401k and IRA Contribution Limits for 2023

Maximizing tax-advantaged retirement contributions to 401(k)s and IRAs allows you to supercharge your nest egg thanks to benefits like tax-deferred growth and compounding returns. The IRS adjusts contribution limits yearly – here are the new 401k and IRA limits for 2023 and strategies to optimize them.

2023 401k Contribution Limits

For 2023, the standard employee elective deferral contribution limits to 401(k) and similar employer plans are:

$22,500 for those under age 50
$30,000 for those aged 50 or older

The $30,000 “catch up” contribution represents a $1,000 increase over the 2022 limits.

Note that the total limit combines both traditional 401(k) and Roth 401(k) contributions. The employer match does not count towards these elective deferral limits.

Maximizing the 401k Contribution Limit

Contribute at least enough to get your full employer 401(k) match – this equals free money.

To reach the contribution limit:

Boost your contribution percentage sufficiently to hit the limit based on your salary. For the $22,500 limit, that is 15% of a $150,000 salary.
Contribute consistently each pay period instead of spotty contributions reaching the limit.
If your employer offers both traditional 401(k) and Roth 401(k) options, divide contributions to hedge your tax exposure.
Use windfalls like bonuses strategically to top up contributions until you reach $22,500/$30,000 for the year.
If changing jobs, track prior year contributions closely so you know how much additional you can contribute in your new employer plan.
Those over 50 should absolutely take advantage of the $7,500 catch up contribution opportunity.

Invest early and consistently to maximize account growth. Take full advantage of any matching to build wealth faster.

2023 IRA Contribution Limits

The IRA contribution limits for 2023 are:

$6,500 for those under age 50
$7,500 for those aged 50 or older

This includes both traditional and Roth IRAs. Note that income limits can restrict the ability to make direct Roth IRA contributions for higher earners.

Maximize IRA Contribution Savings

Follow these tips to optimize your IRA contributions:

Make sure to contribute by the tax filing deadline in mid-April to count for the prior tax year.
Split contributions to both traditional and Roth IRAs to diversify your tax exposure in retirement.
Fund IRAs with tax refunds and any year-end bonuses to quickly reach contribution limits.
If income limits affect direct Roth IRA contributions, make backdoor Roth IRA contributions instead. This involves making non-deductible traditional IRA contributions up to the limit, then converting them to Roth.
Consider maximizing IRA contributions before making non-matched 401(k) contributions since IRAs have more investment options.
Those unable to deduct traditional IRA contributions due to high income should focus on making Roth IRA contributions.

Fully funding IRAs each year provides significant retirement savings over time. Consistency and diligence leads to growth.

Additional Employee Contribution Limit Details

Keep these additional details in mind on elective deferral limits:

Catch up contributions can be made anytime during the year upon turning 50 but are not retroactive.
The deadline for contributions is the tax filing date, typically April 15.
Special limits called the Annual Additions Limit cap total employer and employee contributions but most avoid hitting it.
SEP IRA and SIMPLE IRA plans have their own distinct participant elective deferral limits.
Many employer plans impose a percentage limit on elective salary deferrals, for example capping contributions at 50% of wages.

Always check your specific employer plan rules for any additional provisions that impact your contributions.

Impact of Income Levels on Contribution Eligibility

Plan contribution eligibility can be impacted by your income levels in certain cases:

Traditional IRA Tax Deductibility

If covered by an employer plan, traditional IRA deductibility phases out between $68,000-$78,000 single filer income and $109,000-$129,000 for married joint filers.

Roth IRA Eligibility

Ability to make direct Roth IRA contributions phases out between $129,000-$144,000 single filers and $204,000-$214,000 joint. Backdoor Roth contributions can circumvent this.

Saver’s Credit Eligibility

The IRA Saver’s Credit income limits are $34,000 single filers, $51,000 heads of household, and $68,000 joint filers.

Social Security Taxation

Those earning above $34,000 single or $44,000 joint may have up to 50% of Social Security benefits taxed. At higher income levels, up to 85% can be taxed.

Factor income-based eligibility rules into strategic retirement planning.

Conclusion

Maximizing 401(k)s and IRAs accelerates retirement savings thanks to upfront tax breaks, tax-deferred growth, and compounded returns. Contribute aggressively within allowance limits and use catch up contributions at 50. Avoid delays – invest as early as possible each year. Pair with an ideal tax-managed investment approach. Diligently funding these accounts moves closer to the ultimate goal – a secure, comfortable retirement.

Key Takeaways

The 401(k) contribution limit is $22,500 for those under age 50, $30,000 for those 50 or older in 2023.
Maximize 401(k) contributions by earning any employer match and contributing enough to reach the annual limits.
The IRA contribution limit is $6,500 for those under age 50, $7,500 for those 50 or older in 2023.
Split IRA contributions between Roth and traditional accounts to hedge your tax exposure.
Take advantage of the IRA Saver’s Credit if you qualify based on income limits.
Backdoor Roth IRA contributions allow higher earners to circumvent income limits on direct Roth IRA contributions.
Review deduction and income eligibility phases based on your taxable income each year.

Frequently Asked Questions

What is the maximum I can contribute to my 401k?

For those under 50, the maximum 401k contribution is $22,500 for 2023. If 50 or older, you can contribute up to $30,000 thanks to an extra $7,500 catch up contribution allowance.

How much can I contribute to an IRA for 2023?

The standard IRA contribution limit is $6,500 for 2023. If you are aged 50 or above, you can contribute up to $7,500 including the $1,000 catch up allowance for older IRA account holders.

Can I have both a 401k and an IRA?

Yes, you can definitely contribute to both a 401k and an IRA account in the same tax year. Just be sure to stay within the separate contribution limits for each account. Maxing out both accounts is an ideal way to supercharge retirement savings.

What happens if I contribute over the IRA or 401k limit?

Exceeding the contribution limits leads to punitive tax penalties of 6% per year assessed for each dollar you contribute over the limit. You should immediately contact your IRA or 401k provider to remove any excess contributions to avoid penalty taxes.

How can I determine my total 401k contributions for the year?

Check your year-end pay stubs to see your total employee contributions. Add employer matching amounts shown. You can also contact your 401k administrator for an annual statement showing full contribution details.

Where can I find the latest IRA and 401k limits?

The IRS announces inflation-adjusted retirement account contribution limits for the coming tax year typically in October or November. Check the IRS site or consult with a financial advisor to get the latest updates.

Maxing out tax-advantaged retirement accounts should be a top priority element of everyone’s overall financial strategy. Sticking to annual contribution limits helps build wealth faster.