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Record Increases Projected for 2023 Retirement Plan Limits

Practice Management

Announcement of the official limits is still a few months away, but early projections from Mercer suggest that nearly all qualified retirement plan limits will increase by unprecedented amounts next year.  

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 past projections have been rather accurate.  

In addition, the non-SIMPLE plan catch-up limit—which has a large rounding threshold—will jump more than 15%, the firm notes. 

Using the Internal Revenue Code’s cost-of-living adjustment and rounding methods, the CPI-U through June, and estimated 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 this year to $22,500 in 2023. 

The 415(c) DC plan maximum annual addition is projected to increase from $61,000 to $67,000. Mercer notes that the limit will be $66,000 if inflation is less than 0.25% per month for July, August and September. 

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, up from $135,000 this year. 

Other 2023 projected increases include:

  • the 414(v)(2)(B)(i) catch-up contribution limit (for plans other than SIMPLE plans) rises from $6,500 to $7,500 in 2023;
  • the 415(b) DB plan maximum annuity limit rises from $245,000 to $265,000;
  • the 401(a)(17) and 408(k)(3)(C) compensation limit rises from $305,000 to $335,000 (Mercer also notes that the limit will be $330,000 if inflation is less than 0.25% for July, August and September); and
  • the 416(i)(1)(A)(i) officer compensation for top-heavy plan key employee limit rises from $200,000 to $215,000.  

The estimates cannot be finalized until after September CPI-U values are published in October. The IRS typically announces official limits for the coming year in late October or early November.

Separate estimates by The Senior Citizens League (TSCL) published last month show that next year’s annual Social Security cost-of-living adjustment (COLA) could be 10.5% next year, the highest in more than four decades, based on the June CPI data.