This document provides a revised factor for
adjusting a participant's high-3 compensation limitation under section
415(b)(1)(B) of the Code for plan years beginning on or after January 1,
2018. The revision is necessary due to the Bureau of Labor
Statistics’ adjustment of the CPI-U for the months of July and August 2016,
which are used in the calculation of the factor. After taking into
consideration the adjustments made by the BLS, the factor is 1.0197.
IRS Announces 2018 Pension Plan Limitations;
401(k) Contribution Limit Increases to $18,500 for 2018
The Internal Revenue Service today announced cost of living adjustments
affecting dollar limitations for pension plans and other retirement-related
items for tax year 2018. The IRS today issued technical guidance
detailing these items in Notice 2017-64.
Highlights of Changes
for 2018
The contribution limit for employees who participate in 401(k), 403(b), most
457 plans, and the federal government’s Thrift Savings Plan is increased from
$18,000 to $18,500.
The income ranges for determining eligibility to make deductible
contributions to traditional Individual Retirement Arrangements (IRAs), to
contribute to Roth IRAs and to claim the saver’s credit all increased for 2018.
Taxpayers can deduct contributions to a traditional IRA if they meet certain
conditions. If during the year either the taxpayer or their spouse was covered
by a retirement plan at work, the deduction may be reduced, or phased out,
until it is eliminated, depending on filing status and income. (If neither the taxpayer
nor their spouse is covered by a retirement plan at work, the phase-outs of the
deduction do not apply.) Here are the phase-out ranges for 2018:
- For single taxpayers covered by a workplace retirement
plan, the phase-out range is $63,000 to $73,000, up from $62,000 to
$72,000.
- For married couples filing jointly, where the spouse
making the IRA contribution is covered by a workplace retirement plan, the
phase-out range is $101,000 to $121,000, up from $99,000 to $119,000.
- For an IRA contributor who is not covered by a
workplace retirement plan and is married to someone who is covered, the
deduction is phased out if the couple’s income is between $189,000 and
$199,000, up from $186,000 and $196,000.
- For a married individual filing a separate return who is
covered by a workplace retirement plan, the phase-out range is not subject
to an annual cost-of-living adjustment and remains $0 to $10,000.
The income phase-out range for taxpayers making contributions to a Roth IRA
is $120,000 to $135,000 for singles and heads of household, up from $118,000 to
$133,000. For married couples filing jointly, the income phase-out range is
$189,000 to $199,000, up from $186,000 to $196,000. The phase-out range for a
married individual filing a separate return who makes contributions to a Roth IRA is not
subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The income limit for the Saver’s
Credit (also known as the Retirement Savings Contributions
Credit) for low- and moderate-income workers is $63,000 for married couples
filing jointly, up from $62,000; $47,250 for heads of household, up from
$46,500; and $31,500 for singles and married individuals filing separately, up
from $31,000.
Highlights of
Limitations that Remain Unchanged from 2017
- 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.
- The catch-up contribution limit for employees aged 50
and over who participate in 401(k), 403(b), most 457 plans and the federal
government’s Thrift Savings Plan remains unchanged at $6,000.
Detailed Description
of Adjusted and Unchanged Limitations
Section 415 of the Internal Revenue Code (Code) provides for dollar
limitations on benefits and contributions under qualified retirement plans.
Section 415(d) requires that the Secretary of the Treasury annually adjust
these limits for cost of living increases. Other limitations applicable to
deferred compensation plans are also affected by these adjustments under
Section 415. Under Section 415(d), the adjustments are to be made following
adjustment procedures similar to those used to adjust benefit amounts under
Section 215(i)(2)(A) of the Social Security Act.
Effective Jan. 1, 2018, the limitation on the annual benefit under a defined
benefit plan under Section 415(b)(1)(A) is increased from $215,000 to $220,000.
For a participant who separated from service before Jan. 1, 2018, the
limitation for defined benefit plans under Section 415(b)(1)(B) is computed by
multiplying the participant's compensation limitation, as adjusted through
2017, by 1.0197.
The limitation for defined contribution plans under Section 415(c)(1)(A) is
increased in 2018 from $54,000 to $55,000.
The Code provides that various other dollar amounts are to be adjusted at
the same time and in the same manner as the dollar limitation of Section
415(b)(1)(A). After taking into account the applicable rounding rules, the
amounts for 2018 are as follows:
The limitation under Section 402(g)(1) on the exclusion for elective
deferrals described in Section 402(g)(3) is increased from $18,000 to $18,500.
The annual compensation limit under Sections 401(a)(17), 404(l),
408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $270,000 to $275,000.
The dollar limitation under Section 416(i)(1)(A)(i) concerning the
definition of key employee in a top-heavy plan remains unchanged at $175,000.
