Last month, the IRS announced that in 2023, for the first time since 2019, the annual contribution limits for the Roth individual retirement account (IRA) are getting a boost. So now is the time to start planning ahead so that you can maximize your retirement investing potential. 

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A good time to get serious about retirement planning

Next year, the annual contribution limit for Roth IRA will jump to $6,500, up from $6,000 in 2022. So you can tuck away roughly $542 every month if you are eligible to contribute the maximum amount.  

As has been the case, there's also a bonus for savers over a certain age. After you turn 50, you can tack on up to $1,000 more in "catch-up contributions," bringing your contribution limit up to $7,500. However, you can't dedicate more to a Roth IRA in a given year than you earn in that year. So if you earn less than $7,500 in 2023 -- say, for example, that you make $5,000 from part-time work -- your Roth IRA contribution would be limited to your taxable compensation.

If you look at the Roth IRA contribution limits from 2016 to 2023, you'll understand why next year's increase is a big deal. Boosts to the limit don't happen often.      

Year Roth IRA contribution limit (savers under 50) Roth IRA contribution limit (savers 50 and over)
2023 $6,500 $7,500
2022 $6,000 $7,000
2021 $6,000 $7,000
2020 $6,000 $7,000
2019 $6,000 $7,000
2018 $5,500 $6,500
2017 $5,500 $6,500
2016 $5,500 $6,500

You can start making contributions that count for 2023 on Jan. 1, 2023, and you'll be able to keep doing so for that tax year until April 15, 2024. Keep in mind also that the Roth IRA contribution limits also apply to traditional IRAs. However, if you decide to contribute to both types of accounts, your total combined contributions for the year can't exceed $6,500 (or $7,500 if you're 50 or older). 

Check out the Roth IRA benefits 

If you're wondering if you should invest money through a Roth IRA, consider the benefits. 

  • You can contribute after-tax dollars to a Roth IRA. That means you will pay your taxes on that income now, but you'll withdraw funds from the account tax-free later. Even if you accumulate $1 million in a Roth IRA, you can withdraw every dime tax-free as long as you've reached 59 1/2 and have checked the box on the five-year rule
  • There are ways to tap your Roth IRA early if necessary. If you need to tap into your retirement account before you retire, you can withdraw your contributions without penalty. Let's say you contributed $20,000 to the account over the last four years and your account balance grew to $25,000. You're can withdraw $20,000 without penalty.
  • You have more investment options than you would with other tax-advantaged retirement accounts. A Roth IRA gives you the freedom to invest in assets of your choice, including individual stocks and exchange-traded funds. With an employer-sponsored retirement plan like a 401(k), you can only invest in the assets that are included in your employer's plan.  

Create your Roth IRA game plan for 2023 

Whether you have a Roth IRA or plan to open one, now is a good time to set some goals or review your prior ones. Ask yourself the following questions to help you develop a Roth IRA contribution game plan. 

  • How much income do you expect to earn in 2023? 
  • Does your income fall below the annual Roth IRA limits
  • Do you qualify to contribute the maximum amount to a Roth IRA in 2023?
  • How much did you contribute to your Roth IRA in 2022? Do you want to increase your contributions in 2023? 
  • Do you have a sufficiently robust emergency fund and money set aside to handle your day-to-day expenses? 
  • Are you expecting to get a bonus in 2023 that could help you beef up your Roth IRA? 
  • Do you plan to contribute to other retirement accounts in 2023? 

Enjoy the best Roth IRA contribution limits 

To maximize your Roth IRA's growth potential, you have to contribute as much as you can to the account every year. Check to see if you meet the income limits to make a direct contribution to the account in 2023 and then create your Roth IRA success plan. The 2023 boost in contribution limits could help you to crush your overall retirement saving goals.