IRS Announces Retirement-Related Updates for Tax Year 2023

In Notice 2022-55, released on October 21, 2022, the IRS announced the changes coming to retirement-related items for the tax year 2023.  These include contribution limits, income ranges, and cost-of-living adjustments.

The contribution limit for 401(k), 403(b), most 457 plans, and the federal Thrift Savings Plan is increased to $22,500, up from $20,500.  The catch-up contribution limit for those employees aged 50 and over will increase from $6,500 to $7,500, allowing such participants to contribute up to $30,000 in 2023 in those plans.  The contribution limit for SIMPLE retirement accounts will be $15,500 (up from $14,000) and the catch-up contribution limit will be $3,500, a $500 increase from 2022.  The annual IRA contribution limit will increase from $6,000 to $6,500, although the catch-up contribution limit for people aged 50 and over will remain at $1,000 and is not subject to annual cost-of-living adjustments.

The income ranges for determining eligibility to make deductible contributions to traditional and Roth IRAs and to claim the Saver’s Credit will all increase for 2023.  Contributions to traditional IRAs can be deductible by the taxpayer if certain conditions are met.  If the taxpayer and their spouse are not covered a retirement plan at work, there are no deduction phase-outs, but if either the taxpayer or their spouse are covered, the deduction may be phased out until eliminated, depending on filing status and income.  The phase-out ranges for traditional IRAs will be:

• Single taxpayers covered by a retirement plan at work: the phase-out range will increase to between $73,000 and $83,000 (up from between $68,000 and $78,000)
• Married couples filing jointly: if the spouse making the IRA contribution is covered by a retirement plan at work, the phase-out range will increase to between $116,000 and $136,000 (up from between $109,000 and $129,000)
• IRA contributors who are not covered by a workplace retirement plan but are married to someone who is covered: the phase-out range will increase to between $218,000 and $228,000 (up from between $204,000 and $214,000)
• Married individuals filing a separate return who are covered by a workplace retirement plan: the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

The income phase-out ranges for contributions to a Roth IRA will be:

• Between $138,000 and $153,000 for single taxpayers and heads of household
• Between $218,000 and $228,000 for married couples filing jointly
• Between $0 and $10,000 for married individuals filing separately (no cost-of-living adjustment and remains the same as the previous year)

For the Saver’s Credit (also known as the Retirement Savings Contributions Credit for low- and moderate-income workers), the income limits will be $73,000 for married couples filing jointly; $54,750 for heads of household; and $36,500 for single taxpayers and married people filing separately.

©2022 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date and should not be construed as accounting, tax, or financial advice. Please consult your tax advisor concerning your specific situation