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Retirement investment contribution limits have been in effect since the IRS started offering tax advantages to those who save for their golden years. Every once in a while, the IRS adjusts these contribution limits. On October 21, 2022, contribution limits were increased for 401(k), IRA, and most 403(b) and 457 plans for 2023.

Why the IRS Increased Contribution Limits

Your retirement savings should be enough to get you through your golden years. So, as inflation increases the cost of living, the IRS needs to increase contribution limits to allow you to save enough money for your retirement. 

Recently, inflation has been hitting record highs. With prices rising, the IRS must allow for retirement contributions that keep up with inflation.

What Are the New Retirement Contribution Limits?

The new 2023 contribution limits affect most tax-advantaged retirement investment accounts.

2023 401(k) Contribution Limit.

The new 401(k) increased contribution limit is $22,500. That’s up from $20,500 last year. 

2023 IRA Contribution Limit

The IRS increased the IRA contribution limit for 2023 from $6,000 to $6,500. The IRA catch-up contribution limit remains unchanged at $1,000, but it’s subject to a cost-of-living increase.

2023 Contribution Limits for Most 403(b) & 457 Plans

The new 401(k) contribution limit also applies to most 403(b) and 457 plans. That means if you have one of these plans, your contribution limit likely increased to $22,500. 

The Bottom Line

The bottom line here is simple. With prices for just about everything rising faster than most Americans have seen in the past, the IRS is making it easier to keep up with inflation in your retirement portfolio. Remember that these contribution limits only reflect the tax advantages of your investments. You’re free to invest more money into your retirement fund, but any value above these contribution limits will be taxed as standard income rather than tax-deferred income. 

Have questions about how much you should be contributed to your retirement accounts? Contact us to speak with one of our tax planning experts.