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IRS increases limits on retirement plans

Increases reflect cost of living

Posted November 7, 2018

The tax code provides for dollar limitations on benefits and contributions under qualified retirement plans. The Secretary of the Treasury is required to annually adjust these limits for cost-of-living increases. These adjustments also affect other limitations applicable to deferred compensation plans.

Some of the changes effective January 1, 2019, are as follows:

  • Maximum annual deferrals for 401(k) and 403(b) plans increase from $18,500 to $19,000
  • The limitation on the annual benefit under a defined benefit plan increases from $220,000 to $225,000.
  • For a participant who separated from service before January 1, 2019, the participant’s limitation under a defined benefit plan is computed by multiplying the participant’s compensation limitation, as adjusted through 2018, by 1.0264.
  • The limitation for defined contribution plans increases from $55,000 to $56,000.
  • The annual compensation limit that may be taken into account for benefit calculations and nondiscrimination testing increases from $275,000 to $280,000.
  • The dollar limitation concerning the definition of “key employee” in a top-heavy plan increases from $175,000 to $180,000.
  • The dollar amount for determining the maximum account balance in an employee stock ownership plan subject to a 5-year distribution period increases from $1,105,000 to $1,130,000, while the dollar amount used to determine the lengthening of the 5-year distribution period increases from $220,000 to $225,000.
  • The limitation used in the definition of “highly compensated employee” increases from $120,000 to $125,000.

The dollar limit for 401(k) catch-up contributions for individuals aged 50 or over remains unchanged at $6,000. SIMPLE catch-up contribution limits for individuals aged 50 or over also remains unchanged at $3,000.

This article was written by Darlene M. Clabault, SHRM-CP, PHR, CLMS, of J. J. Keller & Associates, Inc.

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