With inflation having been high for over a year, the federal government is starting to make significant adjustments to various limits and thresholds that are inflation-adjusted. The Social Security Administration has already announced that Social Security’s cost of living adjustment (COLA) will increase by 8.7% in 2023. And the Internal Revenue Service (IRS) has already adjusted its tax brackets upwards, helping many households reduce their tax payments next year.
Now IRS has also published its updated contribution and income limits for 2023, with some major increases that could help many Americans who are saving for retirement. If you have existing retirement accounts, and especially if you’re still contributing to tax-advantaged retirement accounts, you need to know what the new numbers are.
401(k) Contribution Limits See Major Increases
One of the major highlights to next year’s changes is the fact that 401(k) contribution limits have increased significantly. The contribution limit to those in 401(k), 403(b), 457, and TSP plans has increased to $22,500, up from $20,500. And the catch-up contribution for those over age 50 has increased from $6,500 in 2022 to $7,500 in 2023.
That means that catch-up contributors can now add $30,000 annually to their 401(k) plans, up from $27,000. That’s an 11% increase, even higher than the official rate of inflation.
The only downside to all of this is that very few workers actually max out their 401(k) contributions. Only about 14% of 401(k) plan participants max out their contributions. And with only about 40% of workers even contributing to a 401(k) plan, that’s not a lot of people maxing out.
Most people who max out are making over $150,000 a year, and are generally older and closer to retirement. For most Americans these limits won’t have a practical effect, especially now that inflation is eroding the purchasing power of paychecks and driving up the cost of living.
IRA Contribution and Income Limits Are Up
IRA contribution limits have also increased for 2023, although they’re not nearly as generous. The contribution limits for IRA accounts in 2023 is $6,500, up from $6,000 in 2022. That’s an increase of 8.3%, roughly around where inflation is right now.
Unfortunately, the IRA catch-up contribution is not indexed to inflation, so it remains at $1,000. That means that those over age 50 can contribute a maximum of $7,500 to their IRA accounts in 2023, an increase of 7.1% over the $7,000 limit in 2022.
Income limits for tax-deductible IRA contributions have also been increased for 2023. For single taxpayers covered by a workplace retirement plan, the phaseout range for being able to deduct Traditional IRA contributions has increased to $73,000 to $83,000, up from $68,000 to $78,000.
For married couples filing jointly in which the contribution partner is covered by a workplace retirement plan, the phaseout range has increased to $116,000 to $136,000, up from $109,000 to $129,000.
Phaseout ranges for contributions to Roth IRA accounts have also risen, increasing from $129,000 to $144,000 for single filers to $138,000 to $153,000. For married couples filing jointly, the Roth IRA phaseout range has increased from $204,000 to $214,000 to $218,000 to $228,000.
These aren’t the only increases either. For those with SEP IRAs and SIMPLE IRAs, the contribution limits have also increased for 2023. The full details of the IRS’ new inflation-adjusted figures can be found in IRS Notice 2022-55.
The Importance of Tax-Advantaged Retirement Accounts
With the demise of pension accounts, employee-funded retirement plans have become more and more important. Americans hold trillions of dollars in retirement accounts such as IRAs, 401(k)s, and TSP accounts. But many people still don’t take full advantage of the benefits of these accounts.
Millions don’t participate in these plans even though they have access to them. Many others don’t take advantage of benefits like employer matching contributions, potentially leaving thousands of dollars on the table. And still more fail to protect the assets that they’ve built up in them.
If the majority of your retirement savings are held in tax-advantaged retirement accounts, can you afford to allow those assets to disappear before your eyes? If you believe that recession is imminent, that inflation is eroding your returns, or that your investments are underperforming, do you have a plan to help protect your investments?
Gold IRA and 401(k) Protection
More and more Americans are discovering that they have the ability to protect the savings they hold in tax-advantaged accounts by opening up a gold IRA. Many 401(k) and IRA plans may have limited investment options that offer only a handful of relatively “safe” investment options to help protect investors weather a financial crisis. But very few offer any ability to take advantage of investments in precious metals.
Precious metals like gold and silver are popular safe haven assets which many investors like to take advantage of during times of economic turmoil and financial crisis. They have served as safe havens for centuries. And their price performance during times of crisis has at times been phenomenal, such as when gold and silver saw greater than 30% annualized gains throughout the 1970s.
A gold IRA gives investors the ability to invest in physical gold coins or bars while still enjoying all the same tax advantages as any other IRA account. And assets from existing retirement accounts such as a 401(k), 403(b), 457, TSP, IRA, or similar retirement account can be rolled over or transferred to a gold IRA tax-free.
If you’ve spent years building up a retirement nest egg, why let it all evaporate in front of your eyes just because you don’t think you have any other options? Call Goldco today to learn more about what a gold IRA can do for you.