The IRS has issued new guidelines for retirement plan contributions, as well as on nondiscrimination testing, plan limits and phase-out ranges for IRA deductions.

For employee 401(k) plans, the 2018 ceiling for contributions is $18,500, up $500 from 2017’s limit, after two years with no increase.

The “all sources” maximum contribution (employer and employee combined) increases by $1,000 to $55,000.

Plan participants who contribute to the limit next year will be able to receive up to $36,500 from match and profit-sharing contributions ($55,000 minus $18,500).

Employee catch-up for those age 50 and older does not increase, holding at $6,000.

The Society for Human Resource Management reports that the employee 401(k) contribution increase “is the first since 2014 for plan year 2015, and reflects a consumer price index increase of 1.97 percent year over year [between the third quarters of 2016 and 2017], the largest increase in the past six years,” according to Brian Donohue, a partner in the Chicago office of October Three Consulting, a retirement plan advisory firm, who is quoted in the report.

IRS Notice 2017-64 highlights adjustments taking effect on January 1, 2018, for 401(k), 403(b) and most 457 plans.

The employee compensation limit for calculating contributions is $275,000, up $5,000, while the compensation limit of key employees in a top-heavy plan and of highly compensated employees in a top-heavy plan have not changed, at $175,000 and $120,000, respectively.

The report says, “The annual ceiling on employee compensation that can be used to calculate employee-deferral and employer-matching contributions is increasing to $275,000 from $270,000.”

Donohue is quoted saying, “The pay cap increase will lessen the impact on annual nondiscrimination testing of maximum deferrals taken by high-earners,” at least somewhat. He refers to the annual nondiscrimination tests—the actual deferral percentage (ADP) test and actual contribution percentage (ACP) test—that a qualified retirement plan must satisfy.

For defined benefit plans, the limit for the maximum annual benefit rises from $215,000 to $220,000.

For a participant who separates from service before January 1, 2018, the annual benefit limit for DB plans is computed by multiplying the participant’s compensation limit, as adjusted through 2017, by 1.0196.

This is an increase from the previous year, when the participant’s compensation limit, as adjusted through 2016, was multiplied by 1.0112.

In addition, the Pension Benefit Guaranty Corp. has posted 2018 premium rates for single-employer and multiemployer plans, up substantially—according to Donohue, “more than 7 percent for headcount premiums and almost 12 percent for variable premiums.”

For SIMPLE and SEP plans, the maximum contribution limits are unchanged at $12,500 and $600, respectively; for ESOPs, the maximum account balance in the plan subject to a five-year distribution period will increase to $1,105,000 from $1,080,000, while the dollar amount used to determine the lengthening of the five-year distribution period rises to $220,000 from $215,000.

Annual IRA contributions, as well as catch-ups, are unchanged at $5,500 and $1,000, respectively.

For single taxpayers covered by a workplace retirement plan, the phase-out range is $63,000–$73,000, up from $62,000–$72,000.

And 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–$121,000, up from $99,000–$119,000.

The report adds that, 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–$199,000, up from $186,000–$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–$10,000.

For singles and heads of household, the adjusted gross income phase-out range is $120,000–$135,000, up from $118,000–$133,000.

For married couples filing jointly, the income phase-out range is $189,000–$199,000, up from $186,000–$196,000.

And for a married individual filing a separate return who makes contributions to a Roth IRA, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0–$10,000.

Instant Insights /

2018 IRS guidelines on retirement plan contributions released

More From HR Executive

Related Stories

Recommended For You