Millions of Americans can save more in retirement accounts next year, after inflation adjustments made Friday by the Internal Revenue Service.

The employee contribution limit for 401(k) and similar workplace plans will jump $2,000 to $22,500 for 2023, the largest increase ever in terms of dollars and percentage, according to benefits provider Milliman. About 60 million American workers have 401(k) plans, according to the Investment Company Institute.

The amount taxpayers can contribute to an individual retirement account will be $6,500 for 2023, up from $6,000. The limit hasn’t changed since 2019.

The 401(k) catch-up contribution amount allowed if you are 50 or older will rise $1,000 to $7,500 for 2023. The catch-up contribution limit for individual retirement accounts, which isn’t subject to inflation adjustments, remains at $1,000.



For workers at companies that allow special after-tax contributions, and self-employed folks who have individual 401(k)s or SEP retirement plans, there is a total $66,000 plan contribution limit for 2023, up $5,000 from this year. That includes employee and employer contributions. With catch-up contributions on top, older savers can contribute up to $73,500 in 2023 to these plans.

The retirement news follows Tuesday’s announcement of adjustments to income tax brackets and dozens of other adjustments including the estate and gift tax exclusion, made annually under formulas set by Congress.

The higher limits offer a big savings opportunity.

“You may not feel the pinch now, and you’ll reap the rewards later in retirement,” says Maria Bruno, head of U.S. Wealth Planning Research at Vanguard, which administers retirement plans for nearly five million participants.



In Vanguard’s retirement savings plans during 2021, 14% of participants saved the maximum amount of $19,500 ($26,000 for those age 50 or older). Six in 10 participants with income of more than $150,000 made catch-up contributions.

Thirty-seven percent of households owning traditional IRAs or Roth IRAs in mid-2021 made contributions in tax year 2020, according to the Investment Company Institute. The median contribution amount was $5,000.

The inflation adjustments also apply to the income thresholds that determine whether taxpayers can deduct IRA contributions on their income tax returns, and whether taxpayers can contribute to a Roth IRA.

In 2023, the deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes between $73,000 and $83,000, up from between $68,000 and $78,000 this year. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the deduction is phased out for taxpayers with income between $116,000 to $136,000 for 2023, up from between $109,000 to $129,000 this year.

For a saver who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction for traditional IRA contributions is phased out if the couple’s income is between $218,000 and $228,000 in 2023, up from between $204,000 and $214,000 this year.

For Roth IRAs, where the money you contribute is after tax, eligibility to contribute is based on your income. Once you are in a certain income range, the amount you can contribute to a Roth IRA is reduced, until you reach the income level where contributions are no longer allowed.

In 2023, the Roth IRA income range where eligibility phases out is between $218,000 and $228,000 for married couples filing jointly, up from between $204,000 and $214,000 this year. For singles and heads of household, the income range is between $138,000 and $153,000 in 2023, up from between $129,000 and $144,000 this year.

If you earn too much to get a deduction for contributing to an IRA, you can still contribute—it just won’t lower your tax bill.

If you earn too much to open a Roth IRA, you can open a nondeductible IRA and convert it to a Roth IRA in a move known as a backdoor Roth IRA.

The adjustments are designed to keep your retirement savings on pace with inflation. “If investors can increase their contributions, that money has the power to compound immensely over time,” says Ms. Bruno.

Corrections & Amplifications
For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the deduction is phased out for taxpayers with income between $116,000 to $136,000 for 2023. An earlier version of this article incorrectly said the range was $116,00 to $136,000. (Corrected on Oct. 21)

Write to Ashlea Ebeling at ashlea.ebeling@wsj.com

LINK: https://www.wsj.com/articles/i...=trending_now_news_1

Our friends in DC are actively trying to close the back door Roth loophole. Closing it was in the original build back better law that Manchin wouldn’t vote for. Not sure about the disaster that finally passed. If your AGI is over the limit for a direct Roth contribution and you want to put money in a traditional IRA then convert to a Roth, please seek professional advice from your CPA. I’m sure there’s an entire faction of DC parasites that absolutely despise the Roth and the potential for tax cows to save their own money and grow it tax free

Good point. I run this stuff by my CPA every year. I remember what he said about the penalties to take the RMD. They are just hoping you make an error.

Perhaps my tinfoil hat is getting a little too tight, but why do we suppose, in a time of unsustainable spending and unsustainable debt, the government wants us to put more of our money into retirement accounts?

