Here are the 401(k) contribution limits for 2023
Americans who save for retirement through a 401(k) account will be able to increase their maximum pre-tax salary contributions by almost 10 percent in 2023, thanks to the new limit he announced on Friday Internal Revenue Service.
That limit increase is the largest in decades, the tax agency said, as rapidly rising costs for items including food, energy and rent put financial pressure on many Americans.
In 2023, employees can to contribute up to $22,500 a year, with $20,500 in 401(k), 403(b) and other tax-advantaged employer savings plans. Also included are 457 plans that are available to public servants and workers in other tax-exempt institutions.
The cap on so-called catch-up contributions, for people over 50, also rose to $7,500 from $6,500. That means workers over age 50 can contribute a maximum of $30,000 to those plans next year. Maximum contributions to individual retirement accounts will increase by $500, to $6,500.
“Many of these adjustments were larger than we’ve seen in a long time because of higher inflation,” said Anqi Chen, senior research economist at the Center for Retirement Research at Boston College.
This was also shown by the consumer price index report for September, published last week inflation remained painful. The overall index rose 8.2 percent from a year earlier, down slightly from 8.3 percent in August. The IRS determined the new limits using inflation data.
Federal agencies have recently made changes to combat the effects of rising costs on consumers. This week, the IRS confirmed that some taxpayers will see savings on their bills as the agency adjusted tax rates for about 7 percent. Earlier this month, Social Security announced An 8.7 percent increase in the cost of living as older Americans struggle to keep up with rising costs. The cost-of-living adjustment, known as COLA, was the largest since 1981.
“Since the start of the pandemic, participants have remained disciplined and continued to contribute to their 401(k) plans,” said Carolyn Wegemann, a spokeswoman for Vanguard. She added: “It was particularly encouraging to note that participants remained disciplined and continued to save for retirement amid significant market uncertainty.”
The average employee contribution rate remained constant in 2021 at 7.3 percent, Ms. Wegemann said.
As of March, 69 percent of private industry workers had access to pension plans through their employers, and about 52 percent participated, according to the data Institute for Labor Statistics. U March 202067 percent of private industry workers had access to employer-provided plans.
Experts say the higher limits won’t significantly change the overall savings picture for workers.
“The vast majority of working people are not saving to the max,” said Teresa Ghilarducci, a professor of economics at the New School for Social Research who specializes in retirement policy. “Therefore, raising the limits benefits only a few.”
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