Institutional Services

Cost of Living Adjustments for 2023

Save even more for retirement in 2023 due to record breaking increases in limits. On October 21, 2022, the IRS announced the Cost of Living Adjustments (COLAs) affecting the dollar limitations for retirement plans for 2023. Retirement plan limits increased well over the 2022 limits, the largest increase in over 45 years. COLA increases are intended to allow participant contributions and benefits to keep up with the “cost of living” from year to year. Here are the highlights from the new 2023 limits:

The calendar year elective deferral limit increased from $20,500 to $22,500.

The elective deferral catch-up contribution increased from $6,500 to $7,500. This contribution is available to all participants aged 50 or older in 2023.

The maximum available dollar amount that can be contributed to a participant’s retirement account in a defined contribution plan increased from $61,000 to $66,000. The limit includes both employee and employer contributions as well as any allocated forfeitures. For those over age 50, the annual addition limit increases by $7,500 to include catch-up contributions.

The maximum amount of compensation that can be considered in retirement plan compliance has been raised from $305,000 to $330,000.

Annual income subject to Social Security taxation has increased from $147,000 to $160,200.

See chart titled Annual Plan Limits:

Annual Plan Limits202320222021
Contribution and Benefit Limits
Elective Deferral Limit$22,500$20,500$19,000
Catch-Up Contributions$7,500$6,500$6,500
Annual Contribution Limit$66,000$61,000$58,000
Annual Contribution Limit including Catch-Up Contributions$73,500$67,500$64,500
Annual Benefit Limit$265,000$245,000$230,000
Compensation Limits
Maximum Plan Compensation$330,000$305,000$290,000
Income Subject to Social Security$160,200$147,000$142,800
Key EE Compensation Threshold$215,000$200,000$185,000
Highly Compensated EE Threshold$150,000$135,000$130,000
IRA Limits
SIMPLE Plan Elective Deferrals$15,500$14,000$13,500
SIMPLE Catch-Up Contributions$3,500$3,000$3,000
Individual Retirement Account (IRA)$6,500$6,000$6,000
IRA Catch-Up Contribution$1,000$1,000$1,000

Markets in Review

Global financial markets declined again in the third quarter as inflation persisted and remained at 40-year highs, geopolitical tensions escalated even further, and the Federal Reserve continued to aggressively raise interest rates. In late July, the Federal Reserve (the “Fed”) raised interest rates by another 75 bps but comments by the Fed Chair, Jerome Powell, indicated a potential deceleration of the pace of interest rate hikes which gave the equity markets a boost in July and early August. Things took a dramatic turn in mid-August when Powell remarked the Fed would do what is needed to tame inflation and warned the U.S. economy will likely feel some “pain” from the Fed’s action. Markets continued to sell-off in September as the August Consumer Price Index (CPI) report showed a slight increase in prices and the Federal Reserve raised interest rates again by 75 bps. 

All major market indices finished the quarter with negative returns. Equity markets, as measured by the S&P 500 Inde1, fell by 4.9% during the quarter and is down almost 24% on a year-to-date basis. 

With inflation persisting during the quarter, long term interest rates continued to surge. The 10-year U.S. Treasury started the quarter at 2.9%, hitting almost 4% during the quarter and subsequently finished the quarter at 3.8%. T-Bills posted a slightly positive return during the quarter, but all other fixed income indexes were negative with longer-dated government bonds posting the worst relative returns.

Unlike the first half of the year, growth outperformed value in the third quarter. Growth experienced a strong rebound early in the quarter with a bear market rally, however, much of those gains were erased by the end of quarter. On a sector level, only one sector of the S&P 500 finished the third quarter with a positive return. Consumer discretionary was slightly positive for the quarter due to strong consumer spending and low unemployment. The sector laggards for the quarter were communication services, real estate, and materials. Real estate declined as mortgage rates rose and home prices began to soften.

Foreign markets underperformed the U.S. markets during the third quarter as the US dollar continued to strengthen, energy prices surged in Europe and the U.K., and the European Central Bank and Bank of England raised interest rates to combat persistent inflation. Emerging markets fared worse than foreign developed markets with the surge in the U.S. dollar and rising fears of a global recession.

Real economic growth contracted during the first two quarters of the year, but the advance estimate of Q3 GDP showed a 2.6% annual growth rate for the economy. Despite lingering inflation and prolonged supply chain issues, the majority of Q2 earnings reports beat estimates indicating corporate America may be more resilient than previously believed by the markets.

The labor market tightened even more in the third quarter with 1.1 million jobs added to the U.S. economy. Jobs in leisure and hospitality and healthcare led the way. The overall U.S. unemployment rate remains at historic low levels at 3.5% with the total number of unemployed people standing at 5.8 million.

Inflation, as measured by the Consumer Price Index (CPI-U), grew at a pace of 8.2% for the past 12-month period ending September 30, 2022. The core inflation reading, which excludes food and energy, rose 6.6%. Rising prices for shelter, food and medical care were slightly offset by a decline in gasoline prices.

Congratulations to Braden Priest for NAPA’s Top Retirement Plan Advisors Under 40

We are so proud of Braden Priest, CFA® for being nominated to NAPA’s 2023 “Top 100 Retirement Plan Advisors Under 40”.

Vote for Braden Priest here.

Established in 2014, the list of “Aces” – our Top Young Retirement Plan Advisors – is drawn from nominations provided by NAPA Broker-Dealer/RIA Firm Partners, vetted by a blue-ribbon panel of senior advisor industry experts based on a combination of quantitative and qualitative data submitted by the nominees, as well as a broker-check review.

Disclaimer: Awards and recognitions by unaffiliated rating services, companies, and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if the Firm is engaged, or continues to be engaged, to provide investment advisory services; nor should they be construed as a current or past endorsement of the Firm or its representatives by any of its clients. Rankings published by magazines and others are generally based exclusively on information prepared and/or submitted by the recognized adviser. The Firm did not pay a fee for inclusion on this list.

Congratulations to Chad Noorani for NAPA’s Top Retirement Plan Advisors Under 40

We are so proud of Chad Noorani, QKA for being nominated to NAPA’s 2023 “Top 100 Retirement Plan Advisors Under 40”.

Vote for Chad Noorani here.

Established in 2014, the list of “Aces” – our Top Young Retirement Plan Advisors – is drawn from nominations provided by NAPA Broker-Dealer/RIA Firm Partners, vetted by a blue-ribbon panel of senior advisor industry experts based on a combination of quantitative and qualitative data submitted by the nominees, as well as a broker-check review.

Disclaimer: Awards and recognitions by unaffiliated rating services, companies, and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if the Firm is engaged, or continues to be engaged, to provide investment advisory services; nor should they be construed as a current or past endorsement of the Firm or its representatives by any of its clients. Rankings published by magazines and others are generally based exclusively on information prepared and/or submitted by the recognized adviser. The Firm did not pay a fee for inclusion on this list.

Happy National 401(k) Day!

Contributing to your 401(k) may help you build retirement savings over time – without impacting your take-home pay as much as you may think. Consider the hypothetical example below, which shows how a 2% increase in pre-tax contributions could potentially cost you only $30 per paycheck.

Source: Schwab Retirement Plan Services*

Want to learn more about saving for retirement? Visit BFSG University for on-demand webcasts on a wide range of financial wellness topics.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

*Hypothetical data are for illustrative purposes only and are not intended to represent past or future performance of any specific investment. The balances shown assume a $50,000 yearly salary, a biweekly pay period, a federal tax bracket of 22%, and no state or local taxes.