One benefit of inflation is the IRS’ increased retirement plan contribution limits, which have risen for 2023 along with the consumer price index (CPI).

The 2023 contribution limits are:

• IRAs – Traditional and Roth: the 2023 annual contribution limits rise to $6,500 from $6,000 for those under 50, while those age 50+ can contribute an additional “catch-up” of $1,000 per year, for a total contribution limit of $7,500. Note that this limit applies to all IRAs held by a single taxpayer, not each individual IRA – i.e., if you want to contribute to more than one IRA in 2023, the total amount contributed cannot be more than the limit for your age ($6,500 or $7,500, depending on whether you are over or under 50).
• SEP IRAs – the contribution limit for 2023 (made by the employer on behalf of an employee is the lesser of 1) 25% of the employee’s compensation (with some minor adjustments), or 2) $66,000 per employee (an increase from the 2022 limit of $61,000), with an adjustment for 50% of the self-employment tax. No catch-up contributions are permitted.
• SIMPLE IRAs – the 2023 maximum contribution will rise to $15,500, up from $14,000 for 2022. If you are over 50, a catch-up contribution up to $3,500 – up from $3,000 in 2022 – is permitted.
• Employer-sponsored retirement plans – the 2023 contribution limit for 401(k), 403(b), and most 457 plans will rise from $20,500 in 2022 to $22,500 for employees under 50. For those over 50, a catch-up contribution up to $7,500 annually is permitted – up from $6,500 in 2022 – allowing you to contribute up to $30,000, assuming your employer-sponsored retirement plan is structured to allow catch-up contributions.

We strongly recommend contributing the full amount available to you into your retirement account(s) – as close to the limits as possible, if you can’t absolutely max out.

Further, we would advise checking into all retirement options available through your employer – public schools, colleges, universities, churches, hospitals, and other tax-exempt organizations may offer more than one option, including 401(k), 403(b), and/or 457 plans, and may also allow you to participate in and contribute to more than one employer-sponsored plan – e.g., offering you both a 401(k) and a 403(b) plan.

If you have both a 401(k) and 403(b) plan account, be aware that the total annual contribution to these employer-sponsored retirement plans is $22,500 for 2023 – or $30,000 if you are over 50. However, it may be useful to have more than one employer-sponsored plan account, especially if one or more of the plans does not allow catch-up contributions. In such a case, you can contribute the amount of your catch-up to the second retirement plan account – the IRS permits you to treat this additional contribution as a catch-up for their purposes, even if your plan does not.

However, if your employer offers you both a 401(k) plan and a 457 plan, a deferred compensation plan, you can contribute $22,500 to each plan in 2023, not counting catch-up contributions. If you have this option available, and are over 50, you can contribute up to $30,000 tax-deferred to each account for 2023 – $22,500 plus $7,500 in catch-up. This would mean that, for those over 50, a total tax-deferred contribution of $60,000 can be made for 2023.

If you have any questions on leveraging these new contribution limits to maximize your retirement assets, reduce your tax liabilities, and plan for a secure and happy retirement, our CPAs/financial planners are always here for you.

Please click here to email us directly – let us know how we can help.

Until next time –

Peace,

Eric