Every year, the IRS makes cost of living changes to the IRA contributions limits. For 2023, the IRA contribution limit will be $6,500 or $7,500 if you are at least age 50. This is a $500 increase to the 2022 limits. Here’s the breakdown for the 2023 IRA contribution limit changes.
2022 IRA Contribution Limits
- IRA Limit – $6,000
- IRA Catch-up Contribution for those Age 50+ – $1,000
- Total Limit for those Age 50+ – $7,000
- SEP IRA – $61,000
- SIMPLE IRA – $14,000
- SIMPLE Catch-up – $3,000
2023 IRA Contribution Limits
- IRA Limit – $6,500
- IRA Catch-up Contribution for those Age 50+ – $1,000
- Total Limit for those Age 50+ – $7,500
- SEP IRA – $66,000
- SIMPLE IRA – $15,500
- SIMPLE Catch-up – $3,500
What this Means
As you can tell from the lists, IRA contribution limits are all going up next year (apart from the IRA catch-up contribution). For 2023, one can contribute up to $6,500 or ($7,500 if at least age 50). This limit applies to traditional plans, Roth IRAs and even Self-Directed IRAs. Anyone who satisfies the IRA earned income rules can contribute an additional $500 for next year; for small business owners or self-employed individuals who have a SEP IRA, they can save an additional $5,000 next year. For those with a SIMPLE IRA, you can contribute an additional $1,500 for 2023, plus an additional $3,500 if you are at least age 50, which is a $500 from the previous year.
Deductible Phase-Outs
One of the biggest benefits of saving with a traditional IRA, is the upfront tax break you receive. However, in order for your contribution to be deductible on your tax return, you must be under a certain income. If you are under the limit, you can take a full deduction. The amount that is deductible is phased out until you reach the maximum annual income, at which point, you do not receive a deduction.
| Filing Status | Phase-out Begins | Phase-out Ends |
| Single or Head of Household/Covered by a workplace plan | $73,000 | $83,000 |
| Married Filing Jointly/IRA Contributor Covered by a workplace plan | $116,000 | $136,000 |
| Married Filing Jointly/IRA Contributor Not Covered but Spouse is | $218,000 | $228,000 |
What the above table shows is the modified adjusted gross income (MAGI) where the phase-out begins and ends. If you are under the beginning number, you get a full deduction. If you are over the ending number, you receive zero deduction. Of course, if you fall in the middle of the range, you get a partial deduction. The amounts vary on your filing status, and whether or not you are covered by a workplace plan, such as a 401(k). There is an increase of $5,000-$14,000 across the different scenarios, mainly due to the current economic state of the country. Because of this, you can make more money in 2023 and receive the deduction.
Roth IRA Income Restrictions
While a traditional IRA offer tax-deductible contributions for those who qualify, there is no deduction for Roth IRAs. This is because Roths are funded with after-tax money. However, all qualified distributions from a Roth are tax-free during retirement. Traditional IRAs are taxable upon withdrawal. The caveat is that high-income earners cannot directly contribute to a Roth IRA. Much like the traditional phase-outs, there are phase-outs on the income limits for Roth IRAs as follows:
| Filing Status | Phase-out Begins | Phase-out Ends |
| Single Filers and Heads of Household | $138,000 | $153,000 |
| Married Filing Jointly | $218,000 | $228,000 |
Just like the traditional IRA deduction limits, if you are under the beginning number, you can make a full Roth IRA contribution. However, if you are above the income threshold, you cannot make a direct Roth IRA contribution. If you fall withing either range, you can make a partial contribution. The 2023 Roth IRA income limit goes up $9,000 for single filers and $14,000 for married filers filing jointly.
Note that high earners can still get funds into a Roth by utilizing the Backdoor Roth IRA strategy. You can simply contribute after-tax funds to a traditional plan and then convert that amount into a Roth at any time. Although there has been legislation introduced in the past year to eliminate the Backdoor Roth, you can still perform one as of this time.
Saver’s Credit
The saver’s credit is an incentive for low- and moderate-income earners. This tax credit is provided to those people who save for retirement, who are under certain income thresholds. To receive the credit, your annual income must fall below $73,000 if you are married filing jointly (up $5,000 from 2022), $54,750 if you file as a head of household (up $3,750) or $36,500 if you are a single filer or married filing separately (up $2,500).
Conclusion
For the first time in a few years, there has been an increase to the IRA contributions limits. Plus, if you are self-employed or have a small business, you can contribute a good deal more to your SEP or SIMPLE IRA. Lastly, you can earn more money next year and still receive a tax deduction or contribute to a Roth. Remember, you have until you file your taxes to contribute to an IRA. Therefore, you can contribute for 2023 up until April 15, 2024 to make the most of your IRA contributions.
