Days after the Internal Revenue Service announced big inflation-related bumps to tax brackets and standard deduction payouts for 2023, the tax agency is announcing sizeable increases in the amounts of money savers can put in retirement accounts.
People can contribute up to $22,500 in 401(k) accounts and $6,500 in IRAs in 2023, the IRS said Friday.
As added context, the inflation-indexed bumps tax year 2023 income tax brackets and the standard deduction worked approximately 7%.
When the IRS increased the 401(k) contribution limits last year, it came to a roughly 5% rise.
Older workers can save even more
The 2023 contribution limits that apply to 401(k)s — plus 403(b) plans, most 457 plans and the federal government’s Thrift Savings Plan — are even larger for workers age 50 and over.
Catch-up contribution limits rise to $7,500 from $6,500, the IRS said. Combine the catch-up contributions with the regular contribution limits, and workers age 50 and over can sock away $30,000 for retirement in these accounts during 2023, the agency said.
Income phase outs increase when it comes to possible deductions
Tax rules can let people deduct contributions to traditional IRAs so long as they meet certain conditions, pegged to issues like coverage through workplace 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.
For 2023, a single taxpayer covered by a workplace 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 2022.
For a married couple filing 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,” the IRS said.
If an IRA saver doesn’t have a workplace plan but their spouse is covered, “the phase-out range is increased to between $218,000 and $228,000,” the agency noted.