Contribution limits for both Traditional and Roth IRAs have witnessed an uptick this year. Specifically, they’ve been raised to $22,500.
If your retirement plan includes an IRA, separate from or alongside a company’s 401k, it’s crucial to monitor these changes. Notably, IRAs generally have a smaller contribution ceiling than 401ks, so any upward shift should be capitalized upon.
Specifics of IRA Limit Adjustments in 2023
For the first time in several years, the IRS has confirmed an adjustment to the contribution ceiling for both traditional and Roth IRAs for 2023.
For individuals below 50, the new limit has been set at $6,500, marking a $500 increase from the previous year. Those aged 50 and above can add an extra $1,000, bringing their total permissible contribution to $7,500.
Remember, if you decide to contribute to both a Roth and a traditional IRA, their limits are combined. So, contributing $4,000 to a Roth IRA means you can only add $2,500 to a traditional IRA. If you’re over 50, you can adjust this with the extra $1,000.
Historical Perspective: IRA Limits Over the Years
| Year | Up to Age 49 | Age 50 and Over |
|---|---|---|
| 2002-2004 | $3,000 | $3,500 |
| 2005 | $4,000 | $4,500 |
| 2006-2007 | $4,000 | $5,000 |
| 2008-2012 | $5,000 | $6,000 |
| 2013-2018 | $5,500 | $6,500 |
| 2019-2022 | $6,000 | $7,000 |
| 2023 | $6,500 | $7,500 |
Income Restrictions for Roth IRAs in 2023
Roth IRAs come with income restrictions. Essentially, as your income increases, your allowable contribution decreases, potentially phasing out entirely.
For single filers or those married but filing separately (and did not cohabit with their spouse during the year), the phaseout begins at a Modified Adjusted Gross Income (MAGI) of $138,000 and maxes out at $153,000. For joint filers, the range is between $218,000 and $228,000.
What These Numbers Mean Practically
Should your earnings be under the first column’s value, and you’re below 50, your contribution can be the full $6,500; those 50 or over can contribute $7,500. If your earnings surpass the second column’s value, Roth IRA contributions in 2023 are off the table, unless you opt for alternative strategies like a back-door Roth IRA conversion.
Making 2022 Contributions in 2023
For both Traditional and Roth IRAs, you’re not confined to the calendar year. Contributions for a given year can extend up to its respective tax day. In 2023, this deadline is Tuesday, April 18th. So, if you’re lagging on your 2022 contributions, you can make up for it till then. And if you’re chipping in after the New Year, ensure you specify which tax year it’s intended for.
Being Aware of Limitations and Phaseouts
When you’re navigating through Roth or Traditional IRA contributions, stay informed about the evolving limits and phaseouts. If you’re nearing the phaseout thresholds, it might be wise to consider strategies to minimize your taxable income, such as contributing to a 401k or making charitable donations.
Lastly, are you thinking of upping your contributions next year, regardless of stagnant limits?
