Increased annual contribution limits for 401(k) and other retirement savings plans have been announced by the IRS. Contribution limits are usually increased each year by the IRS, so this comes as no surprise; however, the announcement is making headlines because this increase is a record jump. Understandably, you may be wondering how this affects you and how to get the most out of your retirement savings.
What are the New Contribution Limits for Retirement Plans in 2023?
The IRS recently announced that annual contribution limits for 401(k)s, 403(b)s, most 457 plans, and federal Thrift Savings Plans will be increased in 2023 due to rising inflation. Beginning in January 2023, an individual can now contribute $22,500 to their retirement plan, which is about a 9% increase from the 2022 limit of $20,500.
If you’re age 50 or older, you’ll be able to make a catch-up contribution of $7,500 in 2023 – an increase from this year’s limit of $6,500. Those eligible for catch-up contributions should be able to contribute up to $30,000 in total for the new year.
IRA and Roth IRA plans also saw an increase in annual contribution limits from $6,000 to $6,500.
How Does This Affect Me?
If you’re already maxing out your 401(k) – that’s great! These increased contribution limits can help you save even more towards retirement. Plan on updating your paycheck elections with your HR department or payroll company. If you’re not meeting the annual contribution limit for your 401(k), check out these tips to help you strive toward your ideal retirement.
3 Tips to Help You Maximize Retirement Savings
1) Set a realistic savings goal
Maxing out your 401(k) contributions is a great goal to set, however it can be unrealistic for a lot of workers. Instead of focusing on a dollar amount, try determining a percentage that you’d be comfortable contributing. Additionally, if you receive a bonus at the end of the year, that can be a great way to allocate money towards your retirement without sacrificing your regular paycheck.
2) You’re never too young to start saving
When you’re first entering the workforce, retirement can be the last thing on your mind. However, the earlier you start saving, the more time you have to take advantage of stock market returns and compound interest. And if you’re nearing retirement – it’s never too late to start saving. Opting in for catch-up contributions can be a great way to get ahead.
3) Download our guide to retirement planning at every stage of life
Whether retirement is decades away or just around the corner, our guide offers actionable steps you can take today to help set yourself up for financial success. Receive advice for every stage of life, including tips on how to make the most of your money, the golden rule for investing, plus an overview of different retirement plan types.