If you’ve purchased groceries lately, you know prices have increased over the past year because of inflation. If you want specifics, the federal Consumer Price Index (CPI) shows that food prices have jumped by 11.2%, energy prices by 19.8%, and the index for all items measured by 8.2% (over the 12-month period ending September 2022).1 This increase in the price of consumer goods also affects IRAs and retirement plans. Each year, the IRS applies the CPI to a formula to determine whether certain tax-related limits will be increased, including those that cap how much you can save for retirement each year in IRAs and retirement plans.
In some years, there is no adjustment to the retirement saving limits. But because of the significant increase in the CPI over the past year, the IRA and retirement plan contribution limits will be increasing for 2023 – in some cases by a lot. Higher contribution limits can be a silver lining to the harmful effects of inflation. As inflation occurs year over year, many retirement savers may find that their nest eggs won’t provide as much for them in retirement as they had once thought. Taxpayers that can save more for retirement may be able to grow a larger nest egg to help combat the loss of purchasing power that comes with inflation.
In addition to raising the contribution limits, the IRS also increased the income ranges that phase out a taxpayer’s ability to deduct the amount of their IRA contribution from their taxable income or contribute to a Roth IRA. These increases should allow more savers to take advantage of the tax benefits of IRAs.
Traditional and Roth IRAs
You are eligible to contribute to a Traditional IRA if you (or your spouse) have earned income for the year to support your contribution. You are eligible to contribute to a Roth IRA if you (and your spouse) have earned income that supports the contribution but does not exceed the income limit for the year. You may contribute to both types of IRAs in the same year up to the annual limit in aggregate.
| Traditional & Roth IRA Contribution Limit |
2023 |
2022 |
| Maximum amount you may contribute to your IRAs for the year |
$6,500 |
$6,000 |
| Maximum catch-up contribution if you’re age 50 or older |
$1,000 |
$1,000 |
Traditional IRA Deductions
If you contribute to a Traditional IRA, you are eligible to take a tax deduction for your contribution if neither you nor your spouse participates in a retirement plan at work. If either of you do participate in a workplace retirement plan, your compensation must fall within specified limits to qualify for a deduction.
2023 Traditional IRA Deductibilty if Participate is in a Emplyer-Sponsored Plan
| Filing Status |
Modified Adjusted Gross Income |
Deduction Eligibility |
| Single or head of household |
- $83,000 or more
- More than $73,000 but less than $83,000
- $73,000 or less
|
- Not deductible
- Partially deductible
- Fully deductible
|
| Married filing jointly and IRA owner is a participant |
- $136,000 or more
- More than $1116,000 but less than $136,000
- $116,000 or less
|
- Not deductible
- Partially deductible
- Fully deductible
|
| Married filing jointly and only Spouse is a participant |
- $228,000 or more
- More than $218,000 but less than $228,000
- $218,000 or less
|
- Not deductible
- Partially deductible
- Fully deductible
|
| Married filing separately |
- $10,000 or more
- Less than $10,000
|
- Not deductible
- Partially deductible
|
Roth IRAs
Your modified adjusted gross income must fall within or below the applicable phase-out range to be eligible to contribute to a Roth IRA.
2023 Roth IRA Contribution Eligibility
| Filing Status |
Modified Adjusted Gross Income |
Deduction Eligibility |
| Single or head of household |
- $153,000 or more
- More than $138,000 but less than $153,000
- $138,000 or less
|
- Not eligible
- Partial contribution
- Full contribution
|
| Married filing jointly |
- $228,000 or more
- More than $218,000 but less than $228,000
- $218,000 or less
|
- Not eligible
- Partial contribution
- Full contribution
|
| Married filing separately |
- $10,000 or more
- Less than $10,000
|
- Not eligible
- Partial contribution
|
Employer-Based Retirement Plans
The COLAs also affect contribution and other limits for employer-based IRA plans and 401(k) plans.
| SEP IRA Plan |
2022 |
2022 |
| Minimum you must earn to be eligible for an employer contribution |
$750 |
$650 |
| Maximum employer SEP contribution = 25% of compensation up to … |
$66,000 |
$61,000 |
| Maximum compensation considered for calculating employer contributions |
$330,000 |
$305,000 |
| SIMPLE IRA Plan |
2023 |
2022 |
| Maximum amount you may put into a SIMPLE IRA as a salary deferral |
$15,500 |
$14,000 |
| Maximum catch-up contribution if you’re age 50 or older |
$3,500 |
$3,000 |
| Maximum compensation considered for calculating an employer nonelective contribution |
$330,000 |
$305,000 |
| 401(k) Plan |
2023 |
2022 |
| Maximum amount you may put into a 401(k) plan as a salary deferral |
$22,500 |
$20,500 |
| Maximum catch-up contribution if you’re age 50 or older |
$7,500 |
$6,500 |
| Maximum employee and employer contributions combined |
$66,000 |
$61,000 |
| Maximum compensation considered for calculating employer contributions |
$330,000 |
$305,000 |
1 U.S. Bureau of Labor Statistics, Consumer Price Index