Retirement plan contribution and benefit limits
The IRS establishes annual limits on how much you and your employer can contribute, and how much you can benefit from your retirement accounts, such as 401(k)s, 403(b)s, individual retirement accounts (IRAs), and others. The limits get reviewed each year to determine whether any adjustments are necessary to adapt to inflation—the rate at which the prices of goods and services increase.
The U.S. Social Security Administration announced an 8.7% increase in benefits for 2023. This increase is directly tied to inflation as it was measured in the third quarter of 2022 by the Consumer Price Index (CPI), which tracks price changes for a basket of goods and services a typical family would purchase.
Similarly, the IRS shared the 2023 limits for retirement accounts, including several limit increases, enabling you to save more for retirement than in previous years.
- You can generally contribute up to $22,500 to your 401(k), 403(b), or 457 plans—these are examples of defined contribution (DC) plans.
- If permitted by your plan, you can save an additional $7,500 per year, if you’re age 50 or older. This additional amount is your catch-up contribution.
- The total contributions—employee plus employer—allowed to be added to your DC plans are increasing to $66,000 or 100% of your compensation, whichever is less ($73,500 if you’re age 50 or older and your plan permits catch-up contributions). This amount is also called your annual additions limit.
- The highest annual benefit you can receive from your defined benefit (DB) plan—also known as a traditional pension plan—is increasing to $265,000. Your annual DB benefit can’t exceed the lesser of $265,000 or 100% of your average compensation for your highest three consecutive calendar years.
- You can contribute up to $15,500 in a Savings Incentive Match Plan for Employees (SIMPLE).
- The catch-up contribution for SIMPLEs is climbing to $3,500.
In addition to limits on your contributions to and benefits from employer-sponsored retirement plans, the IRS establishes compensation limits. These limits are used to:
- Cap your income that may be used to calculate your contributions and benefits
- Identify certain employees for purposes of nondiscrimination testing to ensure fair treatment in retirement plan benefits
- Determine whether you’re eligible to join certain plans (such as a simplified employee pension (SEP) plan)
All compensation-related limits are going up for 2023:
- The maximum annual compensation considered by your employer for calculating contributions or benefits is increasing to $330,000.
- The income threshold for key employees—necessary for nondiscrimination testing purposes—is increasing to $215,000.
- The income threshold to be considered a highly compensated employee (HCE)—also for nondiscrimination testing purposes—is now $150,000.1
- The minimum compensation to be eligible to participate in a SEP plan is increasing to $750.
IRA contribution limits for 2023—traditional and Roth
IRAs—retirement accounts that you can set up on your own and aren’t tied to an employer—have lower contribution limits than DC plans provided by employers.
In 2023, the maximum amount you can contribute to your IRAs (traditional, Roth, or both) is increasing to $6,500 (or 100% of compensation, whichever is less). That means $6,500 across all IRAs you have, not $6,500 in each. So, if you have three IRAs, you can add $6,500 to one or spread it across the three. You can’t save $19,500—$6,500 for each.
The catch-up contribution limit for IRAs isn’t subject to an annual cost-of-living adjustment and remains unchanged at $1,000.
You can make 2022 IRA contributions through the IRS deadline, April 18, 2023.
Traditional IRA deduction limits
You can deduct the full amount of your traditional (pretax) IRA contributions if you or your spouse don’t benefit from a workplace retirement plan, such as a DC plan or a DB plan. If you're benefitting from these types of plans—making you a covered employee—you may only be able to deduct a portion of your IRA contributions. The amount depends on your tax filing status and modified adjusted gross income (MAGI) for the year.
|Filing status||MAGI range||Deductibility|
|Single or head of household||Less than $73,000||Full|
|Greater than $83,000||None|
|Married filing jointly or qualifying widow(er)||Less than $116,000||Full|
|Greater than $136,000||None|
|Married filing separately||Less than $10,000||Partial|
|$10,000 or greater||None|
|Married filing jointly and you aren't a covered employee, but your spouse is||Less than $218,000||Full|
|Greater than $228,000||None|
Do you fall within one of the partial deduction ranges? Learn how to calculate how much you can deduct.
