Brett Rice | January 3rd, 2023

Contribution Limits for 2023: What You Need to Know

Tax-advantaged accounts have annual contribution limits. In some years, the IRS increases those limits, and for some accounts, an additional contribution is allowed for those over a certain age.

We'll take a look at the contribution limits for 2023.

401(k)s  and IRAs

A 401(k) is an employer-sponsored retirement account. A percentage of your income is automatically deducted from each paycheck and invested in your account. You can choose from the investment plans offered, typically a selection of mutual funds.

The account is funded with pre-tax money, lowering your taxable income. Once you start taking post-retirement withdrawals from the account, the money is taxed.

For 2023, the contribution limit for 401(k)s is $22,500. For those aged 50 and over, there is a catch-up contribution of an additional $7,500 for a total of $30,000.

An IRA is a tax-deferred retirement investment account. Contributions to a Traditional IRA are tax-deductible and can reduce taxable income, and post-retirement withdrawals are taxed. Roth IRA contributions are not tax-deductible, but post-retirement withdrawals are tax-free, and there are no taxes on the investment gains.

The 2023 contribution limit for both Traditional and Roth IRAs is $6,500. The catch-up contribution for those 50 and over is $1,000 for a total of $7,500.

There are income limits for Roth IRAs. For 2023, to contribute, single filers must have a modified adjusted gross income (MAGI) of less than $153,000, and for those who file jointly, your MAGI has to be less than $228,000.

403(b)

A 403(b) is a tax-advantaged retirement account for employees of non-profit organizations and some public-sector employees. The investments inside the account are not subject to capital gains taxes. Contributions are automatically deducted from your paycheck pre-tax, which lowers your taxable income. Post-retirement withdrawals are taxed.

For 2023, the contribution limit is $22,500, with an additional catch-up contribution of $7,500 for those 50 and older, for a total limit of $30,000. If an employee has been with the same eligible employer for 15 or more years, there is a bonus catch-up contribution of $3,000 per year up to a lifetime total of $15,000. This limit doesn't replace the federal catch-up limit, so those 50 and older can contribute $33,000 a year for five years.

Simple IRA

A SIMPLE (Savings Incentive Match Plan for Employees) IRA is similar to a 401(k) that small businesses can set up for employees. The advantage is that a SIMPLE IRA is easier to set up and administer than a 401(k).

Both employers and employees can contribute, but it's optional for employees and required for employers. Employees can choose to contribute pre-tax money, which lowers taxable income. Employers either make dollar-for-dollar matching contributions equal to 1% to 3% of their employees' salary or a non-elective contribution equal to 2% of salary regardless of whether an employee contributes.

Post-retirement withdrawals are taxed as normal income. For 2023, the contribution limit is $15,500, with an additional $3,500 for those 50 and older, for a total of $19,000.

SEP IRA

A SEP (Simplified Employee Pension) IRA is a tax-advantaged retirement account for those who are self-employed and small business owners with no or few employees. Contributions are tax-deductible, lowering taxable income, and post-retirement withdrawals are taxed as income.

If you have employees the IRS considers eligible participants in the plan, you must contribute on their behalf, and the contributions must be an equal percentage of compensation to your own.

For 2023, contributions an employer can make to an employee's SEP IRA cannot exceed the lesser of:

• 25% of the employee's compensation or
• $66,000 for 2023

There are no catch-up contributions for SEP IRAs.

HSA

An HSA (Health Savings Account) lets those with high-deductible insurance plans contribute money and withdraw it tax-free as long as it's used for eligible medical expenses like medications, deductibles, copays, coinsurance, and more.

For 2023, the contribution limits are $3,850 for individuals and $7,750 for families, and there is a catch-up contribution limit of $1,000 for those 55 and older for a total of $4,850-$8,750.

Indiana 529

A 529 Plan is a college savings plan that works similarly to a Roth IRA. After-tax contributions grow tax-deferred and can be withdrawn tax-free when the money is used to pay for qualifying educational expenses.

529 Plans don't have yearly contribution limits, but each state sets its own lifetime contribution limit. For Indiana, that limit is $450,000. Additionally, for 2023, those who contribute may be eligible for an annual state income tax credit of 20% of the contribution worth up to $1,500 each year.

If you have questions about contribution limits for 2023, coreVISION is here to help.