4 Ways the New IRS Account Limits Could Impact You in 2023

By Sara

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Last Updated: January 10, 2023

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With a new year comes many changes, especially when it comes to your finances.

Every few years, the IRS will increase contribution limits to match inflation. These limits have been increased in 2023, which means that you can invest more in certain accounts that have limits placed on them.

Here is everything you need to know about these changes in the upcoming year so you can plan your contributions accordingly. 

 

 

4 Ways the New IRS Account Limits Could Impact You in 2023

Employer Retirement Accounts 

If you are an employee with an employer retirement account, your yearly contribution limit has increased for 2023.

Your new contribution limits for 2023 are $22,500 if you participate in a:

  • 401(k)
  • 403(b)
  • 457 plan
  • or the federal government’s Thrift Savings Plan

This is a $2,000 increase from the 2022 contribution limits. If you are 50 years or older, you can contribute $7,500 additionally as a catch-up contribution. 

If you have one of these employer retirement accounts, you should increase your monthly contributions to reflect the $2,000 increase if you elect to contribute to the limit. For example, if you started this contribution increase in January, then you want to ensure you are putting away $1,875 a month. 

Most employers offer matches if you contribute to your employer-sponsored retirement account. Each employer is different, but usually, you will receive a percentage of a match based on what you put in. These employer-matching contributions do not impact your personal contribution limits. 

However, there is a total limit to both your personal contributions and employer contributions. The total contribution limit is $66,000 or $73,500 with the catch-up. This total contribution limit was raised from $61,000 or $73,500 in 2022. 

 

Individual Retirement Account - Traditional and Roth 

If you have a traditional Individual Retirement Account (IRA) or a Roth IRA, your yearly contribution limits and income caps have increased for 2023.

IRAs are retirement accounts that most employed individuals can open up on their own.

For 2023, the contribution limits for both a Traditional and Roth IRA are $6,500.

This is a $500 increase from the 2022 contribution limits. If you are 50 years old or older, your limit is $7,500 for 2023, up from $7,000 in 2022. One caveat for any IRA account is that if you make less than $6,500, you can only contribute your total taxable income for that year. 

Not only are contribution limits updated every few years for an IRA, but the income limit will be increased as well.

This only applies to a Roth IRA because of the tax advantages.

If you want to open a Roth IRA, the new income limit for a single individual is $138,000.

If you make more than this in a year, you are not eligible to contribute to a Roth IRA. You can keep your account open, but not contribute again until you make less. This income cap was $129,000 for 2022. If you are married and file taxes jointly, this income cap is $218,000. 

If you are able to contribute towards a Traditional and/or Roth IRA, start planning for how much you can contribute each month to be able to contribute that total amount.

You need to at least open an account in 2023 and can contribute until tax day the following year, which can give you some wiggle room of $500+ a month to contribute in this account is too much to do in 12 months. 

 

Health Saving Account 

If you have a high deductible healthcare plan, you most likely will have the option to open up a Health Savings Account (HSA).

An HSA is a tax-advantaged account where you can save and sometimes invest pre-taxed income dedicated to a health expense. The funds can be used now or well into the future. The funds don’t have to be used up in that contributing year and can be used 20+ years down the road for future medical expenses. 

In 2022, the amount an individual could contribute towards an HSA was $3,650 or $7,300 if you have a family.

The new 2023 contribution limits are $3,850 for an individual and $7,750 for a family. If you are over 50 years old, you can contribute an additional $1,000. This catch-up amount stayed the same for 2023.

If your employer provides matches or contributions towards your HSA, you will have to reduce the monthly amount you contribute to not exceed the individual or family limit. 

 

Flexible Spending Account 

Most employers sponsor a Flexible Spending Account (FSA) for paying medical expenses during the year.

Some employers allow unused funds to be rolled over and used for a few months into the new year, while others do not allow this. For 2023, the contribution limit for an FSA account is $3,050. In 2022, this limit was $2,850.  

 

 

Final Thoughts on the New IRS Account Limits

Making financial plans for the new year is crucial, especially if you have any of the above accounts.

Planning properly for the new IRS account limits in 2023 will help you to max out your contributions to these accounts if you can. 

Photo by Tima Miroshnichenko

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