2023 Defined Benefit Plan Limit
For 2023, the Defined Benefit Plan Limit is $265,000 (Annual benefit under a defined benefit plan) and $66,000 (Defined contribution plan limit).
Effective 2023-01-01Source: Notice 2022-55 (IRS)Verified 2026-08-29
Compared with 2022
| Item | 2022 | 2023 | Change |
|---|---|---|---|
| Annual benefit under a defined benefit plan | $245,000 | $265,000 | +$20,000 (+8.2%) |
| Defined contribution plan limit | $61,000 | $66,000 | +$5,000 (+8.2%) |
Who it applies to
Sponsors and participants of qualified defined benefit and defined contribution retirement plans subject to IRC Section 415.
What changed this year, and why
For 2023, the IRS adjusted the dollar limits on benefits and contributions under qualified retirement plans pursuant to Section 415(d) of the Internal Revenue Code. The limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) increased to $265,000, effective January 1, 2023. The limitation for defined contribution plans under Section 415(c)(1)(A) also increased, to $66,000.
Common questions
- What is the 2023 limit on annual benefits under a defined benefit plan?
- Effective January 1, 2023, the annual benefit under a defined benefit plan is limited to $265,000 under Section 415(b)(1)(A) of the Internal Revenue Code.
- What is the 2023 defined contribution plan limit?
- For 2023, the defined contribution plan limit under Section 415(c)(1)(A) is $66,000.
The benefit limit is the lesser of a dollar cap and your average pay
The benefit limit is the lesser of a dollar cap and your average pay. For 2023, the annual benefit for a participant under a defined benefit plan can't exceed the lesser of the following amounts: 100% of the participant's average compensation for their highest 3 consecutive calendar years, or $265,000 for 2023 ($275,000 for 2024). This means the IRS sets a maximum dollar limit, but also requires that the benefit not exceed 100% of the participant's average compensation over their highest 3 consecutive calendar years. The lesser of these two amounts is the actual limit that applies. For example, if a participant's average compensation over their highest 3 years is less than the dollar cap, their annual benefit limit would be their average compensation amount, not the full dollar cap. The dollar limit is adjusted annually for cost-of-living increases.
efit for a participant under a defined benefit plan can't exceed the lesser of the following amounts. 1. 100% of the participant's average compensation for their highest 3 consecutive calendar years. 2. $265,000 for 2023 ($275,000 for 2024).
Publication 560 (2023), Retirement Plans for Small Business (IRS)
What makes a plan a defined benefit plan
A defined benefit plan is defined by what it is not: any plan that does not meet the definition of a defined contribution plan falls into this category. Rather than specifying how much goes in each year, a defined benefit plan starts with a promised retirement benefit and works backward to figure out what must be contributed. Because the contribution level depends on variables such as the participant's age, the assumed rate of investment return, and mortality expectations, the plan has to use actuarial assumptions and computations to set the annual funding amount. In practice this means the employer typically relies on an actuary on an ongoing basis to keep the plan properly funded and to prepare the annual valuation report.
A defined benefit plan is any plan that isn't a defined con- tribution plan. Contributions to a defined benefit plan are based on what is needed to provide definitely determina- ble benefits to plan participants. Actuarial assumptions and computations are required to figure these contribu- tions.
Publication 560 (2023), Retirement Plans for Small Business (IRS)
The compensation an employer may take into account
The IRS allows employers to take a tax deduction for contributions to qualified retirement plans, but only up to certain limits. When calculating that deduction, the employer cannot consider compensation above a specific cap. For 2023, the maximum compensation that can be taken into account for each employee is $330,000. This means that even if an employee earns more than $330,000, the employer's deductible contribution is based on only the first $330,000 of that employee's pay. The compensation limit is adjusted annually for inflation, so it increases over time. This cap applies separately to each employee in the plan.
The maximum compensation that can be taken into account for each employee in 2023 is $330,000 ($345,000 in 2024).
Publication 560 (2023), Retirement Plans for Small Business (IRS)
The separate limit on a defined contribution plan
For 2023, a defined contribution plan has a separate cap on how much can be allocated to each participant's account each year. This limit covers annual contributions and all other additions to the account, but it excludes investment earnings. The cap is the lesser of 100 percent of the participant's compensation or a fixed dollar amount, which for 2023 is $66,000. The dollar amount is adjusted annually for inflation. Contributions that exceed this limit must be removed or corrected to avoid adverse tax consequences for the plan and the participant.
a defined contri- bution plan's annual contributions and other additions (ex- cluding earnings) to the account of a participant can't ex- ceed the lesser of the following amounts. 1. 100% of the participant's compensation. 2. $66,000 for 2023 ($69,000 for 2024).
Publication 560 (2023), Retirement Plans for Small Business (IRS)
Why the deduction has to be figured by an actuary
The deduction for contributions to a defined benefit plan has to be figured by an actuary because the contribution amount depends on actuarial assumptions and computations. Unlike a defined contribution plan where the contribution is a fixed amount or percentage, a defined benefit plan must fund a promised future benefit, and figuring how much needs to be contributed each year requires estimating future investment returns, participant mortality, and other variables. An actuary is the professional qualified to make these calculations and determine the appropriate annual contribution. Consequently, an actuary must figure your deduction limit. This actuarial requirement is a key difference between defined benefit and defined contribution plans, and it's why defined benefit plans typically require ongoing professional administration and annual actuarial valuations to remain properly funded and compliant.
Defined benefit plans. The deduction for contributions to a defined benefit plan is based on actuarial assump- tions and computations. Consequently, an actuary must figure your deduction limit.
Publication 560 (2023), Retirement Plans for Small Business (IRS)
How each figure was verified
Each number below was read from a stored copy of the document named beside it, and checked to occur word for word in the quoted sentence. The digest is of that stored text.
Notice 2022-55 (IRS)
- Annual benefit under a defined benefit plan
Effective January 1, 2023, the limitation on the annual benefit under a defined benefit plan under section 415(b)(1)(A) of the Code is increased from $245,000 to $265,000.
- Defined contribution plan limit
The limitation for defined contribution plans under section 415(c)(1)(A) is increased in 2023 from $61,000 to $66,000.