Buzz
It’s tempting to obsessively check your 401(k) when the economy takes a dive (like now), but there’s some positive news from the IRS. And let’s face it, how often do we hear those words together?
401(k) contribution limits, along with other tax-deferred retirement plans, will rise next year to adjust for inflation. Here’s everything you need to know about the biggest contribution limit increase in recent memory and how it will impact your retirement planning.
How to boost your 401(k) savings next year
To give some background, as noted by Money.com, the Treasury Department is legally obligated to raise the contribution limits in response to increases in living expenses. This increase aligns with the IRS's new inflation-adjusted tax regulations (so don't forget to learn how to save on taxes for next year).
At present, participants in 401(k) plans can contribute up to $20,500 (which itself was a $1,000 increase from 2021). Starting in 2023, the contribution limit will rise to $22,500, representing a nearly 10% increase. Additionally, individuals aged 50 and above can contribute an extra $7,500, bringing the total maximum contribution to $30,000.
What if my retirement plan is different from a 401(k)?
The new $22,500 contribution cap also applies to other retirement plans, such as 403(b) plans, most 457 plans, and the Thrift Savings Plan offered by the federal government.
IRAs are seeing an increase too. In 2023, the IRS is raising the contribution limit for both traditional and Roth IRAs to $6,500, a $500 increase over this year's limit.
As highlighted by AARP, pensions are becoming less common, which means that most people are now relying on retirement-focused savings (in addition to Social Security) to fund their retirement. Therefore, these inflation adjustments are crucial, regardless of the type of retirement plan you have.
