Retirement Plan Contribution Limits

Most employers understand the vital role tax-advantaged retirement plans play in the lives of their workers. The contribution limits generally change each year and it's important for you and your employees to be aware of those changes.

Here is what you need to know about contribution limits for various retirement plans going into 2023.

Overall Limits

The IRS places a cap of $22,500 on the total amount of salary reduction contributions an employee can make to all plans in which he or she participates for 2023.

401(k) Participants

• Maximum elective deferral limits: $22,500 in 2023 (up from $20,500 in 2022).
• Additional Catch-up contributions in 2023: $7,500. You must have turned age 50 or older during the year to contribute this additional amount to your 401(k) plan (up from $6,500 in 2022).
• Combined employer-employee annual deferral: $66,000 in 2023 (up from $61,000 in 2022)
  

The following limits are generally applicable to only a handful of workers. Speak with your management or HR department if your income is higher than these 2023 amounts for details concerning your plan:

• Annual compensation of "key employees" in "top-heavy plans:" $215,000 (up from $200,000 in 2022).
• Highly compensated employee threshold: $150,000 (up from $135,000 in 2022).
  

SIMPLE Plan Participants

SIMPLE Plans are a form of defined contribution retirement plan similar to a 401(k) plan, except the administrative requirements are streamlined to accommodate smaller employers. If your workplace offers a SIMPLE plan, you should qualify for participation if you received at least $5,000 in compensation during any two preceding calendar years, and if you're reasonably expected to earn that much this year.¹ If your employer offers a SIMPLE plan, here are your limits for 2023:

• Maximum employee deferrals: $15,500 ($14,000 in 2022).
• Catch-up deferrals: $3,500 (up from $3,000 in 2022). Also, you must be aged 50 or over to make this additional contribution).

SEPs (Simplified Employee Pension)

• Minimum compensation: $750 (up from $650 for 2022)
• Annual compensation limit: $330,000 (up from $305,000 for 2022)
• Employer contributions cannot exceed the lesser of $67,000 or 25% of compensation, whichever is less (up from $61,000 for 2022).
  

Note that there are no "catch-up" contributions in SEPs. SEPs are funded by employers only, not employees.

For more information, see Publication 560, Retirement Plans for Small Businesses (SEP, SIMPLE and Qualified Plans).

¹ Note: SIMPLE Plans may exclude otherwise qualified workers who are covered under collective bargaining agreements, or for non-resident aliens and those who had no earned income from U.S. sources in previous years.