2023 retirement contribution limits changes

IRS announces increases to offset inflation

‍The total employee contribution limit will officially increase for all 401(k) and 403(b) plans from $20,500 in 2022 to $22,500 in 2023 for those under 50. The catch-up contribution limit also increased from $6,500 to $7,500, for those 50 and older.

Unprecedented Increase

These projections are all taking into account the high inflation rates in the U.S. and will represent a major limit increase relative to past years. The $2,000 increase will double the 2022 increase of $1,000, which came after no increases to the individual contribution limit in previous years.

The total employer plus employee contributions to all defined contribution plans by the same employer will increase by $5,000 from $61,000 in 2022 to $67,000 in 2023.

The official 2023 limits from the Internal Revenue Code were announced after the September Consumer Price Index for All Urban Consumers (CPI-U) values were published.

Prior to the announcement, 401(k), 403(b), 457(b), IRA, Roth IRA, SIMPLE IRA, and SEP-IRA were all indexed to inflation and the increase was expected.

Additional increases

‍The 401(k) and 403(b) increases aren’t the only bumps announced.

SEP-IRA: Contribution limit is always the same as the annual additions limit for a 401k plan. So $5,000 increase from $61,000 to $67,000.

Annual Compensation Limit: Annual compensation limit will increase by $25,000 from $305,000 in 2022 to $330,000 in 2023.

Highly Compensated Employee Threshold: Highly Compensated Employee (HCE) minimum compensation will go up by $15,000 from $135,000 to $150,000.

SIMPLE 401k and SIMPLE IRA: Contribution limit for SIMPLE 401k and SIMPLE IRA plans will go up by $1,500 from $14,000 in 2022 to $15,500 in 2023.

The White Coat Investor has published a graphic of all increases, here:

What this means

In the grand scheme of things it means that contribution limits are just keeping up with the pace of inflation. This is driven by cost-of-living increases, so “dollar-for-dollar” it may not actually increase your investment opportunity; rather, it will keep limits equal with the past year.

Want to get a 401(k) plan started for your organization? Reach out to our team today!

‍This information is provided as general guidance and may be affected by changes in law or regulation. It is not intended as accounting or legal advice. If you have questions please reach out to our team.