Each year, the Internal Revenue Service publishes updated dollar limitations for tax-qualified defined benefit and defined contribution plans. The limits are important for tax-qualified plans, as well as many non-qualified plans.
The IRS announced recently that there will be cost of living adjustments (COLA) to certain of the qualified plan limitations described below for 2023:
2023 Cost of Living Adjustments
| Summary |
2023 Limit |
2022 Limit |
| Dollar Limit on Elective Deferrals |
$22,500 |
$20,500 |
| Catch-up Contribution Limit |
$7,500 |
$6,500 |
| Annual Compensation Limit |
$330,000 |
$305,000 |
| Section 415 Annual Additions Limit |
$66,000 |
$61,000 |
| Highly Compensated Employee |
$150,000 |
$135,000 |
| Key Employee (Officers) |
$215,000 |
$200,000 |
Dollar Limit on Elective Deferrals
The maximum amount that a participant may defer into a 401(k), 403(b) or 457(b) plan for a given calendar year increases to $22,500 for 2023.
Catch-Up Contribution Limit
If your 401(k), 403(b) or governmental 457(b) plan allows for catch-up contributions, participants age 50 or over in the calendar year may make additional contributions to the Plan. The dollar limit increases to $7,500 for 2023.
Annual Compensation Limit
The Internal Revenue Code limits the amount of annual compensation that may be used for each employee’s benefit calculation purposes. For 2023, the annual compensation limit will increase to $330,000.
Section 415 Annual Additions Limit
Internal Revenue Code Section 415 provides for dollar limitations on contributions to defined contribution plans. The dollar limitation for defined contribution plans will increase for 2023 to $66,000.
Highly Compensated Employee
The definition of a Highly Compensated Employee (HCE) is quite complex and depends partly on the provisions elected in your plan document. The definition of a HCE generally provides that a HCE is an employee who, for the preceding year, had compensation from the employer in excess of a certain dollar amount. For 2023, the dollar amount will increase to $150,000. For example, an employee with compensation in excess of $150,000 in the 2023 plan year may be a HCE in the 2024 plan year.
Key Employee (officers)
An individual who owns more than 5% of a business, owns more than 1% of a business and has compensation in excess of $150,000, or is an officer with compensation in excess of a certain dollar amount, is considered a key employee. The $150,000 compensation limit for 1% owners is not indexed for cost-of-living increases. The compensation limit for officers is indexed for cost-of-living increases and will increase to $215,000 for 2023.
IRAs
| Summary |
2023 Limit |
2022 Limit |
2021 Limit |
2020 Limit |
2019 Limit |
|
| IRA Contribution Limit |
$6,500 |
$6,000 |
$6,000 |
$6,000 |
$6,000 |
|
| IRA Catch-Up Contributions |
$1,000 |
$1,000 |
$1,000 |
$1,000 |
$1,000 |
|
Defined Benefits
| Summary |
2023 Limit |
2022 Limit |
2021 Limit |
2020 Limit |
2019 Limit |
|
| Defined Benefit Limits |
$265,000 |
$245,000 |
$230,000 |
$230,000 |
$225,000 |
|
401(k), 403(b), Profit-Sharing Plans, Etc.
| Summary |
2023 Limit |
2022 Limit |
2021 Limit |
2020 Limit |
2019 Limit |
|
| Annual Compensation Limit |
$330,000 |
$305,000 |
$290,000 |
$285,000 |
$280,000 |
|
| Dollar Limit on Elective Deferrals |
$22,500 |
$20,500 |
$19,500 |
$19,500 |
$19,000 |
|
| Catch-up Contribution Limit |
$7,500 |
$6,500 |
$6,500 |
$6,500 |
$6,000 |
|
| Section 415 Annual Additions Limit |
$66,000 |
$61,000 |
$58,000 |
$57,000 |
$56,000 |
|
| ESOP Limits |
$1,330,000 |
$1,230,000 |
$1,165,000 |
$1,150,000 |
$1,130,000 |
|
| |
$265,000 |
$245,000 |
$230,000 |
$230,000 |
$225,000 |
|
Other
| Summary |
2023 Limit |
2022 Limit |
2021 Limit |
2020 Limit |
2019 Limit |
|
| Highly Compensated Employee |
$150,000 |
$135,000 |
$130,000 |
$130,000 |
$125,000 |
|
| Key Employee (Officer) |
$215,000 |
$200,000 |
$185,000 |
$185,000 |
$180,000 |
|
| 457 Elective Deferrals |
$22,500 |
$20,500 |
$19,500 |
$19,500 |
$19,000 |
|
| Control Employee (board member or officer) |
$130,000 |
$120,000 |
$115,000 |
$115,000 |
$110,000 |
|
| Control Employee (compensation-based) |
$265,000 |
$245,000 |
$235,000 |
$230,000 |
$225,000 |
|
| Taxable Wage Base |
$160,200 |
$147,000 |
$142,500 |
$137,700 |
$132,900 |
|
Click here to download the 2023 Cost of Living Adjustments
The information contained herein is for informational purposes only. Information contained herein is based on authorities that are subject to change and is provided on an “as is” basis without warranty of any kind. Newport does not assume any liability for any errors, omissions or damages resulting from the use of the information. Newport Group, Inc. and its affiliates provide recordkeeping, plan administration, trust and custody, consulting, fiduciary consulting, insurance and brokerage services. Newport and its affiliates do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before making any decisions. This document may not be reproduced or distributed in any form or by any means without Newport’s written permission.
20221024-2553099