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New Retirement Contribution Limits for 2023

The Internal Revenue Service (IRS) has recently released updated limits for specific retirement accounts in the coming year. Following several months of significant financial uncertainty and high inflation, a number of these cost-of-living-based adjustments have escalated to nearly unprecedented numbers.

Here at GDS Wealth Management, we are happy to be able to share the following information regarding new retirement contribution limits for 2023. However, please keep in mind that this update is intended for informational uses only. We advise that you consult with an accounting or tax professional before making any changes to your tax strategy for 2023. If you have any questions about the pending changes, please feel free to contact our team. We are here to help in any way we can.

Individual Retirement Accounts (IRAs)

For 2023, the contribution limits for a Traditional IRA have increased by $500, giving a total contribution limit of $6,500. If you are over the age of 50, you still have a catch-up contribution limit of $1,000, making your total limit $7,500.

Once you reach the age of 73, you must typically start taking required minimum distributions from a Traditional IRA. These distributions are taxed as ordinary income and may be subject to a federal income tax penalty of 10% if they are taken before the age of 59½.

Roth IRAs

For the 2023 tax year, the income phase-out range for Roth IRA contributions has been raised by $9,000 to $138,000-153,000 for single filers and heads of household. Married couples filing jointly received an increase of $14,000, resulting in a phase-out range of $218,000-228,000. The phase-out range for married individuals filing separately is unchanged, remaining at $0-10,000.

In order to qualify for penalty-free and tax-free withdrawal of earnings, distributions in a Roth 401(k) must occur after the age of 59½ and meet a five-year holding requirement. Extraneous circumstances, such as the owner’s death, can also result in tax-free and penalty-free withdrawals.

Workplace Retirement Accounts

The contribution limit for 401(k), 403(b), 457 plans, and similar retirement accounts has been raised by $2,000 for 2023, making the overall limit $22,500. If you are over the age of 50, you now have the opportunity to contribute an additional $7,500, resulting in a total limit of $30,000.

After reaching the age of 73, you must typically begin taking required minimum distributions from your 401(k) or other defined-contribution plans. These withdrawals are taxed as ordinary income and may be subject to a 10% federal income tax penalty if taken before the age of 59½.

SIMPLE Accounts

In 2023, the incentive match plan will have a $1,500 increase in limits, giving individuals who contribute to this plan a maximum contribution of $15,500.

Similar to a traditional IRA, you must typically start taking required minimum distributions from a SIMPLE account once you reach the age of 73. These withdrawals are taxed as ordinary income and may incur a 10% federal income tax penalty if taken before the age of 59½.

As a reminder, the content discussed in this blog post is for informational use only. We strongly advise that you consult with a tax or accounting professional before making changes to your tax strategy for 2023.

Glen D. Smith
CFP®, CRPC® | Chief Executive Officer | Chief Investment Officer | Cofounder

This blog does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the proposals and services described herein, any risks associated therewith and any related legal, tax, accounting, or other material considerations. To the extent that the reader has any questions regarding the applicability of any specific issue discussed above to their specific portfolio or situation, prospective investors are encouraged to contact GDS Wealth Management at (469)212-8072 or www.gdswealth.com or consult with the professional adviser of their choosing.

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