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Retirement Plan Contribution Limits for 2023

14 December 2022

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

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