United States – Pension Plans 2023 Cost-of-Living Adjustments

Jump to: More Details on Changes for 2023 | Notable Increases for 2023 | Unchanged Limits for 2023

On October 21, 2022, the U.S. Internal Revenue Service (IRS) released Notice 2022-55 providing the dollar limitations for qualified retirement plans and other retirement-related items for tax year 2023.¹

Taxpayers, their employers, as well as their tax service providers and financial advisers, should keep these changes in mind when making decisions around pension plan contributions, and other decisions around pension plan financing, and their tax implications.  

The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increases to $22,500 (up from $20,500).

The limitation regarding savings incentive match plan for employees (SIMPLE) retirement accounts for 2023 increases to $15,500 (up from $14,000).

The 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 increase for 2023, and the deduction for taxpayers making contributions to a traditional IRA is phased out for those who have modified adjusted gross income (AGI) within a certain range, as follows:

• For single taxpayers who are covered by a workplace retirement plan, the income phase-out range is increased to $73,000 to $83,000 (up from $68,000 to $78,000). 
• For married couples filing jointly, when the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is increased to $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 income is between $218,000 and $228,000 (up from $204,000 and $214,000).
• The income phase-out range for taxpayers making contributions to a Roth IRA is $138,000 to $153,000 (increased from $129,000 to $144,000) for singles and heads of household.  For married couples filing jointly, the income phase-out range is $218,000 to $228,000 (increased from $204,000 to $214,000).
• The income limit for the saver's credit – also known as the retirement savings contributions credit – for low- and moderate-income workers is $73,000 for married couples filing jointly (up from $68,000); $54,750 for heads of household (up from $51,000); and $36,500 for singles and married individuals filing separately (up from $34,000).

Notably, limits increased for the following items for 2023, from 2022, that remained static in previous years.

• The catch-up contribution limit for employees age 50 years and over who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan, is increased to $7,500 for 2023 (up from $6,500).
• The limit on annual contributions to an IRA is increased to $6,500 for 2023 (up from $6,000).
• The limitation used in the definition of “highly compensated employee” under section 414(q)(1)(B) is increased to $150,000 for 2023 (up from $135,000 for 2021 and 2022).

The limitations that remain unchanged for 2023, from 2022, include the following:

• The additional IRA catch-up contribution limit for individuals age 50 years and over is not subject to an annual cost-of-living adjustment and remains $1,000.
• The deduction for taxpayers making contributions to a traditional IRA is phased out for those who have modified AGI within a certain range.  For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
• The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Recently announced annual inflation adjustments for 2023 and the increase in the maximum amount of wages subject to Social Security for 2023 were reported in GMS Flash Alert 2022-91.

1  See IRS Notice 2022-55.  For coverage of last year’s adjustments, see GMS Flash Alert 2021-274, November 5, 2021.)

The above information is not intended to be "written advice concerning one or more Federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230 as the content of this document is issued for general informational purposes only.

The information contained in this newsletter was submitted by the KPMG International member firm in the United States.