IRS Retirement Guidelines for 2023

Last week, the IRS released updated 2023 inflation-adjusted contribution and phase-out limit guidelines for various retirement accounts.

Under the new 2023 guidelines, the amount an employee can contribute to a 401(k), 403(b), and the majority of 457 plans has increased from $20,500 to $22,500. Catch-up contributions, which allow individuals 50 and older to contribute an additional amount to their employer-sponsored retirement accounts, will also increase from the annual cap of $6,500 to $7,500. Further, employer matching and profit-sharing will now have an upper limit of $66,000, up from the 2022 cap of $61,000.

The new cost-of-living adjustments to retirement accounts serve savers and investors well. If investing, a 30-year-old individual with a retirement goal of 65 who can maximize their 401(k), 403(b), or 457 plan with the new upward limit of $22,500 will generate approximately $630,000 in additional retirement funds by 65.

For those eligible for catch-up contributions, the new upper limits allow individuals 50 and over to save a total of $30,000 per year, which allows for an increased retirement benefit of approximately $86,000 for savings made between ages 50 and 65.?

What’s more, the IRS has also raised maximums to IRA contributions for the 2023 tax year. Individuals who were previously eligible to contribute $6,000 per year will now be eligible to contribute $6,500. Those eligible for catch-up contributions to their IRA’s will maintain the 2022 limit of $1,000 in 2023.

The IRS also introduced new upper limits by which individuals and married couples can qualify for Roth IRA’s and maximize their tax-deferred and ultimately tax-free retirement base. Under the 2023 guidance, single filers earning under $138,000 will be eligible to contribute the full Roth contribution of $6,500 while those earning between $138,000-153,000 (up from $129,000-$144,000 in 2022) will be eligible for a reduced contribution. Likewise, a married couple filing jointly earning under $218,000 is eligible to contribute the full Roth IRA cap of $6,500 each, while couples earning between $218,000-$228,000 (up from $204,000-214,000 in 2022) are eligible for a reduced contribution.?

Finally, the IRS made significant cost-of-living allowances for IRA deductibility. Historically, those who partook in their employer’s 401k plan would forgo deductibility of Traditional IRA contributions. In 2023, Individuals who are active participants in employer-sponsored retirement plans are eligible to deduct their contributions to an IRA if their earned income is between $73,000-$83,000 (single) and $116,000-$136,000 (married filing jointly). This is up from the 2022 phase-out limits of $68,000-$78,000 and $109,000-$129,000, respectively.

Specifics on these and other retirement adjustments for 2023 are in?Notice 2022-55PDF, available on IRS.gov.