For employees who utilize traditional or Roth IRAs to save for retirement, the IRS has some encouraging news. You will be able to put an extra $500 to either account in 2023. The overall yearly contribution limit has now increased for the first time since 2019 to $6,500. A further $1,000 can be contributed by anyone over the age of 50.
Additionally, the IRS raised the income thresholds for IRAs, enabling you to earn more money while still benefiting from tax-free Roth accounts or tax-deferred regular IRAs.
Due to the most recent annual revisions, you will also be able to invest more through employment retirement plans like 401(k)s and 403(b)s in 2023. You should also be aware of the following.
The limits on IRA contributions are good news
The IRS boosted the yearly contribution limits for IRAs by $500, bringing the total to $6,500. This will thrill workers who want to maximize the benefits of their retirement accounts. Age 50 and older individuals are eligible to make a catch-up payment of $1,000, which is the same as in 2022.
Maximum contributions to employer-sponsored plans, including the well-known 401(k) and 403(b) plans, increased even more to $22,500 for 2023. People over 50 are eligible to make $7,500 in catch-up payments.
Another employer benefit, the SIMPLE IRA’s contribution cap rose to $15,500 in 2022 from $14,000.
Greater IRA income restrictions
The increase in IRA income limitations, if only slightly, is good news for savers. The table below shows the MAGI thresholds for 2023 to determine if a person qualifies for a Roth IRA.
| FILING STATUS | MAXIMUM INCOME FOR FULL CONTRIBUTION | PHASES OUT AT |
|---|---|---|
| Individual, head of household | $138,000 | $153,000 |
| Married filing jointly | $218,000 | $228,000 |
The Roth IRA limitations for individuals and heads of household in 2022 were $129,000 to $144,000 and $204,000 to $214,000 for married couples filing jointly.
But if you still want to benefit from the account, you might be able to create a backdoor Roth IRA; just be mindful of the tax repercussions.
The MAGI thresholds for traditional IRAs have also been raised for 2023 in order to allow for contribution deductions. Please take note that these restrictions only apply to you and your spouse if your employer offers a retirement plan.
| FILING STATUS | MAXIMUM INCOME FOR FULLY DEDUCTIBLE CONTRIBUTION | DEDUCTIBILITY PHASES OUT AT |
|---|---|---|
| Individual, head of household | $73,000 | $83,000 |
| Married filing jointly | $116,000 | $136,000 |
Your contributions are entirely deductible, regardless of your income, if you and your spouse do not have access to an employer plan.
The only distinction between the regular IRA and the Roth IRA is the income cap. Here are a few additional major distinctions and which account is preferable for investors.
To sum up
Since the cost of living has grown due to high inflation, the IRS permits you to contribute more to your retirement savings because you’ll need it to maintain your current quality of living. Maximize your IRA and employer-sponsored retirement plans if you can. Another option to think about is a health savings account, which offers various tax benefits and can be invested in.
