On October 18, 2012, the Internal Revenue Service announced cost of living adjustments affecting various limitations applicable to pension and other retirement plans (IR 2012-77).
On October 18, 2012, the Internal Revenue Service announced cost of living adjustments affecting various limitations applicable to pension and other retirement plans (IR 2012-77). Many of the limitations remain unchanged because they are indexed in $1000 or $5000 increments, but several will change for 2013. Some of 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 $17,000 to $17,500.
- The limit on "catch-up contributions" for those who are age 50 and over remains unchanged at $5,500 ($2,500 for SIMPLE Plans; $1,000 for IRAs).
- The limit on compensation that may be taken into account under a plan is $255,000, up from $250,000.
- The overall limitation on "annual additions" to a participant's account under a defined contribution plan is increased from $50,000 to $51,000.
- The basic limitation on the annual benefits under a defined benefit plan is increased from $200,000 to $205,000.
- The dollar thresholds for determining who is a "highly compensated employee" and which officers are "key employees" remain at $115,000 and $165,000, respectively.
- The contribution limitation applicable to SIMPLE IRAs and 401(k)'s increases from $11,500 to $12,000.
- The minimum compensation that may be required for participation in a SEP is unchanged at $550.
- Deductions for IRA contributions will phase out between $59,000 and $69,000 of AGI (previously $58-68,000) 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 $95,000 and $115,000 of AGI (previously $92-112,000) where the contributing spouse is covered by an employer's plan, or between $178,000 and $188,000 (previously $173-183,000) 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 $178,000 and $188,000 (previously $173-183,000) for married couples filing jointly, and between $112,000 and $127,000 (previously $110-125,000) 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 increases from $5,000 to $5,500.
- The Social Security Taxable Wage Base increases to $113,700 from $110,100.
Notice 2012-77 covering these and other changes is at http://www.irs.gov/pub/irs-news/IR-12-077.pdf .
The changes to Social Security-related limits and thresholds can be found at http://www.ssa.gov/pressoffice/factsheets/colafacts2013.htm.
If you have any questions regarding the new limitations, please feel free to contact the author of this Legal Alert, Jeffrey Ashendorf, jashendorf@fordharrison.com, any member of FordHarrison's Employee Benefits Practice Group or the FordHarrison attorney with whom you usually work.