Each year, the IRS sets a contribution limit for IRAs and 401(k), 457(b), and 403(b) plans, along with some other miscellaneous types of plans. These limits dictate how much money an employee (not employer) can contribute to the account in question.
According to 401k Specialist Mag, the 401(k) limit is expected to rise from $20,500 in 2022 to $22,000 in 2023. The ‘catch-up’ limit is also expected to rise from $6,500 to $7,500 for those employees over 50.
This could be huge news for workers. An extra $1,500 toward retirement accounts may not seem like much, but if you maintain that extra $1,500 over 10 years with a 10% return, you could net roughly $28,000. Not a bad return for a small contribution increase.
IRA limits are currently at $6,000, which is equal to the 2021 limit. While I am unable to find projections for the 2023 IRA limit, it would seem that a modest increase of $500 is pretty likely based on the inflationary trend we’re seeing around the country. I’ll be sure to post the new limits once they’re publicized by the IRS.
HSA limits announced in April
The IRS announced Health Savings Account (HSA) limits for 2023 back in April. Starting in January of 2023, the ‘self only’ limit will increase from $3,650 to $3,850, and the ‘family plan’ limit will move from $7,300 to $7,750. Remember, HSAs give a triple-tax advantage, making these one of the best hybrid accounts for medical expenses/retirement.
What this means for you
In short, the IRS increasing the contribution limits gives you an opportunity to defer taxes. If you’re in the 22% bracket, the extra $1,500 contribution can give you a tax savings of approximately $330. This may not seem like much, but it will add up over the course of a career.
Don’t forget – if you’re making traditional contributions these funds will be taxable upon withdrawal in retirement. If you’re making Roth contributions, those are taxable today and will be withdrawn tax-free in retirement.
Slow and steady wins the race
I’ve talked about this before and I can’t stress it enough: start making small strides to increase your retirement contributions. Saving $200 a month for your entire career WILL NOT yield large enough results to retire comfortably. If you’re getting a raise in 2023, I would strongly encourage you to apply that raise to your 401(k) contribution, rather than adding it to your “spending money”. It’s always best to get in the habit of saving first.