Last month, the IRS announced that the contribution limits for 401(k) plans and IRAs will increase in 2023. Optima Tax Relief reviews these increase amounts and any related guidelines set by the IRS.
For tax year 2022, the most an individual can contribute to their 401(k), 403(b), most 457 plans, or their Thrift Savings Plan is $20,500. This amount is increasing to $22,500 for tax year 2023. There will be an increase in the catch-up contribution limit for 401(k), 403(b), most 457 plans and the Thrift Savings Plan to $7,500, up from $6,500. This means that individuals aged 50 and older will be allowed to contribute up to $30,000 per year in 2023.
In addition, the annual contribution limit for IRAs will increase from $6,000 to $6,500. The IRA catch-up contribution limit will remain at $1,000 while the SIMPLE Plan limit will increase from $3,000 to $3,500 for individuals aged 50 and older. For individuals under 50, the new contribution limit for a SIMPLE retirement plan will increase from $14,000 to $15,500.
There are also important updates for any taxpayer hoping to claim the Retirement Savings Contributions Credit, also known as the Saver’s Credit, in 2023. The Saver’s Credit is a tax credit worth up to $1,000 for single individuals, and $2,000 for married couples filing jointly, who contribute to a retirement plan and meet income requirements. In 2023, the income limits will increase.
- Single filers and married individuals filing separately: Increased from $34,000 to $36,500
- Heads of household: Increased from $51,000 to $54,750
- Married couples filing jointly: Increased from $68,000 to $73,000
Currently, the Saver’s Credit is reduced, or phased out, if the taxpayer or taxpayer’s spouse is covered by an employer retirement plan at any time during the year. The new “phase-out” ranges for 2023 are as follows:
- Single taxpayers covered by an employer retirement plan have a phase-out range of $73,000 and $83,000, an increase from 2022’s range of $68,000 to $78,000.
- Married couples filing jointly have a new phase out range between $116,000 and $136,000, up from 2022’s range of $109,000 and $129,000. This range applies to the spouse making the IRA contribution and is covered by a workplace retirement plan. If the IRA contributor is not covered by a workplace retirement plan, then the phase-out range is between $218,000 and $228,000, up from between $204,000 and $214,000 in 2022.
- Married individuals filing separately and who are covered by an employer retirement plan still have a phase-out range between $0 and $10,000, no change from 2022.
The figures above reflect the income phase-out ranges for traditional IRA accounts. There are also changes being made to the income phase-out ranges for Roth IRA accounts, including:
- Single filers and heads of household: Increased range between $138,000 and $153,000, up from between $129,000 and $144,000 in 2022
- Married couples filing jointly: Increased range between $218,000 and $228,000, up from between $204,000 and $214,000 in 2022
- Married individuals filing separately: No change and will remain at a range between $0 and $10,000