As inflation continues to be well above the target pace of 2Estate and Trusts% set by the Federal Reserve, no doubt you have been wondering how this will affect your retirement plans. According to the U.S. Labor Department, the current inflation rate for the United States as of November 10, 2022, was 7.7% — down from the high of 8.2% recorded in September 2022.
How your retirement portfolio reacts to inflation can mean the difference between a true full-time retirement in comfort or the reality of finding part-time work or side income. Moreover, record inflation could mean making temporary changes to your contributions.
The IRS has recognized the need to raise contribution limits to account for the dramatic increase in the cost of living. Notice 2022-55 details retirement account inflation-adjusted income tax figures for the 2023 tax year. We have highlighted the most notable changes below:
- The 401(k) employee contribution limit increases to $22,500 (up from $20,500).
- The catch-up contribution limit for taxpayers aged 50+ increases to $7,500 (up from $6,500).
- This increases the total 401(k) contribution for taxpayers age 50+ to $30,000 for 2023 ($22,500 regular contribution + $7,500 catch-up contribution).
- The IRA contribution limit increases to $6,500 (up from $6,000 for 2022).
- The $1,000 IRA catch-up contribution limit is not subject to cost-of-living adjustments and remains unchanged.
- Updates to the income phaseout range for contributions to a ROTH IRA are as follows:
- The Single Filers and Heads of Households range increases from $138,000 to $153,000 (up from $129,000 and $144,000).
- The Married Filing Jointly range increases from $218,000 to $228,000 (up from $204,000 and $214,000).
- The Married Filing Separate range remains at $0 to $10,000 (not subject to cost-of-living adjustments).
- The SIMPLE contribution limit increases to $15,500 (up from $14,000); and
- The SEP contribution limit increases to $66,000 (up from $61,000).
Get in touch
Remember that throughout your working and retired life, inflation will continue to erode the purchasing power of your retirement savings if you neglect to account for inflation. If you have questions about contribution adjustments, contact your Grimbleby Coleman accountant or advisor for a projection that can help you plan for your future. Email email@example.com or call (209) 527-4220.