Are you saving enough? Up to the new retirement plan limits?
Did you increase your savings rate a few months ago when the IRS increased retirement plan savings limits? If not, now is still a great time to do so.
In most years, the IRS increases the limit for what individuals can contribute to their retirement plans. If that change slips past you, and/or you forget to increase your savings rate, you lose an opportunity to save more on a tax-advantaged basis. Also, if you under-save, you may also miss out on getting the full matching contribution from your employer, if your company offers a match.
Not everyone’s budget may currently allow for saving to the limit, but most people in the US under-save, reducing their future retirement readiness and often leading people to retire later than planned.
2023 IRS Limits
The regular IRS maximum for 401(k) plans for 2023 is $22,500. If you turn age 50 or older during 2023 you can make an additional “catch-up contribution” of $7,500, for a total of $30,000.
Per-Paycheck Maximum Contributions
For 2023, that translates into the following maximum savings amounts per pay period for 401(k) plans and some other types of plans, so be sure to know your paycheck frequency:
Monthly: $1,875 ($2,500 including catch-up if age 50+)
Bi-weekly (every other week): $865.38 ($1,153.85 with catch-up)
Bi-monthly (twice a month): 937.50 ($1,250 with catch-up)
If you didn’t save the maximum amount per pay period starting in January, check with your employer to see if you can do make-up amounts now, to get to the maximum for the year.
Pay Yourself First
You and your future are important, so remember to “pay yourself first.” This means including your retirement savings as part of your budget, rather than just spending your hard-earned money on current needs and wants, and then only saving what’s left over, if anything. Your future self will thank you, and financial independence will happen sooner if you save the right amount now!
For information about limits for other types of retirement accounts, see this IRS information.