Take-Away: With inflation continuing to run rampant, we can expect large increases for 2023 retirement plan contributions.

Background:  Due to several cost-of-living escalator provisions in the Tax Code, the limits on qualified retirement plan contributions will increase beginning in 2023 to reflect increases in the Consumer Price Index for All Urban Consumers (CPI-U.)

The CPI increase is measured from the third quarter 2021 to the third quarter 2022. However, the actual increases will not be published by the IRS until sometime in October, or early November. It is estimated that with the currently high level of inflation, a 7% to 11% increase will occur in the contribution limits, depending upon the type of qualified retirement plan and the ‘rounding thresholds’ each type of qualified plan uses.

What follows are the projected contribution limits for 2023:

Plan  Type                                 2022 Contribution           2023 Contribution

401(k), 403(b), 457                       $20,500                               $22,500

Catch-up contribution                 $6,500                                  $7,500

Defined contribution                   $61,000                                $67,000

Defined Benefit                             $245,000                              $265,000

The income of a highly compensated employee in a top-paid group will increase from $135,000 to $150,000.  

The officer compensation for top-heavy plan key employees will increase from $200,000 to $215,000.  

Source: Mercer Law and Policy Group.

Conclusion: We will know more come October after the third quarter comes to a close. Recall that there are a couple of proposals currently before Congress that would tie the contribution limit for an IRA to cost-of-living which might also get passed sometime this year.