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2023 IRS Benefit Limits
Each year, benefit and compensation limits are revised and published by the Internal Revenue Service. This year’s limits have been released with significant changes from last year. The chart below reflects these changes.
Now is a good time to review your current contributions to your 401(k), 403(b), or 457(b) plan to see if you can take advantage of additional deferrals for 2023.
| IRS and Social Security Compensation, Tax, and Benefit Limits | 2023 | 2022 | Change |
|---|---|---|---|
| Defined Benefit Maximum Annual Pension Benefit The maximum annual benefit that can be accrued by an individual at his social security normal retirement age in a qualified defined benefit plan is the lesser of this limit or 100% of the highest consecutive 3-year average of compensation as a plan participant (IRC §415(b)(1)(A)). | $265,000 | $245,000 | +$20,000 |
| Defined Contribution Maximum Annual Addition The maximum amount that can be contributed on behalf of an individual to one or more qualified defined contribution plans in a given year is the lesser of this limit or 100% of compensation for the year (IRC §415(c)(1)(A)). | $66,000 | $61,000 | +$5,000 |
| Maximum Compensation Limit for Qualified Plans This is the maximum annual compensation that can be taken into account for a defined benefit, defined contribution or simplified employee pension plan (IRC §§401(a)(17), 404(l), 408(k)(3)(C) and 408(k)(6)(D)(ii)). | $330,000 | $305,000 | +$25,000 |
| Highly Compensated Employee A 5% owner at any salary or an employee receiving compensation in excess of this limit for the prior plan year is considered a highly compensated employee under IRC §414(q)(1)(B). | $150,000 | $135,000 | +$15,000 |
| Social Security Taxable Wage Base Social Security taxes are paid for compensation up to this limit. Medicare taxes are paid on all compensation. | $160,000 | $147,000 | +13,000 |
| Key Employee – Officer Compensation The definition of a key employee is any 5% owner, and any officer with compensation over $215,000. | $215,000 | $200,000 | +$15,000 |
| Maximum Elective Deferral – 401(k), 403(b), 457(b) This is the maximum elective deferral that participants can make in a calendar year to plans described in IRC §402(g)(1). This refers to contributions made by the employer on behalf of the employee under a cash or deferred arrangement described in IRC §401(k), contributions to an IRA under a simplified employee pension plan described in IRC §408(k) and salary reduction agreements (or tax deferred annuities) described in IRC §403(b). The maximum elective deferral which can be made to a SIMPLE 401(k) Plan described in IRC §408(p) is $15,500 in 2023. | $22,500 | $20,500 | +$2,000 |
| Age 50 or older – Catch Up Contributions – 401(k), 403(b), 457(b) Catch-up contributions are available to employees age 50 or older by the end of the year. Catch-up contributions are not subject to any other contribution limits or nondiscrimination testing. NOTE: To be considered catch-up contributions the contributions must exceed some Code or plan limit. | $7,500 | $6,500 | + $1,000 |
Auto Enroll 401(k) (3.5% Safe Harbor Match)
Auto-Enroll “QACA” 401(k)
(3.5% Safe Harbor Match)
All Employees Auto-Enrolled at 6% Deferral (From their own paychecks)
Employer Match is capped a 3.5%
(Graded match from 1% – 3.5%)
Match Vesting is delayed until 2 Years from Date of Hire to Retain employees. Best Option
Safe Harbor plan which satisfies annual ADP/ACP Compliance Testing. Details in pdf.
Basic Match 401(k) (4% Employer Match)
Basic Safe Harbor 401(k)
(4% Safe Harbor Match)
Voluntary to allow your employees to save for their own retirement
Employer Match is capped at 4%
(Graded match from 1% – 4%)
Employer Match is Vested immediately to Attract & Retain top talent – Best for Professionals
Safe Harbor plan which satisfies annual ADP/ACP Compliance Testing. Details in pdf.
Traditional 401(k) (No Employer Match)
Traditional 401(k) w/ ROTH
(No Employer Match)
Lowest Cost Option for the Employer/Company
No Match or Mandated Employer Contribution – $0 Employer Cost
Voluntary to allow your employees to save for their own retirement
Ability to add a 3% Safe Harbor Contribution for all Employees to remove any ADP/ACP Testing Issues.* Details in pdf.
Profit Sharing 101
There are 3 main parts of a 401(k). Employee Deferrals & Employer Match are the first two. The more mysterious, and most magical, portion is the third – Profit Sharing. Understanding how the Profit Sharing portion can work for your plan is the best way to maximize your results – from Company Tax Deductions, Employee Retention, or simply more employer flexibility…
Cash Balance by Age
Estimated allowable contributions (2021) – assuming retirement at 62 / 65 with 5 years of participation in the plan.
Solo (k) with Cash Balance Plan
There are 3 main parts of a 401(k). Employee Deferrals & Employer Match are the first two. The more mysterious, and most magical, portion is the third – Profit Sharing. Understanding how the Profit Sharing portion can work for your plan is the best way to maximize your results – from Company Tax Deductions, Employee Retention, or simply more employer flexibility…
PPC Census Form
The Census Form captures details for a specific plan year for each participant including compensation.
PPC 3 Legged Stool
The Plan Sponsor relies upon partners to successfully maintain an effective retirement plan. The attached document illustrates this example.