The IRS announced the largest ever increase of contribution limits on 401(k) accounts.
- The 401(k) maximum contribution limit will be raised $2,000—bringing the total to $22,500.
- Changing the maximum contribution limit will allow more Americans to contribute additional savings to the tax-advantaged retirement account.
- For those over 50, the catch-up contribution limit will also be raised, reaching $7,500.
- Contribution limits for individual retirement accounts are also set to increase to $6,500.
Why it’s news
The recently announced increase is the largest in the accounts’ history both in dollar amount and percentage. By allowing greater contributions, some Americans may be able to reduce their income taxes while saving additional funds for retirement.
The changes to contribution limits will be effective next year. A report from Vanguard suggests that fewer than 15% of participants were able to max out their contributions last year. Only 16% of eligible participants were able to make catch-up contributions.
Inflation is the main driver of these changes.