The amount of pretax money you can contribute to your retirement is increasing next year.
Individual employees will be able to contribute up to $22,500 to their 401(k) retirement plans for the 2023 tax year, up from $20,500 in 2022, the IRS announced Friday.
Under the IRS' defined contribution plan provision, employees will also have a total annual limit of $66,000 in 2023, up from $61,000 this year. The provision governs limits to retirement plan contributions made through employer-sponsored programs, which can include matching-dollar amounts that some companies make toward employees' retirement savings.
The changes are part of a group of cost-of-living adjustments, or COLAs, the federal government has announced amid the highest inflation rates in four decades. The announcements include the largest COLA adjustment for Social Security since 1981 and a 7% shift upward in the income tax brackets that determine how much money the federal government gets out of your paycheck.
About 60 million people in the U.S. are active participants in 401(k) plans, according to the Investment Company Institute, an association of regulated investment funds. Data released last month by the Bureau of Labor Statistics shows that 52% of all private industry workers participate in their employers' defined contribution retirement plans.
The IRS also increased the limit on annual contributions to Individual Retirement Arrangements from $6,000 to $6,500.
As important as it is to save for retirement, not everyone is happy with their progress on that front.
A new Bankrate.com survey shows 55% of people now say they are behind on their retirement goals, up from 52% last year. The average 401(k) plan balance was $103,800 in August, according to Fidelity data cited by the investment site Fool.com — down by 20% from the previous year and down by 15% from the first quarter of 2022.
The S&P 500 has lost about 22% of its value this year. In an interview with CNBC, JPMorgan Chase President Daniel Pinto said stocks have further to fall as the Federal Reserve works to fight inflation.
″I don’t think we’ve seen the bottom of the market yet,” he said
Bankrate found employees are reducing their contributions to retirement accounts because of inflation; 54% of those who haven't increased their contributions blame price increases.
“More than one-third of workers feel they are 'significantly behind' on their retirement savings,” Greg McBride, Bankrate's chief financial analyst, said in a release. “And those who already feel behind are twice as likely to be contributing less this year than workers who feel they’re on track or ahead of where they should be.”