As they do each year, the IRS announced 2023 retirement plan increases as follows:
|2022||2023||2023 Catch Up|
|401(k), 403(b) & 457||$20,500||$22,500||$7,500|
|Traditional or Roth IRA||$6,000||$6,500||$1,000|
Individuals aged 50 or older are allowed to make additional catch-up contributions to qualified plans. The catch-up contribution for 2023 increased from $6,500 to $7,500 for 401(k), 403(b), and most 457 plans. Anyone age 50 or older can max out these types of plans with a total employee contribution of $30,000. For 2023, the catch-up contribution for Traditional or Roth IRAs remains at $1,000, and SIMPLE IRAs get a $500 increase from $3,000 to $3,500.
Maximize 401(k) and IRA Contributions
Should you be contributing more? The answer depends on your personal financial situation and the extent of employer matching contributions. A good rule of thumb is to contribute at least 10% to 15% of your gross pay to qualified retirement plans, up to the maximum amounts. If you aren’t comfortable or can’t afford to defer that much, you should at least contribute enough to get a full employer-matching contribution. If you aren’t contributing the maximum amount, consider raising your deferral annually until you hit the maximum.
Limitations and other Thoughts
There are a variety of tricky rules when it comes to qualified retirement plan contributions and limitations. You generally can’t contribute to a Traditional or Roth IRA unless you or a spouse have earned income. You may not be eligible to make a deductible IRA contribution if you are eligible to participate in an employer-sponsored plan. For self-employed individuals, SEP IRA limits are based on a percentage of taxable self-employment income. There are income limitations that prevent many high-income earners from contributing to a Roth IRA. However, Roth 401(k) or backdoor Roth contributions might still be an option, regardless of income.
Your Dent Moses Advisor will be happy to discuss your retirement savings options with you. We also encourage our clients to have a relationship with a certified financial planner who can help plan for long-term investing and retirement needs.