Retirement Planning for 2023: IRS Releases New Dollar Limitations for Retirement Savings Plan Actions

Retirement Planning for 2023: IRS Releases New Dollar Limitations for Retirement Savings Plan Actions
On October 21, 2022, the IRS released Notice 2022-55 outlining the cost-of-living adjustments to the dollar limitations for various retirement related actions for 2023.

This notice also has limits on elective deferrals for plans under Sec. 401(k) and Sec. 403(b) and most plans under Sec. 457.

Cost-of-living adjustments for IRAs – regular and Roth – and the Savers Credit
The adjusted gross income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver's Credit all increased for 2023.

The deductibility of contributions to a traditional IRA depends on if certain conditions are met by the taxpayer. If during the year, the taxpayer and/or his or her spouse is covered by an employee retirement plan, the deductibility of the contributions may be reduced, or phased out altogether, depending on the filing status and the adjusted gross income (“AGI”) levels of the taxpayer.

• For single taxpayers covered by a workplace retirement plan, the AGI phase-out range is $73,000 to $83,000, up from $68,000 to $78,000.
• For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the AGI phase-out range is $116,000 to $136,000, up from $109,000 to $129,000.
• For an IRA contributor who is not covered by a workplace retirement plan, and is married to someone who is covered, the deduction is phased out if the couple's AGI is between $218,000 and $228,000, up from $204,000 and $218,000.

• $138,000 to $153,000 for singles and heads of household, up from $129,000 to $144,000
• $218,000 to $228,000 for married couples filing jointly, up from $204,000 to $214,000
• $0 to $10,000 for married couples filing separately, unchanged for the current year

• $36,500 for singles and married individuals filing separately, up from $34,000
• $54,750 for head of households, up from $51,000
• $73,000 for married couples filing jointly, up from $68,000

• The limit on contributions by employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan increases to $22,500 from $20,500. This represents a rather significant $2,000 increase.
• Annual compensation limit under 401(a)(17), 404(l), 408(k)(3)(C), and 408 (k)(6)(D)(ii) increases to $330,000 from $305,000
• The catch-up contribution limit for employees aged 50 and over who participate in these plans increased to $7,500 up from $6,500. This $1,000 increase compares to no increase in the prior year.
• The limitation regarding SIMPLE retirement accounts increases to $15,500 from $14,000. This represents a $1,500 increase compared to an increase of only $500 in the prior year.
• The limit on annual contributions to an IRA increased to $6,500 from $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
• The limitation on the annual benefit under a defined contribution plan under Sec. 415(b)(1)(A) is increased to $265,000 from $245,000.
• The limitation for defined contribution plans under Sec. 415(c)(1)(A) increases to $66,000 from $61,000.

Conclusion
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. This seems evident in meaningful increases to some pension plan limits for 2023, most notably to the 401(k) contribution limit, the catch-up contribution to employee retirement plans and SIMPLE plan contributions.

Please contact your Herbein team tax adviser if you have questions regarding the new pension plan amounts for 2023 or any other tax planning question.

Article prepared by Sean McGuire