Changes to 2023 Qualified Plan Savings Allowances
As expected, there have been some historic changes to qualified plan contribution limits starting in 2023. This is applicable to plans such as 401k's, 403b's and 457's. IRA and Roth IRA contribution limits have increased as well. Below is a breakdown of the changes.
$22,500
is the new maximum salary deferral for qualified plans, including ROTH 401k's. If you are turning 50 in 2023, or are older than 50, the "catch-up" contribution has been increased to $7,500. That is a $1,000 increase in the catch-up limit. So, if you are 50 or older, your allowed contributions to your employer plan are $30,000 in 2023! If you're under 50, it's $22,500. These numbers DO NOT include any employer matches.
$6,500
is the new IRA and Roth IRA contribution limit starting in 2023, a $500 increase. If you are turning 50 in 2023, or are older than 50, the "catch up" is remaining unchanged at $1,000 for a total of $7,500 for those 50 and older.
What You Need to Do
If you historically have been maxing out your retirement contributions, in January you'll need to log into your plan portal and bump up your deferral by $2,000 (annualized). If you're doing a percentage of salary that's already maxing you out by year-end, you might not need to do anything. If you are doing a fixed dollar amount and want to max it out, you'll need to up the amount by $2,000 / # of payrolls. It depends on your plan setup. I can help you get this squared away if needed.
Don't let too much time go by before you make the change. If you receive 26 paychecks throughout the year and you make the change before the first salary deferral period, that's only $76.9 per paycheck. Each pay period that you wait makes each required contribution that much larger if you intend on maxing out by the end of the year.
So put a reminder in your phone, mark your calendar, or we can remind you.
What if You're Not on Track to Max Out?
I would encourage you to still increase your salary deferral by some percentage. Consider increasing it by 10% from last year. So if you were doing $100 per paycheck, bump it up to $110 per paycheck, and so on. Every dollar counts and each dollar you defer goes a lot further now than it did a year ago given the market is down 20%.
A Few Other Savings Updates...
Simplified Employee Pension IRA (SEP IRA) contribution limits are increasing by $5,000 to $66,000 for 2023.
If you are a "super saver" and are maxing out the after-tax bucket of your 401k, your TOTAL limit between all contribution sources is $73,500 if you are 50 or older. If you're under 50, the maximum contribution from all sources (pretax/Roth, employer match, and after-tax) is $66,000! Still a $5,000 increase from 2022!!!
Lastly, if you are unfamiliar with what I call the "Mega Roth Contribution" and your plan allows for it, we need to talk! You could be missing out on some significant tax-free savings opportunities. Not every plan allows this, and it is typically the larger plans with companies like Qualcomm, Johnson and Johnson, Microsoft, etc. If you don't know if your plan allows it or not, we can help you figure that out.
These are the biggest adjustments I have seen in my career, all thanks to inflation.