The Internal Revenue Service (IRS) has released new limits for certain retirement accounts for the coming year. After months of high inflation and financial uncertainty, some of these cost-of-living-based adjustments have reached near-record levels.
Individual Retirement Accounts (IRAs)
Traditional IRA contribution limits are up $500 in 2023 to $6,500. Catch-up contributions for those over age 50 remain at $1,000, bringing the total limit to $7,500.
Remember, once you reach age 72, you must begin taking required minimum distributions from a Traditional IRA in most circumstances. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
The income phase-out range for Roth IRA contributions increases to $138,000-$153,000 for single filers and heads of household, a $9,000 increase. For married couples filing jointly, phase-out will be $218,000 to $228,000, a $14,000 increase. Married individuals filing separately see their phase-out range remain at $0-10,000.
To qualify for the tax-free and penalty-free withdrawal of earnings, Roth 401(k) distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal can also be taken under certain other circumstances, such as the owner's death.
Workplace Retirement Accounts
Those with 401(k), 403(b), 457 plans, and similar accounts will see a $2,000 increase for 2023, the limit rising to $22,500. Those aged 50 and older will now have the ability to contribute an extra $7,500, bringing their total limit to $30,000.
Once you reach age 72 you must begin taking required minimum distributions from your 401(k) or other defined-contribution plans in most circumstances. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
A $1,500 increase in limits for 2023 gives individuals contributing to this incentive match plan a $15,500 stop light.
Much like a traditional IRA, once you reach age 72, you must begin taking required minimum distributions from a SIMPLE account in most circumstances. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
As a reminder, this article is for informational purposes only. Consult with an accounting or tax professional before making any changes to your 2023 tax strategy.
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