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IRS Announces 2023 Retirement Plan Dollar Limits and Thresholds

EBIA  

EBIA  

IRS Notice 2022-55 (Oct. 21, 2022); IRS News Release IR-2022-188 (Oct. 21, 2022)

Notice

News Release

The IRS has announced the 2023 dollar limits and thresholds for retirement plans, which reflect the latest cost-of-living adjustments. (Dollar limits and thresholds primarily affecting health and welfare plans were announced in separate guidance; see our Checkpoint article.) Here are the limits most relevant to 401(k) plans:

  • Annual Additions. The limit on annual additions (i.e., contributions) to 401(k) and other defined contribution plans will increase to $66,000 (up from $61,000). Code § 415(c)(1)(A).
  • Compensation. The annual limit on compensation that can be taken into account for contributions and deductions will increase to $330,000 (up from $305,000). Code §§ 401(a)(17) (for 401(k) and other qualified plans), 404(l) (for deductions), 408(k)(3)(C) (for simplified employee pension plans (SEPs)), and 408(k)(6)(D)(ii) (for salary reduction simplified employee pension plans (SARSEPs)).
  • Elective Deferrals. The annual limit on elective deferrals will increase to $22,500 (up from $20,500) for 401(k), 403(b), and 457 plans, as well as SARSEPs, and to $15,500 (up from $14,000) for SIMPLE plans and SIMPLE IRAs. Code §§ 402(g)(1), 457(e)(15), and 408(p)(2)(E).
  • Catch-Up Contributions. The annual limit on catch-up contributions for individuals age 50 and over will increase to $7,500 (up from $6,500) for 401(k) plans, 403(b) contracts, 457 plans, and SARSEPs, and to $3,500 (up from $3,000) for SIMPLE plans and SIMPLE IRAs. Code § 414(v)(2)(B).
  • HCE. The threshold for determining who is a highly compensated employee (HCE) will increase to $150,000 (up from $135,000). Code § 414(q)(1)(B).
  • Key Employee. The threshold for determining whether an officer is a “key employee” under the top-heavy rules (as well as the cafeteria plan nondiscrimination rules) will increase to $215,000 (up from $200,000). Code § 416(i)(1)(A)(i).
  • SEP Participation. The threshold for determining participation in a SEP or SARSEP will increase to $750 (up from $650). Code § 408(k)(2)(C).
  • Saver’s Tax Credit. The upper income limit for determining whether certain individuals are eligible for the saver’s tax credit (also known as the retirement savings contributions credit) will increase to $73,000 (up from $68,000) for married filing jointly; to $54,750 (up from $51,000) for head of household; and to $36,500 (up from $34,000) for all other taxpayers. Code § 25B.

The IRS has also announced that the amounts for determining who is a “control employee,” a classification relevant to the valuation of company fringe benefits, will increase to $130,000 (up from $120,000), and to $265,000 (up from $245,000) for other employees. In addition, the Social Security Administration separately announced the annual adjustment to the Social Security taxable wage base, which is relevant for various benefit purposes (see our Checkpoint article).

EBIA Comment: There are notable increases in the retirement plan contribution limits for 2023 compared to recent years. Plan sponsors, administrators, and advisors will want to carefully note when the new limits and thresholds apply. Employee communications, plan procedures, and administrative forms should be reviewed and updated as necessary to reflect these changes. For more information, see EBIA’s 401(k) Plans manual at Sections II.H.2 (“Retirement Savings Contributions Credit for Certain Income-Eligible Plan Participants”), X (“Contributions: The Code’s Annual Limitations”), and XVIII.K.2 (“HCE Compensation Threshold”). See also EBIA’s Cafeteria Plans manual at Section XXVIII.M (“Highly Compensated and Key Employees—Identifying the ‘Prohibited Group’ Members”). The HCE and key employee definitions also apply to a variety of fringe benefits, as explained in EBIA’s Fringe Benefits manual; for example, see Sections IX.F (“Qualified Employee Discount Programs: No Exclusion for Highly Compensated Employees If Discount Program Is Discriminatory”) and XIV.E (“Group-Term Life Insurance: Nondiscrimination: Overview”).

Contributing Editors: EBIA Staff.

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