Employees will be eligible to contribute up to $22,500 to their 401(k) plans and similar retirement plans for 2023, the IRS announced Friday.
That represents an increase of $2,000 from the previous cap of $20,500 and is more than double the monetary jump that occurred between 2021 and 2022. Meanwhile, the limit on annual contributions to IRAs increased to $6,500 from $6,000 in 2022.
The agency also increased the income ranges for determining eligibility to make deductible contributions to IRAs, contribute to Roth IRAs and claim the Saver’s Credit.
Friday’s news dropped just days after the IRS announced an increase of the cap on employee contributions to flexible spending accounts, which will be set at $3,050 for 2023 — a similarly higher increase than that previously issued by the agency, which one source who previously spoke to HR Dive attributed to the impact of inflation.
The announcement represents a significant annual increase due to the impact of inflation, said Craig Copeland, director of wealth benefits research at the Employee Benefits Research Institute. Copeland added that while not many 401(k) plan participants tend to contribute the maximum annual contribution, those who do tend to be higher-paid — and potentially critical — talent.
Retirement planning has become a source of stress for employees more than two years into the COVID-19 pandemic. A TIAA survey published in May found that more than half of workers said the pandemic had either somewhat or significantly increased their stress about retirement affordability.
Younger workers may be particularly concerned about their financial futures. A 2021 survey by the National Institute for Retirement Security found that 64% of millennials and 54% of Generation X employees said they were more concerned about retirement security since the start of the pandemic, compared to 42% of baby boomers.