Increase in Contribution Limits to Tax-Deferred Retirement Savings Plans
The following is a video of an interview with paralegal Brandi Litteral and attorney Jonathan Mishkin. In this interview, they discuss the recent increase in contribution limits to tax-deferred retirement plans and cost-of-living adjustments for tax year 2023.
Today Jonathan will discuss the recent increase in contribution limits to tax-deferred retirement savings plans and cost-of-living adjustments for tax year 2023.
Hi Jonathan, what do we need to know about the contribution limit increase and cost of living adjustments?
Jonathan: The IRS announced today that they are raising the amount individuals can contribute to their 401(k), 403(b), most 457 plans, or Thrift Savings Plan for federal employees.
The IRS also issued technical guidance regarding all of the cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2023.
401(k), 403(b), most 457 plans, and Thrift Savings Plans
The amount individuals can contribute to their 401(k), 403(b), most 457 plans, or the Thrift Savings Plan for federal employees, in 2023 has increased to $22,500.
That’s $2,000 – or roughly 9.8% – more than the current $20,500 federal contribution limit. The jump is largely due to inflation, to which the contribution limits are indexed.
The catch-up contribution in 401(k) 403(b), most 457 plans, and the federal government’s Thrift Savings will rise to $7,500, up 15.4% from $6,500 today.
That means if you’re 50 or older you can contribute up to $30,000 in 2023. And that doesn’t count any matching contributions your employer may kick in.
Traditional and Roth IRAs
Deductible contributions to traditional IRAs and after-tax Roth IRAs will increase as well – to $6,500 from $6,000 currently, an 8.3% rise. But the IRA catch-up contribution limit stays the same at $1,000.
To put any money in a Roth in 2023 your modified adjusted gross income must be below $153,000 ($228,000 if married and filing jointly). That’s up from $144,000 ($214,000 for joint filers) currently.
For traditional IRAs, to get to deduct at least some of your contributions your modified AGI must be below $83,000 ($136,000 for joint filers) next year, up from $78,000 ($129,000 for joint filers) this year.
If you personally don’t have access to a workplace plan but your spouse does, then your modified AGI must be less than $228,000, up from $214,000 currently, to get some deduction for your IRA contributions.
Brandi: If you need assistance with tax planning or resolving your tax issue, please log onto www.jmishkinlaw.com to schedule a consultation with Jonathan.