Know Your Limits
The IRS recently announced the 2023-dollar limits and thresholds for qualified retirement plans, reflecting the latest cost-of-living adjustments. Here are some relevant amounts to be aware of:
Contribution limits for 401(k)s and other defined contribution plans
The annual limit on contributions will increase to $22,500 (up from $20,500) for 401(k), 403(b) and 457 plans, as well as for Salary Reduction Simplified Employee Pension plans (SARSEPs). The annual limits will rise to $15,500 (up from $14,000) for Savings Incentive Match Plans for Employees (SIMPLEs) and SIMPLE IRAs.
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), 403(b) and 457 plans, as well as for SARSEPs. The annual limit for SIMPLEs and SIMPLE IRAs will go up to $3,500 from $3,000.
The annual limit on the maximum compensation that can be taken into account for certain retirement plan contributions and deductions will rise to $330,000 (up from $305,000).
Highly compensated employees
The threshold for determining who’s a highly compensated employee will increase to $150,000 (up from $135,000).
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 rise to $215,000 (up from $200,000).
SEP annual contributions
The limit on annual contributions to these plans will increase to $66,000 (up from $61,000).
The threshold for determining participation in a SARSEP or SEP will rise to $750 from $650.
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 taxpayers who are married and filing jointly,
- $54,750 (up from $51,000) for those filing as a head of household, and
- $36,500 (up from $34,000) for all other taxpayers.
The amounts for determining who’s a control employee, a classification relevant to the valuation of company fringe benefits, will increase to $130,000 (up from $120,000) for a board or shareholder-appointed, confirmed, or elected officer, and to $265,000 (up from $245,000) for other employees.
Social Security taxable wage base
The annual cost-of-living adjustment to the maximum amount of earnings subject to Social Security tax, which is relevant for various benefit purposes, will rise to $160,200 (up from $147,000). This adjustment was announced in October by the Social Security Administration.
Compared with recent years, many of these amounts have notably increased because of inflation. Employers that sponsor 401(k)s and other defined contribution plans should carefully note the changes and, as necessary, review and revise employee communications, plan procedures and administrative forms.
Contact us for further information and for help assessing the impact on your retirement plan.