Contribution limits for retirement and other tax-sheltered savings plans are subject to change every year. Sometimes there are no changes; other times you’ll see the IRS bump the annual limits up a bit. The IRS recently released retirement plan contribution limits for 2023 and there are some exciting increases in annual contribution amounts in store depending on the plan you use.
The below information applies to conventional retirement and savings plans and self-directed accounts.
Retirement Plan Contribution Limits for 2023
The 2022 and new retirement plan contribution limits for 2023 apply to both typical accounts as well as self-directed accounts.
Traditional IRAs allow pre-tax contributions and tax-deferred growth of income. You’ll pay taxes on distributions in retirement.
2022 contribution limits for traditional IRAs are $6,000 and an additional $1,000 catch-up allowance if you’re 50 years or older. You have until April 15, 2023, to open and fund a traditional IRA and have your contributions applied to your 2022 tax liability.
New 2023 limits for next year allow you to contribute up to $6,500, or $7,500 if you’re 50 and older.
Roth IRAs are popular for retirement savers who want to enjoy tax-free distributions in retirement. This benefit is possible because contributions are made with post-tax dollars.
2022 limits for contributions are $6,000 or $7,000 if you’re 50+ and take advantage of the catch-up contribution provision. You have until April 15, 2023, to open and contribute to a Roth IRA for those contributions to be included on your 2022 tax return.
2023 contribution limits are $6,500 or $7,500 for ages 50+ thanks to the catch-up contribution.
Simplified Employee Pension (SEP IRA)
SEP IRAs are affordable retirement plans for small business owners and the self-employed with few or no employees. Employers can make contributions for themselves as well as employees, and these contributions are tax-deductible for the business.
2022 SEP contribution amount is the lesser of $61,000 or 25 percent of your compensation. You have until your income tax filing date (including extensions) to open and fund a SEP IRA and earmark those contributions for the 2022 income tax year.
2023 limits are going to be considerably higher, allowing the lesser of $66,000 or 25 percent of your compensation.
Savings Incentive Match Plan for Employees (SIMPLE IRA)
A SIMPLE IRA is another plan that’s beneficial for small businesses and self-employed individuals with minimal employees. This plan allows both employee and employer contributions, which are considerably higher than traditional IRAs
2022 allowed contributions of up to $14,000 in employee salary deferrals with a $3,000 catch-up contribution for employees 50 and older.
2023 contributions for employee salary deferrals rose to $15,500 with a catch-up provision of $3,500 if you’re 50+.
Please note that in both 2022 and 2023, the employer matching contribution remains at 1-3 percent of the employee’s compensation or 2 percent of the employee’s compensation for employer non-elective contributions.
Whether you have an employer sponsored 401(k) or a solo 401(k), you get to enjoy both employer and employee contributions to your plan. The new contribution limits are great news for you.
2022 the employee salary deferral limit is $20,500, with a catch-up contribution of $6,500. You have until you file your tax return for 2022 earnings to make the employer contribution. However, you must make all employee contributions by December 31st if you want them to count for your 2022 tax return.
If you’re self-employed and reaping the benefits of a solo 401(k), you can make both employer and employee contributions to your plan. The profit-sharing portion you can contribute as an employer remains at up to 25 percent of your self-employed earnings. Don’t forget your combined employee plus employer annual contributions cannot exceed $61,000 or $67,500 with the catch-up contribution if you’re 50 or over.
2023 sees a considerable rise in contributions. The employee salary deferral is up to $22,500, and the catch-up provision for ages 50 and older is $7,500. For the self-employed, your employer profit-sharing contribution remains as up to 25% of your self-employed earnings. Keep in mind your total combined salary deferral plus employer contributions cannot exceed $66,000 or $73,500 if you’re 50+ and contribute the catch-up allowance.
Other Savings Plans Contribution Limits for 2023
Health Savings Account (HSA)
Health savings accounts offer tax-sheltered savings to pay for qualified health care costs today as well as in retirement.
2022 limit for individuals is $3,650 and $7,300 for families, with an allowed catch-up contribution of $1,000 if you’re 55 and older.
2023 sees an increase to $3,850 for individuals, and $7,750 for families. The catch-up contribution remains the same at $1,000.
Coverdell Education Savings Account (ESA)
ESAs provide a tax-advantaged way to save for qualified education costs. Unfortunately, there was no contribution limit increase for this account. The annual limit for 2022 and 2023 is $2,000.
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