Jhe IRS announced a record increase in contribution limits to 401(k) and other tax-deferred retirement plans for 2023.
The IRS has good news for workers who use Roth IRA to save for retirement. In 2023, you will be able to contribute an additional $500 to either account. This is the first increase since 2019, bringing the total annual contribution limit to $6,500. People age 50 and over can contribute an additional $1,000.
Contributions to tradition IRA and after-tax Roth IRAs will also increase – to $6,500 from $6,000 currently, an increase of 8.3%. But the IRA’s catch-up contribution limit remains the same at $1,000.
Workers looking to get the most out of their retirement accounts will be pleased that the IRS has raised annual contribution limits on IRA of $500, bringing the total to $6,500.
People aged 50 and over can contribute an additional $1,000 as a catch-up contribution, the
same amount as in 2022.
“The big novelty here is the amounts that can be contributed to pension plans,” Lisa Featherngill, national director of wealth planning at Comerica Bank, told Yahoo Money. “The benefit of saving through a retirement plan is two-fold: the current reduction in taxes and the tax-deferred growth within the plan. Although the funds are taxed upon withdrawal, the compounding enhanced (tax-deferred) rate of return can mean significantly higher balances than taxable accounts with the same investments.”
Contribution increases
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 before. That’s a 9.7% increase. Those 50 and older can save an additional $7,500, up from last year’s $6,500 catch-up contribution limit. In total, workers age 50 and older can contribute up to $30,000 starting in 2023.
Additionally, the amount that individuals can contribute to a SIMPLE retirement account – which is a retirement account used by small businesses – in 2023 is $15,500, down from $14,000 this year.