Each year, the IRS sets the contribution limits for 401(k)-style plans, and Individual Retirement Accounts (IRAs). These increases are based on inflation, and this year, we’ve experienced quite a bit of that. HSA plans also received an increase announcement earlier in 2022, for those of you wondering.
401(k), 403(b), and 457(b)
The 2023 contribution limit for these plans is now $22,500 for the employee, with a $7,500 catch-up contribution for individuals over age 50. These are increased from $20,500 and $6,500 in 2022. The total limit for employer and employee contributions is $66,000, up from $61,000 in 2022. This combined limit jumps to $73,500 for those over 50.
Start thinking about what you want to contribute in 2023 to maximize your retirement savings. The chart below can help you calculate your maximum contribution based on your pay schedule.
For Traditional and Roth IRAs, the contribution limit is increasing from $6,000 to $6,500, while the catch-up of $1,000 remains the same from 2022. Don’t forget, Roth IRAs also have income limits that could restrict your ability to contribute directly to a Roth IRA.
Increase Savings Annually
Regardless of these IRS rule changes, you should personally aim to increase your savings rate each year. If you can’t do this via these plans, you can open a brokerage account which allows unlimited contributions. For a brokerage account, one would be best served by Vanguard, Fidelity, or Schwab.
If you start planning now, 2023 can be a great year!