2022 is in the rearview mirror, and most people are glad to see it go. It was a year of high inflation and low investment returns, the worst in over a decade. It’s difficult to know if 2023 will be better than its predecessor, but one thing is sure. Regardless of what happens next year, it is still important to keep planning for the future, and that has become easier than ever with some IRS changes for retirement accounts in 2023. Let’s take a look.
Major contribution changes to recognized retirement plans
The most significant changes to retirement plans are the contribution limits. In 2023, employees can contribute $22,500 to their 401(k), 403(b), and Thrift Savings Plans. It’s the same for most 457 plans, too. The new number is a $2,000 increase from 2022.
Even more opportunity is available for those over 50 because the catch-up contribution limit has increased from $6,500 to $7,500. That means employees over 50 can contribute up to $30,000 to their respective retirement funds this year.
403(b) participants may have other catch-up options, as well. If you have a 403(b) and 15 years of service with the same employer, like a public school system, your plan has a deferral limit that can be increased by the lesser of the following options:
- $15,000, reduced by the amount of elective deferrals that were based on this rule and made in prior years.
- $5,000 times the number of the employee’s years of service for the organization, subtracting the total elective deferrals made in previous years.
You should bear in mind all this is contingent upon employers allowing it.
There are also changes to Individual Retirement Accounts
The change in retirement plans is pretty big news, but that’s not the case for IRA contributions. It only goes up $500 from $6,000 to $6,500. If you are over 50, tack on another $1,000. Hardly cause for a mic drop.
There is other fairly significant news about IRA deduction phase-outs. It’s a little involved, though. Here’s how it works. If you have an IRA and are covered by a retirement plan at work, you may still be able to deduct contributions. The same goes for your spouse. “So what?” you might ask. That’s not new, and neither is the fact that these deductions get phased out depending on filing status and income.
Here’s the kicker. The phase-out limit has increased. A lot. The range for single payers in 2022 was $68,000 to $78,000. This year the range is $73,000 to $83,000. If you are married and filing jointly and your spouse makes IRA contributions, that range goes up from $109,000 to $129,000 in 2022 to $116,000 and $136,000 in 2023. For Roth IRAs, the increase is between $138,000 and $153,000 for singles and heads of household, an $11,000 jump from 2022. Married couples filing jointly will see a $14,000 increase in the range. For 2023, it is between $218,000 and $228,000.
Putting it all together
As usual, each person’s financial situation is a little different, and some nuances in this information couldn’t be covered here. So, check with your CPA to ensure you get the whole picture based on your finances. But no matter the case, 2023 is off to a pretty good start from a retirement perspective.
Happy New Year!