IRS raises limits for retirement savings accounts for 2023 taxes

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The amount of pre-tax money you can contribute to your retirement is increasing next year.

Individual employees will be able to contribute up to $22,500 to their 401(k) retirement plans for the 2023 tax year, up from $20,500 in 2022, the Internal Revenue Service announced Friday.

Under the IRS’s defined contribution plan provision, employees will also see a total annual limit of $66,000 in 2023, up from $61,000 this year. This provision governs limits to the retirement plan contributions made through an employer-sponsored program, which can include matching-dollar amounts that some companies make toward employee retirement savings.

The changes are part of a group of cost-of-living adjustments (COLA) the federal government has announced amid the highest inflation rates in four decades. Those announcements include the largest COLA adjustment for Social Security since 1981, and a 7% shift upward in the income tax brackets that determine how much money the federal government gets out of your paycheck.

Approximately 60 million Americans are active participants in 401(k) plans, according to the Investment Company Institute. Data released in September from the U.S. Bureau of Labor Statistics notes that 52% of all private industry workers participate in their employer’s defined contribution retirement plan.

The IRS also increased the limit on annual contributions to an Individual Retirement Arrangement (IRA) from $6,000 to $6,500.

As important as it is to save for retirement, not everyone is happy with their progress on that front.

A new Bankrate.com survey shows 55% of Americans now say they are behind on their retirement goals. That’s an increase from 52% in 2021. The average 401(k) plan balance was $103,800 as of August, according to Fidelity data cited by investment site Fool.com — down 20% from a year prior and down 15% from the first quarter of 2022.

The S&P 500 has lost approximately 22% of its value in 2022. In a new interview with CNBC, the JPMorgan Chase president Daniel Pinto said stocks have further to fall as the Federal Reserve works to fight inflation.

I don’t think we’ve seen the bottom of the market yet,” he said  

Bankrate found employees are now reducing their contributions to retirement accounts as a result of inflation, with 54% of those who haven’t increased their contributions blaming price increases.

“More than one-third of workers feel they are ‘significantly behind’ on their retirement savings,” Greg McBride, Bankrate chief financial analyst said in a Bankrate.com release. “And those who already feel behind are twice as likely to be contributing less this year than workers who feel they’re on track or ahead of where they should be.”



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