Contribution limits for 401ks and many other accounts have been indexed to inflation. This means that, besides 401k, 403b, 457b, SEP-IRA, SIMPLE IRA, FSA, HAS, and Roth IRA are also indexed to inflation. It is worth noting that the contribution limits do not increase every year. Even if they do, each account has a different calculation formula.
This means that, in general, we see an increased contribution once every few years. The inflation rate in the United States reached the peace percentages, especially during the first half of 2022. As of July, the current inflation rate was announced as 9.1%. All these indicate that the 2023 contribution limits for almost all accounts will also increase.
Official Contribution Limits Have Not Been Announced Yet
The official contribution limits are usually announced in October or November. However, if you follow the current inflation rates, you can also calculate the possible increase in contribution limits without waiting for the official announcement.
Of course, the closer we get to the end of the year, the more accurate calculations you can find. Below, we are going to share some projected 2023 contributions for different accounts.
Calculated Contribution Limits for 2023
Keep in mind that the following information is not the official data but the calculations of our editors. These projections are derived from the projections of Mercer, which is an American asset management firm. Mercer believes all qualified retirement plan limits will increase in the next year compared to the 2022 contribution limits. Mercer is one of the notable consultants in this field, and their previous projections were quite accurate.
These new limits for the accounts will be based on the Consumer Price Index for All Urban Consumers between the third quarter of 2021 and the third quarter of 2022. Considering the peak inflation rates, the projected limits for accounts vary between 7% and 11%.
It is also worth noting that the company believes the non-SIMPLE plan catch-up limit will enjoy an amazing increase and will be more than 15%. According to the company, the contribution limits for 401k, 403b, and 457 plans will increase from $20,500 to $22,500.
On the other hand, the company believes that the 415c DC plan maximum annual addition will increase from $61,000 to $67,000. Moreover, 401a and 408k compensation limits will also increase from $305,000 to $335,000. As the last projection, we are going to share in this guide, Mercer believes 416i officer compensation for top-heavy plan key employee limits will increase from $200,000 to $215,00.
We would like to remind you that these are just the estimations projected by Mercer, and they are not official figures. However, considering the company’s reputation for accurate projections, it is safe to say that the official numbers will be around these estimations.
IRS Will Announce The Official Numbers in October or in November
For the official numbers, we have to wait for the issue of the September CPI-U values. Only after this can the IRS make the calculations and determine the increased levels. In general, the IRS announces these numbers towards the end of October and the beginning of November every year.
One thing to note is that the TSCL (The Senior Citizens League) announced that the social security cost of living adjustment could be around 10.5% in the next year. This makes it the highest rate experienced in the last four decades in the United States.
Calculations and estimations of accounts such as 401k are pretty straightforward and popular. This is why almost every organization or company releases its estimates. We would like to share this with you because it is likely that Mercer’s projections will be nearly 100 percent accurate.