IRS Raises Retirement Plan Contribution Limits to Counter Inflation

On October 21, the IRS announced increases to the contribution limits for both 401(k) plans and IRAs. These increases are intended as adjustments to help working Americans cope with current inflation. In addition, the IRA catch-up contribution for taxpayers 50 and older as well as the phase-out for the IRA contribution deduction for taxpayers who are either fully or partially covered by a work retirement plan have likewise been increased in some cases.

The details:

401K Contribution Limits

• The overall contribution limit for 401(k), 403(b), some 457 plans, and the Thrift Savings Plan has been increased to $22,500 (up $2,000).
• The catch-up contribution limit on these plans for taxpayers 50 and older has been increased to $7,500 (up $1,000), increasing qualifying individual’s total contribution limit to $30,000.

IRA Contribution Limits

• The overall contribution limit to IRAs has been increased to $6,500 (up $500).
• The IRA catch-up contribution limit is not subject to cost-of-living or inflation adjustments, and remains unchanged at $1,000 for a total contribution for those who qualify of $7,500.
• The overall contribution limit for employees who participate in a simple IRA plan has been increased to $15,500 (up $1,500).
• The catch-up contribution limit for employees who participate in a simple IRA plan has been increased to $3,500 (up $500), increasing qualifying individual’s total contribution limit to $19,000.

IRA Deduction Phase-Out Ranges
The phase-out range for deduction of contributions to both traditional and Roth IRAs is variable depending on the taxpayer’s filing status and income. These income ranges have been adjusted for 2023, as follows.

For traditional IRAs:

• For single taxpayers participating in a workplace retirement plan, the phase-out range has been increased to $73,000-$83,000 (up $5,000).
• For married couples filing jointly, where the IRA contributor IS covered by a workplace retirement plan, the phase-out range has been increased to $116,000-$136,000 (up $7,000).
• For married couples filing jointly, where the IRA contributor IS NOT covered by a workplace retirement plan, the phase-out range has been increased to $218,000-$228,000 (up $14,000).
• For a married individual who is filing separately and is covered by a workplace retirement plan, the phase-out range is not subject to cost-of-living or inflation adjustments, and remains unchanged between $0 and $10,000.

For Roth IRAs:

• For single taxpayers and heads-of-household, the phase-out range has been increased to $138,000-$153,000 (up $9,000).
• For married couples filing jointly, the phase-out range has been increased to $218,000-$228,000 (up $14,000).
• For a married individual who is filing separately, the phase-out range is not subject to cost-of-living or inflation adjustments, and remains unchanged between $0 and $10,000.

Other Related Changes
In addition to the adjustments for inflation listed above, the IRS has also adjusted the income limits for the Saver’s Credit (or Retirement Savings Contribution Credit) for qualifying lower-income workers. These new limits are:

• $36,500 for taxpayers filing either as single or married filing separately (up $2,500).
• $54,750 for taxpayers filing as head-of-household (up $3,750).
• $73,000 for married couples filing jointly (up $5,000).

Should you have any questions about these 401(k) and IRA limit changes, we encourage you to reach out to your Weiss tax advisor.