Although you can easily drive yourself mad by checking your 401(k) when the economy is in a slump (i.e. right now), there’s some good news from the IRS. And hey, how often have those words been lumped together?
Next year’s contribution limits for 401(k)s and other tax-advantaged retirement plans are being increased to account for inflation. Here’s what to know about the largest cap increase in recent history and what it means for your retirement plan.
How you can save way more in your 401(k) next year
First off, some context: As Money.com explains, the Treasury Department is legally required to increase the contribution limits according to the rise of living costs. This cap increase falls in line with the recent inflation-adjusted tax rules from the IRS (so learn how to save on your taxes next year, too).
Currently, 401(k) participants are able to contribute as much as $20,500 (which was already a $1,000 increase from 2021). Beginning in 2023, you will be able to contribute $22,500 to your 401(k) plan—a nearly 10% cap increase. Plus, those 50 and older will be able to contribute an addition $7,500 for a maximum contribution of $30,000.
What if I have a different type of retirement plan?
The new $22,500 contribution limit also applies to a some other types of retirement plans, including 403(b)s, most 457 plans, and the federal government’s Thrift Savings Plan.
IRAs are also getting a bump. The IRS is increasing the contribution limit for both traditional and Roth IRAs up to $6,500 in 2023. That’s a $500 increase from this year.
As AARP points out, the fact that pensions are increasingly uncommon means that most of us are counting on retirement-specific savings (plus Social Security) to actually retire. So, whatever your retirement plan, these inflation adjustments are necessary.
Read the full article here