IRS raises 2023 contribution limits for tax-advantaged retirement accounts to record levels

The Internal Revenue Service (IRS) raised the amounts individuals may contribute to tax-advantaged retirement accounts in 2023 to the highest levels ever when they released notice 2022-55. These record increases in the cost-of-living adjustments are driven by soaring inflation.  

For information about other inflation-adjusted amounts, check out this recent article covering inflation-adjusted projected 2023 federal tax brackets. 

The increases in contribution limits and thresholds make it even more attractive for taxpayers to maximize their contributions to these tax-advantaged accounts.  

Tax professionals discussing 2022 year-end tax planning and 2023 tax strategies should consider advising their clients to take advantage of this opportunity to reduce current income tax liability and increase their retirement savings.

What has changed for 401(k), 403(b), 457, and Thrift Savings Plans?

For 401(k)s, 403(b)s, most 457 plans, and Thrift Savings Plans, the agency raised the contribution maximums in 2023 to $22,500. This is up $1,500, from $20,500 in 2022.  

Note that individuals 50 and older may contribute an additional $7,500 (so-called catch-up contributions) to these plans, increasing the total allowable contribution to $30,000 in 2023. 

What has changed for IRA and Roth IRA contributions?

The IRS increased both the maximum contribution amount and the income limits for Individual Retirement Accounts (IRAs) in 2023. 

Changes to IRA contributions:

• The IRA maximum contribution for 2023 is $6,500, up $500 from 2022.
• The IRA catch-up contribution for those 50 and older in 2023 remains at $1,000, for a total 2023 contribution limit of $7,500.

Changes to Roth IRA income limits: 

• The Roth IRA income phase-out range for single filers and heads of household in 2023 will be between $138,000 and $153,000, up from $129,000 – $144,000 in 2022. 
• The 2023 Roth IRA income phase-out range for married couples filing jointly will be between $218,000 to $228,000, up from between $204,000 and $214,000 in 2022. 
• The Roth IRA income phase-out range for married individuals filing separately in 2023 has not changed and will remain at $0 to $10,000.

SIMPLE accounts

Contributions to SIMPLE accounts (savings incentive match plan for employees) for 2023 are increased to $15,500 to SIMPLE accounts, up from $14,000 in 2022.

Tax professionals should consider advising clients to take advantage of this enhanced tax planning opportunity

The increases in contribution limits and thresholds make it even more attractive for taxpayers to maximize their contributions to these tax-advantaged accounts. Tax professionals should consider advising their clients to take advantage of this opportunity (where appropriate) to reduce current income tax liability and increase retirement savings.