![]() ![]() A full summary table of contribution types and changes to limits from the prior year is below in Table 1, sourced from the Society for Human Resources Management (SHRM) and the IRS. To encourage individuals who are late to the game on saving–or who are just now hitting the point in their careers where they can afford to increase savings rates–the IRS has also boosted the age 50+ “catch-up” contribution limit by 15.38% to $7,500 from $6,500 as well as the compensation limits for calculating contribution limits. Despite the IRS acting to encourage higher rates of tax-advantaged savings, very few Americans max out their 401(k), and a large number of Americans are going to either be scrambling to catch up late in their careers or risk an under-funded retirement.įigure 1: Two Decades of 401(k) Employee Contribution Increases ![]() The last time we saw consecutive increases of this magnitude was in the early-to-mid 2000s, when contribution limits increased 48% between 20, effectively bookended by the last two major financial asset crashes and recessions (see Figure 1). This marks the second year in a row of above 20-year average contribution limit increases (average is 3.42% per annum), which is not surprising given a generational triple-whammy: surging inflation, cratering financial asset valuations, and a tidal wave of Baby Boomers hitting retirement age. The headline limit adjustment was a 9.76% increase in employee elective deferral from $20,500 in 2022 to $22,500 in 2023. ![]() The Internal Revenue Service recently announced (via IRS Notice 2022-55) new employee-sponsored retirement account contribution limit increases effective in 2023. ![]()
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