By Dr. James M. Dahle, WCI Founder
Contribution limits for 401(k)s, 403(b)s, 457(b)s, IRAs, Roth IRAs, HSAs, FSAs, SIMPLE IRAs, and SEP-IRAs are all indexed to inflation. While the contribution limits do not go up every year and while every account does not use the same formula for when there will be an increase, you will generally see an increased contribution every year or two.
Inflation has exploded in the first half of 2022, all the way up to 9.1% in July, so the 2023 contribution limits for many of these accounts have been increased. In fact, if you know the latest inflation numbers, it is possible to calculate the increase even before the IRS announces it in October or November. The closer you get to October, the more accurate your projection can be.
For now, we can make our own calculations for what the 2023 retirement plan contributions will be. We'll update them if they change when the IRS makes it official in the final few months of 2022 (as of late October, the IRS has confirmed the numbers).
2023 401(k) and 403(b) Employee Contribution Limit
The total employee contribution limit to all 401(k) and 403(b) plans for those under 50 will be going up from $20,500 in 2022 to $22,500 in 2023, a large increase. The catch-up contribution limit will increase from $6,500 to $7,500, so if you're 50+, your 401(k) employee contribution limit should be $30,000 in 2023.
2023 401(k)/403(b)/401(a) Total Contribution Limit
For 2023, the total of all employee and employer contributions per employer will increase from $61,000 in 2022 to $66,000 in 2023 for those under 50. Since the catch-up contribution has increased to $7,500, the total contribution for those 50+ will be $73,500.
Note that the 401(a) limit is separate from the 403(b) limit. So, you could theoretically get $66,000 into each of them.
2023 457(b) Contribution Limit
457(b) contribution limits will increase from $20,500 to $22,500 in 2023. 457(b)s have unique catch-up contribution rules, so consult with your plan administrator if you are interested in putting more in your 457(b).
2023 Traditional and Roth IRA Contribution Limits
After two years of staying put at $6,000, IRA contribution limits and catch-up contributions will increase in 2023 to $6,500 ($7,500 if 50+).
2023 SEP IRA Contribution Limits
SEP IRA contribution limits will increase to $66,000 per year for 2023, up from $61,000 per year in 2022.
2023 SIMPLE IRA and SIMPLE 401(k) Contribution Limits
The SIMPLE IRA and SIMPLE 401(k) contribution limits will increase from $14,000 in 2022 to $15,500 in 2023.
2023 Health Savings Account (HSA) Contribution Limits
For single people, the HSA contribution limit will increase from $3,650 in 2022 to $3,850 in 2023. Family coverage will increase from $7,300 to $7,750.
2023 Flexible Savings Account (FSA) Contribution Limits
Healthcare FSA contribution limits will increase from $2,850 in 2022 to $3,050 in 2023. Note that there are other types of FSAs (such as dependent care FSAs) with different limits.
Other Interesting Increases
The 401(a) compensation limit (the amount of earned income that can be used to calculate retirement account contributions) will increase from $305,000 in 2022 to $330,000 in 2023. This is always 5X the maximum 401(k) plan total contribution limit.
The deductibility phaseout for IRA contributions for those with a retirement plan at work should increase from $68,000-$78,000 in 2022 for singles to $73,000-$83,000 in 2023, and it'll move from $109,000-$129,00 in 2022 for those married filing jointly to $116,000-$136,000 in 2023.
The Roth IRA Direct Contribution Limit phaseout will increase from $129,000-$144,000 in 2022 for singles to $138,000-$153,000 in 2023 and from $204,000-$214,000 for 2022 for those Married Filing Jointly to $218,000-$228,000 in 2023. If your MAGI is above that, you'll need to contribute indirectly via the Backdoor Roth IRA process.
Social Security benefits will also increase by 8.7% for 2023. The maximum possible Social Security benefit for 2022 was $4,194 for someone taking benefits at age 70 for the first time. If you were a top earner for your career and qualify for the top benefit level, an 8.7% increase is worth $365 per month. The new top payment for 2023 would be $4,559 per month.
The Defined Benefit Plan 415(b) limit for maximum annuity limit will increase from $245,000 in 2022 to $265,000 in 2023.
Highly-compensated employee definition should increase from $135,000 in 2022 to $150,000 in 2023.
While it feels like all of these are increases, they are really just keeping up with inflation (even though 2023's increases are about twice as much as the increases from the previous year). They're just cost of living increases. On a real (after-inflation) basis, they're basically the same as this year.
What do you think? Are you surprised by any of these? Are you glad they're indexed to inflation? Comment below!
Thanks for posting all of these in a comprehensive and clear format. I had not even thought about 2022 yet. You saved me some digging around the IRS website.
It is great to see that I will be able to put in over 61K into tax-advantaged accounts. Any physician who consistency does that over time will build substantial wealth.
this is how much I am planning to contribute in 2022
20,500 in 401 (k) with approximately 9000 $ employer match and another 9000 dollar for Non matching contributions
20,500 $ in 457 (B)
6000 $ in back door roth IRA
QUESTION- is there any TOTAL contribution limit on all these retirement plans together? ( that means combining 401 K+ matching +non matching +457 plus back door ROTH )
No. They each have their own separate limits and you’re within them.
