Standard tax deductions in 2023 get nice boost due to inflation adjustments
Tyler Perry audit ends in $9M refund, firing of accountants

Tax-favored retirement savings get big boost from 2023 inflation adjustments

Flowers for long-time love_older couple_pexels-rodnae-productions-5637842
With some tax planning now, along with some help from tax-favored accounts, you can ensure your retirement is full of smiles, love, and flowers. (Photo by RODNAE Productions)

It's always a good time to start saving for your eventual retirement. The U.S. tax code helps via a variety of tax favored retirement options.

And the Internal Revenue Service helps every year by making cost-of-living (COLA) adjustments that boost the amounts you can put into your post-work accounts.

The tax agency today announced how much you can stash in 2023 in tax-deferred — or tax-free — retirement accounts and pension plans.

Here are the highlights of what will, or in some cases won't, change when it comes to next year's retirement accounts.

Bump for IRA contributions: Individual retirement arrangements — and yes, the official name is arrangements, not accounts, but the popular IRA acronym works either way (but don’t get me started on the usurping Inflation Reduction Act… — are a great way to save for post-work years.

You can contribute to a traditional IRA with pre-tax dollars and, depending on your income, marital status, and retirement options at work, possibly claim a deduction for at least some of the amount you're saving.

Or you can put already-taxed money into a Roth IRA and not have to worry about taxes on that retirement account ever again.

When it comes to either a traditional IRA or Roth version, COLA tweaks (or inflation adjustments, for purposes of the ol' blog's annual series) mean that the maximum annual contribution to such plans will increase in 2023 to $6,500. That's $500 more than the 2022 limit of $6,000.

The IRA catch‑up contribution limit for individuals aged 50 and over is not subject to an annual inflationary adjustment, so it's still $1,000.

More earnings for IRA maneuverability: The IRS' calculations also increase the 2023 income ranges that determine whether you can make deductible contributions to a traditional IRA, contribute at all to a Roth IRA, and/or claim the Saver's Credit.

Traditional IRAs are still popular because if you or your spouse don't have retirement plans at work, you can deduct your full IRA contribution.

If, however, either spouse is covered by a workplace retirement plan, the deductible amount of a traditional IRA contribution is phased out or totally eliminated depending on your filing status and income.

The table below shows how much more you can make in 2023 before you hit the level where your traditional IRA contributions are reduced or are no longer deductible. The table shows 2022 amounts, too, for two reasons.

First, it gives you an idea of the change. Second, you still have time to contribute to, and max out, your 2022 IRA contribution.


2022 phase-out range
based on MAGI*

2023 phase-out range
based on MAGI*

Singles and
Heads of Households

who are covered at work by a retirement plan

$68,000 to $78,000

$73,000 to $83,000

Married couples
filing jointly 
and the spouse making the contribution is covered by a workplace retirement plan

$109,000 to $129,000

$116,00 to $136,000

Married couples
filing jointly
and the contributing spouse has no workplace plan, but his/her spouse is offered a workplace retirement plan

$204,000 to $214,000

$218,000 and $228,000

Married individual
filing a separate return
and is covered by a workplace retirement plan**

$0 to $10,000

$0 to $10,000

*MAGI is modified adjusted gross income. (Shameless plug: The ol' blog's glossary has more on MAGI, as well as the previously mentioned individual retirement arrangement/account and lots of other tax terms.)
**There is no annual inflation adjustment in married filing separately situations.

More room for Roth contributions: Roth IRA contributions are not tax deductible when you make them, but withdrawals when you retire are not taxed.

However, there are some income limits on who can contribute to these tax-free retirement savings vehicles.

For 2023, the amount you can put into a Roth is reduced if your earnings are within the income range for your filing status in the following table. As in the prior table, the 2022 amounts are included for comparison and tax planning for the rest of this year.


2022 phase-out range
based on MAGI

2023 phase-out range
based on MAGI 

Singles and
Heads of Households

$129,000 to $144,000

$138,000 and $153,000

Married couples filing jointly

$204,000 to $214,000

$218,000 and $228,000

Again, note the top dollar amounts. Once your income exceeds the maximum amount for your filing status, you cannot contribute to a Roth IRA.

You can, however, contribute to a traditional IRA and then convert that account to a Roth IRA.

Just like a traditional IRA, the phase-out range for a married individual making Roth contributions while filing a separate tax return is not subject to an annual COLA and stays at $0 to $10,000.

Workplace plan changes, too: In addition to IRAs, some folks are able to stash retirement money in workplace defined contribution accounts, typically known in the private sector as 401(k)s.

401k workplace retirement plan road sign

While they're technically not a part of the annual benefits enrollment season underway at most companies right now, the just-announced 2023 tax year changes to 401(k) plans gives you the chance to include these contributions in your overall analysis of your workplace perks.

The tax code monikers for company-provided retirement plans are slightly different for folks employed by other groups. They're known as 403(b) for some nonprofits and teachers, 457 plans for certain government employees and Uncle Sam's Thrift Savings Plan (TSP) for civil service employees and retirees, as well as for members of the uniformed services. But all are affected but the same COLA changes tend to apply.

