2023 Retirement Plan Contribution Limits – 401(k), IRA, Roth IRA, SEP-IRA And More

2023 retirement plan contribution limits are here for 401(k)s, 403(b)s, 457(b)s, IRAs, Roth IRAs, HSAs, FSAs, SIMPLE IRAs, and SEP IRAs. In general, the retirement plan contribution limits are going up because they are all indexed to inflation.

Retirement plan contribution limits don't go up every year. Instead, contribution limits generally go up every two-to-three years. However, we are in special times due to elevated inflation.

Even the 2022 Social Security cost of living adjustment increased by an impressive 5.9% for 2022. The increase will translate to an addition of $92 to retirees’ average monthly benefit next year.

Further, the maximum Social Security benefit increased from $3,148 in 2021 to $3,345 in 2022. For 2023, the Social Security cost of living adjustment is expected to go up by another 8.7%!

Elevated Inflation Is Why Retirement Plan Contribution Limits Are Increasing

Below is the latest inflation figures from the Bureau Of Labor Statistics. As you can see from the chart, inflation really started to pick up in February 2021 and has remained elevated since.

As supply issues work its way through the system, inflation will like decline by 2023. Therefore, don't expect 2023 retirement contribution limits to be as great as the ones in 2022. But here they are anyway.

Historical inflation through 2022

Below are the latest 2022 retirement plan contribution limits for all the major plans.

401(k) and 403(b) Employee Contribution Limit For 2023

For 2023, the total employee contribution limit to all plans for those under 50 will increase to $22,500, up from $20,500 for 2022, and up from $19,500 in 2021. This is the largest 401(k) and 403(b) retirement contribution increase in the history of the 401(k) and 403(b). In the past, the maximum annual contribution limit increase for these plans was $500 to $1,000.

The catch-up 401(k) contribution limit increases to $7,500 in 2023 from $6,500 in 2022 if you are over 50. In other words, if you're over 50, you can contribute $22,500 + $7,500 = $30,000 to your 401(k) in 2023. Not bad!

Here's a post on how much you should save in your 401k by age. It's important to have some 401k by age target goals to keep you focused. Everything is relative in personal finance. You might think you're saving a lot in your 401(k), when in reality, you're falling behind.

401(k)/403(b)/401(a) Employer And Total Contribution Limit For 2023

What some people do not realize is that the employee contribution limit is only one part of the 401(k) and 403(b) plan contribution limit. There is also the employer portion of the contribution limit, which is actually much more. Therefore, strategically, you want to work for an employer who also contributies to your 401(k) or 403(b) in terms of profit-sharing and company matching.

For 2023, the employer maximum contribution limit is $43,500. Therefore, the total contribution limit is $66,000 for those under 50. If you are over 50, then the total contribution limit is $6,500 more, or $73,500.

Take a look at this chart I put together on the historical 401(k) contribution limits.

Historical 401(k) contribution limit through 2023

2023 457(b) Contribution Limit

A 457(b), also known as a deferred compensation plan, is offered to state and local government employees such as police officers, firefighters, or other civil servants.

Some highly paid executives at certain nonprofits like hospitals, charities, and unions are also able to use 457(b) plans.

You can think of the 457(b) plan as a 401(k) for a government or tax-exempt organization worker. However, there are a couple of unique differences that make a 457(b) even more attractive.

457(b) contribution limits will also increase from $20,500 to $22,500. 457(b)s have unique catch-up contribution rules, so consult with your plan administrator if you are interested in putting more in your 457(b).

Traditional and Roth IRA Contribution Limits

Contribution limits for traditional and Roth IRAs increases by $500 to $6,500 for 2023. If you are over 50, then you can contribute $7,500, or an extra $1,000.

Be aware that not everybody can contribute to a traditional or Roth IRA, unlike a 401(k) or 403(b). The income limit for singles to contribute the maximum to a traditional IRA is only $68,000 for 2022, up from $66,000 in 2021. The income limit for married couples to contribute the maximum to a traditional IRA is $109,000 or less.

Finally, the income limit for singles for the Roth IRA is $129,000 (phase out begins) to $144,000. For married couples, the income limit for married couples to contribute to a Roth IRA is $204,000 (phase out begins) to $214,000.

Opening up a custodial Roth IRA for your children is a no brainer. And if you are making money in middle school, high school, college, and in your 20s, please contribute to a Roth IRA. I regret not contributing to a Roth IRA. If I did, I would have over $200,000 today.

For those of you who are older and considering doing a Roth IRA conversion, it's probably not going to be very beneficial. Paying taxes on a higher income doesn't make sense.

