The IRS recently announced a significant increase in the maximum amount an individual can save using a 401(k) retirement account. In 2023, individuals will be able to save $22,500 up from $20,500 in 2022. Those over age 50 will be able to save an additional $7,500 up from $6,500. Normal increases have been $1,000 in the past, but high inflation has driven this extraordinary annual increase.
If your plan has a matching component and profit sharing as additional funding sources, 2023 annual contribution limits from all sources including your savings will rise to $66,000 from $61,000 plus the catch-up contribution of $7,500 for those over 50 ($73,500 total). Click here to view the IRS website that provides additional information.
401(k) plans are an interesting investment vehicle because the timing of your investments is out of your control. The timing is driven simply by the schedule upon which your employer pays your salary. This assumes, of course, you elect to save each pay period. As a result, your investments are made in good market times and bad market times. In general, a 401(k) saver’s time horizon is long-term. So, when market cycles occur, you get the best of both worlds because, at certain points, you are buying when the market is low, and you will most likely achieve the growth that the market affords over the long-term.
And, now you can save even more money using this tax advantaged investment vehicle.