Let’s say you participate in your company’s 401(k) plan and contribute the full $6,500 limit to your IRA in the 2023 plan year. You’re also married, file your taxes jointly, and have a MAGI of $128,000. You’d be allowed a partial deduction of your $6,500 IRA contribution—but how much? Here’s how you calculate it:
Deduction amount = [(MAGI range maximum – Your MAGI) ÷ (MAGI range maximum – MAGI range minimum)] x IRA contribution
Deduction amount = [($136,000 – $128,000) ÷ ($136,000 – $116,000)] x $6,500
Deduction amount = ($8,000 ÷ $20,000) x $6,500
Deduction amount = $2,600
In this hypothetical scenario, you can contribute the full $6,500 to your traditional IRA, but you can only deduct $2,600 from your taxable income. The other $3,900 is taxable income.
This formula can be used for all tax filing statuses, MAGI ranges, and IRA contribution amounts.This is a hypothetical mathematical illustration only. Figures are based on assumptions as set out, and individual circumstances may vary.
Roth IRA income limits for contributions
Roth IRA contributions are made after tax, so you don’t have to worry about whether you can deduct them from your taxable income. Instead, you must determine whether you can contribute at all. Your MAGI determines whether you’re eligible to contribute to a Roth IRA and, if eligible, the amount you can contribute.
|Filing status||MAGI range||Contribution limit|
|Single, head of household, or married filing separately (didn't live with a spouse at any time during the year)||Less than $138,000||$6,500|
|$138,000–$153,000||A reduced amount ($0–$6,500)|
|Greater than $153,000||$0|
|Married filing jointly or qualified widow(er)||Less than $218,000||$6,500|
|$218,000–$228,000||A reduced amount ($0–$6,500)|
|Greater than $228,000||$0|
|Married filing separately (lived with spouse at some point during the year)||Less than $10,000||A reduced amount ($0–$6,500)|
|$10,000 or greater||$0|
Does your MAGI limit your Roth IRA contribution to a reduced amount? Learn how to calculate how much you can contribute to your Roth IRA.
Let’s say you’re single and have a MAGI of $142,000. You’d be allowed to contribute to your Roth IRA for the year, but not the full $6,500. How much can you add to your Roth IRA? Here’s how you calculate it:
Contribution amount = [(MAGI range maximum – Your MAGI) ÷ [MAGI range maximum – MAGI range minimum)] x IRA contribution limit
Contribution amount = [($153,000 – $142,000) ÷ ($153,000 – $138,000)] x $6,500
Contribution amount = ($11,000 ÷ $15,000) x $6,500
Contribution amount = $4,766.67
In this hypothetical scenario, you can contribute up to $4,766.67 to your Roth IRA for the year.
This formula can be used for all tax filing statuses and MAGI amounts.
This is a hypothetical mathematical illustration only. Figures are based on assumptions as set out, and individual circumstances may vary.
IRS limits have trended up in recent years
See how some of these amounts have changed over the past few years. The only limit that’s remained constant over the past four years is the IRA catch-up contribution. All other amounts have grown since 2020, especially between 2022 and 2023.
|Description||2020 amount||2021 amount||2022 amount||2023 amount|
|401(k), 403(b), and 457 employee contribution limit||$19,500||$19,500||$20,500||$22,500|
|401(k), 403(b), and 457 catch-up contribution limit||$6,500||$6,500||$6,500||$7,500|
|DC annual additions limit||$57,000||$58,000||$61,000||$66,000|
|SIMPLE employee contribution limit||$13,500||$13,500||$14,000||$15,500|
|SIMPLE catch-up contribution limit||$3,000||$3,000||$3,000||$3,500|
|IRA contribution limit||$6,000||$6,000||$6,000||$6,500|
|IRA catch-up contribution limit||$1,000||$1,000||$1,000||$1,000|
|Maximum annual DB benefit||$230,000||$230,000||$245,000||$265,000|
|Annual compensation limit for benefits||$285,000||$290,000||$305,000||$330,000|
|Key employee income threshold||$185,000||$185,000||$200,000||$215,000|
|HCE income threshold||$130,000||$130,000||$135,000||$150,000|
Note—the HCE income threshold of $150,000 applies to determining highly compensated employees for the 2024 calendar plan year.
Adjusting your retirement strategy around annual limit changes
It's a good time to review your current retirement plan contribution rates in light of the increased 2023 annual limits. Also, be sure to review the revised income ranges to make deductible contributions to a traditional IRA and to make contributions to a Roth IRA. You may be able to save more now that many of the limits are increasing for the 2023 tax year.
For complete details on the 2023 limit changes, see Notice 2022-55.
1 Applies to determining highly compensated employees for the 2024 calendar plan year.
Any tax-related discussion contained in this publication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of avoiding any tax penalties or promoting, marketing, or recommending to any other party any transaction or matter addressed. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this publication.
The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made.