Thanks to rampant inflation, it is beginning to look more and more likely that IRS retirement plan contribution limits will see large, record-setting jumps for 2023, according to the most recent forecast from Milliman.
“With only four months remaining for federal fiscal year 2022, our forecast of the 2023 IRS limits could set a record one-year increase, both in dollars and percentage”
Milliman’s Charles J. Clark
“With only four months remaining for federal fiscal year (FFY) 2022, our forecast of the 2023 IRS limits could set a record one-year increase, both in dollars and percentage, even if inflation transitions to 3.0% annually (0.25% per month) for June through September 2022,” Milliman Director of Employee Benefits Research Group Charles J. Clark writes in his 2023 IRS Limits Forecast – May, posted on June 16.
While admitting there is no certainty to these forecasts, Clark estimates the annual compensation limit will increase by at least $25,000 from $305,000 in 2022 to $330,000 in 2023. It jumped from $285,000 in 2021 to $305,000 this year, an increase of $20,000.
He also projects that the sum of individual and employer contribution limits will increase to at least $66,000, an increase of $5,000. The Total Annual Contribution Limit (EE+ER) for defined contribution plans increased from $57,000 in 2021 to $61,000 this year.
Clark predicts that the individual contribution limit for employees who participate in 401k, 403b, most 457 plans, and the federal government’s Thrift Savings Plan will increase from $20,500 this year to $22,000 in 2023. If it holds true, that $1,500 increase would follow this year’s increase of $1,000, which came after two years of no increases to the individual contribution limit.
After seeing no increase for 2022, the catch-up contribution limit for employees aged 50 and over who participate in 401k, 403b, most 457 plans, and the federal government’s Thrift Savings Plan is projected to rise from $6,500 to $7,500 for 2023.
The Milliman forecast points out that the 2023 IRS limits will be calculated using the 2022 IRS Limits and applying a factor that is based on the Consumer Price Index in federal fiscal year 2022. FFY 2022 is defined as the 12-month period from October 1, 2021, to September 30, 2022.
The IRS typically announces the official retirement plan contribution limits for the coming year in late October or early November, once calculations from the September CPI-U data are complete. The 2022 limits were released on Nov. 4, 2021.
While Social Security benefits have a “hold harmless” rule to ensure that recipients don’t receive less from year to year due to inflation or increases in Medicare Part B premiums, there is no such rule for 401k or IRA contribution limits. The inflation adjustment and rounding rule only compares with the base year, so it doesn’t matter what the limit was in the previous year.
June CPI results are expected to be released by BLS on July 10, 2022, at which time Milliman will revise its forecast. Milliman will update the forecast each month for the remainder of the 2022 federal fiscal year.
The IRS has already announced 2023 contribution limits for employer health insurance plans that feature health savings accounts (HSAs) and health reimbursement arrangements (HRAs). Unlike the 2023 IRS retirement plan limits, the annual increase for HSAs and HRAs is based on the Chained Consumer Price Index.
For calendar year 2023, the annual inflation-adjusted limit on HSA contributions for self-only coverage will be $3,850, up from $3,650 in 2022. The HSA contribution limit for family coverage will be $7,750, up $450 from $7,300 in 2022. The adjustments represent a 5.5% percent increase over 2022 contribution limits, which is almost a five-fold increase compared to the 1.4% increase between 2021 and 2022, which amounted to $50 for individuals and $100 for family coverage.
SEE ALSO:
• IRS Bumps 2022 401k Contribution Limit By $1,000
• Inflation Sparks Big Jump in 2023 HSA Contribution Limits
• Latest 2023 Social Security COLA Estimate Holds Steady (and Still Huge)
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