And let's not forget the recent hiring spree at the IRS.

Something ain't right here.

quote:

Millions of Americans can save more in retirement accounts next year, after inflation adjustments made Friday by the Internal Revenue Service.

Exactly how are ANY changes to 401(k) and/or IRA contribution limits made at the discretion of the IRS? Such changes would require legislative action would they not?

There is this...

quote:

The retirement news follows Tuesday’s announcement of adjustments to income tax brackets and dozens of other adjustments including the estate and gift tax exclusion, made annually under formulas set by Congress.

...but there aren't any specifics re: contribution limits, and you'd thing such significant changes, i.e. "$2,000 to $22,000 for 2023", would warrant more details on such a legislative accomplishment!

Did I miss something or is this just another poorly written article?

quote:

Originally posted by Gustofer:
Perhaps my tinfoil hat is getting a little too tight, but why do we suppose, in a time of unsustainable spending and unsustainable debt, the government wants us to put more of our money into retirement accounts?

And let's not forget the recent hiring spree at the IRS.

Something ain't right here.

Seriously? There is nothing wrong here at all, it is all perfect.

This year we bump the limits. We get a lot of suckers^H^H^H^H^H^H^H uh, I mean taxpayers to put more money into 401Ks and IRAs, most administered by our friends at the big financial companies. After a year or two, when the next hiccup in the market hits, we pass a law requiring some significant portion of retirements funds to be invested in the safety of Treasuries. It really is all about protecting retirees from that scary market. It has nothing to do with funding our next ridiculous spendthrift idea.

Remember, we are from the government and we are here to milk^H^H^H^H uh, I mean help you.

I don't believe there is a connection between increased limits and any plan to confiscate savings.

Income tax rates are going to go up. They have to, or, the fedgov has to default on debt. At some point there will be nobody to buy government debt.

They will first raise taxes enormously, secondly make a faint attempt at reducing federal spending, then finally they'll default on debt in some manner, perhaps with some trickery around going to a national digital currency.

Along the way they may well confiscate retirement savings under the guise of protecting the poor schlub average worker from market woes, but at best that is a very short term stop-gap to government bankruptcy.

Retirement savings are still a great deal, especially if your employer matches contributions. I remain a big fan of ROTH accounts, at least as a form of diversification (taxes) from traditional retirement accounts and non-retirement accounts.

The government will have an extraordinarily tough time confiscating retirement accounts, and won't be able to do it by instant decree. Investors will have time to cash out first, though traditional accounts will incur steep tax rates. That's one reason to go ROTH, because you can avoid huge taxes on a lump-sum distribution of your entire retirement savings.

So now we're supposed to put money we no longer have (spent at the gas pump) into tax-deferred investments so that our blessed Uncle Sam has more to confiscate when it suits him? The Federal Govt. has been trying to figure out how to "harvest" the retirement funds of citizens for decades, their greed is insatiable.

quote:

Originally posted by Gustofer:
Perhaps my tinfoil hat is getting a little too tight, but why do we suppose, in a time of unsustainable spending and unsustainable debt, the government wants us to put more of our money into retirement accounts?

And let's not forget the recent hiring spree at the IRS.

Something ain't right here.

Because someday they’re going to take it all.

The Democrats have been dying for years to force every American with a 401k into a government-run type system like the Thrift Savings Plan (TSP) but all investments and everything else would be controlled by the government.

They want that money badly and if we let them, they’ll take it someday.

In addition, for people under about age 45 I would be very skeptical of ever getting meaningful Social Security or Medicare. It is hugely important for younger people to save aggressively. You'll have neither pensions nor government benefits.

Using possible government trickery in the future as an excuse not to take full advantage of tax-advantaged retirement plans is self harming behavior.

That’s a good reminder for me to contact HR and find out if I have under-contributed for the year and make a few catch up contributions. Been hit hard to the tune of about 34% but I’m buying good stuff at a discount.

Nothing nefarious is happening. The IRS gets plenty when RMDs kick in. Having to withdraw money you do not need at the moment is already happening.
Can't have Senior dressed in rags and starving on the streets.

quote:

In addition, for people under about age 45 I would be very skeptical of ever getting meaningful Social Security or Medicare. It is hugely important for younger people to save aggressively. You'll have neither pensions nor government benefits.

