In October 2022, the Internal Revenue Service (IRS) announced contribution limitation adjustments for employee retirement plans in response to inflation.
The IRS issued Notice 2022-55, which describes cost-of-living adjustments for retirement and pension plans. The changes are effective January 1, 2023.
Beginning in 2023, workers’ maximum allowed contributions to 401(k), 403(b), 457 plans or, for federal employees, the Thrift Savings Plan will increase to $22,500 from $20,500.
The catch-up contribution limit for employees 50 years and older will increase to $7,500 from $6,500. So, if you are working and are aged 50 or older, you can contribute up to $30,000 ($22,500 + $7,500 = $30,000) to these types of retirement accounts in 2023 in addition to your employer’s contributions.
Employees with individual retirement arrangement (IRA) accounts may contribute up to $6,500 in 2023. The annual cost-of-living adjustment will not apply to the IRA catch-up contribution limit for workers 50 years or older; their limit remains $1,000.
The catch-up contribution limit for SIMPLE plans increases to $3,500 from $3,000 for workers aged 50 and older in 2023.
Your annual income level also affects how much you can contribute to certain types of investment accounts. The IRS, which outlines these “phase-out” ranges, announced several changes to the phase-out ranges for traditional and Roth IRAs.
In 2023, if a taxpayer or their spouse has a workplace retirement plan, an IRA contribution can be reduced until it reaches $0. Again, applicability depends on income.
The IRS also announced changes to the qualifying income limit for the Saver’s Credit. The following are the new income limits that will apply starting in 2023:
More retirement protections in response to inflation may be coming. In March 2022, the House of Representatives passed the SECURE Act 2.0. If Congress passes this bill, workers 50 and up will have more opportunities to increase their retirement savings.