Michelle Singletary: You can contribute much more to your 401(k) next year.

It’s been a tough year for folks trying to put food on the table or pay rent. Stubbornly high inflation is making it harder to make ends meet.

But for certain taxpayers with money to spare, the higher cost of living has triggered a big bump in what they can save for retirement.

Next year, the contribution cap for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan (TSP) is going up by almost 10%.

Here’s what you need to know about the new limits coming in 2023.

Why are plan limits increasing?

The recent hike in contribution caps is the result of a cost-of-living adjustment. The IRS, following tax law, sets the caps on retirement plans using inflation data.

How much will I be able to contribute to my account?

The contribution limit for workplace retirement accounts is increasing to $22,500 in 2023, up from $20,500.

For IRAs, the annual contribution limit jumps from $6,000 to $6,500.

Even the “catch-up” provision in the tax code – designed to help older workers bolster their retirement savings – is getting a boost. If you’re 50 or older, you’ll be able to contribute an extra $7,500 in 2023, compared with the current $6,500.

The new $22,500 limit, plus the $7,500 catch-up contribution, means individuals 50 or older will be able to put as much as $30,000 of their pretax income into their workplace retirement plans in 2023.

Unfortunately, the IRA catch-up contribution limit is not subject to an annual cost-of-living adjustment, so that cap remains at $1,000.

The catch-up contribution for those who participate in SIMPLE IRA plans will rise by $500 to $3,500. Such plans are generally used by small businesses with 100 or fewer employees. It’s less complex than setting up a 401(k) plan.

Are income thresholds going up?

Yes, income ranges that determine who can contribute to a traditional IRA and Roth IRA are also increasing for 2023.

If you or your spouse are covered by a retirement plan at work, your IRA deduction may be reduced or phased out depending on your filing status and income.

Here are some of the changes for 2023, as laid out by the IRS.

• For single taxpayers covered by a workplace retirement plan, the new phaseout range is $73,000 to $83,000, up from the current $68,000 to $78,000.

• For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phaseout range will be $116,000 to $136,000 in 2023, up from $109,000 to $129,000.

• For an individual not covered by a workplace retirement plan but married to someone who is, the phaseout range for an IRA will go from $218,000 to $228,000, up from $204,000 to $214,000.

• The income phaseout range for taxpayers making contributions to a Roth IRA is increasing to between $138,000 and $153,000 for singles and heads of household, up from $129,000 to $144,000. For married couples filing jointly, the range is $218,000 to $228,000, compared with $204,000 to $214,000.

• For a married individual filing a separate return who is covered by a workplace retirement plan, the phaseout range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000. The same phaseout range applies to a married individual filing a separate return who makes contributions to a Roth IRA.

Who will benefit most?

At the end of 2021, about 1 out of 10 (9.7%) 401(k) participants in plans managed by Fidelity Investments, one of the nation’s largest administrators of workplace retirement accounts, reached the contribution limit.

Only 13% of individuals reached the catch-up contribution limit.

“We are seeing a gradual increase in the percentage of people who are hitting that contribution rate,” said Mike Shamrell, vice president for thought leadership for Fidelity.

Going back five years to 2016, 8.5% of individuals maxed out.

But millions of workers without employer-provided retirement savings plans struggle to save for retirement, according to a survey from Pew Charitable Trusts.

Only slightly more than half of all American families have retirement accounts, according to Federal Reserve data from 2019, the most recent available. Only 34.9% of Black families and 25.5% of Hispanic families have such accounts, compared with 57.2% of White families.

You can contribute to a retirement account even if your job doesn’t offer one, but the automatic nature of workplace plans increases the likelihood that people will save.

The higher contribution limits are good news for people with the financial wherewithal, but most savers won’t be able to come close to maxing out their retirement accounts, because of high inflation, said Christine Benz, director of personal finance for Morningstar.

Higher costs for basic needs – food, rent, gas and home heating costs – “make it even more difficult for many households to find the funds to save and invest, ” Benz said.

What should I do if I can’t contribute the maximum?

Contribute as much as you can afford. Also, consider that when you contribute to a 401(k) or similar plan, you often reduce your taxable income now.

Fidelity recommends that individuals save 15% of their gross income for retirement. You can achieve this target with the help of a matching contribution from your employer.

“Instead of aiming for that dollar amount, if it seems a bit daunting for you, take a look at the percentage that you’re able to contribute,” Shamrell said. “Even if you’re not able to contribute the full contribution amount to the max, if you’re getting close to that 15% contribution rate, then you should be on a good track.”