Category Archives: COLA Increases

IRS Announces New Benefit Limits for 2018

olga-delawrence-386839On October 19, 2017 the IRS announced 2018 cost-of-living adjustments for annual contribution and other dollar limits affecting 401(k) and other retirement plans.   Salary deferral limits to 401(k) and 403(b) plans increased $500 to $18,500, but other dollar limits remained unchanged, including the compensation threshold for highly compensated employee status. Specifically, an employee will be a highly compensated employee (HCE) in 2018 on the basis of compensation if he or she earned more than $120,000 in 2017.  Citations below are to the Internal Revenue Code.

 

In a separate announcement, the Social Security Taxable Wage Base for 2018 increased to $128,700 from $127,200.

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IRS Announces New Benefit Limits for 2017

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On October 28, 2017 the IRS announced 2017 cost-of-living adjustments for annual contribution and other dollar limits affecting 401(k) and other retirement plans.   Salary deferral limits to 401(k) and 403(b) plans remained unchanged for the second year in a row, but other dollar limit adjustments were made. Citations below are to the Internal Revenue Code.

Limits That Remain the Same for 2017 Are As Follows:

–The annual Salary Deferral Limit for 401(k), 403(b), and most 457 plans, currently $18,000, stays the same.

–The age 50 and up catch-up deferral limit, currently $6,000, also remains the same. For 2017 as in this year, the maximum salary deferral an individual age 50 or older may make is $24,000.

–The compensation threshold for determining a “highly compensated employee” remains unchanged at $120,000.

–Traditional and Roth IRA contributions and catch-up amounts remain unchanged at $5,500 and $1,000, respectively.

–The compensation threshold for SEP participation remained the same at $600.

–The SIMPLE 401(k) and IRA contribution limit remained the same at $12,500.

Limits That Changed for 2017 Are As Follows:

–The maximum total annual contribution to a 401(k) or other “defined contribution” plan under 415(c) increased from $53,000 ($59,000 for employees aged 50 and older) to $54,000 ($60,000 for employees aged 50 and olded).

–The maximum annual benefit under a defined benefit plan increased from $210,000 to $215,000.

–The maximum amount of compensation on which contributions may be based under 401(a)(17) increased from $265,000 to $270,000.

-The compensation dollar limit used to determine key employees in a top-heavy plan increased from $170,000 to $175,000.

In a separate announcement, the Social Security Taxable Wage Base for 2017 increased from $118,500 to $127,200.  

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Chart of Section 457(f) Carve-Outs Under New Proposed Regulations

The IRS recently announced proposed regulations under Internal Revenue Code (“Code”) Section 457 that update prior, final regulations issued in 2003 and other subsequent guidance from IRS.  Section 457 governs deferred compensation rules for government employees, and for executives of private, tax-exempt organizations it permits deferrals from compensation over and above limits set forth in Code § 403(b).  The proposed Section 457 regulations impact “ineligible” deferred compensation plans under Code § 457(f) more substantially than “eligible” deferred compensation plans under Code § 457(b) which were more comprehensively covered in the 2003 final regulations.

By contrast to eligible Section 457(b) plans, which limit annual contributions to $18,000, as adjusted for inflation (and without the age 50 catch-up for private non-profit executives), there is no dollar limit on annual contributions to a Section 457(f) plan (although as explained below other laws do set reasonableness limits upon nonprofit executive compensation in general).   However, amounts set aside under Section 457(f) plans must be included in the executive’s taxable compensation once the amounts are no longer subject to a substantial risk of forfeiture, for instance upon completion of a vesting schedule, even if amounts are not physically paid out from the plan.  Due to the requirement that income inclusion/taxation occur when the substantial risk of forfeiture lapses, Section 457(f) plans generally work best when retirement is in the fairly near future (e.g., 5 to 7 years out), and where vesting occurs on or near the anticipated retirement date.

