On October 23, 2014, the Internal Revenue Service announced cost of living adjustments affecting the limitations applicable to pension and other retirement plans, in IR 2014-99. Some of the limitations remain unchanged because they are indexed in $1000 or $5000 increments, but others are changing for 2015. Among the better-known limitations are:
- The limitation on elective deferrals (salary reduction contributions) under 401k, 403(b), and most 457(b) plans, as well as the federal government’s Thrift Savings Plan, is increased from $17,500 to $18,000.
- The limit on “catch-up contributions” for those who are age 50 and over increases from $5,500 to $6,000 (or from $2,500 to $3,000 for SIMPLE Plans).
- The limit on compensation that may be taken into account under a plan is $265,000, up from this year’s limitation of $260,000.
- The overall limitation on “annual additions” to a participant’s account under a defined contribution plan is increased from $52,000 to $53,000.
- The basic limitation on the annual benefits under a defined benefit plan is unchanged at $210,000.
- The dollar thresholds for determining who is a “highly compensated employee” and which officers are “key employees” increase from $115,000 to $120,000, and remain at $170,000, respectively.
- The contribution limitation for IRAs remains unchanged at $5,500 with a “catch-up contribution” limitation of $1,000.
- The contribution limitation applicable to SIMPLE IRAs and 401(k)s increases from $12,000 to $12,500.
- The minimum compensation that may be required for participation in a SEP is increased from $550 to $600.
- Deductions for IRA contributions will phase out between $61,000 and $71,000 of AGI (previously $60-70,000) for single individuals and unmarried heads of household who are covered by an employer’s retirement plan; for married couples filing joint returns, the phase-out occurs between $98,000 and $118,000 of AGI (previously $96-116,000) where the contributing spouse is covered by an employer’s plan, or between $183,000 and $193,000 (previously $181-191,000) where only the noncontributing spouse is covered by an employer’s plan.
- The phase-out for taxpayers making contributions to a Roth IRA occurs between $183,000 and $193,000 (previously $181-191,000) for married couples filing jointly, and between $116,000 and $131,000 (previously $114-129,000) for unmarried individuals. (For married individuals filing a separate return and who are covered by an employer’s retirement plan, the phase-out range remains at $0 to $10,000.)
- The maximum contribution to regular or Roth IRAs remains at $5,500.
Notice 2014-99 announcing these and other new limitations can be found at: http://www.irs.gov/uac/Newsroom/IRS-Announces-2015-Pension-Plan-Limitations;-Taxpayers-May-Contribute-up-to-$18,000-to-their-401(k)-plans-in-2015 .
In addition to the IRS announcement, the Social Security Administration announced 2015 cost-of-living increases to various amounts and limitations. For example, the Taxable Wage Base will increase from this year’s $117,000 to $118,500. This means that the maximum employee and employer OASDI tax will be $7,347 each; Hospitalization Insurance (Medicare) tax continues to apply to all wages. Social Security benefits will increase by 1.7 percent beginning with benefit payments made in January. The changes to Social Security-related limits and thresholds can be found athttp://www.ssa.gov/news/press/factsheets/colafacts2015.pdf .