IRS Announces 2018 Dollar Limitations for Retirement Plans

IRS Announces 2018 Dollar Limitations for Retirement Plans

The IRS has announced the following cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for the 2018 tax year [IR 2017-177; Notice 2017-64, 2017-45 IRB ].

Elective deferrals. The limitation on the exclusion for elective deferrals under Code Sec. 402(g)(3) will increase from $18,000 to $18,500 in 2018. This limitation affects elective deferrals to various plans, including Code Sec. 401(k) plans, Code Sec. 403(b) annuities, SEPs, and the federal government’s thrift savings plan.

Defined benefit plans. The limitation on the annual benefit under a defined benefit plan will increase from $215,000 to $220,000 in 2018. For participants who separated from service before Jan. 1, 2018, the limitation for 2018 is computed by multiplying the participant’s compensation limitation, as adjusted through 2017, by 1.0196.

Defined contribution plans. The limitation on total annual contributions to defined contribution plans will increase from $54,000 to $55,000 in 2018.

Annual compensation limit. The maximum amount of annual compensation that may be taken into account for various qualified plan purposes, including plans under Code Sec. 401(a)(17), Code Sec. 404(l), Code Sec. 408(k)(3)(C) , and Code Sec. 408(k)(6)(D)(ii), will increase from $270,000 to $275,000 in 2018.

Key employee in top-heavy plan. The dollar limitation under Code Sec. 416(i)(1)(A)(i) that is used in the definition of a key employee in a top-heavy plan will remain at $175,000 in 2018.

Highly compensated employee. The dollar amount used in defining highly compensated employees for nondiscrimination testing purposes under Code Sec. 414(q)(1)(B) will remain at $120,000 in 2018.

ESOP five-year distribution period. 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 in 2018, while the dollar amount used to determine the lengthening of the five-year distribution period will increase from $215,000 to $220,000.

Catch-up contributions. The dollar limitation for catch-up contributions to an applicable deferred plan (other than SIMPLE plans) for individuals age 50 or over will remain at $6,000 in 2018. The dollar limitation for catch-up contributions under SIMPLE plans will remain at $3,000 in 2018.

Compensation limit on grandfathered government plans. The annual compensation limit under Code Sec. 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed COLAs to the plan’s compensation limit to be taken into account, will increase from $400,000 to $405,000 in 2018.

SEP compensation limit. The annual compensation limit under Code Sec. 408(k)(2)(C) will remain at $600 in 2018. Employees who earn more than $600, and who meet other requirements, must be allowed to participate in the employer’s SEP plan.

SIMPLE salary deferrals. The maximum amount of compensation that an employee/participant may elect to defer to a SIMPLE plan will remain at $12,500 in 2018.

Deferred compensation plans. The limit on deferrals to Code Sec. 457 deferred compensation plans of state and local governments and tax-exempt organizations will increase from $18,000 to $18,500 in 2018.

Control employee. The employee compensation amount used in the definition of “control employee” for purposes of the auto commuting valuation rule in Reg. § 1.61-21(f)(5)(iii) will increase from $215,000 to $220,000 in 2018. The compensation amount used in the definition of company officers who are ineligible for the commuting valuation rule in Reg. § 1.61-21(f)(5)(i) will increase from $105,000 to $110,000 in 2018.

Payroll Partners is committed to helping clients stay informed about payroll and human resource news, developments and current events. This article is intended to provide readers with general information on human resources matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular human resources practice. All efforts have been made to assure the accuracy of the information. Payroll Partners does not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular human resources practice. If you are seeking human resources advice, you are encouraged to consult a human resources professional.

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