Your retirement account is designed to help you adequately prepare for retirement, and so the IRS regularly reviews the cost of living in order to make necessary adjustments. These adjustments help you better prepare for the future, while also taking advantage of current tax breaks with regard to your retirement plan contributions.
In 2023, the new contribution limit for 401k, 403b, the federal government’s Thrift Savings Plan, and most 457 plans will increase from $20,500 to $22,500. For those aged 50 and older, the catch-up contribution will also increase from $6,500 to $7,500.
That means those of you with those types of retirement plan, who are age 50 or older, can contribute up to $30,000 in 2023. That also means you can earn a more significant break on your federal income taxes, because the money you contribute to a qualified retirement plan is not taxable.
In addition, the IRA contribution limit will increase from $6,000 to $6,500. Catch-up contributions for those aged 50 and older will remain at $1,000 annually, because these contributions are not subject to cost-of-living adjustments.
Those who participate in a SIMPLE plan can now contribute $3,500 next year, up from $3,000 in 2022.
If you’re still working and preparing for retirement, it usually makes sense to take advantage of all retirement savings opportunities that are available to you. While there is often not much we can do about the impact of inflation upon our current and future budgets, these retirement savings opportunities do allow you to prepare for the future while earning a significant tax break now.
Talk to your retirement planning professional for more information on these accounts, so that you can adjust your contributions accordingly.