Any estimate on the amount of the lump sum limit for cash balance plans? (which in turn would affect the annual actuary contribution limits which are dependent on age, income, plan funding status, etc)
I’m guessing it will be just under $270k/year of pension benefit or just under $3.5 million for a lump sum payout at age 62. Does this seem correct?
Sorry, just noticed that I missed the maximum annual defined benefit limit at $265k you had listed in the post. Lump sum benefit max at age 62?
I think your estimate is about right.
I turn 50 at the beginning of 2023 which I take to mean I can contribute the catch up contribution in 2023. Is this correct? So, for instance, I should be able to contribute $7,000 via a back door roth?
Yes, it’s 50+.
And you can do this starting January 1 as long as you will turn 50 by the end of 2023. You don’t have to wait for your birthday.
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions
Is this the first year i401k limit is different than sepIRA?
That was an error. Fixed now.
I hate to beat a dead horse here but this is something I hadn’t previously considered and I’m still not clear on the correct answer. Does the maximum contribution limit include ALL tax deferred employee contributions across ALL accounts and ALL tax deferred employer contributions? My main questions are 1) do 457(b) contributions count towards the yearly max and 2) if someone receives multiple W2s is the max per individual or per employer/W2?
Theoretical example:
W2 #1:
403(b) = $20,500
Employer contribution = X% of base salary
W2 #2:
457 (b) = $20,500
401 (a) employee + employer contributions = $X
Total yearly contributions = >$61,000
Does this example break IRS rules?
No.
1) No, they have their own max.
2) The $20,500 limit is per individual. The $61K limit is per plan/independent employer.
In your case there is an additional wrinkle. Your X = $40,500 because your 403(b) used up part of your $61K. The 457(b) limit is separate.
https://www.whitecoatinvestor.com/multiple-401k-rules/
Should the *table* say $66,000 for the SEP-IRA limit? As I read this it says $67,000.
Fixed.
HSA family is not always 2x individual. They are calculated (and rounded) independently. I think family is coming in at 7750 for 2023.
Interesting. Should always be pretty close though.
The individual and family HSA limits will always be close, but they are calculated independently. HSA limits are calculated earlier in the year than retirement plan limits and the 2023 limits were finalized in April 2022 at $3,850 / $7,750. The article should be corrected accordingly.
Sources:
https://home.kpmg/us/en/home/insights/2022/04/tnf-rev-proc-2022-24-hsa-inflation-adjusted-amounts-for-2023.html
https://www.irs.gov/pub/irs-drop/rp-22-24.pdf
Yup.
It’s always a good idea to stay on top of retirement account regulations. More importantly the model of the super elite base diff studies is to focus on earning more. Pick a skill you enjoy and make sure the earning potential fits your expected future ideal lifestyle. From their leverage marketplaces and business partnerships to get up and running & generating sales. This works very well.
In the article you list SEP contribution at 66,000. In the table you put 67,000.
Oh shoot. Didn’t see it listed in the table too when we made that correction.
Regarding HSA Contribution Limits, I think there is an error in this article.
“For single people, the HSA contribution limit will increase from $3,650 in 2022 to $3,850 in 2023. Family coverage is always double the single coverage, so it will increase from $7,300 to $7,750.”
$7,750 is not double $3,850 (although it is TYPICALLY double, but not for 2022).
I believe you’re right. We’ll get that corrected.
There is one more IRS adjustment I haven’t seen mentioned here but will (admittedly mildly) mitigate the tax savings of these higher contribution limits. The SS wage base for 2023 also increases from $147K to $160,200. At 6.2% for employees (and double this for the self-employed), this results in an additional tax of roughly $818 and $1636, respectively, compared to the current tax year.
Excellent point.
I’m a 2nd year resident and my retirement plans are somewhat unusual. My partner is a finance professor and we listen to all your podcast episodes. Milliman actually allows me to contribute up to 75% of my salary. Beyond $20,500 for my 403(b) and $20,500 for my 457, I can actually contribute into an “Employee After Tax” bucket. I was told by Milliman that I get “Roth” benefits for this bucket. Does that make sense? I thought the $20,500+$20,500 is a hard limit. Thanks!
Sounds like you may have a Mega Backdoor Roth IRA option.
https://www.whitecoatinvestor.com/the-mega-backdoor-roth-ira/
Thank you, Jim. It seems to me the optimal way to use the Mega Backdoor Roth IRA option is to make in-service withdrawals as soon as the contributions arrive. With my resident salary, the costs seem to outweigh the benefits.
In plan conversions might be even better if allowed.
I only have access to a 403b through my hospital. If I max that out and then the Roth IRA, am I out of tax advantaged retirement accounts? Where do I put put money for retirement purposes after the 22500 (403b) + 6500 (IRA)? I don’t love the idea of a HSA because of the limitations spending wise, but I guess I’m open to it?
You know about taxable accounts, right? No limit on those.
https://www.whitecoatinvestor.com/retirement-accounts/the-taxable-investment-account-2/
We max out our employer provided accounts, Roth IRAs, and HSA and then everything else we invest goes in taxable.
I’m honestly so impressed that you respond so quickly. I figured, just wanted to make sure I wasn’t missing anything. Vanguard index funds it is. Thanks!