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2016 Cost of Living Adjustments for Retirement Plans
Friday, October 23, 2015

The Internal Revenue Service recently announced its cost-of-living adjustments applicable to dollar limitations for retirement plans and Social Security generally effective for Tax Year 2016 (see IR-2015-118 ). Most notably, the limitation on annual salary deferrals into a 401(k) plan (along with the other retirement plan limitations) remains unchanged. The dollar limits are as follows:

LIMIT

2015

2016

401(k)/403(b) Elective Deferral Limit (IRC § 402(g))

 

The annual limit on an employee’s elective deferrals to a 401(k) or 403(b) plan made through salary reduction.

$18,000

$18,000

Government/Tax Exempt Deferral Limit (IRC § 457(e)(15))

 

The annual limit on an employee’s elective deferrals concerning Section 457 deferred compensation plans of state and local governments and tax-exempt organizations.

$18,000

$18,000

401(k)/403(b)/457 Catch-up Limit (IRC § 414(v)(2)(B)(i))

 

In addition to the regular limit on elective deferrals described above, employees over the age of 50 generally can make an additional “catch-up” contribution not to exceed this limit.

$6,000

$6,000

Defined Contribution Plan Limit (IRC § 415(c))

 

The limitation for annual contributions to a defined contribution plan (such as a 401(k) plan or profit sharing plan).

$53,000

$53,000

Defined Benefit Plan Limit (IRC § 415(b))

 

The limitation on the annual benefits from a defined benefit plan.

$210,000

$210,000

Annual Compensation Limit (IRC § 401(a)(17))

 

The maximum amount of compensation that may be taken into account for benefit calculations and nondiscrimination testing.

$265,000

 

($395,000 for certain gov’t plans)

$265,000

 

($395,000 for certain gov’t plans)

Highly Compensated Employee Threshold (IRC § 414(q))

 

The definition of an HCE includes a compensation threshold for the prior year. A retirement plan’s discrimination testing is based on coverage and benefits for HCEs.

$120,000

 

(for 2016 HCE determination)

$120,000

 

(for 2017 HCE determination)

Key Employee Compensation Threshold (IRC § 416)

 

The definition of a key employee includes a compensation threshold. Key employees must be determined for purposes of applying the top-heavy rules. Generally, a plan is top-heavy if the plan benefits of key employees exceed 60% of the aggregate plan benefits of all employees.

$170,000

$170,000

SEP Minimum Compensation Limit (IRC § 408(k)(2)(C))

 

The mandatory participation requirements for a simplified employee pension (SEP) includes this minimum compensation threshold.

$600

$600

SIMPLE Employee Contribution (IRC § 408(p)(2)(E))

 

The limitation on deferrals to a SIMPLE retirement account.

$12,500

$12,500

SIMPLE Catch-up Limit (IRC § 414(v)(2)(B)(ii)))

 

The maximum amount of catch-up contributions that individuals age 50 or over may make to a SIMPLE retirement account or SIMPLE 401(k) plan.

$3,000

$3,000

Social Security Taxable Wage Base

$118,500

$118,500

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