Who said inflation didn’t have any perks! This is one of them: according to the IRS, you can now sock away a much larger amount of money to your retirement plan. Whether you have a 401k, an IRA, or another plan, the IRS’s cost-of-living adjustments resulted in noticeably higher contribution limits for 2023.
Inflation is at the highest level in four decades, and it is a huge concern not only for savers but for voters as well this year. Food, rent, house prices, cars, and loan rates are some of the major headaches for consumers. However, there is a silver lining: you can contribute more to your retirement plan.
So how much extra can you contribute? Let’s look at the most popular plans:
- 401k and 403b plans. You can contribute $22,500, up from $20,500 last year. The total contribution from both your employer and you is $66,000 this year, up from $61,000 last year.
- IRA plans. This year, you can contribute a maximum of $6,500, up from $6,000 last year.
- Defined-benefit pension plans. The maximum annual benefit under a defined-benefit plan increases from $245,000 to $265,000.
Are you over 50? Uncle Sam is upping your catchup contribution limits to many plans as well. Defined contribution plans such as 401k and 403b plans now let you save an extra $7,500, up from the previous $6,500. IRA catchup limits, however, will stay the same as last year, at $1,000.
How you can take action
So how can you ensure that you will get to make the new higher contributions? If you have an employer-sponsored retirement plan, you may need to talk to HR about increasing your contribution each pay period. If you have an IRA, look for ways to find an extra $500. It may help to set up an automatic investing plan that diverts money from another account into your IRA so that your retirement contributions become automated.