IRS contribution limits for 401k, IRA and retirement accounts rises for inflation

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IRS increases 401 k IRA contribution limits for inflation

The IRS announced Friday that Americans can contribute more to retirement accounts. Photo: Al Drago/Bloomberg via Getty Images The is raising contribution limits for tax-deferred retirement plans by a record 9.8% for 2023 because of inflation. Driving the news: Starting next year, Americans can contribute up to $22,500 into 401(k), 403(b) and most 457 plans — $2,000 more than the current $20,500 contribution limit, the Friday. The jump is the largest increase ever in terms of dollars and percentage, according to benefits provider Milliman, reports. Why it matters: With the cost-of-living adjustments, Americans will be able to save more money for retirement, which in many cases will lower their income tax. Meanwhile, the limit on annual contributions to an IRA increased to $6,500, up from $6,000.The IRA catch‑up contribution limit for individuals aged 50 and over is not subject to an annual cost‑of‑living adjustment and remains $1,000, the IRS said. Between the lines: The for determining eligibility to make deductible contributions to traditional IRAs, to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2023, the IRS said.

IRS tax brackets updated for 2023

Separately, this week the IRS announced and standard deductions for next year. like these, and recent ones for , are now crucial in an era of soaring inflation, Axios’ Emily Peck reports. State of play: Inflation is hitting Americans hard right now. In September, soared and were up 8.2% compared to a year before.By adjusting the tax brackets — as the IRS does every year — it is attempting to stop "," which happens when inflation pushes taxpayers into a higher income tax bracket without an increase in real income, Axios' Herb Scribner reports.

FSA contribution limits up in 2023

Of note: The IRS also announced this week and said it is raising the limit for contributions to health flexible spending arrangements to $3,050, up from $2,850 for 2022. Editor's note: This story was updated with additional information. More from Axios:

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