At the start of this month the IRS has announced an increase in the amount of contributions people can make to their 401(k) plans, from $22,500 to $23,000 in 2023. This announcement coincides with a related update (Notice 2023-75) which explains the cost-of-living adjustments and how it affects dollar limitations on pension plans for retirement.
Breakdown of Changes
On top of the $500 increase in 401(k), 403(b), and other 457 contribution plans there is also an increase in annual contributions to IRAs from $6,500 to $7,000. Taxpayers are able to deduct contributions to a traditional IRA if they fall under certain criteria. Filing status and income are two of the biggest factors that determine if a taxpayer or their spouse can deduct retirement contributions or if the deductions will be phased-out.
The phase-out ranges depend on filing status and are listed below:
Single Taxpayers: $77,000-$87,000 (an increase from the previous $73,000-$83,000)
Married Filing Jointly: $123,000-$143,000 (If the spouse making the contributions is covered by a workplace retirement program)
IRS Contributor not covered by workplace retirement plan but is married to someone who is: $230,000-$240,000
Married Filing Separately: Remains at $0-$10,000
The range of income within which taxpayers can make contributions to a Roth IRA has been adjusted. For singles and heads of household, the new range is $146,000 to $161,000. For married couples filing jointly, the revised range is $230,000 to $240,000. Married individuals filing separately and contributing to a Roth IRA have a fixed phase-out range of $0 to $10,000, which does not change with annual cost-of-living adjustments.
Additionally, the income limits for the Saver’s Credit, also known as the Retirement Savings Contributions Credit (RSCC), have been updated for low- and moderate-income workers. For married couples filing jointly, the new limit is $76,500, for heads of household, the limit is now $57,375, and for singles and married individuals filing separately, the limit has increased to $38,250 . Furthermore, the maximum contribution that individuals can make to their SIMPLE retirement accounts has been raised to $16,000, up from the previous limit of $15,500.
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