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The Internal Revenue Service said Friday that it will boost the maximum contribution limit to employee 401(k) accounts by $2,000 next year to $22,500, the largest increase on record, enabling millions of Americans to save and contribute thousands more dollars to tax-advantaged retirement accounts.
Key Takeaways
- The IRS will lift the maximum contribution limit to employee 401(k) accounts by $2,000 next year to $22,500
- For people aged 50 and older who are nearing retirement, the catch-up contribution limit to a 401(k) will rise by $1,000, to $7,500
- The catch-up contribution limit for an IRA, which isn’t indexed to inflation, won’t change
- The income threshold for which IRA contributions no longer become tax-deductible will be raised for both single and married filers
- For Roth IRAs, the income range for which eligibility phases out will also be set higher in 2023
The contribution limit for an individual retirement account (IRA) is also set to increase, to $6,500 in 2023 from $6,000 this year—a limit that hasn’t been changed since 2019.
For people aged 50 and older who are nearing retirement, the catch-up contribution limit for a 401(k) will rise by $1,000 to $7,500. The catch-up contribution limit for IRAs, which aren’t indexed to inflation, will stay at $1,000.
Higher Thresholds for Tax Deduction Phaseouts
The IRS is also raising the income threshold for which tax deductions for IRA contributions will be phased out. That will be set at $73,000 to $83,000 for individuals and single heads of households, or between $116,000 and $136,000 for married couples filing jointly. The previous range was set at $68,000 to $78,000 for singles, or $109,000 to $129,000 for married couples.
Changes to Roth IRA Eligibility
Savers can also expect changes to Roth IRA accounts, where contributions are after-tax and the eligibility to contribute is based on one’s income. For a Roth IRA, contribution limits are set lower for higher-income individuals, and decrease with higher income brackets. Next year, the income range at which eligibility phases out has been raised, to between $218,000 and $228,000 for married couples, or between $138,000 and $153,000 for singles.
The adjustments come after Congress said on Tuesday that it will adjust income tax brackets, in addition to the estate and gift tax exclusion. Those changes are made annually by legislators, using preset formulas that account for inflation and income growth.