Higher Retirement Plan and IRA Dollar Amounts for 2023

Each year, the IRS is required to adjust various amounts used to figure contributions, benefits, deductions, and credits related to qualified retirement plans and IRAs due to cost-of-living increases. The IRS has now done so for 2023 amounts (Notice 2022-55). The adjustments reflect higher inflation. Here are some highlights:

Elective deferrals. The limit on an employee’s elective salary deferrals in 401(k), 403(b), 457 plans, and the federal government’s Thrift Savings Plan will be $22,500 ($2,000 higher than in 2022). The limit on catch-up contribution in 2023 for those age 50 or older by the end of the year remains will be $7,500 ($1,000 higher), for a total deferral amount of $30,000. The elective deferral limit for SIMPLE IRAs will be $15,500 ($1,500 more than in 2022), and the catch-up contribution will be $3,500 ($500 higher than in 2022).

Contributions and benefits to qualified retirement plans for 2023. The limit for contributions to defined contribution plans, including profit-sharing plans and SEPs, will be $66,000 (up $5,000 from $2022). The limit on benefits from defined benefit (pension) plans will be $265,000 (up from $245,000 in 2022). The annual compensation limit that can be taking into account for figuring contributions and benefits will be $330,000 (up from $305,000 in 2022).

Contribution limits for traditional and Roth IRAs. The IRA contribution limit for 2023 will be $6,500, which is $500 higher than for 2022. This is the first increase in the basic contribution limit since it was raised to $6,000 in 2019. Those age 50 or older by the end of 2023 may contribute an additional $1,000; this amount is not adjusted for inflation each year. Note, however, that IRA limits apply to contributions applicable to each taxable year. As a result, an IRA contribution made in 2023 before the 2022 tax year filing deadline on April 18, 2023, that is designated as a 2022 contribution, will be limited to the $6,000 ceiling.

Income limits for traditional and Roth IRAs. The modified adjusted gross income (MAGI) limits for deducting contributions to a traditional IRA if the taxpayer is an active participant in a qualified retirement plan or contributing to a Roth IRA will also increase in 2023.

Retirement savers credit in 2023. The adjusted gross income (AGI) limits for figuring the credit for elective deferrals, contributions to IRAs, and certain contributions to ABLE accounts have increased across the board. Some credit can be claimed for 2023 contributions as long as AGI does not exceed $73,000 on a joint return, $54,750 for heads of households, and $36,500 for other filers.

Other changes in dollar limits for 2023. These include:

• Compensation for participation in SEPs: $750 (up from $650 in 2022)
• Highly-compensated employees: $150,000 ($15,000 higher)
• Cap on contributions to qualified longevity annuity contracts (QLACs): $155,000 ($10,000 higher)