The Internal Revenue Service (IRS) announced a record increase in 401(k) contribution limits for 2023, raising the standard amount from $20,500 to $22,500.
That’s an inflation-inspired increase of 9.8%.
Those 50 and older get more of a bump, as catch-up contributions increased from $6,500 to $7,500. In other words, if you’re at least 50 years old, you can contribute up to $30,000 to your 401(k) account(s) in 2023.
Also, the annual IRA contribution limit will move from $6,000 to $6,500. The maximum allowable income to remain eligible to fund an IRA also goes up 2023.
401(k) Contribution Limit: $2,000 Increase
Keep in mind that $22,500 is the total amount you can contribute to your 401(k) across all your accounts, including 401(k) plans at different companies.
Money expert Clark Howard says your first financial step should be to create an emergency fund. But after that, when you’re ready to invest, the first thing you should do is match your company’s 401(k) contributions, he says.
“The beauty of an employer match is that it’s the equivalent of an automatic pay raise,” Clark says. “No need to ask your boss, get a good quarterly review or hope your company has a good year so there’s money for a raise.”
For most people, increasing your 401(k) contributions up to the maximum allowed is the next step, even ahead of contributing to an IRA, Clark says. If you’re already reaching the max 401(k) contribution limit in 2022, you’ll be able to save an extra, tax-advantaged $2,000 toward your retirement next year.
You can make 2022 401(k) and IRA contributions through April 18, 2023. But remember, if you hit your maximum contribution limit prior to the end of the calendar year, you could lose out on any company match.