2023 New Annual Limits for Retirement and Other Benefits
As a participant in a 401k plan, knowing the contribution limits at the beginning of the year allows you to adjust your contribution to allocate that increase throughout the year to maximize the limits. Remember, every time you put a dollar into a qualified plan on a pretax basis, it is one less dollar you are taxed at your top marginal tax bracket. This can be a significant tax benefit. Additionally, it’s important to understand how your company match benefit is calculated. Is it done each payroll? At the end of the year? It’s possible that if your company doesn’t true up match contributions, you could potentially miss out on match dollars by reaching the contribution limit too early in the year.
For small business owners, understanding the contribution and benefit limits is crucial in limiting tax liability. Recently, we were consulting with a small business owner who had experienced a significant increase in revenue in 2022. We suggested that he consider a new Cash Balance Plan (hybrid Defined Benefit) and increase his compensation to the maximum limit. Based on his age, he can defer nearly $700k into the cash balance plan. If he does not adjust his compensation, his maximum deferral will be $360k. That’s a significant tax savings.
This is a great example of why business owners should be working with an advisor who specializes in retirement plans. MAI Capital’s Retirement division takes a customized approach to retirement plans, offering a complete and integrated platform that includes 401(k) services, fiduciary-based retirement plan consulting, and financial wellness programs for businesses, as well as tailored plans for individuals and families.
The chart below outlines the announced IRS figures for retirement plans and other benefits, effective January 1, 2023.
|
Annual Plan Limits |
2023 |
2022 |
2021 |
2020 |
|
Maximum Considered Compensation |
$330,000 |
$305,000 |
$290,000 |
$285,000 |
|
|
||||
|
Limits on Benefits and Contributions |
||||
|
Defined Contribution Plans |
$66,000 |
$61,000 |
$58,000 |
$57,000 |
|
Defined Benefit Plans |
$265,000 |
$245,000 |
$230,000 |
$230,000 |
|
401(k), 403(b), and 457 plan elective deferrals |
$22,500 |
$20,500 |
$19,500 |
$19,500 |
|
SIMPLE plan elective deferrals |
$15,500 |
$14,000 |
$13,500 |
$13,500 |
|
IRA |
$6,500 |
$6,000 |
$6,000 |
$6,000 |
|
Catch-Up Contributions |
||||
|
401(k), 403(b), and 457 plans |
$7,500 |
$6,500 |
$6,500 |
$6,500 |
|
SIMPLE plans |
$3,500 |
$3,000 |
$3,000 |
$3,000 |
|
IRA |
$1,000 |
$1,000 |
$1,000 |
$1,000 |
|
Health Savings Accounts |
||||
|
Individual contribution limit |
$3,850 |
$3,650 |
$3,600 |
$3,550 |
|
Family contribution limit |
$7,750 |
$7,300 |
$7,200 |
$7,100 |
|
Catch-up contributions |
$1,000 |
$1,000 |
$1,000 |
$1,000 |
|
|
|
|
|
|
|
Health Flexible Spending Accounts |
$3,050 |
$2,850 |
$2,750 |
$2,750 |
|
Highly Compensated Threshold |
$150,000 |
$135,000 |
$130,000 |
$130,000 |
|
Key Employee Threshold: Officer |
$215,000 |
$200,000 |
$185,000 |
$185,000 |
|
Social Security Taxable Wage Base |
$160,200 |
$147,000 |
$142,800 |
$137,700 |
|
Medicare Taxable Wage Base |
No Limit |
No Limit |
No Limit |
No Limit |
Sources: IRS.gov and SHRM.org
Information updated as of 02.22.2023.
Please send your questions, comments and feedback to: info@mai.capital. The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein. In accordance with certain Treasury Regulations, we inform you that any federal tax conclusions set forth in this communication, were not intended or written to be used, and cannot be used by any taxpayer, for the purposes of avoiding penalties that may be imposed by the Internal Revenue Service.