2023 Benefit Limit Increases Reflect Inflation in U.S. Economy
In keeping with what has become a regular and predictable October event, the IRS in Notice 2022-55 has issued the inflation-adjusted retirement savings limitations for the coming year. Those who follow these annual announcements will note some very significant year-over-year increases from the 2022 amounts, owing chiefly to inflation’s impact on the economic indicators used to make these annual adjustments.
IRA Contribution Amounts
IRA contribution limits, and income requirements for Roth IRA contribution eligibility and for IRA deductibility for active participants in employer plans, are all subject to annual cost-of-living adjustments (COLAs). The adjustments for 2023 are as follows.
Traditional and Roth IRA contributions: $6,500 (was $6,000) plus $1,000 catch-up contribution (not subject to COLAs)
Traditional IRA deductibility phase-out for single taxpayers participating in employer plans rises to $73,000–$83,000 (was $68,000–$78,000)
Traditional IRA deductibility phase-out for married joint filing taxpayers participating in employer plans rises to $116,000–$136,000 (was $109,000–$129,000)
Traditional IRA deductibility phase-out for married with spouse an active participant in employer plan rises to $218,000–$228,000 (was $204,000–$214,000)
Roth IRA income limitation for determining maximum contribution for married joint filers: the phase-out range rises to $218,000–$228,000 (was $204,000–$214,000)
Roth IRA income limitation for determining maximum contribution for single filers and heads-of-households: the phase-out range rises to $138,000–$153,000 (was 129,000–$144,000)
Employer-Sponsored Retirement Plans
The following are key employer-sponsored retirement plan limitations for 2023. They affect defined contribution plans such as 401(k), 403(b), governmental 457(b), simplified employee pension (SEP), and savings incentive match plans for employees of small employers (SIMPLE) IRA plans, as well as defined benefit plans.
Annual additions under Internal Revenue Code Section (IRC Sec.) 415(c)(1)(A) for defined contribution plans: $66,000 ($61,000 for 2022)
Annual additions under IRC Sec. 415(b)(1)(A) for defined benefit pension plans: $265,000 ($245,000 for 2022)
Annual taxpayer deferral limit—402(g) limit—for 401(k), 403(b), and SIMPLE plans in aggregate: $22,500 ($20,500 for 2022)
NOTE: governmental 457(b) plans do not aggregate with other deferral plans for purposes of a taxpayer’s annual 402(g) limit
Catch-up deferral contributions (for those age 50 and older) to 401(k), 403(b), and 457(b) plans in aggregate: $7,500 ($6,500 for 2022)
Annual per-plan deferral limit for SIMPLE IRA and SIMPLE 401(k) plans: $15,500 ($14,000 for 2022)
Catch-up deferral contributions for SIMPLE IRA and SIMPLE 401(k) plans: $3,500 ($3,000 for 2022)
IRC Sec. 401(a)(17) compensation cap: $330,000 ($305,000 for 2022)
Highly compensated employee (HCE) definition income threshold: $150,000 ($135,000 for 2022)
Top-heavy determination key employee definition income threshold: $215,000 ($200,000 for 2022)
SEP plan employee income threshold for benefit eligibility: $750 ($650 for 2022)
·Qualifying longevity annuity contract (QLAC) amount excludible from required minimum distribution determinations: $155,000 ($145,000 for 2022)
Saver’s Credit
Taxpayers who make contributions to IRAs or deferral-type employer-sponsored retirement plans may be eligible for a special income tax credit (the “saver’s credit”) of 10, 20, or 50 percent of the amount contributed up to $2,000, depending on their income.
For joint filers, the maximum 2023 adjusted gross income level for
the 50 percent tax credit is $43,500;
the 20 percent tax credit is $47,500; and
the 10 percent tax credit is $73,000.
For head of household filing status, the maximum adjusted gross income level for
the 50 percent tax credit is $32,625;
the 20 percent tax credit is $35,625; and
·the 10 percent tax credit is $54,750.
For all other filing statuses, the maximum adjusted gross income level for
the 50 percent tax credit is $21,750;
the 20 percent tax credit is $23,750; and
the 10 percent tax credit is $36,500.
The uncharacteristically large increases from 2022 to 2023 are good news for savers who wish to maximize their retirement savings, as unwelcome as the inflationary factors in the economy that drove them may be.
