The IRS has announced new contribution limits for tax-advantaged retirement plans. Here's what to know about IRA and Roth 401(k) contribution limits for 2023.
Income phaseouts for IRAs also increased for 2023
Every year, the Internal Revenue Service (IRS) reviews inflation and other factors to determine the contribution limits for tax-advantaged retirement plans. Some years they remain unchanged. But other years, the IRS makes cost-of-living adjustments (COLAs) to the amount you can set aside in your 401(k) and individual retirement account (IRA).
For 2023, the changes have been significant. Here’s what you need to know about 401(k) and IRA contribution limits for 2023 and how you can make the most of your retirement savings.
For the coming year, the IRS has raised the contribution limit on your IRA to $6,500, up from the previous $6,000.
Keep in mind that the contribution limit applies to all your combined IRAs, so if you have a Roth IRA and a traditional IRA, your combined contributions to both accounts can’t exceed $6,500. The catch-up contribution for those 50 and older is not subject to COLAs and remains the same at $1,000.
For 401(k)s, the 2023 contribution limit will increase to $22,500, up from $20,500 for 2022. This contribution limit also applies to 403(b) and most 457 plans and the federal government’s Thrift Savings Plan. The catch-up contribution available to those 50 and older is now $7,500 up from the previous $6,500.
One benefit of a traditional IRA is you can typically deduct your contributions. However, if you have a retirement plan at your work, or if your spouse does, the ability to deduct your IRA contributions phases out depending on your income and filing status. When you reach a certain income level, you can still take a deduction, but not the full amount. After you reach the upper phaseout limit, you can’t claim a deduction at all for IRA contributions.
In 2023, the income restrictions are:
If you have a plan from your workplace, most likely a 401(k), you have a better chance to claim a deduction for contributions to an IRA, providing a greater incentive to use more than one type of a tax-advantaged retirement account.
It’s important to note the income limits for Roth IRA contributions have also increased slightly for 2023. You can contribute to a Roth IRA with income phaseouts based on your income and filing status.
If you’re married and filing separately, the income phaseout range for making Roth IRA contributions remains zero to $10,000.
If you have the flexibility to take advantage of the higher IRA and 401(k) contribution limits as well as the increased catch-up amounts for those older than 50, that’s at least one good side to our inflationary times.
If you aren’t maxing out your retirement account contributions, you do have room to increase what you set aside. Consider speaking with your human resources department about having a little more taken out of each paycheck and diverted to a 401(k) or IRA. Although it might not seem like much today, when compound returns are figured over the course of decades, the extra boost could make a significant difference to your overall portfolio.
Another strategy, if you qualify, is to consider contributing to a Health Savings Account (HSA) to take advantage of those tax benefits. Additionally, when used as part of a retirement strategy, your HSA can help you pay for health care costs or even serve as a backup IRA when you reach age 65.
Consider speaking with a retirement consultant about how you can make the most of your future based on the types of accounts you’re qualified to contribute to. In some cases, a strategy that uses both traditional and Roth accounts, in addition to a 401(k), can increase the overall tax efficiency of your retirement portfolio. A holistic approach can help you make sure your retirement goals fit with your other financial objectives. Consider sitting down with a retirement professional for an outside perspective on your approach and to help keep you on track.
Do Not Sell or Share My Personal Information
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
TD Ameritrade does not provide tax advice. We suggest you consult with a tax-planning professional with regard to your personal circumstances.
Maximum contribution limits cannot be exceeded. Contribution limits provided are based on federal law as stated in the Internal Revenue Code. Applicable state law may be different. TD Ameritrade does not provide legal or tax advice. Please consult your legal or tax advisor before contributing to your IRA.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2023 Charles Schwab & Co. Inc. All rights reserved.