It is important to note that many of the dollar limits for retirement planning are changing in 2018. Here are some details for you:  

The Internal Revenue Service (IRS) just announced the 2018 cost-of-living adjustments (COLAs) with respect to retirement plan limits. Per their notification, many limits are being changed for 2018.  This is due to to the increase in the cost-of-living index having met the statutory thresholds that trigger their adjustment. However, other limits, that do not meet those statutory thresholds, will remain the same.

Since this can be complicated, we want to simplify the process for you.  So we compiled a list of the circumstances under which plans will experience an increase in limits, that increase takes effect as of January 1, 2018.  As well as alerting you to those plans where limits will remain the same.  This list should provide you with the updates especially relevant for your retirement planning.

Which plan limits are changing:

  • Elective deferrals. The limit on the exclusion for elective deferrals increases from $18,000 to $18,500. This limitation affects elective deferrals to 401(k) plans, 403 (b) plans, and also the Federal Government's Thrift Savings Plan.

  • Defined contribution plans. The limit on annual additions to a participant's defined contribution account increases from $54,000 for 2017 to $55,000 for 2018.

  • Defined benefit plans. The limit on the annual benefit under a defined benefit plan increases from $215,000 for 2017 to $220,000 for 2018. For participants who separated from service before Jan. 1, 2018, the 100% of average high-three-years' compensation is computed by multiplying the participant's compensation limit, as adjusted through 2017 by 1.0196.

  • Annual compensation limit. The maximum amount of annual compensation that can be taken into account for various qualified plan purposes increases from $270,000 for 2017 to $275,000 for 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 increases from $1,080,000 to $1,105,000 for 2018, while the dollar amount used to determine the lengthening of the five year distribution period increases from $215,000 to $220,000 for 2018.

  • Government plans subject to the grandfather rule. The annual compensation limitation 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, increases from $400,000 for 2017 to $405,000 for 2018.

  • Government, etc. deferred compensation plans. The limit on deferrals concerning deferred compensation plans of state and local governments and also tax-exempt organizations increases from $18,000 for 2017 to $18,500 for 2018.

  • Gratuitous transfers of employer securities. The limit concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan increases from $45,000 for 2017 to $50,000 for 2018.

  • Control employee. The employee compensation amount used in the definition of “control employee” for purposes of the auto commuting rule increases from $105,000 for 2017 to $110,000 for 2018. In addition, the compensation amount increases from $215,000 for 2017 to $220,000 for 2018.

  • Premiums on longevity annuity contracts. The dollar limit on premiums paid with respect to a qualifying longevity annuity contract increases from $125,000 for 2017 to $130,000 for 2018.

  • Systemically important plan. The threshold used to determine whether a multi-employer plan is a systemically important plan increases for 2018 from $1,012,000,000 to $1,087,000,000.

Which limits are not changing:

  • Highly compensated employee. The dollar limit used in defining a highly compensated employee remains unchanged at $120,000 for 2018.

  • Key employee in top-heavy plan. The dollar limit relating to the definition of a key employee in a top-heavy plan remains unchanged at $175,000.

  • Catch-up contributions. The dollar limit for catch-up contributions to an applicable employer plan other than a plan described as a SIMPLE 401(k) plan or as a SIMPLE IRA for individuals aged 50 or over remains unchanged at $6,000 for 2018. The dollar limit for catch-up contributions to an applicable employer plan described inCode Sec. 401(k)(11) orCode Sec. 408(p) for individuals aged 50 or over also remains unchanged at $3,000 for 2018.

  • Simplified employee pensions (SEPs). The compensation limit where the amount of compensation above which an employee who meets other requirements must be able to participate in the employer's SEP plan remains unchanged at $600 for 2018.

  • SIMPLE accounts. The maximum amount of compensation an employee may elect to defer for a SIMPLE plan remains unchanged at $12,500 for 2018.

Calculating certain plan limits:

  • IRA and Roth IRA income limits. The deductible amount for an individual making qualified retirement contributions remains unchanged at $5,500 for 2018. The 2018 figures reported by IRS for the income limits used to determine both traditional IRA deductions and Roth IRA contributions are identical to the figures previously calculated by Thomson Reuters Checkpoint.

  • Saver's credit AGI amounts. The 2017 AGI figures reported by IRS for the saver's credit, under which an eligible lower-income taxpayer can claim a nonrefundable tax credit for the applicable percentage (50%, 20%, or 10%, depending on filing status and AGI) of up to $2,000 of his/her qualified retirement savings contributions, are identical to the figures previously calculated by Thomson Reuters Checkpoint.

In Conclusion

In summary, there are specific situations where limit changes will be made, and others where limits will remain the same.  Since those situations are complicated, we recommend you speak with your CPA.  They should be able to clarify what the impact of the IRS announcement will be on your company’s retirement plan.  Your retirement planning is important, and your CPA can certainly provide the proper guidance.

If you have questions, please feel free to call Ken Bagner at 973-994-9494 or email him at Kenneth.bagner@SobelCoLLC.com or email Liz Harper at Elizabeth.harper@SobelCoLLC.com.