After a year filled with historic levels of inflation and stock market volatility, many people are looking forward to a fresh start in 2023. As challenging as this year has been, there is a silver lining to the persistent inflation we’ve all experienced: increased contribution limits to retirement plans. Because the limits are indexed to inflation and inflation has surged over the last 12 months, the 2023 contribution increases are the largest on record. Here’s what you need to know about the 2023 retirement contribution limits and how you can make the most of your savings going forward.
2023 Contribution Limits
The new contribution limits depend on the type of retirement plan you are participating in. Here is the complete list:
- 401(k), 403(b), 457, and TSP plans: Employees can contribute up to $22,500 in 2023, up from $20,500 in 2022. Catch-up contributions for these plans have also been increased to $7,500 (up from $6,500) for those over the age of 50.
- Traditional and Roth IRAs: The contribution limit for IRAs has long remained steady at $6,000, but starting in 2023 you will be able to contribute $6,500 per year, with additional catch-up contributions of $1,000 available for those over the age of 50.
- SIMPLE retirement accounts: Participants can contribute $15,500 in 2023, up from $14,000 in 2022. Catch-up contributions have also been increased to $3,500 (up from $3,000) for those over the age of 50.
Increased Phase-Out Thresholds
Because the contribution limits have increased, the income ranges for determining certain eligibility requirements have also increased. This includes the phase-out thresholds for traditional IRA deductibility and Roth IRA eligibility.
Traditional IRA Deductibility
Traditional IRA contributions are only tax-deductible if taxpayers meet specific criteria. If either you or your spouse was covered by a workplace retirement plan, your deduction may be reduced or phased out entirely depending on your filing status and income.
- For single taxpayers who are eligible for a workplace retirement plan, the phase-out range is now between $73,000 – $83,000 (up from $68,000 – $78,000).
- Couples who are married and filing jointly have two different thresholds to consider:
- If the spouse making the IRA contribution is covered by a retirement plan, the phase-out is between $116,000 – $136,000 (up from $109,000 – $129,000).
- If the spouse making the IRA contribution is not covered by a retirement plan but is married to someone who is, the phase-out range is between $218,000 – $228,000 (up from $204,000 – $214,000).
- For a married taxpayer filing separately who is also covered by a workplace retirement plan, the phase-out range remains the same, between $0 – $10,000.
If neither spouse is eligible for a workplace retirement plan, then these thresholds do not apply.
Roth IRA Eligibility
Roth IRA eligibility is phased out over the following income ranges:
- Single & Head of Household: Between $138,000 – $153,000, up from $129,000 – $144,000
- Married Filing Jointly: Between $218,000 – $228,000, up from $204,000 – $214,000
- Married Filing Separately: Remains unchanged, between $0 – $10,000
If you are ineligible for a direct contribution to a Roth IRA, you could consider a Roth conversion or backdoor Roth.
Make the Most of Your Retirement Savings
Saving for retirement is no small feat, but with the increased contribution limits, it can be a little easier to reach your goals in a tax-advantaged way. At Harvest Asset Group, we’re here to help you make the most of your savings so you can retire with confidence. Call us at (207) 775-1151 or email us at firstname.lastname@example.org to get started today.
Michael Donahoe is the founder and principal of Harvest Asset Group, LLC, an independent, fee-only financial planning and investment management advisory firm in Portland, Maine. Michael enjoyed a successful corporate career in marketing and sales before transitioning to the financial planning profession, founding his firm in 2012, where he now leads the client services team and serves as the firm’s chief compliance officer. Michael earned his MBA degree from George Washington University and completed his educational requirements to earn the CFP® mark of distinction at the University of California, Berkeley. He is a Fee-Only and NAPFA registered financial advisor, a designation which followed the completion of rigorous continuing education requirements. Michael has lived in the Portland area since relocating from San Francisco in 1995 to be closer to family. He is active in community affairs and spends his non-working time enjoying the natural beauty of Maine.