-up contributions. This means that these individuals can contribute above the $22,500 limit. The IRS increased the catch-up contribution limit in 2023, from $6,500 in 2022 to $7,500. In total, employees above the age of 50 can contribute up to $30,000 to their employer sponsored plans.
For people who have a retirement account outside of their employer, annual contribution limits have also increased for both Traditional IRAs and Roth IRAs. In 2023, eligible individuals can contribute up to $6,500, up from $6,000, to their IRAs. The IRA catch up contribution limit for individuals 50 and over remains at $1,000.
Roth IRAs have income limits, so individuals making above a certain income threshold may only be eligible for reduced contributions. Individuals who make above the upper range of that threshold are not eligible at all. You can speak to your financial advisor to find out what those income limits are.
If you’re wondering whether you need to contribute more money to your employers sponsored plans, or IRA now, it really depends on your individual finances. If your employer offers to match a percentage of your contributions, your first priority should be contributing enough to earn the match. By not taking advantage of the match, you’re essentially leaving money off the table.
Regardless of how much you can put towards retirement, it’s important to contribute early and on a consistent basis. The sooner you contribute to your retirement accounts, the more time compound interest has to work its magic and help your money grow.
