IRS (Internal Revenue Service) has recently announced its 2023 limits for the 401K Contribution. According to the government wing, now the employees can contribute more to their savings plan. The prior limit was $20,500 but now it has been increased to $22,500.
401k is a retirement plan that is sponsored by the company. An employee contributes a certain amount and the employer adds the same value. This plan helps reduce the tax burden of an employee and also saves a certain amount for the future. The amount is automatically debited from the monthly income and thus, saves the hassle of doing anything manually.
IRS Announces 401(k) Contribution Limits For 2023
Now, this Thrift Savings Plan has seen an upside. IRS has increased the limit, allowing individuals to save more for the future and enjoy tax benefits. These changes were announced at the beginning of October.
Minute changes are applied to all retirement plans. These changes are set while keeping the rising inflation in mind. If an employee is aged over 50, he/she can add up to $7,500 more to the 401k retirement plan. If you want to learn more about the 401k retirement plan, you can always check out the official website of the IRS. There, you will get all the details about the plan and benefits.
Along with these changes, the federal government branch has also informed the changed income tax bracket for the next year. Those will come into effect by 2024 and would be adjusted according to the changing inflation.
More Changes Introduced By IRS
The annual contribution limit for an IRA account has now increased from $6,000 to $65,00 for an individual’s benefit. This increased contribution limit for people aged over 50 remains $1,000 and isn’t liable to any cost-of-living adjustment.
Those who are older than 50 and are participating in 401k, 457, and 403b plans can start contributing up to $30,000 from 2023. If you are participating in a SIMPLE plan and are older than 50, your savings slab will jump from $3,000 to $3,500 from 2023.
If a taxpayer meets a few conditions, he can lower his contribution. In the financial year, if the taxpayer or their partner has a retirement plan at the office, the deductions can be reduced. These changes completely depend on the income and filing status of the taxpayer. Their contribution in this situation can also phase out eventually. The 2023 phase-out ranges are –
- The earlier phase-out range was between $68,000 and $78,000 and now the range has increased between $73,000 and $83,000.
- If a married couple is filing for phase-out together and one of the spouses is making IRA contributions, the phase-out range will be from $116,000 to $136,000. It was between $109,000 and $129,000 earlier.
- If a couple is filing separate IRA returns, the phase-out range will be between $0 and $10,000. It will not be subject to any kind of cost-of-living alterations.
- If someone is an IRA contributor but isn’t covered by an office retirement plan, his phase-out range will be between $218,000 and $228,000. It was from $204,000 to $214,000 earlier. This plan is valid if the other spouse is covered under the retirement plan.
These changes have been introduced to ensure that employees don’t struggle after retirement. Due to the increasing inflation and never-stopping expenses, there is always a need to have a plan in action. A retirement plan where you can save small amounts of your income can help you stay stable in the long run.
If you want to learn further about the changes in the savings plans by IRS, visit their official website.