IRS raises contribution limits for retirement savings plans

[Yo_Mama_Been_Loggin]

Americans will be allowed to contribute more of their money to 401(k) and similar retirement saving plans next year.

The IRS said Friday that the maximum contribution that an individual can make in 2023 to a 401(k), 403(b) and most 457 plans will be $22,500. That’s up from $20,500 this year.

People age 50 and over, which have the option to make additional “catch-up” contributions to 401(k) and similar plans, will be able to contribute up to $7,500 next year, up from $6,500 this year. That’s means a 401(k) saver who is 50 or older can contribute a maximum of $30,000 to their retirement plan in 2023.

The IRS also raised the 2023 annual contribution limits on individual retirement arrangements, or IRAs, to $6,500, up from $6,000 this year. The IRA “catch-up” contribution limit remains at $1,000, as it’s not subject to an annual cost of living adjustment, the IRS said.

https://www.msn.com/en-us/money/other/irs-raises-contribution-limits-for-retirement-savings-plans/ar-AA13fiPQ

[TexasBushwhacker]

1. I still don't understand that my IRA contributions are limited

to a third of what people can contribute to their 401Ks. I work for a tiny company (my boss, his wife and me). He doesn't like tax deferred retirement plans for himself, so we don't have one. Makes zero sense to me.

[iemanja]

2. I guess because it's money shielded from taxes

but still, I get your point. It doesn't seem fair if you don't have another retirement plan.

All my plan has done in the past year or so is lose money.

[TexasBushwhacker]

3. I have a traditional IRA

It lowers my taxable income now, but I will have to pay taxes on it when I make withdrawals, not unlike a 401K.

Now I could see having a limit on a Roth IRA because its contributions are taxed income, and all its growth, until you retire, isn't subject to tax either.

[iemanja]

4. Yeah, mine is a Roth

And the whole idea is to shelter the earnings from taxation.

[Ms. Toad]

6. We've got both - depending on our financial situation on the front end.

Early on we converted all of our IRAs to Roth in years when we were in a relatively low tax bracket. In years when I had no taxable income we put the maximum in a Roth (i.e. 100% of my below-taxable-level income went into a Roth - so it is treated as if taxes were paid going in, since none were owed). As income rose, we put our annual deposits into regular IRAs. We'll decide where to pull it from now that we're retired based on our income in a particular year.

[Ms. Toad]

5. Completely agree -

Despite contributing the maximum I was allowed every year since IRAs first came into existence, most of our retirement plan is viewed as "savings," rather than retirement for the same reason. My employer in the job where I was making 6 figures for a few years liked to keep his savings under the mattress - and didn't really trust his lower-level employees to invest wisely. So they didn't offer a 401K.

Enter a daughter going to a very pricey college. The college viewed the money we had socked away outside of our formal retirement plans as available to pay for school. So we were viewed as having enough assets to put us over the financial aid limits and we had to pay full tuition out-of-pocket. Whereas those who were able to shield 3 times the amount in a 401K were viewed as having financial need - and got significant financial assistance.

Same amount of money tucked away as others with 401K accounts. I was penalized tax-wise (since I couldn't shield it going into the accounts) - AND - because it wasn't tucked away in a tax-advantaged account it was considered accessible to pay for school. A double whammy, just because my boss was paranoid. All of us employees volunteered to pay any fees associated with the accounts - and any individual feesl which the lower-paid employees might have needed to pay. But since it requires the employer stamp of approval to set it up, we were SOL.

[TexasBushwhacker]

7. I'll match your boss's paranoia and raise you a tinfoil hat

My boss and his wife "read somewhere" that if Biden was elected, everyone who still had a mortgage on their home was going to have "repossessed" by the federal government.

They sold $250K worth of QQQ ETF at the end of 2019, paid 20% capital gains tax on it and paid off their 4% mortgage. While it is down some now, by the end of 2021, it had DOUBLED in 2 years! Their paranoia cost them $250K - plus tax!

And he's a CPA!

[Ms. Toad]

8. My bosses were Democrats . . .

Unfortunately, it didn't save them from paranoia and a lot of paternalistic/controlling behavior.