For 2023, the IRS has raised the contribution limits for qualified retirement plans as well as for IRAs. Other limits have been changed as well. Here is a look at the changes that might impact your retirement savings strategies.
401(k) and other Tax Deferred Retirement plan contribution limits
The contribution limit for 401(k) plans, 403(b)s, most 457 plans and the government Thrift Savings Plan has been increased to $22,500 from $20,500 for 2022. The catch-up contribution level for participants who are age 50 or over has also been increased from $6,500 in 2022 to $7,500 for 2023. This means that those who are 50 or older can contribute up to $30,000 to their tax-deferred retirement plan in 2023. To summarize the changes:
2022 contribution limits | 2023 contribution limits | |
Contribution limits | $20,500 | $22,500 |
Catch-up contributions | $6,500 | $7,500 |
Total contributions for those 50+ years old | $27,000 | $30,000 |
IRA Contribution Limits for 2022 and 2023
The contribution limit for all types of IRAs will increase from $6,000 in 2022 to $6,500 for the 2023 tax year. The catch-up contribution limit for those who are 50 or over remains at $1,000. These limits apply to all combined contributions to IRAs, whether they are pre-tax or after-tax, or whether they are to a traditional IRA or to a Roth IRA.
The adjusted gross income(AGI) limits to be able to make pre-tax contributions to a traditional IRA if you are covered by a workplace retirement plan, as well as those governing the ability to contribute to a Roth IRA, will change in 2023. The AGI limits to qualify for the Saver’s Credit will also change in 2023.
Adjusted Gross Income Requirements – Traditional IRAs
For those who are covered by a workplace retirement plan, such as a 401(k), there are income restrictions based on adjusted gross income to the ability to make pre-tax contributions. Contributions can always be made on an after-tax basis with no income restrictions. This is similar if you are not covered by a 401(k) or other retirement plan.
For 2022 and 2023, the AGI limits for pre-tax IRA contributions for those covered by a workplace retirement plan are:
Filing status | 2022 AGI Limit | 2023 AGI Limit | Pre-tax deduction Limits |
Single or head of household | Less than $68,000 | Less than $73,000 | Full deduction up to contribution limit |
$68,000 – $78,000 | $73,000 – $83,000 | Phased out partial deduction | |
More than $78,000 | More than $83,000 | No deduction | |
Married filing jointly or qualified widow(er) | Less than $109,000 | Less than $116,000 | Full deduction up to contribution limit |
$109,000 – $129,000 | $116,000 – $136,000 | Phased out partial deduction | |
More than $129,000 | More than $136,000 | No deduction | |
Married filing separately | Less than $10,000 | Less than $10,000 | Partial deduction |
More than $10,000 | More than $10,000 | No deduction |
In the case of a someone who is not covered by a workplace retirement plan, but their spouse is, the AGI limits are higher:
Filing status | 2022 AGI Limit | 2023 AGI Limit | Pre-tax deduction Limits |
Married filing jointly or qualified widow(er) | Less than $204,000 | Less than $218,000 | Full deduction up to contribution limit |
$204,000 – $214,000 | $218,000 – $228,000 | Phased out partial deduction | |
More than $214,000 | More than $228,000 | No deduction |
Roth IRA contributions – AGI restrictions
For those looking to contribute to a Roth IRA account, there are income limitations based on your AGI and filing status. For 2022 and 2023, these limits are:
Filing status | 2022 AGI Limit | 2023 AGI Limit | Pre-tax deduction Limits |
Single, head of household or married filing separately and did not live with spouse during the year | Less than $129,000 | Less than $138,000 | Full contribution up to the limit |
$129,000 – $144,000 | $138,000 – $153,000 | Phased out contribution limit | |
More than $144,000 | More than $153,000 | No contribution allowed | |
Married filing jointly or qualified widow(er) | Less than $204,000 | Less than $218,000 | Full contribution up to the limit |
$204,000 – $214,000 | $218,000 – $228,000 | Phased out contribution limit | |
More than $214,000 | More than $228,000 | No contribution allowed | |
Married filing separately if you lived with your spouse at any point during the year | Less than $10,000 | Less than $10,000 | Contribution is reduced |
More than $10,000 | More than $10,000 | No contribution allowed |
Note that those who wish to contribute higher amounts to a Roth account can choose a Roth option in their 401(k) or other workplace retirement if they have one available to them. There are no income restrictions and they can generally contribute up to the annual contribution limit.
Saver’s Credit 2022 and 2023
The retirement savings contribution credit is a credit worth up to $1,000, and up to $2,000 for those filing married and jointly, that is available to low- and middle-income taxpayers. In order to get the credit, your AGI cannot exceed:
Filing status | 2022 AGI | 2023 AGI |
Married filing joint | $68,000 | $73,000 |
Head of household | $51,000 | $54,750 |
Any other filing status | $34,000 | $36,500 |
The amount of the credit you might be eligible for is based on the amount of new money contributed to an IRA (Roth or traditional), 401(k), SIMPLE IRA, ABLE account, SARSEP, 403(b) or 457 plan. Remember, a tax credit is a direct reduction in the amount of your tax you owe and is generally more valuable than a tax deduction.
Be sure to reach out to your Wedbush financial advisor to review your retirement plan contributions for 2022 and to make a plan for 2023. IRAs and employer-sponsored retirement plans are an excellent way to save for retirement and to derive certain tax benefits.
Disclosure
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.