Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
On October 19, 2017, the Internal Revenue Service (“IRS”) announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for the 2018 tax year. The list below details some of the key limit increases and those limits which remain unchanged effective January 1, 2018:
- The limit on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) will increase from $215,000 to $220,000.
- The annual addition limit for defined contribution plans (including 401(k) plans) will increase from $54,000 to $55,000.
- The limit under § 402(g)(1) on the exclusion for elective deferrals will increase from $18,000 to $18,500.
- The annual compensation limit for qualified retirement plans will increase from $270,000 to $275,000.
- The dollar amount for determining the maximum account balance in an employee stock ownership plan (“ESOP”) subject to a five year distribution period will increase from $1,080,000 to $1,105,000, while the dollar amount used to determine the lengthening of the five year distribution period will increase from $215,000 to $220,000.
- The limit used in the definition of highly compensated employee (“HCE”) remains unchanged at $120,000.
- The dollar limit concerning the definition of key employee in a top-heavy plan remains unchanged at $175,000.
- The dollar limit for catch-up contributions to an applicable employer plan for individuals aged 50 or over remains unchanged at $6,000.
- The limit on annual contributions to an IRA remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000 for contributions to an IRA.
If you would like to review the complete list of changes in detail please click here.
Employers should review and update their qualified retirement plans, including their 401(k) plans and pension plans, to ensure that their employees can maximize their contributions. Please contact Littler’s Employment Taxes group if you have any questions.