Investing as much as possible in as many different ways could pay off immensely in the future. As of 2023, the maximum amount that can be contributed to a retirement plan will be raised by the Internal Revenue Service (IRS), allowing you to save more.
You’ll need to know the retirement plan contribution limit for 2023 tax planning purposes. In 2022, the IRS announced that 401(k) and IRA contributions could be much higher than in previous years.
Plans under 401(k), 403(b), 457, and TSP:
The cap for employee contributions to 401(k) plans, 403(b) plans, most 457 plans, and the federal government’s Thrift Savings Plan has increased to $22,500, up from $20,500. In 2022, the age-based catch-up contribution ceiling for employees aged 50 and older will rise to $7,500 from $6,500.
Investment Plans for Employees:
The annual contribution maximum to a Simplified Employee Pension (SIMPLE) account for self-employed individuals has increased to $15,500 from $14,000. Workers aged 50 and older will also increase from $3,000 to $3,500 in the catch-up contribution maximum.
401(k) Plans vs Inflation.
There is now a $6,500 yearly cap on IRA contributions, up from the previous $6,000 cap. It is important to note that the $1,000 annual cap on catch-up contributions for those 50 and older is not adjusted for inflation.
Contributions to a regular IRA may be tax deductible under certain circumstances. On the other hand, let’s say that during the year, the taxpayer or their spouse was eligible for a workplace retirement plan. Therefore, the deduction may be lowered or phased out until it is eliminated based on the taxpayer’s filing status and income.
The deduction’s phase-out amounts do not apply if an employer-sponsored retirement plan does not cover the taxpayer or their spouse. The phase-out range for single filers participating in a corporate retirement plan has increased from $68,000 to $78,000 to $73,000 to $83,000. The income threshold at which an individual begins to pay taxes on an IRA contribution made by their spouse, who is covered by an employer-sponsored retirement plan, rises to $116,000 from $129,000 for married couples filing jointly.
In 2019, the income threshold at which the IRA deduction begins to be phased out for a married couple in which a corporate retirement plan protects neither member was $218,000. The phase-out range does not change from zero to ten thousand dollars per year to account for inflation for a married person filing a separate return who participates in a corporate retirement plan.
Conversion to a Roth Individual Retirement Account:
Roth IRA contribution phase-out ranges for single filers and those filing taxes as heads of household are raised to $138,000 and $153,000, respectively, from $129,000 and $144,000. The income threshold at which the phase-out begins has been submitted for joint filers from $204,000 to $214,000.
For a married person who files their taxes as a single taxpayer, the phase-out range for Roth IRA contributions is unaffected by inflation and remains between $0 and $10,000.
Saver’s Credit (also called Retirement Savings Contributions Credit) income limits for low and moderate-income workers have increased to $73,000 for married couples filing jointly, from $68,000; to $54,750 for heads of household, from $51,000; and to $36,500 for singles and married individuals filing separately, from $34,000.
Retirement policies are frequently updated. It’s costly to make mistakes. Consult an expert if you need help figuring something out.