Not long after releasing changes to more than 60 tax provisions for 2023 due to inflation, the IRS has issued Revenue Procedure 2022-55 which details modifications to the annual limits for retirement plans.
Historically the limits are adjusted on a yearly basis for cost-of-living adjustments (excluding the individual retirement account (IRA) catch-up contribution limit which is set by statute and not adjusted for cost-of-living) but from 2022 to 2023 there are some significant increases due to inflation.
The 2023 limits are effective as of January 1, 2023.
|
Trend of retirement plan limitations |
||||
|
|
2023 |
2022 |
2021 |
2020 |
|
401(k), 403(b) and 457 elective deferral limit |
$22,500 |
$20,500 |
$19,500 |
$19,500 |
|
Catch-up contribution limit (age 50 and older) |
$7,500 |
$6,500 |
$6,500 |
$6,500 |
|
Defined contribution plan limit |
$66,000 |
$61,000 |
$58,000 |
$57,000 |
|
Annual compensation limit |
$330,000 |
$305,000 |
$290,000 |
$285,000 |
|
Definition of highly compensated employee |
$150,000 |
$135,000 |
$130,000 |
$130,000 |
|
Key employee |
$215,000 |
$200,000 |
$185,000 |
$185,000 |
|
Defined benefit plan limit |
$265,000 |
$245,000 |
$230,000 |
$230,000 |
There were also increases to IRA limits.
|
Trend of IRA limits |
||||
|
|
2023 |
2022 |
2021 |
2020 |
|
IRA contribution limit |
$6,500 |
$6,000 |
$6,000 |
$6,000 |
|
IRA catch-up contributions (age 50 and up) |
$1,000 |
$1,000 |
$1,000 |
$1,000 |
|
SIMPLE IRA and SIMPLE 401(K) salary deferral limit |
$15,500 |
$14,000 |
$13,500 |
$13,500 |
|
SIMPLE IRA and SIMPLE 401(K) catch-up limit |
$3,500 |
$3,000 |
$3,000 |
$3,000 |
Phase-out ranges for various IRA matters increased $5,000 from 2022 to $73,000 and $83,000 for single and head-of-household taxpayers.
Potential changes on the horizon?
Speculation regarding new retirement plan legislation, being dubbed, “SECURE 2.0” has been heard from the House and the Senate this year, but nothing concrete as of yet. Many believe we will see that legislation passed by the end of the year and it could impact these limits.
We do not recommend making decisions based on possible legislation or potential changes. With the release of the updated limits, it is a great time for you to review your retirement plan and adjust accordingly. Employers should also take this time to review their offerings and take any steps needed to prepare for limit changes for the new year.
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