On October 21, 2022, the Internal Revenue Service (IRS) announced the new 401k plan limits for 2023 in Notice 2022-551, showing a significant jump over previous years’ cost-of-living increases. Retirement plan industry experts note that the significant 401k plan increases for 2023 are a direct result of current inflation rates.
Highlights of 401k Cost-of-Living Increases
|401k Plan Limits||2022||2023||Difference|
|Maximum employee elective deferral (for ages 49 and younger)||$20,500||$22,500||+$2,000|
|Employee catch-up contributions (for ages 50 and older)||$6,500||$7,500||+$1,000|
|Maximum employee elective deferral (for ages 50 and older)||$27,000||$30,000||+$3,000|
|Maximum employer + employee limit (for ages 49 or younger)||$61,000||$66,000||+$5,000|
|Maximum employer + employee limit (for ages 50 and older)||$67,500||$73,500||+$6,000|
|Maximum employee compensation limit||$305,000||$330,000||+$25,000|
|Highly Compensated Employee Compensation Limitation||$135,000||$150,000||+15,000|
Details on other retirement-related cost-of-living adjustments for 2023 can be found in IRS Notice 2022-552.
Additional Employer Considerations
Employer Next Steps
As employers prepare for the 2023 plan year, they should ensure any plan materials and participant communications reflect these new limits. Additionally, employers will want to confirm that their 401k plans comply with these limits when processing contributions and testing for discrimination issues, where applicable.
Pensionmark Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC).
DISCLAIMER: This communication is intended for information purposes only and should not be construed as legal or tax advice. It provides general information and is not intended to encompass all compliance and legal obligations that may be applicable to your situation. This information and any questions as to your specific circumstances should be reviewed with legal counsel and/or a tax professional.
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