Americans can add thousands of USD to their savings in tax-advantaged retirement plans in 2023

IRS to Increase 401(k) Contribution Limit. Source: pexels.com

Millions of Americans can save more in retirement accounts next year, as the Internal Revenue Service has announced some adjustments on Friday. The employee contribution limit for 401(k) and similar workplace plans will increase by $2,000, reaching $22,500 in 2023. That is the largest increase recorded in terms of dollars and percentage.?

The amount taxpayers can contribute to an individual retirement account will rise from $6,000 to $6,500 as well. If you consider the catch-up contribution amount for the account owners aged 50 or older, the maximum sum rises to $7,500. At the same time, the catch-up contribution limit for individual retirement accounts isn’t subject to inflation adjustments and remains at $1,000.

For the employees of those companies that allow special after-tax contributions, and self-employed professionals with individual 401(k)s or SEP retirement plans, the total contribution limit rises by $5,000 to reach $66,000. That includes both employee and employer contributions. When catch-up contributions come in play, older savers can invest up to $73,500 in these plans next year.

Changes in the IRA income thresholds

Besides, the inflation adjustments will change the income thresholds for savings contributions. The income ranges for determining eligibility to make deductible contributions to traditional IRAs, Roth IRAs, and Saver’s Credit all increased for 2023.

The phase?out ranges for traditional IRAs in 2023 are:

• $73,000 – $83,000 for singles and heads of households
• $116,000 – $136,000 for married couples filing jointly
• $218,000 – $228,000 for a saver who is not covered by a workplace retirement plan and is married to someone who is covered

For Roth IRAs, the income range where eligibility phases out is:

• $218,000 – $228,000 for married couples filing jointly
• $138,000 – $153,000 for singles and heads of household

The adjustments are designed to keep retirement savings on pace with inflation.

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