What are the new 401k and IRA limit increases for 2023 and how do they affect your pension?
To prevent tax avoidance the IRS sets a limit on how much a person can contribute to their retirement accounts. How much will they increase for 2023?
To prevent tax evasion, the Internal Revenue Service (IRS) puts a cap on the amount of money that can be contributed to a 401(k) each year. Announced on Friday, the IRS will increase the contribution limit by $2,000 to $22,500 for 2023.
Workers who are saving for retirement with 401(k), 403(b), most 457 plans, and the Thrift Savings Plan can contribute up to $22,500 to those plans in 2023.
For those saving in a traditional or Roth IRA the 2023 limit on contributions rises to $$6,500 next year, a $500 increase.
The “catch-up” contribution limit for employees age 50 or older who are involved in these plans also increases from $6,500 to $7,500 for 2023 for a total limit of $30,000.
What percent of workers have a defined contribution plan?
In 2021, the BLS reported that 61 percent of workers had access to a defined contribution plan, up from 54 percent in 2011. The average for workers in the private sector was 65 percent, whereas those in government were more likely to have access to a defined benefit plan, like a pension.
However, access to these accounts are not available to all workers, and non-unionized and low-income workers are much less likely to be offered a defined contribution plan. In March 2021, the BLS reported that showed that ninety-one percent of workers that formed part of a union were offered a individual retirement account.
For those without a union the rate is 30 percent lower, at 61 percent. Similar trends are seen among low-income workers; only 42 percent of the lowest twenty-five percent of wage earners are offered any type of retirement account, while the rate is around 88 percent for the highest 25 percent.