Employee benefit plan and IRA cost-of-living adjustments: 2022 vs 2023
The IRS recently announced 2023 cost-of-living adjustments (COLA) limits. In response, Wipfli has created a quick-reference table comparing the COLA applicable to dollar limitations for various qualified retirement plans.
What’s changed?
The 2023 limits 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 reached its highest level since indexing began, resulting in 7-11% increases in most plan limits, based on rounding levels. These record hikes come on the heels of 2022’s increases, which were the second highest ever up to that time.
Plan sponsors should verify that their administrative and payroll systems reflect the appropriate limits. Review communications that specify benefit plan limits for accuracy before you give materials to participants.
2022 vs 2023 comparison
| 2022 | 2023 | Increase | |
|---|---|---|---|
| Compensation limit (IRC Sec. 401(a)(17)) | $305,000 | $330,000 | $25,000 |
| Defined benefit plan annual benefit limit | $245,000 | $265,000 | $20,000 |
| Defined contribution plan annual contribution limit | $61,000 | $66,000 | $5,000 |
| Social Security tax wage base | $147,000 | $160,200 | $13,200 |
| Highly compensated employee compensation threshold | $135,000 | $150,000 | $15,000 |
| Key employee officer compensation threshold | $200,000 | $215,000 | $15,000 |
| SEP compensation threshold | $650 | $750 | $100 |
401(k), 403(b), 457(b) and SARSEPs |
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| Elective deferral limit(2) | $20,500 | $22,500 | $2,000 |
| Catch-up contribution(3) | $6,500 | $7,500 | $1,000 |
SIMPLE Plan |
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| Elective deferral limit(2) | $14,000 | $15,500 | $1,500 |
| Catch-up contribution(3) | $3,000 | $3,500 | $500 |
IRA |
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| Contribution limit(2) | $6,000 | $6,500 | $500 |
| Catch-up contribution(3) | $1,000 | $1,000 | - |
Traditional IRA Deduction Phaseout Range (AGI) |
|||
| Single, head of household - active participant | $68,000/$78,000 | $73,000/$83,000 | $5,000/$5,000 |
| Married filing separate - any spouse participates | $0/$10,000 | $0/$10,000 | $0/$0 |
| Married filing joint - nonparticipating spouse | $204,000/$214,000 | $218,000/$228,000 | $14,000/$14,000 |
| Married filing joint - participating spouse | $109,000/$129,000 | $116,000/$136,000 | $7,000/$7,000 |
Roth IRA contribution eligibility phaseout range (AGI) |
|||
| Married filing joint | $204,000/$214,000 | $218,000/$228,000 | $14,000/$14,000 |
| Single, head of household | $129,000/$144,000 | $138,000/$153,000 | $9,000/$9,000 |
| Married filing separate - any spouse participates | $0/$10,000 | $0/$10,000 | $0/$0 |
Retirement saver's credit limitation (AGI) |
|||
| Married filing joint | $68,000 | $73,000 | $5,000 |
| Head of household | $51,000 | $54,750 | $3,750 |
| Married filing separate, single | $34,000 | $36,500 | $2,500 |
(1) This table has been updated based on IRS Notice (2022-55), October 21, 2022.
(2) This applies to the total of all elective deferrals an individual makes for the year to 401(k) plans, 403(b) plans, SARSEPs and SIMPLE plans. However, deferrals to each SIMPLE plan in which the individual participates are also limited, as shown later in the table.
(3) Catch-up contributions are available each year to individuals who reach age 50 by December 31.
Contact us for assistance
Wipfli’s employee benefit services practice is dedicated to helping clients meet their employee benefit needs. We’ve been providing qualified and non-qualified plan services for over 30 years.
For more information about the 2023 cost-of-living adjustments, or if you have any questions, please contact your Wipfli relationship executive or benefit specialist.
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