Cost of Living Adjustment IRS Plan Limits

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.
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