The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum
account balance in an employee stock ownership plan subject to a five year
distribution period is increased from $1,080,000 to $1,105,000, while the
dollar amount used to determine the lengthening of the five year distribution
period is increased from $215,000 to $220,000.
The limitation used in the definition of highly compensated employee under
Section 414(q)(1)(B) remains unchanged at $120,000.
The dollar limitation under Section 414(v)(2)(B)(i) for catch-up
contributions to an applicable employer plan other than a plan described in
Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains
unchanged at $6,000. The dollar limitation under Section 414(v)(2)(B)(ii) for
catch-up contributions to an applicable employer plan described in Section
401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged
at $3,000.
The annual compensation limitation under Section 401(a)(17) for eligible
participants in certain governmental plans that, under the plan as in effect on
July 1, 1993, allowed cost of living adjustments to the compensation limitation
under the plan under Section 401(a)(17) to be taken into account, is increased
from $400,000 to $405,000.
The compensation amount under Section 408(k)(2)(C) regarding simplified
employee pensions (SEPs) remains unchanged at $600.
The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement
accounts remains unchanged at $12,500.
The limitation on deferrals under Section 457(e)(15) concerning deferred
compensation plans of state and local governments and tax-exempt organizations
is increased from $18,000 to $18,500.
The limitation under Section 664(g)(7) concerning the qualified gratuitous
transfer of qualified employer securities to an employee stock ownership plan
is increased from $45,000 to $50,000.
The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax
Regulations concerning the definition of “control employee” for fringe benefit
valuation is increased from $105,000 to $110,000. The compensation amount under
Section 1.61 21(f)(5)(iii) is increased from $215,000 to $220,000.
The dollar limitation on premiums paid with respect to a qualifying longevity
annuity contract under Section 1.401(a)(9)-6, A-17(b)(2)(i) of the Income Tax
Regulations is increased from $125,000 to $130,000.
The Code provides that the $1,000,000,000 threshold used to determine
whether a multiemployer plan is a systemically important plan under Section
432(e)(9)(H)(v)(III)(aa) is adjusted using the cost-of-living adjustment
provided under Section 432(e)(9)(H)(v)(III)(bb). After taking the applicable
rounding rule into account, the threshold used to determine whether a
multiemployer plan is a systemically important plan under Section
432(e)(9)(H)(v)(III)(aa) is increased for 2018 from $1,012,000,000 to
$1,087,000,000.
The Code also provides that several retirement-related amounts are to be
adjusted using the cost-of-living adjustment under Section 1(f)(3). After
taking the applicable rounding rules into account, the amounts for 2018 are as
follows:
The adjusted gross income limitation under Section 25B(b)(1)(A) for
determining the retirement savings contribution credit for married taxpayers
filing a joint return is increased from $37,000 to $38,000; the limitation
under Section 25B(b)(1)(B) is increased from $40,000 to $41,000; and the
limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from
$62,000 to $63,000.
The adjusted gross income limitation under Section 25B(b)(1)(A) for
determining the Retirement Savings Contribution Credit for taxpayers filing as
head of household is increased from $27,750 to $28,500; the limitation under
Section 25B(b)(1)(B) is increased from $30,000 to $30,750; and the limitation
under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $46,500 to
$47,250.
The adjusted gross income limitation under Section 25B(b)(1)(A) for
determining the Retirement Savings Contribution Credit for all other taxpayers
is increased from $18,500 to $19,000; the limitation under Section 25B(b)(1)(B)
is increased from $20,000 to $20,500; and the limitation under Sections
25B(b)(1)(C) and 25B(b)(1)(D) is increased from $31,000 to $31,500.
The deductible amount under Section 219(b)(5)(A) for an individual making
qualified retirement contributions remains unchanged at $5,500.
The applicable dollar amount under Section 219(g)(3)(B)(i) for determining
the deductible amount of an IRA contribution for taxpayers who are active
participants filing a joint return or as a qualifying widow(er) increased from
$99,000 to $101,000. The applicable dollar amount under Section
219(g)(3)(B)(ii) for all other taxpayers who are active participants (other
than married taxpayers filing separate returns) increased from $62,000 to
$63,000. If an individual or the individual’s spouse is an active participant,
the applicable dollar amount under Section 219(g)(3)(B)(iii) for a married
individual filing a separate return is not subject to an annual cost-of-living
adjustment and remains $0. The applicable dollar amount under Section
219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse
is an active participant is increased from $186,000 to $189,000.
The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for
determining the maximum Roth IRA contribution for married taxpayers filing a
joint return or for taxpayers filing as a qualifying widow(er) is increased
from $186,000 to $189,000. The adjusted gross income limitation under Section
408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers
filing separate returns) is increased from $118,000 to $120,000. The applicable
dollar amount under Section 408A(c)(3)(B)(ii)(III) for a married individual
filing a separate return is not subject to an annual cost-of-living adjustment
and remains $0.
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