Good news: there’s been an upward revision in the contribution limit from the preceding year, elevating it to $22,500.
For those who possess an IRA, either in tandem with or as an alternative to a company-sponsored 401k, it’s crucial to remain updated regarding any escalation in contribution ceilings.
It’s noteworthy that IRA’s contribution ceilings are typically lower than those of a 401k. So, any increase in the IRA limit can be beneficial for contributors.
Now, what’s the story for IRA contribution ceilings this year?
Recently, the IRS made it public that there’s going to be an increase in contributions to traditional or Roth IRAs for 2023, a first in quite some time.
2023 Contribution Ceilings for Roth & Traditional IRAs
This year witnesses a $500 rise in the contribution limit for both Roth and Traditional IRAs.
For individuals below 50 years of age, this translates to an enhanced contribution limit of $6,500 for IRA accounts, marking a jump from the previous year.
Those aged 50 or older aren’t left out. They have the advantage of an additional catch-up contribution of $1,000, bringing their total permissible limit to $7,500.
It’s crucial to understand that the Roth and traditional IRA have a collective ceiling. Hence, if you invest in one, it proportionately reduces the allowable limit for the other. The combined maximum limit is $6,500, should you decide to fully utilize your contribution capability.
To illustrate, if $4,000 goes into your Roth IRA, only the remaining $2,500 can be allocated to your traditional IRA. If you’re above 50, this can be raised by another $1,000.
Below is a concise table representing the Roth and Traditional IRA contribution ceilings for 2023, along with historical data.
| Year | Age 49 and Below | Age 50 and Above |
|---|---|---|
| 2002-2004 | $3,000 | $3,500 |
| 2005 | $4,000 | $4,500 |
| 2006-2007 | $4,000 | $5,000 |
| 2008-2012 | $5,000 | $6,000 |
| 2013-2018 | $5,500 | $6,500 |
| 2019-2022 | $6,000 | $7,000 |
| 2023 | $6,500 | $7,500 |
2023 Income Phaseouts for Roth IRAs
Roth IRAs incorporate an income phaseout mechanism. Essentially, after crossing a specified income bracket, your allowable contribution starts to diminish until it’s phased out entirely at the topmost bracket.
For 2023, the thresholds for Roth IRA contributors are as follows:
- Single/Married Filing Separate (if not cohabiting with a spouse during the year): A phased reduction starts at $138,000 and halts contributions entirely at $153,000.
- Married Filing Jointly: The phased reduction initiates at $218,000 and concludes at $228,000.
- Married filing separately (if residing with a spouse anytime during the year): Ceilings are between $0 and $10,000.
In essence, if your income resides below the commencement threshold, your full contribution potential is $6,500 (or $7,500 if above 50). However, incomes surpassing the terminal threshold disqualify you from contributing to a Roth IRA in 2023, except for specific conditions like a back-door Roth IRA conversion.
If you’re situated within this range, a prorated contribution is possible.
Extensions for 2022 Contributions until Tax Day 2023
Many remain unaware that the opportunity to feed your Roth or Traditional IRA doesn’t terminate as the year concludes. In fact, if you’re yet to maximize your contribution by year-end, the window extends until the subsequent tax day for the previous year’s contribution.
Even more appealing, up until tax day 2023 (scheduled for Tuesday, April 18th), you can still initiate a Roth or traditional IRA and utilize the entire allowable contribution. However, ensure you indicate the specific tax year for any contributions made.
Staying Updated on Ceilings and Phaseouts
If you’re venturing into Roth or Traditional IRAs, it’s wise to consistently monitor the varying ceilings and phaseouts.
Should your income inch closer to the phaseout brackets, contemplate strategies to diminish your taxable income, such as feeding into a 401k, donating to charities, etc., ensuring continued eligibility.
Are you considering ramping up your contributions in the coming period, even if limits stay consistent?