^^^^^^^^^^^^^^^I
I doubt that, but agree it is important to save. Those two programs are sacred cows.

quote:

Originally posted by ZSMICHAEL:

quote:

In addition, for people under about age 45 I would be very skeptical of ever getting meaningful Social Security or Medicare. It is hugely important for younger people to save aggressively. You'll have neither pensions nor government benefits.

^^^^^^^^^^^^^^^I
I doubt that, but agree it is important to save. Those two programs are sacred cows.

They are sacred cows.

In fact, they're called the 3rd Rail of politics, meaning if you touch them, you're dead.

quote:

Originally posted by ZSMICHAEL:

quote:

In addition, for people under about age 45 I would be very skeptical of ever getting meaningful Social Security or Medicare. It is hugely important for younger people to save aggressively. You'll have neither pensions nor government benefits.

^^^^^^^^^^^^^^^I
I doubt that, but agree it is important to save. Those two programs are sacred cows.

I had that discussion 20 yrs ago with my now ex-wife. Her position was that the fedgov would not let retirees be homeless or go without health care.

My response to her, and to anybody else, is where will the $$ come from when the government is literally bankrupt? At some point the government is unable to make the payments, so then what happens?

On the present trajectory, the government will be unable to fund all the expenditures it has obligated itself to. Debt service, entitlements, national defense, roads, all the various departments (DOJ, EPA, etc), and government payrolls are soon to be beyond the ability to be paid for.

When the value of the dollar is inflated away to 1/1,000 the current value, but SS checks aren't increased it is the same as taking away the program. When the copays and deductibles for Medicare get jacked way up it will be the same as taking away the program.

What I foresee is a tapering program plus more aggressive means testing. For the means testing, they will implement some kind of net worth test which reduces benefits for the "rich". That will save immediate cash. The tapering will be age based. e.g. people over age 50 will get their full entitlement. Those under age 40 will get nothing, with those between 40 and 50 getting a pro-rata portion. The FICA taxes will continue for everybody out to some distant date, perhaps 50 years in the future, to fund those who do receive benefits.

I believe an attempt to confiscate retirement accounts would be met with hostile resistance, as would an attempt to suddenly dump people off of SS and Medicare.

Nobody should assume the government will continue to provide meaningful SS and Medicare indefinitely.

I also don't discount the impact of the under 40's and their kids. The "OK Boomer" mentality could become pervasive, and honestly I wouldn't blame my grandkids' generation refusing to pay debt incurred well before their adulthood for things they don't benefit from.

quote:

Originally posted by Fly-Sig:
I also don't discount the impact of the under 40's and their kids. The "OK Boomer" mentality could become pervasive, and honestly I wouldn't blame my grandkids' generation refusing to pay debt incurred well before their adulthood for things they don't benefit from.

Then they wouldn’t mind me to say piss off when they want me to pay off THEIR student loans they willing took out…

quote:

Originally posted by nhracecraft:

quote:

Millions of Americans can save more in retirement accounts next year, after inflation adjustments made Friday by the Internal Revenue Service.

Exactly how are ANY changes to 401(k) and/or IRA contribution limits made at the discretion of the IRS? Such changes would require legislative action would they not?

There is this...

quote:

The retirement news follows Tuesday’s announcement of adjustments to income tax brackets and dozens of other adjustments including the estate and gift tax exclusion, made annually under formulas set by Congress.

...but there aren't any specifics re: contribution limits, and you'd thing such significant changes, i.e. "$2,000 to $22,000 for 2023", would warrant more details on such a legislative accomplishment!

Did I miss something or is this just another poorly written article?

I was thinking and wondering the same thing.

My retirement accounts are down 25% right now. I'm starting to feel like putting any more in is just flushing cash down the toilet at this point.

quote:

Originally posted by PASig:

quote:

Originally posted by Gustofer:
Perhaps my tinfoil hat is getting a little too tight, but why do we suppose, in a time of unsustainable spending and unsustainable debt, the government wants us to put more of our money into retirement accounts?

And let's not forget the recent hiring spree at the IRS.

Something ain't right here.

Because someday they’re going to take it all.

The Democrats have been dying for years to force every American with a 401k into a government-run type system like the Thrift Savings Plan (TSP) but all investments and everything else would be controlled by the government.

They want that money badly and if we let them, they’ll take it someday.

They do not need to take it. All they have to do is create inflation by watering down the dollar. It has the same effect. They print more dollars, give it away, and back it up with our retirement savings.
Not only are account balances down the dollars in it are worth less.