As summarized in the chart, below, the proposed regulations clarify how certain pay arrangements are carved out from Section 457(f) compliance, either because the arrangement is not deemed to provide for a deferral of compensation, or because it defers compensation but not in a manner that does not fall under Code § 457(f). Where no deferral of compensation occurs, the pay arrangement generally is also exempt from the “Enron rules” applicable to for-profit deferred compensation plans under Code § 409A, and related regulations.  (Final regulations under Code § 409A were published in 2007; the second of two sets of proposed regulations were published the same day as the proposed Section 457 regulations).  The proposed Section 457 regulations clarify that Section 457(f) arrangements generally are also subject to Code § 409A, although there are some important distinctions between the two sets of rules which I will address in a future post.

457(f) Chart

 

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Few Changes Are Made to 2016 Benefit Plan Limits

On October 21, 2015 the IRS announced 2016 cost-of-living adjustments for annual contribution and other dollar limits affecting 401(k) and other retirement plans.   There are few changes to be noted, as the increase in the cost-of-living index stayed below many thresholds necessary to trigger adjustments. Citations below are to the Internal Revenue Code.

Limits That Remain the Same for 2016 Are As Follows:

–The annual Salary Deferral Limit for 401(k), 403(b), and most 457 plans, currently $18,000, stays the same.

–The age 50 and up catch-up limit, currently $6,000, also remains the same. For 2016 as in this year, the maximum plan deferral an individual age 50 or older may make is $24,000.

–Maximum total annual contributions to a 401(k) or other “defined contribution” plans under 415(c) remains at $53,000 ($59,000 for employees aged 50 and older).

–The maximum annual benefit under a defined benefit plan remained at $210,000.

–Maximum amount of compensation on which contributions may be based under 401(a)(17) remains at $265,000.

–The compensation threshold for determining a “highly compensated employee” remains unchanged at $120,000.

–The compensation dollar limit used to determine key employees in a top-heavy plan remains unchanged at $170,000.

–The compensation threshold for SEP participation remained the same at $600.

–The SIMPLE 401(k) and IRA contribution limit remained the same at $12,500.

–Traditional and Roth IRA contributions and catch-up amounts remain unchanged at $5,500 and $1,000, respectively.

–The Social Security Taxable Wage Base for 2016 remains at this year’s level, $118,500.

Limits That Changed for 2016 Are As Follows:

  • The deductibility of IRA contributions made by someone who is not covered by an employer’s retirement plan but is married to someone who is, phases out if their joint income is between $184,000 and $194,000, up from $183,000 and $193,000.
  • The deductibility of contributions to a Roth IRA phases out over the following adjusted gross income ranges:
    • $184,000 to $194,000 for married couples filing jointly, also up from $183,000 and $193,000;
    • $117,000 to $132,000 for singles and heads of households, up from $116,000 to $131,000.
  • The retirement savings contribution tax credit (saver’s credit) for low and moderate-income workers is limited to those whose adjusted gross income does not exceed:
    • $61,500 for married couples filing jointly, up from $61,000;
    • $46,125 for heads of households, up from $45,750; and
    • $30,750 for married filing separately and for singles, up from $30,500.

 

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IRS Announces Increased 2015 Retirement Plan Contribution Limits

On October 23, 2014 the IRS announced 2015 cost-of-living adjustments for annual contribution and other dollar limits affecting 401(k) and other retirement plans.   A 1.7% rise in the September CPI-U over 2013 triggered $500 increases to the annual maximum salary deferral limit for 401(k) plans, and the catch-up limit for individuals age 50 or older. Citations below are to the Internal Revenue Code.

Limits That Increase for 2015 Are As Follows:

–The annual Salary Deferral Limit for 401(k), 403(b), and most 457 plans, currently $17,500, increases $500 to $18,000.

–The age 50 and up catch-up limit also increases $500, to $6,000 total. This means that the maximum plan deferral an individual age 50 or older in 2015 may make is $24,000.

