IRS Raises 401(k) and IRA Contribution Limits for 2023

In November 2022, the Internal Revenue Service (IRS) announced inflation-induced changes to its contribution limits for 401(k) retirement plans and individual retirement accounts (IRAs) for the 2023 tax year. Discover the changes so you can plan accordingly. 

401(k) Contribution Limits for 2023

For 2023, the 401(k) plan contribution limit for employees is $22,500 ($30,000 for individuals age 50 and over). This is a $2,000 increase from the 2022 limit for individuals under age 50, and a $3,000 increase from the 2022 limit for individuals age 50 and over.

Note, the above limits relate to employee contributions. The IRS allows employers to contribute additional amounts to their employees’ 401(k) accounts. 

For 2023, the total contribution limit for an employer-sponsored plan (employee portion plus employer portion) is $66,000 ($73,500 for individuals age 50 and over). For 2022, the total contribution limit was $61,000 ($67,500 for individuals age 50 and over).

It is important to note that the employee contribution limits are aggregate limits and apply to all qualified retirement plans in which an individual participates in any year.

Also, the total contribution limits apply on a per plan basis. They are not aggregated. As a result, if you were to participate in multiple 401(k) plans in one calendar year, each of your employers could max out their contribution. However, for each plan, total contributions (employee portion plus employer portion) cannot exceed 100% of the employee’s earnings.

IRA Contribution Limits for 2023

For 2023, the IRA contribution limit is $6,500 ($7,500 for individuals age 50 and over). This is a $500 increase from the 2022 limit, regardless of age. This is an aggregate limit and applies to all IRAs held, regardless of type.

In addition to the contribution limit changes, the IRS also increased the income phase-out ranges for IRAs. The rules differ for traditional accounts and Roth accounts. 

Traditional IRA Income Phase-Out Ranges for 2023

The traditional IRA income phase-out ranges are complicated. Fundamentally, they apply to tax filers that either directly participate in an employer-sponsored retirement plan or indirectly do so through a spouse. 

For single and head of household taxpayers covered by a workplace retirement plan, the phase-out range is $73,000 to $83,000 for 2023, up from $68,000 to $78,000 for 2022.

For married couples filing jointly, if the spouse making the IRA contribution is covered by an employer-sponsored retirement plan, the phase-out range is $116,000 to $136,000, up from $109,000 to $129,000 for 2022.

For an IRA contributor who is not covered by an employer-sponsored retirement plan but is married to someone who is covered, the phase-out range is $218,000 to $228,000, up from $204,000 to $214,000 for 2022.

For a married individual filing a separate return who is covered by an employer-sponsored retirement plan, the phase-out range remains $0 to $10,000.

Roth IRA Income Phase-Out Ranges for 2023

The Roth IRA income phase-out ranges apply to everyone, regardless of direct or indirect participation in an employer-sponsored retirement plan. 

For single and head of household taxpayers, the phase-out range is $138,000 to $153,000 in 2023, up from $129,000 to $144,000 for 2022.

For married couples filing jointly, the income phase-out range is $218,000 to $228,000 in 2023, up from $204,000 to $214,000 for 2022. 

For married individuals filing separately, the phase-out range remains $0 to $10,000.

The phase-out rules prevent you from contributing to a Roth IRA if you earn a relatively high amount of income. However, the Internal Revenue Code contains a loophole that allows you to circumvent this restriction via a strategy known as the “backdoor Roth IRA.” Essentially, it entails funding a traditional IRA with after-tax dollars and, subsequently, converting the contribution into a Roth IRA.