401k Contribution Limit Increase 2023

401(k) plans remain one of the most popular retirement plans available. They offer a variety of investment options, the potential for steady growth, and even some tax benefits.

While the government limits the amount of money you can contribute to your 401(k) account in a year, they regularly increase this limit to meet the cost of living.

And this year, we’re seeing the biggest 401(k) contribution limit increase ever.

401k increase 2023

The 401(k) contribution limit for 2023 is $22,500. This is up nearly 10% from 2022’s limit of $20,500.

The $22,500 limit also goes into effect for other defined contribution retirement plans, such as 403(b) plans and most 457 plans.

Those 50 and older will receive increases to their catch-up contribution limit, too. The new limit for these contributions increases to $7,500, up from last year’s $6,500. These two increases together mean retirement savers over 50 can contribute up to $30,000 to their 401(k) this year!

The large increase is actually thanks in part to inflation. 401(k) contribution limits have been indexed to inflation since 2007. So, while inflation can impact retirement in ways we don’t want, the sharp rise in inflation over the past year has given us the biggest 401(k) contribution limit increase ever.

Does employer match affect my contribution limit?

Many employers offer 401(k) match programs. When you enroll in one of these programs, your employer contributes their own money to your 401(k). How much they contribute depends on how much they offer to match and how much you contribute. Most employers match anywhere between 2-5% of your 401(k) contributions.

This is free money that goes directly into your account each time you contribute. As an added bonus, your employer’s contributions don’t count toward your annual contribution limit. So, even if you contribute your full $22,500, you still receive your employer’s matching contributions.

What about IRAs?

The contribution limits for individual retirement accounts (IRAs) will increase as well. In 2023, the IRA contribution limit is $6,500 (up from the previous year’s $6,000). The catch-up contribution limit for IRAs remains unchanged, holding steady at $1,000.

If you have a SIMPLE IRA, your contribution limit increases to $15,500, up from 2022’s $14,000. SIMPLE account catch-up contribution limits increase to $3,500, over last year’s $3,000.

Are there new phase-out ranges?

Phase-out ranges for IRAs are going up in 2023, too. These are income limits that affect the way you can contribute to your IRA plans. Phase-out ranges offer tax benefits to lower- and middle-income earners while preventing high-income earners from taking advantage of tax breaks.

Phase-out ranges affect Traditional and Roth IRAs differently.

Traditional IRA phase-outs 2023

Phase-outs for Traditional IRAs affect your tax deductions. Because Traditional IRA contributions are tax deferred, you can actually deduct your contributions from your taxable income. This could lower your income taxes for the year.

Traditional IRA phase-outs reduce your ability to deduct your contributions based on your annual income. The new phase-out income limits for Traditional IRAs in 2023 are:

• $73,000-$83,000 for those filing taxes as a single individual
• $116,000-$136,000 for couples filing jointly, if the one contributing to the IRA is covered by a workplace retirement plan
• $218,000-$228,000 for couples filing jointly if the one contributing is not covered by a workplace plan, but their spouse is
• $0-$10,000 for married couples filing separately

Each of these income ranges affects your deductions differently. Some may make full deductions, some partial deductions, with others making no deduction at all.

A tax advisor can help you more accurately determine how much your contributions impact your yearly tax bill.

Roth IRAs

Phase-out ranges for Roth IRAs impact your contribution limits. This is because Roth IRA contributions are post-tax. Because you pay taxes on your income before you contribute to a Roth IRA, your investment and earnings can both experience tax-free growth. Income limits help prevent the highest earners from using Roth IRAs to avoid a tax burden for their investment gains.

The 2023 phase-out ranges for Roth IRAs are:

• $138,000-$153,000 for single filers and head-of-households
• $218,000-$228,000 for married couples filing jointly
• $0-$10,000 for married couples filing separately

Each phase-out range limits how much money you can contribute to your Roth IRA. The exact amount you can contribute depends on your personal income. A financial advisor can help you calculate your specific contribution limits.

What about COLAs?

Each year, the IRS increases the monthly benefits for Social Security recipients. These are cost-of-living adjustments, or COLAs.

This year, COLAs are going up to meet rising inflation. The COLA for 2023 is 8.7%. This raises the average Social Security recipient’s monthly benefit by about $146.