On October 19, 2017, the Internal Revenue Service (IRS) released Notice 2017-64 announcing cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items. The following is a summary of the limits for tax year 2018.
For 401(k), 403(b), and most 457 plans and the federal government’s Thrift Savings Plans:
- The elective deferral (contribution) limit increases to $18,500 for 2018 (from $18,000 for 2017).
- The catch-up contribution limit for employees aged 50 and over who participate in these plans remains at $6,000.
For individual retirement arrangements (IRAs):
- The limit on annual contributions remains unchanged at $5,500 for 2018.
- 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 2018.
For simplified employee pension (SEP) IRAs and individual/solo 401(k) plans:
- Elective deferrals increase to $55,000 for 2018, based on an annual compensation limit of $275,000 (up from the 2017 amounts of $54,000 and $270,000).
- The minimum compensation that may be required for participation in a SEP remains unchanged at $600 for 2018.
For savings incentive match plan for employees (SIMPLE) IRAs:
- The contribution limit on SIMPLE IRA retirement accounts remains unchanged at $12,500 for 2018.
- The SIMPLE catch-up limit remains unchanged at $3,000 for 2018.
For defined benefit plans:
- The basic limitation on the annual benefits under a defined benefit plan is increased to $220,000 for 2018 (from $215,000 for 2017).
Other changes:
- Highly-compensated and key employee thresholds:
- The threshold for determining “highly compensated employees” remains unchanged at $120,000 for 2018.
- The threshold for officers who are “key employees” in a top-heavy plan remains unchanged at $175,000 for 2018.
- Social Security cost of living adjustment: In a separate announcement, the Social Security Administration stated that the taxable wage base will increase to $128,700 for 2018, an increase of $1,500 from the 2017 taxable wage base of $127,200. Thus, with respect to higher-income employees, the maximum Social Security tax liability will increase slightly for both the employee and employer.
The chart below summarizes some of the more common adjustments to employer-sponsored retirement plans.