The IRS has announced the 2018 cost-of-living adjustments (COLAs) with respect to retirement plan dollar limits. Many limits are changed for 2018 since the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, others remain unchanged.
The article below outlines the changes you need to be aware of.
Sincerely yours,
Dean Holland, CPA, MSA
President
Many Retirement Plan Limits are Changed for 2018
IRS has announced the 2018 cost-of-living adjustments (COLAs) with respect to retirement plan limits. Many limits are changed for 2018 since the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, others remain unchanged. The following plan limits are increased effective Jan. 1, 2018:
- Elective deferrals. The limit on the exclusion for elective deferrals increases from $18,000 to $18,500. This limitation affects elective deferrals to Code Sec. 401(k) plans, Code Sec. 403(b) plans, and the Federal Government’s Thrift Savings Plan.
- Defined contribution plans. The limit on the annual additions to a participant’s defined contribution account increases from $54,000 for 2017 to $55,000 for 2018.
- Defined benefit plans. The limitation on the annual benefit under a defined benefit plan increases from $215,000 for 2017 to $220,000 for 2018. For participants who separated from service before Jan. 1, 2018, the 100% of average high-three-years’ compensation is computed by multiplying the participant’s compensation limitation, as adjusted through 2017, by 1.0196.
- Annual compensation limit. The maximum amount of annual compensation that can be taken into account for various qualified plan purposes increases from $270,000 for 2017 to $275,000 for 2018.
The following plan limits are unchanged:
- . . . Highly compensated employee. The dollar limit used in defining a highly compensated employee under Code Sec. 414(q)(1)(B) remains unchanged at $120,000 for 2018.
- . . . Key employee in top-heavy plan. The dollar limit under Code Sec. 416(i)(1)(A)(i) relating to the definition of a key employee in a top-heavy plan remains unchanged at $175,000.
- . . . Catch-up contributions. The dollar limit under for catch-up contributions to an applicable employer plan other than a plan described in Code Sec. 401(k)(11) (SIMPLE 401(k) plan) or Code Sec. 408(p) (SIMPLE IRA) for individuals aged 50 or over remains unchanged at $6,000 for 2018. The dollar limit under Code Sec. 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Code Sec. 401(k)(11) or Code Sec. 408(p) for individuals aged 50 or over remains unchanged at $3,000 for 2018.
- . . . Simplified employee pensions (SEPs). The compensation limit (amount of compensation above which an employee who meets other requirements must be able to participate in the employer’s SEP plan) remains unchanged at $600 for 2018.
- . . . SIMPLE accounts. The maximum amount of compensation an employee may elect to defer for a SIMPLE plan remains unchanged at $12,500 for 2018.
- . . . IRA and Roth IRA income limits. The deductible amount for an individual making qualified retirement contributions remains unchanged at $5,500 for 2018.
- . . . Saver’s credit AGI amounts. The 2017 AGI figures reported by IRS for the saver’s credit, under which an eligible lower-income taxpayer can claim a nonrefundable tax credit for the applicable percentage (50%, 20%, or 10%, depending on filing status and AGI) of up to $2,000 of his qualified retirement savings contributions.
