What you need to know about 401(k) and Social Security changes in 2023.
If you contribute to certain types of retirement plans or receive Social Security benefits, you’re about to notice some significant changes starting this month. Cost of living adjustments, also known as COLA, are behind an increase to the amounts people can contribute to their retirement plans — as well as a record increase to monthly Social Security benefits. Here’s what you need to know and how you can take advantage of these changes to help improve your overall financial health this year.
Increases to retirement plan contribution limits
The Internal Revenue Service (IRS) recently announced an increase in individual contribution limits to 401(k) and other tax-deferred retirement plans beginning in 2023.1 This is good news for savers. In addition to setting aside more money for retirement, you may also be able to reduce your overall taxable income.
Here’s an overview of the contribution limits for 2023.
- Annual contributions to 401(k), 403(b) and most 457 plans will increase to $22,500. Catch-up contributions for people aged 50+ will increase to $7,500. That means if you’re over age 50 you can contribute up to $30,000 this year.1
- Annual contributions to traditional and Roth IRAs will increase to $6,500. Catch-up contributions remain at $1,000 — if you’re over 50 you can contribute up to $7,500 this year.2
- Income and phase-out ranges for retirement plan contributions are also increasing, allowing more people to take advantage of these tax-advantaged savings options.1 The IRS has more details on income limits.
To make the most of these retirement plan contribution changes, set aside some time to review your current budget, savings strategy, and long- and short-term financial goals. Then see how you may be able to take advantage of these opportunities to save more money for retirement. And remember, any employer match will help your retirement accounts grow even more.
Social Security benefits are increasing
Higher prices due to inflation have impacted the budgets of nearly everyone, but especially seniors and retirees living on a fixed income. The Social Security Administration recently announced one of the largest-ever increases to Social Security benefits, impacting nearly 70 million older Americans.3
Here’s an overview of important changes to Social Security benefits for 2023.4
- Social Security recipients will see their monthly payments increase by 8.7% starting in January 2023. This is the largest Social Security cost of living adjustment in 40 years.
- The average retiree benefit will increase by approximately $146 per month.
- The maximum Social Security monthly benefit for those retiring at full retirement age is increasing from $3,345 to $3,627.
- The maximum earnings subject to Social Security taxes is increasing from $147,000 to $160,200.
- Workers who claim Social Security benefits before their full retirement age can earn up to $21,240 in 2023 without facing a reduction in benefits.
- The average benefit for spouses, widowed and disabled workers is also increasing.
- Medicare Part B premiums, typically deducted from Social Security benefits, are decreasing by approximately 3% for 2023 for the majority of participants.
For more information about estimating your benefit amount, determining when to apply and other factors that may impact your retirement planning, visit the Social Security Administration website.
Understanding how these changes impact your financial goals
With inflation taking a bite out of nearly everyone’s wallets, these are welcome changes. Taking time now to understand how these increases can impact your budget today, and in the future, can help you make the best financial decisions for your needs. You may also want to consider scheduling an appointment with a financial advisor who can answer your questions, keep you informed, and help you make the most of your financial benefits.
Commerce does not provide tax advice or legal advice to customers. Consult your tax professional regarding the tax implications of these changes.
- "401(k) limit increases to $22,500 for 2023, IRA limit rises to $6,500,” Internal Revenue Service, posted Oct. 21, 2022, https://www.irs.gov/newsroom/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500
- "Retirement Topics – IRA Contribution Limits,” Internal Revenue Service, updated Dec. 21, 2022, https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
- “Fact Sheet 2023 Social Security Changes,” Social Security Administration, https://www.ssa.gov/news/press/factsheets/colafacts2023.pdf
- “Social Security Benefits Increase in 2023,” Social Security Administration, updated Oct. 13, 2022, https://blog.ssa.gov/social-security-benefits-increase-in-2023/