Increased Savings Opportunities in 2023
Updated: Jan 12
Inflation has been in the news headlines and top of mind for the public in this past year as it peaked at 9.1% in June. [i] For those in retirement, this led to questions of whether you’ll be able to continue to afford your current lifestyle. For those who are still working and saving, this begs the question of whether your current savings rate will be enough to fund your lifestyle in the future. In response to this, the Social Security Administration increased benefit payments by 8.7% [ii] and the IRS increased saving contribution rates for retirement accounts in 2023. [iii] Here's what you need to know:
Contribution Limits for 401(k), 403(b), most 457 plans, and Thrift Savings Plans:
(This does not include employer contribution matches.)
For those age 50 and over, you can save an additional $7,500 (previously $7,000) in “catch-up contributions” beyond the new limit for a total of $30,000 in 2023.
Contribution Limits for Traditional and Roth IRAs (Individual Retirement Accounts)
The total listed below is for all your IRAs combined. For example, if you contribute $3,000 to your Traditional IRA, you may only contribute up to $3,500 into your Roth IRA. Salary limitations apply to Roth IRA accounts. I’ve detailed those changes below.
For those age 50 and over, you can save an additional $1,000 (unchanged) in “catch-up contributions” beyond the new limit for a total of $7,500 in 2023.
Roth IRAs have income phase out ranges, meaning those who make over a certain salary limit can no longer contribute to these retirement savings accounts. [iv] Phaseouts are not based on your total gross income, but rather on your modified adjusted gross income (MAGI), which is the portion of your income that remains taxable after you've claimed every tax deduction and exclusion that's available to you (with certain exemptions and deductions then added back in). [v]
Income Phase-Out Range (MAGI)
Single Filers/Head of Household
$129,000 and $144,000
$138,000 to $153,000
Married Couples Filing Jointly
$204,000 and $214,000
$218,000 and $228,000
Married Individual Filing Separate
$0 and $10,000
Remains the same
Contribution Limits for SEP IRAs: [vi]
25% of compensation or $61,000
25% of compensation or $66,000
The same contribution limits apply if you're self-employed. However, there is a special calculation to determine the maximum deductible contributions for yourself. [vii] Please note that contributions must be made in cash; you cannot contribute property.
Contribution Limits for SIMPLE IRAs (Savings Incentive Match Plan for Employees):
For those age 50 and over, you can save an additional $3,500 (previously $3,000) in “catch-up contributions” beyond the new limit for a total of $19,000 in 2023.
Should I increase my savings rate just because the IRS allows me to save more?
Truthfully, it depends. Of course, as financial advisors, we generally believe that saving more is better. However, each person has unique life circumstances and financial goals. To confidently advise you on increasing your savings rate to meet the new contribution limits, we recommend building a custom financial plan.
A financial plan is essential to everyone’s complete picture. It is the foundation from which we advise clients and how we invest their funds.
If you’re unsure whether your current savings rate is enough, allow our team to give you that clarity by building a personalized complimentary financial plan for you. Schedule an introductory call today.