2023 401k Limits
For 2023, the contribution limit for employees who participate in a 401k will be increased to $22,500, up from $20,500. That’s almost a 10% jump! For employees 50 or over, the catch-up contribution limit is increased to $7,500, up from $6,500. Nice!
2023 H.S.A. Limits
As to Health Savings Account (H.S.A.) contributions (combined with a High Deductible Health Plan), the limits for 2023 have increased to $3,850 for self-only coverage and $7,750 for family coverage, up from $3,650 and $7,300, respectively. Individuals 55 and over may contribute an extra $1,000 to their H.S.A..
Employer Match Effect on Maximum Contribution Limit: 401k v. H.S.A.
For the 401k, employer matches do not count against the limit. Excellent! Employer matches for H.S.As; however, do count against the limit so be careful that your H.S.A. contributions combined with the employer match do not exceed the limit!
Payroll Taxes: 401k v. H.S.A.
While both 401k and H.S.A. contributions are pre-income tax, they are not both pre-payroll tax (aka Social Security and Medicare, aka FICA). Unfortunately, payroll tax is charged against 401k contributions. However, payroll tax is not charged against H.S.A. contributions. So for H.S.A contributions that’s an additional 7.65% in tax savings. Nice!
What am I doing?
I remember when I got my first mortgage. The broker admonished me, a 25 year old kid at the time, to pay the mortgage. Always pay the mortgage, every month, on time. There might be other bills, but the mortgage comes first. I thus treated the mortgage payment as a non-negotiable priority as most Americans do. Fortunately, I no longer have a mortgage; however, I apply the same non-negotiable principle to other allocations that matter to me. Accordingly, just like a house payment, I treat contributions sufficient to max out my 401k and H.S.A. as non-negotiables.
With Love,
P. Gustav Mueller, author of The Present