Inflation has taken a huge toll on Americans and the Internal Revenue Service (IRS) has taken steps to adapt to the increase.
Starting in 2023, the IRS will allow you to contribute more than ever to your retirement accounts. Workers will be able to elect for up to $22,500 of salary deferrals to 401(k)plans, 403(b)plans, most 457 plans, and Thrift Savings Plans. If you are age 50 or above, you can elect for an additional $7,500 in catch-up salary deferrals, totaling $30,000 for the year.
If you have an Individual Retirement Account (IRA) outside of your employer, the IRS has you covered as well. The annual contribution limits have increased for both Traditional IRAs and Roth IRAs. Starting in 2023, you will be able to contribute up to $6,500 to IRA/ROTH IRAs. If you are age 50 or older, you can contribute an additional $1,000 in catch-up contributions, totaling $7,500 for the year.
If you have a SIMPLE IRA through your employer, the IRS has increased your contributions limits too. In 2023, you will be able to contribute up to $15,500 to your SIMPLE IRA. If you are age 50 or above, your catch-up contribution limit allows for an additional $3,500, totaling $19,000 for the year.
Employers who are currently contributing to an employee’s SEP-IRA will also receive a contribution increase in 2023. Employers will be able to contribute the lesser of 25% of the employee’s compensation or $66,000 per year. This is an increase of $5,000 from 2022.
For Solo/Individual 401(k) plans, employee contributions will be increased to $22,500 or $30,000 if age 50 or over in 2023. Employer contribution limits will be increased to the lesser of 25% of self-employment compensation or $43,500. This means that a solo 401k participant who is over age 50 will be able to save a total of $73,500 per year beginning in 2023.
Finally, annual contribution limits to Health Savings Accounts (HSAs) have been increased. Individuals and families enrolled in a qualifying health plan will be able to contribute up to $3,850 and $7,750 respectively in 2023.
The chart below summarizes the 2022-2023 Contributions Limits for Retirement Accounts:
1 Includes employee contributions of $20,500 in 2022 and $22,500 in 2023 and employer contributions of up to $40,500 in 2022 and $43,500 in 2022. Employer contributions are limited to 25% of net self-employment income.
2 Includes employee contributions of $27,000 in 2022 and $30,000 in 2023 and employer contributions of up to $40,500 in 2021 and $43,500 in 2023. Employer contributions are limited to 25% of net self-employment income.