You Can Save a Lot More Money on Your 401(K) Next Year
While you can easily go crazy checking your 401(k) when the economy is in a recession (i.e. right now), there is good news from the IRS . And hey, how often have these words been mixed together?
Next year’s contribution limits for 401(k)s and other tax-advanced retirement plans increase to reflect inflation. Here’s what you need to know about the biggest cap increase in recent history and what it means for your retirement plan.
How to save on 401(k) next year
First, some context: As Money.com explains , the Treasury Department is required by law to increase contribution limits in line with rising costs of living. This cap increase is in line with recent IRS inflation-adjusted tax rules (so learn how to save next year in taxes too).
Currently, 401(k) members can contribute up to $20,500 (which is already $1,000 more than in 2021). Starting in 2023, you will be able to deposit $22,500 into your 401(k) plan, which is almost a 10 percent increase in the maximum amount. In addition, those aged 50 and over will be able to deposit an additional $7,500 with a maximum deposit of $30,000.
What if I have a different type of pension plan?
The new $22,500 contribution limit also applies to certain other types of pension plans, including 403(b), most 457 plans, and the federal government savings plan.
IRAs are also getting hit. The IRS is increasing the contribution limit for both traditional and Roth IRAs to $6,500 in 2023. That’s $500 more than this year.
As the AARP points out , the fact that pensions are becoming scarcer means that most of us are relying on retirement savings (plus Social Security) to help us retire. So, whatever your retirement plan, these inflation adjustments are essential.