Here’s what employees should know about the IRS’s most recent changes.
If you use a traditional or Roth IRA to save for retirement, the IRS has some good news for you. You can make an extra $500 contribution to either account in 2023. The total annual contribution cap has increased to $6,500, the first increase since 2019’s change. Those over the age of 50 can contribute an extra $1,000.
Additionally, the IRS raised the income thresholds for IRAs, enabling you to earn more money while still benefiting from tax-free Roth accounts or tax-deferred traditional IRAs.
Thanks to the most recent annual adjustments, you will be able to save more money in 2023 through 401(k) and 403(b) workplace retirement plans. Additional information is provided below.
IRA contribution limits have some good news.
Employees who want to get the most out of their retirement accounts will be happy to hear that the IRS increased the annual contribution limits for IRAs by $500, bringing the total to $6,500. Aged 50 and older individuals are eligible to make a catch-up contribution of $1,000, which is the same as in 2022.
For 2023, the maximum contributions to employer-sponsored plans—including the well-known 401(k) and 403(b) plans—were increased even further, to $22,500. People over 50 are eligible to make $7,500 in catch-up contributions.
Another workplace plan, the SIMPLE IRA, saw an increase in its contribution ceiling as well, going from $14,000 to $15,500 in 2022.
Increased IRA income limits
The increase in income limits for IRAs is good news for savers, even though it is only modest. The maximum modified adjusted gross income (MAGI) for 2023 to qualify for a Roth IRA is as follows:
The maximum income for a head of household to make a full contribution is $138,000; after that, contributions phase out at $153,000.
The maximum income for married couples filing jointly is $218,000, and contributions phase out at $228,000.
For individuals, heads of household, and married couples filing jointly in 2022, the Roth IRA limits were $129,000 to $144,000 and $204,000 to $214,000, respectively.
The MAGI thresholds for traditional IRAs have also been raised for 2023 in order to allow for contribution deductions. Please take note that these restrictions only apply to you and your spouse if your employer offers a retirement plan.
The maximum income for a head of household to make a full contribution is $73,000, and contributions start to phase out at $83,000.
Contributions for married couples filing jointly phase out at $136,000 and have a maximum income cap of $116,000 for full contributions.
Your contributions are entirely deductible, regardless of your income, if you and your spouse do not have access to an employer plan.
Income restrictions are merely one distinction between traditional and Roth IRAs. Additional key distinctions are listed below, along with which account is better for investors.
Since the cost of living has increased due to high inflation, the IRS permits you to contribute more to your retirement savings because you’ll need to do so in order to maintain your current standard of living. Maximize your IRA and employer-sponsored retirement plans if you can. A health savings account, which has several tax benefits and can be invested in, is another option you might want to think about.
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