IRS Sets New 401(k) Limits the Day After Making Huge Tax Announcement

by Emily Morgan
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Photo by: designer491

The IRS recently announced it would allow people to put more money in their retirement accounts days after the agency announced significant inflation increases to tax brackets and deduction payouts for next year.

According to the IRS, in an announcement on Friday, in 2023, people will be able to contribute up to $22,500 in 401(k) accounts and $6,500 in IRAs.

Regarding 401(k)s, that’s nearly a 10% increase from this year’s contribution limit of $20,500. As for your IRAs, it’s a more than 8% rise from this year’s cut-off of $6,000.

When the agency increased the 401(k) contribution limits in 2021, it also reached a roughly 5% increase.

“Given the inflation we have been experiencing recently, the early announcement of this increase is encouraging,” said Rita Assaf after the IRS released the 2023 contribution limits. Assaf is the vice president of retirement products at Fidelity Investments.

According to a study by Fidelity, seven in ten people are “very concerned” about how inflation costs will hurt their preparation for their retirement.

“Every dollar counts, and this increase will provide Americans with the opportunity to set aside just a bit more to help fund their retirement objectives,” she said.

Per experts, contribution limits in 2023 that apply to 401(k)s, as well as 403(b) plans, most 457 plans, and the federal government’s Thrift Savings Plan, are even larger for people over 50.

The IRS notes that catch-up contribution limits increase to $7,500 from $6,500. According to the agency, if you merge the catch-up contributions with the regular contribution limits, workers 50 and over and over can put away $30,000 for retirement in these accounts next year.

Income phase-outs go up regarding possible deductions and contributions

Tax rules such as these can allow people to deduct contributions to traditional IRAs, pending they meet specific requirements tied to issues such as coverage through an employer retirement plan and yearly income.

Above phase-out ranges, deductions don’t apply if a person or their spouse has a retirement plan through work, the IRS noted.

Next year, a single taxpayer with an employer retirement plan has a phase-out range between $73,000 and $83,000. That’s up from a range between $68,000 and $78,000 during this year.

For instance, a married couple can file jointly “if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $116,000 and $136,000,” per the IRS>

If an IRA contributor doesn’t have a workplace plan but their spouse does, “the phase-out range is increased to between $218,000 and $228,000,” the agency added.

New updates are also coming for the Roth IRA, which people fund with after-tax money and then can withdraw tax-free at a later time.

Outsider.com