Here Are the 401(k) Contribution Limits for 2023

Americans saving for retirement through a 401(k) account will be able to max out contribution of salary before tax increase by nearly 10% by 2023, thanks to a new cap announced on Friday by Internal Revenue Service.

The tax agency said that cap increase was the largest in decades, as rapidly rising costs on items including food, energy and rent hit many Americans financially. .

In 2023, employees can Contribute up to $22,500 a year, up from $20,500, to 401(k), 403(b) and other tax-advantaged employer savings plans. Also included are 457 plans, for civil servants and workers at other tax-free facilities.

The limit for what’s called catch-up contributions, for those 50 and older, also increased to $7,500 from $6,500. That means workers 50 and older can contribute up to $30,000 toward those plans next year. The maximum contributions for individual retirement accounts will increase by $500, to $6,500.

“A lot of these adjustments are larger than we’ve seen in a long time because of higher inflation,” said Anqi Chen, a senior research economist at the Center for Retirement Research at Boston University.

The Consumer Price Index Report for September, released last week, shows that Inflation still hurts. The overall index rose 8.2% from a year earlier, down slightly from 8.3% in August. The IRS determines the new limit using inflation data.

Federal agencies recently made changes to counter the impact of increased costs on consumers. This week, the IRS confirmed that some filers will see savings on their bills as it adjusts tax rates by about 7 percent. Earlier this month, the Social Security Administration announced a Increased cost of living 8.7 percent as older Americans struggle to keep up with rising costs. The cost of living adjustment, known as COLA, is the highest since 1981.

“Since the beginning of the pandemic, participants have remained disciplined and continue to contribute to their 401(k) plans,” said Carolyn Wegemann, a spokeswoman for Vanguard. She added, “It is encouraging to observe that participants remain disciplined and continue to save for retirement amid significant market uncertainty.”

Ms Wegemann said the average employee contribution rate to remain consistent in 2021 is 7.3%.

As of March, 69% of workers in the private industry had access to retirement plans through their employers, and about 52% participated, according to the report. Bureau of Labor Statistics. In March 202067 percent of workers in private industry had access to employer-provided plans.

Experts say that a higher ceiling will not significantly change the overall saving picture of workers.

“The majority of employees don’t maximize their savings,” said Teresa Ghilarducci, an economics professor at the New School of Social Research who specializes in retirement policy. “Therefore, raising the limits only benefits a few.”


News7F: Update the world's latest breaking news online of the day, breaking news, politics, society today, international mainstream news .Updated news 24/7: Entertainment, the World everyday world. Hot news, images, video clips that are updated quickly and reliably

Related Articles

Back to top button