IRS Raising Retirement Account Contribution Limits for 2023: What It Means For Your Financial Future

by Adam Palasciano
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Updated on October 31, 2022
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Starting to save for retirement is key to ensuring a safe, bright, and prosperous financial future during that magical time when you don’t have to work for your money anymore. After many decades of grinding every day, you’ve saved and invested enough money over the years. So, now your money works for you!

With inflation rampant, the IRS has made the decision to raise annual contribution limits to IRA and 401(k) plans in 2023. Let’s take a look at what this means for your financial future.

What Are The Current IRS Retirement Account Contribution Limits?

IRAs

Here are the current retirement contribution limits for traditional IRAs in 2022, as per the IRS:

  • Individuals can contribute up to $6,000 per year (or $7,000, if age 50 or older)

Important facts to note:

  • You don’t owe taxes on traditional IRA funds until you withdraw the funds
  • All IRA contributions are tax-deductible up to the IRS limits
  • You must wait to withdraw money from an IRA until 59½ or older to avoid penalties
  • Required minimum distributions by age 72, in 2022 (except for Roth IRAs)
  • Your income affects the amount you can contribute (a single individual making less than $129,000 can contribute up to $6,000 a year or a married couple earning a combined income of less than $204,000 can contribute up to $6,000 a year each, in 2022)

401(k) Retirement Plans

Here are the current retirement contribution limits for traditional 401(k)s in 2022, as per the IRS:

  • Individuals can contribute up to $20,500 a year (with the option to add an additional $6,500 catch-up contribution each year, if age 50 or older)

Important facts to note:

  • You must wait to withdraw money from an IRA until 59½ or older to avoid penalties
  • Required minimum distributions by age 72, in 2022
  • There are usually no income limits on 401(k) plan contributions like there are for IRAs
  • You can take out a “401(k) loan” from your retirement account, before age 59 ½, but you’ll have to pay it back within a certain timeframe, to avoid penalties

What Are the New IRS Retirement Account Contribution Limits?

Here are the contribution limit increases for IRAs, as per the IRS:

There will be a $500 annual contribution increase from $6,000 in 2022 to $6,500 in 2023 (thanks, inflation).

Here are the contribution limit increases for traditional 401(k)s, as per the IRS:

There will be a $2,000 annual contribution increase from $20,500 in 2022 to $22,500 in 2023.

Due to record inflation, the IRS has decided to make a considerable contribution limit increase as we move into 2023. This means that you’ll be able to save and earn more on your investments each year, which in and of itself is a weapon against inflation.

Why Is It Important To Contribute To Retirement Accounts Early in Life?

Let’s keep this simple: the earlier in your life that you’re able to start contributing to any and all retirement accounts, the better for you later on. Why? Well, because of the magic of compound interest. The greater the number of years that your interest starts earning interest, the more wealth you’ll grow. It’s that simple!

The Bottom Line

Getting ahead from a young age by contributing to your retirement accounts as early and as often as possible will equate to a financially secure future for you and your loved ones. If you have access to an employer-sponsored 401(k) plan and you’re able to start a Roth IRA on your own too, even better!

Read More: House Passes SECURE Act 2.0: Here’s What That Means For Retirement Savings