A New Year and New Contribution Limits for Your Savings Plans

Tim Pope |

Let’s start with your IRAs

In 2023 we’re seeing a $500 increase in IRA and Roth IRA contributions limits. The contribution limit for these accounts in 2023 are $6,500 if you’re under the age of 50. If you’re 50 and older you’re able to make an additional $1,000 catch up contribution.

There’s also the IRA Spousal contribution. If you file taxes as married filing jointly and your spouse does not have any earned income, you may be able to contribute for your spouse, if your earned income meets the income requirement to make the contribution. This is a useful method to increase your tax-sheltered savings in a single-income household.

Now let’s look at your 401k

The qualified plan limits have also increased. In 2023 the maximum elective deferrals into retirement plans such as your 401k has increased to $22,500.

By the way, if you’re 50 or older, you can make an additional catch-up contribution of $7,500.

The limit on annual additions to your defined contribution plan has increased to $66,000. This is an important number to know for professional pilots who are also “super savers”. Here’s why:

Many airline 401k plans offer an “after-tax” designation in addition to your pre-tax and Roth deferral designations. Here’s how this can work if you’re looking for more shelf-space for tax-sheltered growth.

In our example you’re a pilot earning 200k annually. Your airline provides a 16% direct 401k contribution. You also max out your 401k every year.

Your 2023 401k contribution                                                           $22, 500

Your Airline’s direct 401k contribution                                          $32, 000

Your after-tax contribution to the annual additions limit          $11, 500

Here’s the beauty: Since these dollars are contributed after-tax, if you take advantage of your 401ks automatic Roth conversion feature it may be possible to convert the dollars almost immediately without having any growth on the contribution. This means there’s no increase, nor any tax to pay when you convert. But, once the converted funds are in the Roth account, they can grow tax free.

Let’s not forget about the health-conscious Pilot … (which should be every professional pilot requiring a first class medical)

The HSA contributions have also increased. In 2023 you’ll be able to make a $7,750 contribution if you qualify for the family contribution and $3,850 if you qualify for the single contribution. In both cases, if you turn 55 or older before the end of the tax year you can make an additional $1,000 contribution.

What’s cool about this: The HSA is the only account with the triple tax advantage: tax deductible contributions, tax deferred growth, and tax-free withdrawals when used for qualified medical expenses.

Since healthcare expenses can be tricky to predict, it’s important to be thoughtful when evaluating if this is the right account type for you.

So there you have it, a new year, with new contribution limits for your savings plans. May your 2023 be all that you envision and more. Don’t hesitate to reach out with questions on how to make these new contribution limits work for you.

We’re in the business of helping professional pilots make the most out of life with great financial outcomes.