What You Need to Know About Retirement and Health Savings in 2023
By now, we have all experienced the steeper prices and higher interest rates bestowed by inflation. However, inflation has had another impact that you might actually want to take advantage of. Namely, the opportunity to save more in your retirement and health savings accounts (HSAs). As costs rise, we need the ability to prepare for higher expenses in the future by saving more now, which is why contribution and income limits for tax-advantaged accounts are indexed to inflation (meaning they automatically increase as inflation rises).
Here’s what is changing in 2023:
401k maximum will increase to $22,500
Starting in 2023, you can contribute up to $22,500 annually to your 401(k) or 403b (up from $20,500 in 2022). This is the largest increase in terms of dollar amount and percentage in history! To calculate how much you would need to contribute to max out your 401(k), divide $22,500 by your annual salary and multiply by 100. For example, if you made $125,000 annually, your calculation would look like this:
$22,500 / $125,000 X100 = 18%
Traditional/Roth IRA maximum will increase to $6,500
While we would all love to max out our 401(k)s, that’s a pretty high bar that only about 12% of people reach. If you’re looking for a more achievable goal, maxing out an individual retirement account (IRA) is a great step. For the past four years, the maximum annual contribution to a traditional or Roth IRA was $6,000, but in 2023, it will increase to $6,500. Savers who like to contribute monthly to their IRA will need to increase their monthly contribution from $500 to about $540 to max it out going forward.
Higher income limits for contributing to a Roth IRA
The ability to contribute directly to a Roth IRA is based on your income. In 2023, individuals making less than $138,000 and joint filers making less than $218,000 can contribute the maximum to a Roth IRA. Individuals making between $138,000-$153,000 and joint filers making between $218,000–$228,000 can contribute a reduced amount. These limits apply to your modified adjusted gross income (MAGI), which will be less than your actual salary if you contribute to pre-tax retirement accounts or a health savings account (HSA).
HSA contribution limits will increase to $3,850 for individuals and $7,750 for families
In 2023, you will be able to contribute up to $3,850 as an individual or $7,750 as a family toward your health savings account (HSA). This is an increase from $3,650 for individuals and $7,300 for families in 2022. If you are aiming to max out your HSA, use the same formula as the 401(k) to calculate your ideal monthly contribution. Going back to our example of someone making $125,000:
$3,850 / $125,000 X 100 = 3%
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