October 28, 2022

2023 Plan Limits Announced

NCEO founder and senior staff member

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:

  2022 2023
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.