Largely due to inflation, the amount that individuals can contribute to 401(k) plans will increase to $22,500 in 2023 (the largest increase on record), up from the current $20,500, according to the IRS. The new contribution limit, which is a 9.8% increase, includes employees who participate in 401(k), 403(b), most 457 plans and the federal government's Thrift Savings Plan.

The IRS announced the change on Friday and also issued technical guidance regarding all of the cost‑of‑living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2023. Other announced changes include:

• Catch-up contributions for those 50 years and older will increase to $7,500 for 401(k)s, 403(b)s, most 457 plans and the Thrift Savings Plan, adding up to allowing for an annual total contribution of $30,000.
• The $1,000 catch-up contribution for IRAs remains unchanged, allowing those age 50 years and older to contribute up to $7,500 annually.
• The tax phase-out range for single people went up to a range of $138,000 to $153,000, an increase from $129,000 to $144,000. For married couples. it will increase to a range of $218,000 to $228,000, up from $204,000 to $214,000.
• The limitation regarding SIMPLE retirement accounts will increase from $$14,000 to $15,500. Effective January 1, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) of the Internal Revenue Code will increase from $245,000 to $265,000. For a participant who separated from service before January 1, the participant's limitation under a defined benefit plan under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2022, by 1.0833.
• The limitation for defined contribution plans under Section 415(c)(1)(A) has been increased for 2023 from $61,000 to $66,000.
• The limitation used in the definition of "highly compensated employee" under Section 414(q)(1)(B) will increase from $135,000 to $150,000.

Related: Social Security COLA will jump by 8.7% in 2023, biggest hike in 40+ years

Although the increases could help those hoping to boost their retirement savings, most 401(k) participants do not save anywhere near the federal limit. Based on an analysis of the 401(k) plans it provides employers, Vanguard estimates that only 14% of participants maxed out their contributions in 2021, and only 16% of those eligible to make catch-up contributions took advantage.