Heads up to Payroll and everybody in your organization making retirement plan contributions: the maximum amount that can be put toward 401(k)s will rise to $22,500 for 2023, according to IRS Notice 2022-55. It’s a significant 9.8% increase from the current $20,500.
IRS is also applying that $22,500 retirement plan contribution limit to employees who participate in 403(b) plans, most 457 plans and the federal government’s Thrift Savings Plan.
Some news for your employees that are 50 and older:
- The limit for catch-up contributions increases to $7,500 for 401(k)s, 403(b)s, most 457 plans and the Thrift Savings Plan. So the total annual contribution allowed for these folks adds up to $30,000.
- The $1,000 IRA catch-up contribution limit stays the same, allowing them to contribute up to $7,500 annually.
Other important retirement plan contribution numbers
Taking inflation into consideration, IRS issued a lot of additional guidance on cost‑of‑living adjustments that affect dollar limitations for pension plans and other retirement-related items for tax year 2023, including:
- Employers that offer SIMPLE retirement accounts should note that elective deferrals will max out once they hit $15,500 (a bump up from the current $14,000).
- Effective January 1, the limit on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) of the Internal Revenue Code will increase from $245,000 to $265,000.
- For a retirement plan participant who departs your company before January 1, the limit under a defined benefit plan under Section 415(b)(1)(B) should be computed by multiplying the participant’s compensation limitation, as adjusted through 2022, by 1.0833.
- The limit used in the definition of a “highly compensated employee” under Section 414(q)(1)(B) will increase to $150,000 (up from $135,000).
- The tax phase-out range for single people/heads of household making contributions to a Roth IRA went up to a range of $138,000 to $153,000 (currently it’s between $129,000 and $144,000). For married couples, it increases to a range of $218,000 to $228,000, up from $204,000 to $214,000.
- The limit for defined contribution plans under Section 415(c)(1)(A) has been increased for 2023 to $66,000 (up from $61,000).
Although these increases can help employees hoping to boost their retirement savings, how many of your retirement plan participants are saving anywhere near the federal limits? Before they revisit their retirement plan contribution amounts at open enrollment, now may be a good time to encourage them to connect with a representative from your retirement plan administrator to get personalized advice.
