Throughout my career, I have always been passionate about helping others save for retirement and save on their taxes.
Last week, we had the opportunity to hear from Nathan Ollish, our Certified Financial Planner, about the 2023 Social Security COLA record increase, now the IRS has announced its largest increase on record, for the amount employees can contribute to their 401(k) retirement plans from their paychecks.
401(k), 403(b), 457 and Thrift Savings Plans:
Due to the high level of inflation, the amount that individuals can contribute to 401(k) plans will increase to $22,500 in 2023, up from the current $20,500. This higher contribution limit includes employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan. An employee aged 50 years or older can now contribute up to $30,000 to their paycheck with the $22,500 deferral limit and the $7,500 Catch-up contribution combined. These amounts are limited to your income and sometimes your employer’s plan.
SIMPLE Retirement Plans:
If you have a SIMPLE Retirement account instead of a 401(k) your contribution limit has increased from $14,000 to $15,500. If you are over the age of 50 you can now contribute an extra $3,500 (up from $3,000) as your Catch-Up Contribution.
Here are the increases in personal retirement accounts:
For Individual Retirement Accounts or IRAs, the amount an individual can contribute increases to $6,500 (up from $6,000 in 2022). The catch-up contribution amount remains $1,000. This applies to Roth and Traditional IRAs.
IRA Phase-out ranges and income cap:
The IRS released new income phase-out ranges for making contributions to a traditional IRA and/or Roth IRA.
If either the taxpayer or their spouse is covered by a workplace retirement plan during the tax year, the maximum amount they can contribution to a traditional IRA may be reduced (phased out) to zero, depending on the taxpayer’s filing status and income.
If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-out rule doesn’t apply.
The Traditional IRA phase-out ranges for 2023 are:
For single taxpayers covered by a workplace retirement plan, the phase-out range begins at $73,000 and ends at $83,000 (up from $68,000 and $78,000 in 2022).
For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range increases to between $116,000 and $136,000 ($109,000 and $129,000 in 2022).
For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range increases to between $218,000 and $228,000 (previously $204,000 and $214,000).
For a married individual filing a separate returnwho is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.
The 2023 phase-out ranges for Roth IRAs are:
For singles and heads of household, the phase out starts at $138,000 and ends at $153,000 (up from between $129,000 and $144,000 in 2022)
For married couples filing jointly, between $218,000 and $228,000 (up from between $204,000 and $214,000 in 2022)
For married couples filing separately between $0 and $10,000.
Who can claim the Saver’s Credit?
Those with lower incomes trying to save for retirement may qualify for a tax credit of 50% of their contribution up to $2,000 (if married filing jointly, single individuals the limit is $1,000). The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) increases to:
$73,000 for married couples filing jointly, up from $68,000;
$54,750 for heads of household, up from $51,000; and
$36,500 for singles and married couples filing separately, up from $34,000.
Keep in mind that this credit is “non-refundable,” meaning this credit can reduce the tax you owe to zero, but it can't provide you with a tax refund. As always, please check with your CPA or tax advisor to make sure these rules apply to you.
We know a lot of our clients are affected by these changes and it is our goal to keep you informed so that you can accomplish your retirement and investment goals for many years to come. We will do our best to keep “Moving Life Forward.”