Get Ready: Large Increase in 401(k) Contribution Limits for 2023
We have all felt the impacts of inflation in 2022. However, there is a glimmer of hope for aggressive retirement savers. Because 401(k) contribution limits are tied to the CPI (consumer price index), which has increased significantly in 2022, savers may reap the benefits.
In this article, you will learn:
Inflation data drives the largest 401(k) dollar contribution limit increase since the rate was tied to inflation in 2007
2023 contribution limits will rise $2,000 to $22,500
Those age 50 or older will not have combined limits of $30,000 per year, including catch ups
IRA contributions will increase to $6,500 in 2023
What's Happening with 401(k) Contribution Limits in 2023
For those who take advantage of 401(k) savings vehicles, the IRS has shared that the annual 401(k) contributions limits for 2023 will increase by $2,000. As a quick recap, in 2022, the 401(k) contribution limit is currently set at $20,500 and those age 50 and older can contribute an extra $6,500 "catch-up" contribution. For those who are able to, the limit will rise to $22,500 or a total of $30,000/year limit for those who age 50 and up as the “catch-up” contribution is also increasing to $7,500 for 2023.
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Remember that there is also a total maximum contribution limit between you and your employer. Those who are highly compensated or have the ability to contribute to the "after-tax" portion of their 401(k) have a total 401(k) contribution limit between all parties set at $61,000 for the year 2022.
401k limits are just one area impacted by higher inflation. Those receiving Social Security benefits are also expected to receive a COLA (cost of living adjustment) for 2023, the highest social security recipients have seen in a very long time. IRA contributions will also increase slightly for 2023, increasing from $6,000 today to $6,500 in 2023. (There is also an additional $1,000/year for those age 50 and older, the same as 2022).
Stay tuned for more to be announced around contribution limits for 2023 later this year. In the meantime, if you have any questions about how this may impact your specific financial plan, please get in touch with us below!