Next year, the pre-tax amount you can contribute to retirement will increase.
The IRS announced Friday that individual employees will be able to contribute up to $22,500 to a 401(k) retirement plan for the 2023 tax year, up from $20,500 in 2022.
Employees will also have a total annual limit of $66,000 in 2023, up from $61,000 this year, under the IRS’s defined contribution plan. The provision sets limits on retirement plan contributions through employer-sponsored plans, which may include matching dollar amounts some companies provide for employees’ retirement savings.
The changes are part of a set of cost-of-living adjustments, or COLAs, announced by the federal government amid the highest inflation rate in four years. The announcements include the largest COLA adjustment to Social Security since 1981, as well as a 7% increase in the income tax bracket that determines how much the federal government gets from your paycheck.
About 60 million people in the U.S. are active in 401(k) plans, according to the Association of Regulated Investment Funds, the Investment Company Association. Data released last month by the U.S. Bureau of Labor Statistics showed that 52 percent of private-sector workers are enrolled in an employer’s defined-contribution retirement plan.
The IRS also increased the annual contribution limit for individual retirement arrangements from $6,000 to $6,500.
While saving for retirement is important, not everyone is happy with their progress on this front.
A new survey by Bankrate.com shows that 55% of people now say they are behind on their retirement goals, up from 52% last year. The average 401(k) plan balance in August was $103,800, down 20% from last year and down 15% from the first quarter of 2022, according to Fidelity data cited by investment site Fool.com.
The S&P 500 has fallen about 22% this year. JPMorgan Chase President Daniel Pinto said in an interview with CNBC that the stock market will fall further as the Fed struggles to fight inflation.
“I don’t think we’ve seen the bottom of the market yet,” he said
Bankrate found that employees are reducing their contributions to retirement accounts due to inflation; 54% of those who didn’t increase their contributions blamed higher prices.
“More than a third of employees feel they are ‘significantly behind’ on their retirement savings,” Greg McBride, chief financial analyst at Bankrate, said in a release. “Those who already feel behind. Workers who feel they are on track or ahead of where they should be are twice as likely to contribute this year.”