2023 SEP-IRA Contribution Limits

If you own a small business, you might offer you and your employees a SEP-IRA. SEP-IRA contribution limits will increase to $67,000 in 2023, up from $61,000 per year in2 2022, and up from $58,000 per year in 2021.

In order to contribute the maximum $67,000 to a SEP-IRA, your small business needs to pay the employee at least $335,000. In other words, a company can contribute about 20% of an employees salary to a SEP-IRA. The SEP-IRA, in turn, is a business deduction that lowers a business's taxable income.

2023 SIMPLE IRA and SIMPLE 401(k) Contribution Limits

If a business doesn't offer a SEP-IRA, it might offer a SIMPLE IRA or SIMPLE 401(k) to save money. Contribution limits will increase from $14,000 in 2022 to $15,000 in 2023.

2023 Health Savings Account (HSA) And Flexible Savings Account (FSA) Contribution Limits 

While the Health Savings Account and Flexible Savings Account are technically not for retirement purposes, people use them to save for retirement anyway. The HSA and FSA should be used for medical-related expenses. Contributions are made pre-tax. However, any money leftover can be saved.

For single people, the HSA contribution limit will increase from $3,650 in 2022, to $3,850 in 2023, and up from $3,600 in 2021. Family coverage is always double the single coverage, so it will increase from $7,300 to 7,700 in 2023.

The HSA is only possible if you have a High Deductible Health Plan (HDHP). You really have to weigh the pros and cons because sometimes, a HDHP will cost you more than a low deductible health plan with higher premiums.

Personally, I've decided to get a regular Gold plan, which precludes me from getting a Health Savings Account.

Healthcare FSA contribution limits will increase from $2,850 in 2022 to $3,050 in 2023.

2023 Estate Tax Exemption

Although the estate tax exemption is not a retirement plan, it's worth knowing what it is every year for estate planning purposes. The 2023 estate tax exemption rises to $12.92 million per person, up from from $12.06 per person in 2022, and $11.7 million per person in 2021. For married couples, the 2023 estate tax exemption is $25.84 million.

These are record-high estate tax exemption amounts, which President Biden plans to cut in half. Let's see what happens.

In addition to the increased estate tax exemption amount, the gift tax annual exclusion amount rises from $16,000 in 2022 to $17,000 in $15,000 in 2021 to $16,000 in 2022. Therefore, if your estate is above the estate tax exemption amount or plans to be, it would be wise to start giving more money away while living. You can also now superfund a 529 plan with $85,000 in 2023.

Historical Estate Tax Threshold through 2023

The 401(k) Is The Best Retirement Plan

Out of all the retirement plans, the 401(k) is the most powerful given it has the highest contribution limit. If you can max out you 401(k) and then contribute to a Roth IRA, you will have the best retirement combination.

As a retiree, you want to diversify your retirement income sources for taxation purposes. You don't really know what taxes will be in the future. Therefore, it's good to diversify.

Below is a chart that shows how much you could have in your 401(k) by age if you max it out every year starting in 2022. With a 8% compound annual return, you will have over $1 million in your 401(k) by age 45 and close to $5 million by age 60.

401(k) maximum contribution and what you could have if you maxed it out each year

The lesson learned from the chart above is: always contribute the maximum you can to your 401(k) and ALL tax-advantaged retirement accounts. Over time, your retirement account balances will grow larger than you will ever expect due to compounding.

Here are the 2024 retirement contribution limits. The contribution limits for the 401(k), 403(b), 457, Roth IRA, and traditional IRA all go up.

Retirement Contribution Limits Should Continue To Go Up

The increase in retirement contribution limits for 2023 is a good sign that the government is on our side. The government won't let inflation it away our buying power too much. That said, it's still important to build passive income through our taxable investment accounts.

In addition, building a rental property portfolio is also a great way to generate retirement income. Personally, half of our retirement income comes from real estate. It's best we rely on our own efforts to take care of our financial future.

Retirement will come before you know it. When it does come, you want to have plenty in your retirement accounts to pay for the rest of your life. Social Security benefits should pay out as well. But again, it's best not to count on the government for retirement.

Recommendations For A Better retirement

1) Utilize a free wealth planner to track your wealth. My favorite free wealth management tool is Empower. I've been using Empower to track my net worth, x-ray my investment portfolios for excessive fees, and plan for retirement since 2012.

NewRetirement is a good alternative to Empower, but it is not free. NewRetirement was built specifically for retirement planning with more customizable features. The more you can stay on top of your finances, the better you can optimize your financial future.

2) Educate yourself more about retirement planning. Pick up a hardcopy of my new Wall Street Journal bestseller, Buy This, Not That: How To Spend Your Way To Wealth And Freedom. With 28 years of finance experience, I go deep into investing, retirement planning, family planning, and more. You've only got one life to live. You might as well make the most of it!

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