The Internal Revenue Service has announced cost-of-living-adjusted limits for2023 that affect the operation of tax-qualified retirement plans, including 401(k) plans and certain other types of employee benefit plans, such as deferred compensation plans that may be subject to Internal Revenue Code §409A. The amount by which the limits are adjusted each year is based on a cost-of-living index, and not all limits increase every year. For 2023, however, all of the plan-related, cost-of-living-adjusted limits listed below have increased from 2022. In connection with the increased limits for 2023, employers should revise participant communications and election forms, amend plan documents and summary plan descriptions, and update all payroll and/or human resources systems with the new dollar amount limitations.

The Social Security Old-Age, Survivors, and Disability Insurance (OASDI) taxable wage base, which governs the amount of pay subject to Social Security tax withholding and affects plans that are "integrated" with Social Security, also is subject to adjustment annually. For 2023, the OASDI taxable wage base has been increased to $160,200.

Adjusted limits

Provision

2023 limit

Maximum 401(k) contributions

$22,500

Maximum compensation limit

$330,000

Highly compensated employees
Earning (in previous year) more than


$150,000

Key employee compensation limit

$215,000

Annual contribution limit for defined contribution plans

$66,000

Annual benefit limit for defined benefit plans

$265,000

SIMPLE plan limit

$15,000

Age 50 and older catch-up contribution limit

All plans other than SIMPLE plans
SIMPLE plans


$7,500
$3,500

Annual contribution limit for Section 457 deferred compensation plans (government and tax-exempt organizations)

$22,500

Employee stock ownership plan (ESOP)

Maximum account balance subject to five-year distribution period
Each incremental dollar amount in excess of account balance that adds one year to five-year distribution period


$1,330,000
$265,000

Simplified employee pension (SEP) plans
Contributions must be made for employees earning at least


$750

409A minimum specified employee (officer) compensation requirement

$215,000

409A involuntary separation pay exception

$660,000

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.