–Maximum total annual contributions to a 401(k) or other “defined contribution” plans under 415(c) increased from $52,000 to $53,000 ($59,000 for employees aged 50 and older).

–Maximum amount of compensation on which contributions may be based under 401(a)(17) increased from $260,000 to $265,000.

–The compensation threshold for determining a “highly compensated employee” increased from $115,000 to $120,000.

–The compensation threshold for SEP participation increased from $550 to $600.

–The SIMPLE 401(k) and IRA contribution limit increased $500 to $12,500.

–The Social Security Taxable Wage Base for 2015 increased from $117,000 to $118,500.

Limits That Stayed The Same for 2015 Are As Follows:

–Traditional and Roth IRA contributions and catch-up amounts remain unchanged at $5,500 and $1,000, respectively.

–The compensation dollar limit used to determine key employees in a top-heavy plan remains unchanged at $170,000.

–The maximum annual benefit under a defined benefit plan remained at $210,000.

 

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IRS Announces 2014 Benefit Limits

On October 31, 2013 the IRS announced 2014 cost-of-living adjustments for annual contribution and other dollar limits affecting 401(k) and other retirement plans.  The announcement had been delayed until the September 2013 Consumer Price Index for Urban Consumers (CPI-U) was available, which in turn was delayed by the government shutdown over the budget and debt ceiling debate.   A modest 1.2% rise in the September CPI-U over 2013 left a number of the dollar limits unchanged for 2014, although a few limits have increased (citations are to the Internal Revenue Code).
Some limits that did not change for 2014 are as follows:
–Salary Deferral Limit for 401(k), 403(b), and 457 plans remains unchanged at $17,500. The age 50 and up catch-up limit also remains unchanged at $5,500 for a total contribution limit of $23,000.
–The compensation threshold for “highly compensated employee” remained at $115,000 for a second year in a row.
–Traditional and Roth IRA contributions and catch-up amounts remain unchanged at $5,500 and $1,000, respectively.
–SIMPLE 401(k) and IRA contribution limits remain at $12,000.
Limits that did increase are as follows:
–Maximum total contribution to a 401(k) or other “defined contribution” plans under 415(c) increased from $51,000 to $52,000 ($57,500 for employees aged 50 and older).
–Maximum amount of compensation on which contributions may be based under 401(1)(17) increased from $255,000 to $260,000.
–Maximum annual benefit under a defined benefit plan increased from $205,000 to $210,000.
–Social Security Taxable Wage Base increased from $113,700 to $117,000.
–The dollar limit defining “key employee” in a top-heavy plan increased from $165,000 to $170,000.

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COLA Increases Raise 2013 Contribution Limits

An almost 3.3% cost of living increase in the Social Security wage base for 2013 has triggered increases in annual contribution and other dollar limits affecting 401(k) and other retirement plans, the Internal Revenue Service announced on October 18, 2012.  Here are some of the key changes for 2013 (citations are to the Internal Revenue Code):

–Salary Deferral Limit for 401(k), 403(b), and 457 plans increased from $17,000 to $17,500. (The age 50 and up catch-up limit remains unchanged at $5,500, however.)

–Maximum total contribution to a 401(k) or other “defined contribution” plans under 415(c) increased from $50,000 to 51,000 ($56,500 for employees aged 50 and older).

–Maximum amount of compensation on which contributions may be based under 401(1)(17) increased from $250,000 to $255,000.

–Maximum annual benefit under a defined benefit plan increased from $200,000 to $205,000.

–Social Security Taxable Wage Base increased almost 3.3% from $110,100 to $113,700.

–The IRA contribution limit increased from $5,000 to $5,500.  The catch-up limit remains at $1,000, however.

–Note also that the annual exclusion from gift taxes will increase in 2013 from $13,000 to $14,000.

Some limits that did not change for 2013 are as follows:

–The compensation threshold for “highly compensated employee” remained at $115,000.

–The dollar limit defining “key employee” in a top-heavy plan remained at $165,000.

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