While the updated limits could come out any day now, a final snapshot projects that record increases are in store for nearly all qualified retirement plan limits.
The 2023 limits will reflect increases in the Consumer Price Index for All Urban Consumers (CPI-U) from the third quarter of 2021 to the third quarter of 2022. Using this measure, inflation is projected to reach its highest level since indexing began, causing 7%–11% increases for most limits based on their rounding levels, according to benefits consultant Mercer—whose projections over the years have been quite accurate.
In addition, the non-SIMPLE plan catch-up limit—which has a large rounding threshold—will jump more than 15%, the firm notes.
“These record hikes come on the heels of 2021’s increases, which were the second highest ever at that time,” Mercer further observes.
Using the Internal Revenue Code’s cost-of-living adjustment and rounding methods, and the final CPI-U values for July, August and September, the firm projects that the contribution limits for 401(k), 403(b) and eligible 457 plan elective deferrals (and designated Roth contributions) will increase from $20,500 at present to $22,500 in 2023.
The 415(c) DC plan maximum annual addition is projected to increase from $61,000 to $66,000 (note that earlier projections pegged this limit at $67,000).
Additionally, the 414(q)(1)(B) highly compensated employee and 414(q)(1)(C) top-paid group limit is projected to be $150,000 in 2023, compared with $135,000 for 2022.
Other 2023 projected increases include:
- the 414(v)(2)(B)(i) catch-up contribution limit (for plans other than SIMPLE plans) rising from $6,500 to $7,500 in 2023;
- the 415(b) DB plan maximum annuity limit rising to $265,000 from $245,000;
- the 401(a)(17) and 408(k)(3)(C) compensation limit rising to $330,000 from $305,000 (note also that earlier estimates showed this limit at $335,000); and
- the 416(i)(1)(A)(i) officer compensation for top-heavy plan key employee limit jumping to $215,000 from $200,000.
The IRS usually announces official limits for the coming year in late October or early November.
Last week, the Social Security Administration announced that Social Security and Supplemental Security Income (SSI) benefits for approximately 70 million Americans will increase 8.7% in 2023. On average, Social Security benefits will increase by more than $140 per month starting in January, according to the announcement.
