Here Are the 401(k) Contribution Limits for 2023


The I.R.S. announced one of its largest increases in decades to caps on retirement contributions, allowing workers with access to the plans to save more.

Americans saving for retirement through a 401(k) account will be able to increase their maximum contributions of pretax wages into it by almost 10 percent in 2023, thanks to a new limit announced Friday by the Internal Revenue Service.

That increase in the caps is the largest in decades, the tax agency said, as rapidly rising costs for items including food, energy and rent squeeze many Americans financially.

In 2023, employees can contribute up to $22,500 a year, up from $20,500, to 401(k), 403(b) and other tax-advantaged employer savings plans. Also included are 457 plans, which are available to public employees and to workers at other tax-exempt institutions.

The limit on what are called catch-up contributions, for people 50 and older, also rose, to $7,500 from $6,500. That means workers 50 and older can contribute a maximum of $30,000 to those plans next year. The maximum contributions to individual retirement accounts will rise by $500, to $6,500.

“A lot of these adjustments have been larger than we’ve seen in a long time because of higher inflation,” said Anqi Chen, a senior research economist at the Center for Retirement Research at Boston College.

The Consumer Price Index report for September, released last week, showed that inflation remained painful. The overall index climbed 8.2 percent from a year earlier, a slight dip from 8.3 percent in August. The I.R.S. determined the new caps using the inflation data.

Federal agencies have recently made changes to combat the effects of rising costs on consumers. This week, the I.R.S. confirmed that some tax filers would see savings on their bills, as the agency adjusted tax rates by about 7 percent. Earlier this month, Social Security announced an 8.7 percent cost-of-living raise as older Americans struggle to keep up with rising costs. The cost-of-living adjustment, known as the COLA, was the highest since 1981.

“Since the beginning of the pandemic, participants remained disciplined and continued to contribute to their 401(k) plans,” said Carolyn Wegemann, spokeswoman for Vanguard. She added, “It was particularly encouraging to observe that participants remained disciplined and continued to save for retirement amid significant market uncertainty.”

The average employee contribution rate remained consistent in 2021 at 7.3 percent, Ms. Wegemann said.

As of March, 69 percent of private industry workers had access to retirement plans through their employers, and about 52 percent participated, according to the Bureau of Labor Statistics. In March 2020, 67 percent of private industry workers had access to employer-provided plans.

Experts say the higher caps will not significantly change the overall savings picture for workers.

“The vast majority of employees don’t save the maximum,” said Teresa Ghilarducci, an economics professor at the New School for Social Research who specializes in retirement policy. “Therefore, raising the limits only benefits the few.”

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