In response to the rapid increase in the cost of living due to inflation, the IRS has decided to greatly expand the limit of the contributions you can make toward your retirement funds. Since inflation is here to stay, many people are worried about whether or not their savings will be enough to live off of by the time they need to use them in the future. By allowing you to invest more, you are able to better compensate for these higher costs during retirement. But what exactly are these new IRS limits for 2023? Maggi Tax has everything you need to know right here.
The New Limit For Your 401K
For employment-based 401K retirement funds, the increase is quite generous. Just last year, employees under 50 years of age had a limit of $20,500 while employees over 50 years old had a limit of $27,000. For the 2023 tax year, the IRS increased this limit to $22,500 for those under 50 and $30,000 for anyone over. To be more technical, that’s a spike of $2,500 and $3,000 respectively. When planning for retirement, every bit counts which is why people who are willing to contribute more are ecstatic to hear this news. But what if you have a different type of retirement fund than a 401K? Don’t worry, you weren’t forgotten.
The New Limit For IRAs and Roth IRAs
Whether you have Roth IRA funds or a traditional IRA account, all types are subject to the 2023 IRS increase. Just last year, the maximum was $6,000 for people under 50 and $7,000 for those over 50. Although not as significant as the 401K increase, the IRS has allowed an additional $500 to be added to the maximum amount of contributions for every account. That means new limits of $6,500 and $7,500 respectively. Regardless, this is still great news for those looking to donate more financial support to their future selves. A little-known fact is that you can actually have multiple retirement funds at the same time. But which one should you prioritize in response to these new limits? It may be worth it to review the differences between a 401K and a Roth IRA.
What Should I Do With This Information?
To get a better idea of the situation, the current inflation rate is around 6%. You may have noticed some of your favorite snack foods going up in price, or your grocery store totals may have been surprising you the last few trips. What can you do in response? If you have a 401K, you may want to take advantage of the recent increase. If your employer is matching your contributions, then you can capitalize on all that free money! Alternatively, you can just continue focusing on your Roth IRA for tax-free withdrawals as a sort of backup plan in case you need a bit of financial help before you reach the age of 59 ½. For the best advice, it’s always a good idea to visit your trusted financial advisor.
Schedule Your Free Consultation With Maggi Tax!
If you’re not sure what you should be doing with your retirement funds or need help adjusting your investments in response to inflation, contact Maggi Tax today at (727) 799-1701 to schedule your free consultation! We’ll help guide you and set you on the right track for healthy finances that will help you in the future.