The Internal Revenue Service (IRS) announced changes in the amount you contribute to your retirement savings plans, including 401(k) and IRA. According to experts, the new increased limits across some programs are unique compared to the previous trends, and every investor can feel its impact, regardless of their plan type. It makes sense to learn about them and take advantage of the opportunity after consulting your plan provider.
2023 contribution limits for different plan types
Some popular options include Solo 401(k), SEP IRA, SIMPLE IRA, and others. Let’s start with them first.
The maximum contribution limit for the plan stands at USD $66,000. Earlier, it was USD $61,000. Those in their 50s and older can access catchup provisions, which allow an additional investment of USD $7,500. So, for them, the total amount comes down to USD $73,500. One can contribute up to USD $22,500 under employee deferrals. It was USD $20,500 the previous year. In the case of employer profit sharing, the compensation limit for the employee has increased to USD $330,000 from USD $305,500.
2023 contribution limits for SIMPLE IRA include USD $15,500 for people under 50 and USD $3,500 extra for someone 50 or more. Earlier, you could pay USD $14,000 and USD $3,000, respectively. As per profit sharing or employer matching contributions, it is up to USD $ 330,000 of the eligible employee income. An employer can match employee contributions by every single dollar up to 3% of their income. Or, they can contribute up to 2% of compensation, whether an employee pays to the account or not.
The upper limit for this plan is similar to a Solo 401(k). In this case, it is an increase of USD $5000. Since this plan has no catchup provisions, it is out of the question.
IRA and Roth IRA
The last time the contribution limit saw an increment was in 2019. Regardless, one can contribute USD $6,500. If you are 50 or more, you can top it up by USD $1,000 as a catchup contribution.
Your deductions can depend on your employer-sponsored plan option in a Traditional IRA plan. However, your AGI or adjusted gross income is critical in this case. Any person with less than USD $138,000 in AGI can pay the total contribution amount. Those eligible for partial contributions can pay up to USD $153,000. For joint accounts, or, more precisely, married filers, the income limit ranges from USD $218,000 to USD $ 228,000. In 2022, it was USD $204,000 to USD $214,000.
As long as you contribute to your retirement plan, you stand to benefit in the short or long term based on what you choose. Because of diverse opportunities, you get better control over your retirement investment with Solo 401(k) or self-directed IRA. With your capital gains growing due to tax saving and investment, you succeed in wealth creation.
Government bodies revise contribution limits, eligibility criteria, and other aspects occasionally. You must follow them to improve your retirement saving effort. Keeping in touch with your plan’s performance will guide you on how far you are from realizing your retirement dreams and what you can do better to increase your savings. If you ever doubt anything, talk to your plan provider.