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New Retirement Contribution Limits for 2023

New Retirement Contribution Limits for 2023

October 28, 2022

The Internal Revenue Service has released new limits for the coming year. After months of high inflation and financial uncertainty, some of these cost-of-living-based adjustments have reached near-record levels.

Individual Retirement Accounts (IRAs)
IRA contribution limits are up $500 in 2023 to $6,500. Catch-up contributions for those over age 50 remain at $1,000, bringing the total limit to $7,500.

Roth IRAs
The income phase-out range for Roth IRA contributions increases to $138,000-$153,000 for single filers and heads of household, a $9,000 increase. For married couples filing jointly, phase-out will be $218,000 to $228,000, a $14,000 increase. Married individuals filing separately see their phase-out range remain at $0-10,000.

401(k), 403(b), 457 plans - Workplace Retirement Accounts
Those with 401(k), 403(b), 457 plans, and similar accounts will see a $2,000 increase for 2023, the limit rising to $22,500. Those aged 50 and older will now have the ability to contribute an extra $7,500, bringing their total limit to $30,000.

SIMPLE Accounts
A $1,500 increase in limits for 2023 gives individuals contributing to this incentive match plan a $15,500 stop light.

Defined Contribution Plans
Not all plans allow for this, but within a defined contribution plan such as a 401(k), while the maximum traditional tax-deferred or Roth contribution is listed above, the total contribution limit for both employee and employer contributions under section 415(c)(1)(A) increased from $61,000 to $66,000, or up to $73,500 if you are 50 or older. This means that anything an employee contributes beyond the $22,500 limit ($30,000 if over 50) will not get the tax advantage of a deduction in the year it's contributed, or be classified as Roth and never taxed again. Employer contributions will still be tax-deferred, but anything extra the employee contributes will be 'post-tax non-Roth', meaning that these dollars will be taxed twice - when they are put in, as well as when they are taken out. A loophole, if your employer's retirement plan provider allows for this, is to perform a Roth Conversion with that amount, but you will want to confirm this is possible before contributing as even fewer plans allow for this.

SEP IRAs and solo 401(k)'s
The total contribution limit for the self-employed that have a solo 401(k) or SEP IRA has increased by $5,000 up to $66,000, but there is a calculation to determine if you quality to contribute up to the limit. The calculation remains the same in 2023 and is determined by the lesser of either $66,000, or 25% of 'earned income' - so if your earned income is $200,000 (after subtracting half of your self-employment tax and the contributions to the plan you made for yourself to calculate 'earned income'), the maximum contribution to your solo 401(k) or SEP would be $50,000 - roughly 20% of total income. The limit of compensation that can be used to calculate your contribution is $330,000 in 2023.

Other Changes
In addition to changes in contributions limits, the IRS also announced several other changes for 2023, including an increase to the annual exclusion for gifts to $17,000 per person and an increase to the estate tax exclusion threshold.

Keep in mind that we provide updates for informational purposes only, so consult with your tax professional before making any changes in anticipation of the new 2023 levels. You can also contact our offices, and we can provide you with information about the pending changes.