The Internal Revenue Service announced cost of
living adjustments affecting dollar limitations for pension plans and
other retirement-related items for tax year 2018
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.
For help with your legal needs contact a business, tax, and health care law attorney at the offices of AttorneyBritt.
Review-Like-Follow AttorneyBritt On:
