2023 Plan Limits Announced
In Notice 2022-55 (October 21, 2022), the IRS announced the largest increase in annual limits for retirement plans in many years. The new limits applicable to ESOP companies include:
|Maximum elective deferral to 401(k) plan||$20,500||$22,500|
|Catch-up contribution for those 50 and older||$6,500||$7,500|
|Annual addition limit (employer plus employee contributions) for all defined contribution plans||$61,000||$66,000|
|Definition of highly compensated employee||$135,000||$150,000|
|Definition of key employee for top-heavy plan testing||$200,000||$215,000|
|Annual eligible compensation limit||$305,000||$330,000|
|Five-year distribution limit for ESOPs||$1,230,000||$1,330,000|
|Annual distribution dollar amount to determine five-year ESOP distribution limit||$245,000||$265,000|
A more detailed summary of all the plan limits is available on the IRS web site.
The new plan limits mean employees and employers can contribute more to their defined contribution plans. The total contributions are still limited, however, to 25% of eligible payroll (the payroll of those in the plan making and making $330,000 or less in 2023). The highly compensated and key employee definitions are used for 401(k) testing and top-heavy plan testing purposes, while the five-year distribution limits allow companies to extend a normal five-year ESOP distribution for additional years if the distributable amount exceeds (in 2023) $1.33 million and the annual installment payment exceeds $265,000.