The 401(k) contribution limit is the maximum amount employees can contribute to their retirement plan each year. The IRS has released new limits for retirement accounts in the United States. The new limits are based on the cost of living increases and will take effect in 2023. A few changes will impact 401(k) accounts.
As a worker, you may be wondering if the 401(k) contribution limit increases for 2023 will apply to you. The limit increases for this plan year will apply to participants aged 50 and up.
401 (k) Contribution Limit Increases for 2023
First of all, you should make sure to contribute at least 20% of your annual income. The IRS recently increased the annual 401(k) contribution limit from $20,500 to $22,500, an increase of more than $2,200 from this year. The increase is effective in 2023 and applies to most 401(k) plans, 457 plans, and the federal government’s Thrift Savings Plan.
The catch-up contribution limit for 401(k) plan contributors over 50 was raised from $6,500 to $7,500. The catch-up contribution applies to 401(k) plans, 403(b) plans, and the Thrift Savings Plan. Self-employed can also make catch-up contributions of up to $3,000 to their 401(k).
The income phase-out range is a major change to the 401(k) contribution limit. This will affect those making under $138,000 and over $129,000. This will make it harder for people to contribute as much as they want. However, if you are self-employed or have a small business, you can contribute more than $18,000 to your plan. The income phase-out range for SEP IRA is increasing, too. In 2023, the income limit will be up to $73,000 for married couples filing jointly.