A few days after the Internal Revenue Service announced major inflation-related effects on tax brackets and standard deduction payments For 2023, the tax authority will announce a significant increase in the amount that savers can put into a retirement account.
People can contribute up to $22,500 in a 401(k) account and $6,500 in an IRA in 2023, the IRS says. Friday.
For 401(k)s, that’s a nearly 10% increase from the 2022 contribution limit of $20,500. For an IRA, it’s up more than 8% from the $6,000 limit in 2022.
As additional context, the 2023 income tax bracket is calculated using the inflation index, and the standard deduction works at approximately 7%.
When the IRS Raises the 401(k) Contribution Limit last year, it has increased by about 5%.
Older workers can save more
The 2023 contribution limit applies to 401(k) plans – plus 403(b), most 457 plans, and the federal government’s Thrift Savings Plan – even larger for employees aged 50 years and over.
The IRS said the catch-up contribution limit increased to $7,500 from $6,500. Combine the contributions that keep up with the normal contribution limits, and workers 50 and older can accumulate $30,000 for retirement into these accounts in 2023, the agency said.
Periods beyond income increase when it comes to possible deductions
Tax regulations can allow people to deduct contributions to a traditional IRA as long as they meet certain conditions, tied to issues like insurance through a workplace retirement plan and annual income. The IRS notes that above the gradual exclusion range, deductions do not apply if a person or their spouse plans to retire through work.
For 2023, a single taxpayer covered by a workplace retirement plan has a gradual exclusion range from $73,000 to $83,000. This number grows from about $68,000 to $78,000 in 2022.
For a married couple filing jointly, “if the spouse contributing an IRA is covered by a workplace retirement plan, the elimination range is increased from $116,000 to $136,000,” the IRS said. .
If an IRA saver doesn’t have a workplace plan but their spouse is covered, “the removal range is increased from $218,000 to $228,000,” the agency noted.