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the TSP goes up in in 2023 to $22,500. That $2,000 bump up from the 2022 contribution cap of $20,500 is, according to some benefits providers, the largest increase ever in terms of dollars and percentage.

The workplace plan catch-up contribution limit in 2023 for employees aged 50 or older and who participate in these plans will go to $7,500. That's a grand more than this year's $6,500 level.

And if you're lucky enough to work for a place that has an old-school defined benefit plan — this is where your boss takes total care of your retirement fund — there's a hike here, too. The limitation on the annual benefit of this retirement plan goes from $245,000 in 2022 to $265,000 next year.

Self-employed plan bumps: When you're the boss at your own company, in addition to concentrating on turning a profit, you need to think about the day when you decided to relinquish control.

SEP-IRAs (or, from the glossary, Simplified Employee Pension) and Solo 401(k) plans are popular retirement vehicles for the self-employed small business owners.

The maximum amount that can be put into either of these plans as an employer is determined by a percentage of salary. Once those calculations are completed (thank goodness for tax pros and/or tax software!), the maximum in 2023 will be $66,000. That's a $5,000 increase from 2022's $61,000.

The amount of earnings amount used to figure your SEP or SoloK contribution also goes up next year. The compensation of $305,000 in 2022 goes to $330,000 in 2023.

If you have a SIMPLE, or savings incentive match plan for employees (final, I swear, glossary plug), the limit on SIMPLE plans for 2023 goes up to $15,500 from the 2022 limit of $14,000. The SIMPLE catch-up limit for individuals aged 50 or older in 2023 also gets notched up, going from this year's $3,000 level to $3,500 next year.

Added credit for saving: A tax code bonus for taking charge of your retirement, the Saver's Credit, also potentially is affected each year by inflation. This tax benefit, officially titled the Retirement Savings Contributions Credit, rewards low- and moderate-income individual for adding to their nest eggs.

This credit, which is a dollar-for-dollar reduction in any tax you owe, is $1,000.

You can claim the Saver's Credit based on the money you put into IRAs and workplace plans, either where you are an employee or are self-employed. But it is not available if you make more than the earnings limit for your filing status.

In 2023, the Saver's Credit maximum earnings caps go to:

  • $36,500 for singles and married filing separately taxpayers, up from $34,000 in 2022;
  • $54,750 for heads of household, up from $51,000 this year; and
  • $73,000 for married couples filing jointly, up from the 2023 limit of $68,000.

Here's the full table and percentages, based on your adjusted gross income (AGI) for the 2023 Retirement Saver's Credit:

Credit Amount

Single, married filing separately or qualifying widow/er

Married filing jointly

Head of household

50% of your contribution

AGI not more than $21,750

AGI not more than $43,500

AGI not more than $32,625

20% of your contribution

$21,751 to $23,750

$43,501 to $47,500

$32,626 to $35,625

10% of your contribution

$23,751 to $36,500

$47,501 to $73,000

$35,626 to $54,750

No credit

$36,501 or more

$73,001 or more

$54,751 or more

And if you're looking to claim the Saver's Credit on your 2022 tax return, you can do so if your income this year falls within the following income ranges:

Credit Amount

Single, married filing separately or qualifying widow/er

Married filing jointly

Head of household

50% of your contribution

AGI not more than $20,500

AGI not more than $41,000

AGI not more than $30,750

20% of your contribution

$20,501 to $22,000

$41,001 to $44,000

$30,751 to $33,000

10% of your contribution

$22,001 to $34,000

$44,001 to $68,000

$33,001 to $51,000

No credit

$34,001 or more

$68,001 or more

$51,001 or more

But wait, there's more, and more to come, inflation figures:
I know, these are a lot of retirement plan COLA/inflation changes. But they're important to making the most out of Uncle Sam's tax breaks for our nest eggs.

I know some hardcore tax and retirement savings geeks will want even more. Y'all can find it in IRS Notice 2022-55, with all the 2023 COLA changes and Internal Revenue Code retirement plan sections to which they apply.

And speaking of more inflation numbers, this post marks the retirement portion, officially Part 3 on the list, of the ol' blog's annual 10-part tax inflation series.

All the 2023 tax year inflation posts, ranging from today's retirement savings to previously posted income tax brackets and standard deduction amounts and more, are listed in the directory at the end of the first post of the series.

Thanks for reading this one and all the rest. And thanks especially for your tax inflation interest and explanation patience!

This post on inflation's effects on 2023 retirement savings
is Part 3 of the ol' blog's annual series on myriad tax inflation adjustments. 
The 10-part series started with a look at next year's
income tax brackets and rates.
That first item also has a directory, at the end of the post,
of all of the posted and upcoming tax-related inflation updates for 2023.
Note: The 2023 figures in this post apply to that tax year's returns to be filed in 2024.
For comparison purposes, you'll also find 2022 amounts that apply
to this year's 2022 taxes that will be due April 18, 2023.







Feed You can follow this conversation by subscribing to the comment feed for this post.

The comments to this entry are closed.