Previously released 2018 retirement plan limitations unchanged by Tax Reform Act
Previously released 2018 retirement plan limitations unchanged by Tax Reform Act
IRS has stated that the Tax Cut and Jobs Act (PL 115-97, 12/22/17) did not affect the 2018 tax year dollar limitations for retirement plans previously announced by IRS in late 2017.
New guidance. In IR 2018-19, IRS indicated that the recently enacted Tax Cut and Jobs Act made no changes to the section of the tax law limiting benefits and contributions for retirement plans. Accordingly, the qualified retirement plan limitations for tax year 2018 previously announced in IR 2017-177, and detailed in Notice 2017-64, 2017-45 IRB 486 (see below), remain unchanged.
In IR 2018-19, IRS also noted that the tax law specifies that contribution limits for IRAs, as well as the income thresholds related to IRAs and the Code Sec. 25B saver’s credit, are to be adjusted for changes in the cost of living using procedures that are used to make cost-of-living adjustments that apply to many of the basic income tax parameters. However, although the Tax Cut and Jobs Act made changes to how these cost of living adjustments are computed, after taking the applicable rounding rules into account, the amounts for 2018 previously announced in the news release and the notice remain unchanged.
The following plan limits are in effect for 2018:
- Elective deferrals. The Code Sec. 402(g)(1) limit on the exclusion for elective deferrals described in Code Sec. 402(g)(3) is $18,500. This limitation affects elective deferrals to Code Sec. 401(k) plans, Code Sec. 403(b) plans, and the Federal Government’s Thrift Savings Plan.
- Defined contribution plans. The limit on the annual additions to a participant’s defined contribution account under Code Sec. 415(c)(1)(A) is $55,000.
- Defined benefit plans. The limitation on the annual benefit under a defined benefit plan under Code Sec. 415(b)(1)(A) is $220,000. For participants who separated from service before Jan. 1, 2018, the 100% of average high-three-years’ compensation under Code Sec. 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2017, by 1.0197.
- RIA observation: This figure was originally reported in Notice 207-64 as 1.0196. However, IRS subsequently issued a revised version that adjusted the figure to 1.0197 (see Weekly Alert ¶ 2 11/02/2017).
- Annual compensation limit. The maximum amount of annual compensation that can be taken into account for various qualified plan purposes, including Code Sec. 401(a)(17), Code Sec. 404(l), Code Sec. 408(k)(3)(C) , and Code Sec. 408(k)(6)(D)(ii), is $275,000.
- ESOP 5-year distribution period. The dollar amount under Code Sec. 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan (ESOP) subject to a 5-year distribution period is $1,105,000, while the dollar amount used to determine the lengthening of the five-year distribution period is $220,000.
- Government plans subject to the grandfather rule. The annual compensation limitation under Code Sec. 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, ’93 allowed COLAs to the plan’s compensation limit under Code Sec. 401(a)(17) to be taken into account, is $405,000.
- Government, etc. deferred compensation plans. The limit on deferrals under Code Sec. 457(e)(15), concerning deferred compensation plans of state and local governments and tax-exempt organizations, is $18,500.
- Gratuitous transfers of employer securities. The limitation under Code Sec. 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan is $50,000.
- Control employee. The employee compensation amount used in the definition of “control employee” for purposes of the auto commuting rule of Reg. § 1.61-21(f)(5)(i) is $110,000. And, the compensation amount under Reg. § 1.61-21(f)(5)(iii) is $220,000.
- Premiums on longevity annuity contracts. The dollar limitation on premiums paid with respect to a qualifying longevity annuity contract under Reg. § 1.401(a)(9)-6, Q&A-17(b)(2)(i), is $130,000.
- Systemically important plan. The threshold used to determine whether a multi-employer plan is a systemically important plan under Code Sec. 432(e)(9)(H)(v)(III)(aa) is $1,087,000,000.
- Highly compensated employee. The dollar limit used in defining a highly compensated employee under Code Sec. 414(q)(1)(B) is $120,000.
- Key employee in top-heavy plan. The dollar limit under Code Sec. 416(i)(1)(A)(i) relating to the definition of a key employee in a top-heavy plan is $175,000.
- Catch-up contributions. The dollar limit under Code Sec. 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Code Sec. 401(k)(11) (SIMPLE 401(k) plan) or Code Sec. 408(p) (SIMPLE IRA) for individuals aged 50 or over is $6,000. The dollar limit under Code Sec. 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Code Sec. 401(k)(11) or Code Sec. 408(p) for individuals aged 50 or over is $3,000.
- Simplified employee pensions (SEPs). The compensation limit under Code Sec. 408(k)(2)(C) (amount of compensation above which an employee who meets other requirements must be able to participate in the employer’s SEP plan) is $600.
- SIMPLE accounts. The maximum amount of compensation an employee may elect to defer under Code Sec. 408(p)(2)(E) for a SIMPLE plan is $12,500.
- Limits for making deductible contributions by active plan participants to traditional IRAs. In general, an individual who isn’t an active participant in certain employer-sponsored retirement plans, and whose spouse isn’t an active participant, may make an annual deductible cash contribution to an IRA up to the lesser of: (1) an inflation-adjusted statutory dollar limit, or (2) 100% of the compensation that’s includible in his gross income for that year. For 2018, the statutory dollar limit is $5,500, plus an additional $1,000 for those age 50 or older. If the individual (or his spouse) is an active plan participant, the deduction phases out over a specified dollar range of modified adjusted gross income (MAGI).
- …For taxpayers filing joint returns, the otherwise allowable deductible contribution phases out ratably for MAGI between $101,000 and $121,000.
- …For single taxpayers and heads of household, the otherwise allowable deductible contribution phases out ratably for MAGI between $63,000 and $73,000. For married taxpayers filing separate returns, the otherwise allowable deductible contribution phases out ratably for MAGI between $0 and $10,000.
- …For a married taxpayer who is not an active plan participant but whose spouse is such a participant, the otherwise allowable deductible contribution phases out ratably for MAGI between $189,000 and $199,000.
- … Limits for making contributions to Roth IRAs. Individuals may make nondeductible contributions to a Roth IRA, subject to the overall limit on IRA contributions. The maximum annual contribution that can be made to a Roth IRA is phased out for taxpayers with MAGI over certain levels for the tax year. For taxpayers filing joint returns, the otherwise allowable contributions to a Roth IRA phases out ratably for 2018 for MAGI between $189,000 and $199,000. For single taxpayers and heads of household, it phases out ratably for MAGI between $120,000 and $135,000. For married taxpayers filing separate returns, the otherwise allowable contribution phases out ratably for MAGI between $0 and $10,000.
- Saver’s credit. For tax years beginning in 2018, 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 qualified retirement savings contributions, as follows:
- …Joint filers: $0 to $38,000, 50%; $38,000 to $41,000, 20%; and $41,000 to $63,000, 10% (no credit if AGI is above $63,000).
- …Heads of households: $0 to $28,500, 50%; $28,500 to $30,750, 20%; and $30,750 to $47,250, 10% (no credit if AGI is above $47,250).
- …All other filers: $0 to $19,000, 50%; $19,000 to $20,500, 20%; and $20,500 to $31,500, 10% (no credit if AGI is above $31,500).