IRS Announces 2023 Cost-of-Living Adjustments

Last week, the IRS announced the 2023 Cost of Living Adjustments for retirement and benefit accounts. 2023 Cafeteria Plan and Qualified Transportation Benefit maximums are listed in IRS Rev. Proc. 2022-38. Retirement Plan and Retirement account maximums, also known as section 415(d) limitations, are listed in IRS Notice 2022-55. While we provide the notable changes below, we encourage you to review all of the updates here.

Significant increases in Flexible Spending Accounts
2023 is shining a spotlight on the Consumer Health Driven marketplace. The limit for Flexible Spending Accounts (FSA) increased $200, to $3,050. As the normal increase is typically $50, an increase at 4 times the usual rate provides healthcare consumers a practical way to keep pace with inflation. In addition, the Medical FSA Rollover amount is a 200% increase from previous years.

Also of note, the IRS released IRS Notice 2022-41 that permits mid-year salary reduction changes when family members are no longer covered under the employer’s health plan because they are covered by a subsidized health plan obtained in an ACA Exchange. Prior to this change, it was very difficult to change from family coverage to employee only coverage mind-year without a qualified family status change. Notice 2022-41 expands the rules so an employee may change to self-only. This change is effective for elections on or after January 1, 2023. The Notice also states that the cafeteria plan document must be amended to provide for these new change in status rules. Be sure to contact your BPAS representative if you want to make this change.

An uneven spread in the retirement market
Workplace Retirement Plans, such as 401(k) and 403(b) plans, will now permit employee contributions up to $22,500, an increase of almost 10%. Traditional and Roth IRA contribution limits jumped over 8% to $6,500.

The Catch? Catch-up contributions. If you’re age 50 or over, you may contribute an additional 15% to your Workplace Retirement Plan for a total 2023 contribution of $30,000. Catch-up contributions in Traditional and Roth IRAs, however, remained the same as they have for years. Investors born in or before 1973 remain at a $1,000 catch-up level or a $7,500 total contribution to their Individual Retirement Account. Doesn’t really seem to cut the mustard for the Gen X crowd.