IRS Issues 2023 Retirement Plan Adjustments and Fringe Benefit Limitations

Author: Rena Pirsos, Brightmine Legal Editor

October 21 2022

The IRS has released Notice 2022-55, which contains the 2023 cost-of-living adjustments (COLAs) to the dollar limitations on benefits and contributions to qualified retirement and deferred contribution plans.

Defined Contribution Plans

The maximum amount employees can contribute to their § 401(k) or § 403(b) accounts next year will increase $2,000, to $22,500. The overall pre-tax, after tax and employer matching contribution limit will increase to 100% of an employee's compensation or $66,000 (up from $61,000).

The following are additional 2023 amounts:

  • The annual compensation limit for figuring contributions to defined contribution plans is $330,000 (up from $305,000).
  • The catch-up contribution limit for employees aged 50 and older who participate in § 401(k) or § 403(b) plans is $7,500 (up from $6,500).
  • The amount an employee must earn to participate in a simplified employee pension (SEP) is $750 a year (up from $650 a year).
  • The amount an employee can contribute on a pre-tax basis into a SIMPLE retirement account increases to $15,500 (up from $14,000).
  • The maximum catch-up contribution for an employee who participates in a SIMPLE retirement account or SIMPLE § 401(k) plan is $3,500 (up from $3,000).
  • The salary amount used to define a key employee in a top-heavy plan increases to $215,000 (up from $200,000).
  • The salary amount used to define a highly-compensated employee increases to $150,000 (up from $135,000).

Defined Benefit Plans

The following inflation adjustments relate to traditional pension plans and defined benefit plans:

  • The limitation on the annual benefit under a defined benefit plan increases to $265,000 (up from $245,000).
  • The limitation under a defined benefit plan for a participant who separated from service before January 1, 2023, is computed by multiplying the participant's compensation limitation, as adjusted through 2022, by 1.0833.

Employee Stock Ownership Plans

Meanwhile, the following inflation adjustments relate to employee stock ownership plans (ESOPs):

  • The dollar amount for determining the maximum account balance in an ESOP that is subject to a five-year distribution is $1,330,000 (up from $1,230,000).
  • The dollar amount used to determine the lengthening of the five-year distribution period in an ESOP is $265,000 (up from $245,000).

Individual Retirement Accounts

The following are the 2023 amounts attributable to employee contributions to an individual retirement account (IRA), as well as the income limits related to these arrangements:

  • The maximum individual contribution to an IRA increases to $6,500 (up from $6,000).
  • The maximum additional catch-up contribution for individuals aged 50 and older remains $1,000.
  • The dollar amount for determining the IRA contribution for an employee who is an active participant in an employer retirement plan and files an income tax return as a joint filer or qualifying surviving spouse increases to $116,000 (up from $109,000).
  • The dollar amount for other taxpayers who are active IRA participants (other than married taxpayers filing separate returns) increases to $73,000 (up from $68,000).
  • The dollar amount for a taxpayer who is not an active participant in an employer retirement plan but whose spouse is an active participant is $218,000 (up from $204,000).
  • The phase-out ranges for contributions to a traditional, deductible IRA are:
    • $73,000 to $83,000 (up from $68,000 to $78,000, respectively) for single taxpayers;
    • $116,000 to $136,000 (up from $109,000 to $129,000, respectively) for married taxpayers filing jointly if the spouse making the IRA contribution is covered by an employer retirement plan; and
    • $218,000 to $228,000 (up from $204,000 to $214,000, respectively) for an IRA contributor who is not covered by a workplace retirement plan but whose spouse is covered.
  • The adjusted gross income (AGI) limit for determining the maximum Roth IRA contribution for married taxpayers filing jointly, or for qualifying surviving spouses, is $218,000 (up from $204,000).
  • The AGI limit for all other taxpayers (other than married taxpayers filing separate returns) is $138,000 (up from $129,000).
  • The income phase-out range for taxpayers making contributions to a Roth IRA are:
    • $138,000 to $153,000 for single taxpayers and heads of household (up from $129,000 to $144,000, respectively); and
    • $218,000 to $228,000 (up from $204,000 to $214,000, respectively) for married taxpayers filing jointly.
  • The saver's credit (or the retirement savings contributions credit) income limits for low- and moderate-income workers are:
  • $73,000 for married couples filing jointly (up from $68,000);
  • $54,750 for heads of household (up from $51,000); and
  • $36,500 for single taxpayers and married taxpayers filing separately (up from $34,000).

Miscellaneous Amounts

An employer may value an employee's use of a company car provided for commuting by using the commuting valuation rule. However, this rule cannot be used for certain control employees who earn above a certain amount.

For 2023, the compensation amounts defining a control employee are:

  • $130,000 for a control employee who is a corporate board member or officer (up from $120,000)
  • $265,000 for a control employee who is not a corporate board member or officer (up from $245,000).