You may already know that the IRS and the Social Security Administration update various guidelines each year. Here’s a round-up of the most important changes to retirement plan contribution limits and Social Security Benefits for 2023:
2023 Retirement Plan Contribution Limits
The maximum 401(k) plan contribution in 2023 is $22,500 for workers who are younger than 50 – an increase of $2,000.
Workers that will be age 50 or older are able to make catch-up contributions. For 2023, contribution limit for these goes up by $1,000 to $7,500, making the total 401(k) contribution limit for 50+ workers $30,000.
Contribution limits for traditional IRAs go up by $500.
If you’re under age 50, you may contribute up to $6,500. The IRA catch up contribution limit remains $1,000, for a total contribution maximum of $7,500.
What if I’m eligible to contribute to a 401(k) plan through my job?
If you’re eligible to contribute to a 401(k) through your employer, IRA contribution tax deductibility is subject to income limits.
If you’re single and earn more than $78,000 in 2023 (or you’re married filing jointly and expect to earn more than $129,000), you won’t be able to claim a tax deduction for your traditional IRA contributions (though you’ll still enjoy the tax-deferred growth in your IRA).
The deduction starts phasing out. These phase-outs are based on modified adjusted gross income (MAGI). For individuals, it’s more than $68,000; for couples, it’s more than $109,000.
Finally, if only one half of a married couple is eligible to contribute to a 401(k) plan through their job, the IRA tax deduction will be phased out if their joint income is between $204,000 and $214,000 in 2022.
Like the traditional IRA, the Roth IRA contribution maximum in 2023 goes up by $500 to $6,500 and catch-up contribution limits remain at $1,000.
The Roth IRA income limit in 2022 for individuals will be $153,000. For couples, it will be $228,000.
There’s also a phase-out for Roth contributions that is based on MAGI. If you’re single or head of household, the phaseout begins at a MAGI of $138,000. If you’re married filing jointly, the phaseout begins at a MAGI of $218,000.
Changes to Social Security Benefits
There are several changes coming in 2023 to Social Security benefits:
- The 2023 cost-of-living adjustment (COLA) for Social Security benefits is be 8.7% – the highest since 1981.
- The full retirement age (FRA) remains at 67.
- The Social Security wage base will increase by $13,200 to $160,200.
- The retirement earnings cap for filers who started taking benefits before full retirement age is $21,2400 for 2023. If you reach full retirement age in 2023, you may earn up to $56,250 before the Social Security Administration (SSA would withhold a portion of your monthly benefit. As always, once you’ve hit full retirement age (even if you began taking benefits early), there is no cap on earnings and any benefits that the Social Security Administration withheld in prior years will be added to your monthly benefit amount.
Are you ready for these changes? Hopefully you are!
If your retirement savings strategy for 2023 is already plotted, you can get a free second opinion of it from our financial advisors. Click here to set up a no-obligation meeting with one of them today.