Many savers hoping to be able to sock away more money in retirement accounts in 2023 than they could in 2022 are in luck.
Most contribution limits for common workplace retirement accounts and individual retirement accounts (IRAs) are subject to inflation adjustments, also known as cost-of-living adjustments. And for the 2023 tax year, every such contribution limit will jump, the IRS announced Oct. 21.
Additionally, income limits for IRAs are rising.
All of these changes will affect your tax return that is due by April 2024.
Base limits for 5 workplace plans rise
For 2023, the base contribution limit for the following types of workplace retirement accounts is rising from $20,500 to $22,500:
- 401(k) plans
- 403(b) plans
- Most 457 plans
- Thrift Savings Plan
Additionally, the base contribution limit for Savings Incentive Match Plan for Employees (SIMPLE) retirement accounts is rising from $14,000 to $15,500.
Catch-up limits for 5 workplace plans rise
Each year, folks who are 50 or older can save more money in their tax-sheltered retirement accounts by also making extra contributions, known as “catch-up contributions.”
For 2023, the catch-up contribution limit for the following types of workplace retirement accounts is rising from $6,500 to $7,500:
- Most 457 plans
- Thrift Savings Plan
This means that someone who is at least 50 years old can contribute $22,500 plus $7,500 to those types of accounts — for a total of $30,000 — in 2023.
The catch-up contribution limit for SIMPLE retirement accounts is rising from $3,000 to $3,500.
Base limit for IRAs rises
The base contribution limit for Roth and traditional IRAs is rising from $6,000 to $6,500.
Catch-up limit for IRAs unchanged
The catch-up contribution limit for Roth and traditional IRAs also remains the same: $1,000.
The IRS notes that this is because the catch-up limit for IRAs is not subject to cost-of-living adjustments, unlike various other types of retirement accounts.
Income limits for Roth IRAs determine whether you’re eligible to contribute to such an account at all.
The income phase-out ranges for Roth IRA contributions will increase as follows for 2023:
- Single tax-filing status: $138,000 to $153,000 — up from $129,000 to $144,000
- Head of household tax-filing status: $138,000 to $153,000 — up from $129,000 to $144,000
- Married couple filing a joint return: $218,000 to $228,000 — up from $204,000 to $214,000
- Married individual filing a separate return: $0 to $10,000 — unchanged (because it is not subject to cost-of-living adjustments)
This means that, for example, a single taxpayer who earns less than $138,000 in 2023 can contribute to a Roth IRA up to the full limit — $6,500 or $7,500, depending on the taxpayer’s age. But a single taxpayer who earns $138,000 to $153,000 can contribute only a reduced amount. A single taxpayer who earns more than $153,000 cannot contribute to a Roth IRA.
Income limits for traditional IRAs determine whether you can make tax-deductible contributions to such an account.
These limits depend not only on your tax-filing status and income but also on whether you or your spouse is covered by a workplace retirement account. For specifics, see the bullet points in the IRS’ Oct. 21 announcement.
Wondering how else traditional and Roth IRAs differ? Check out “Which Is Better — a Traditional or Roth Retirement Plan?“
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