The Internal Revenue Service is boosting the amount that Americans can contribute to their 401(k) plans in 2023 amid a surge in inflation. Also included are Section 457 plans, which are available to many state and local government employees and to workers at other tax-exempt institutions. The annual employee deferral limit will be increased from $20,500 for 2022 to $22,500 for 2023, which is largest increase since the limit became subject to indexing for inflation back in 2007. Due to inflation, the “catch-up” contribution allowed for those age 50 and older will also see a significant jump, from $6,500 in 2022 to $7,500 in 2023. Therefore, individuals who are age 50 or older can now defer a combined $30,000 for the 2023 year, which includes the $22,500 annual limit, plus the $7,500 “catch-up” contribution.
Often, employers will offer matching contributions up to a percentage (or up to a certain dollar amount) of employee contributions. Whatever match is available from your employer, it is always best to take full advantage of it, since matching amounts are the equivalent of free money being added to your retirement savings. Regardless of how much you put toward retirement, it is important to contribute as much as you can and to do so consistently, to allow as much time as possible for compound interest to help your money grow.