The IRS on October 21st announced updates to IRA and 401(k) contribution limits for the 2023 tax year. The increases are some of the biggest in years and impact all investors from those with a contributory IRA to participants in employer plans like a 401(k) or SEP IRA.
Following is a summary of the changes and new 2023 limits for various IRA and 401(k) retirement plans.
Solo 401(k) Contribution Limits
The plan maximum for a Solo 401(k) was increased from $61,000 to $66,000.
For those age 50 and older, the $7,500 catch up provision means a total of $73,500 can be set aside.
The employee deferral portion of Solo 401(k) contributions was increased from $20,500 to $22,500.
For purposes of employer profit sharing calculations, the employee compensation limit is now $330,000, up from $305,500.
SEP IRA Contribution Limits
The top end for a SEP IRA is the same as a Solo 401(k) and has been increased by $5,000 to $66,000. Catchup provisions do not apply to a SEP IRA.
SIMPLE IRA Contribution Limits
The employee contribution limit for a SIMPLE IRA was increased from $14,000 to $15,500.
Participants who are 50 or older are provided a catch-up contribution limit of $3,500, an increase of $500.
Employer matching or profit sharing based on the plan formula can be made on up to $330,000 of eligible employee compensation. An employer can choose to match employee contributions dollar for dollar up to 3% of compensation or contribute up to 2% of compensation regardless of whether the employee contributes or not.
IRA and Roth IRA Contribution Limits
The amount that can be contributed to a Traditional or Roth IRA was increased for the first time since 2019. The standard limit is $6,500. Savers age 50 or older can add $1,000 as a catch-up contribution.
Traditional IRA Deduction Phase-Out Limits
If you or your spouse have access to an employer retirement plan like a 401(k), you can separately contribute to a traditional IRA up to the maximum amount. Your ability to deduct that contribution is phased out at certain Adjusted Gross Income (AGI) thresholds based on your filing status, however.
For single filers, the deduction phase out was increased from $68,000 to $73,000. A partial deduction is allowed up to $83,000, after which no deduction is allowed.
For married filers, only a partial deduction is allowed starting at $116,000, an increase of $7,000 from the 2022 limit. The partial deduction range is capped at $136,000, after which no deduction is available.
Roth IRA Income Limits
Unlike a Traditional IRA where deductions are impacted by participation in an employer retirement plan, a Roth IRA is simply limited by your AGI.
Single filers can make a full Roth IRA contribution if their AGI is below $138,000. Partial contributions are allowed up to $153,000. The prior phase out range in 2022 was between $129,000 and $144,000.
For married filers, the new Roth phase out range is from $218,000 to $228,000. This is a nice increase from the 2022 limits set between $204,000 and $214,000.
The more capital your plan has to work with, the more you can take advantage of the tax-preferred income treatment such plans are afforded by the tax code. Compounding that tax-savings over years of investing is a time-tested means of creating wealth.
Regular contributions are the single best thing you can do to grow your retirement savings.