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Retirement

Many retirement plan dollar limits increase for 2019

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

Notice 2018-83, 2018-47 IRBIR 2018-211, 11/1/2018

IRS has announced the 2019 cost-of-living adjustments (COLAs) with respect to retirement plan limits. Many limits, which are adjusted by reference to Code Sec. 415(d), are changed for 2019 since the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, others remain unchanged. Certain dollar limit changes keyed to Code Sec. 1(f)(3), some of which were previously calculated by Thomson Reuters Checkpoint, have also increased.

The following plan limits are increased effective Jan. 1, 2019:

Elective deferrals. The Code Sec. 402(g)(1) limit on the exclusion for elective deferrals described in Code Sec. 402(g)(3) increases from $18,500 to $19,000 for 2019. 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 benefit plans. The limitation on the annual benefit under a defined benefit plan under Code Sec. 415(b)(1)(A) increases from $220,000 to $225,000 for 2019. For participants who separated from service before Jan. 1, 2019, 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 2018, by 1.0264.

Defined contribution plans. The limit on the annual additions to a participant’s defined contribution account under Code Sec. 415(c)(1)(A) increases from $55,000 to $56,000 for 2019.

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), increases from $275,000 to $280,000 for 2019.

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 increases from $175,000 to $180,000 for 2019.

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 increases from $1,105,000 to $1,130,000 for 2019, while the dollar amount used to determine the lengthening of the five year distribution period increases from $220,000 to $225,000 for 2019.

Highly compensated employee. The dollar limit used in defining a highly compensated employee (HCE) under Code Sec. 414(q)(1)(B) increases from $120,000 to $125,000 for 2019.

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, increases from $405,000 to $415,000 for 2019.

SIMPLE accounts. The maximum amount of compensation an employee may elect to defer under Code Sec. 408(p)(2)(E) for a SIMPLE plan increases from $12,500 to $13,000 for 2019.

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, increases from $18,500 to $19,000 for 2019.

Control employee. The employee compensation amount used in the definition of “control employee” for fringe benefit valuation purposes under Reg § 1.61-21(f)(5)(iii) increases from $220,000 to $225,000 for 2019, but the compensation amount under Reg § 1.61-21(f)(5)(i) remains $110,000 for 2019.

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) increases from $1,087,000,000 to $1,097,000,000 for 2019.

The following plan limits are unchanged:

…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 remains at $6,000 for 2019. 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 remains at $3,000 for 2019.

…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) remains at $600 for 2019.

…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 remains $50,000 for 2019.

…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), remains $130,000 for 2019.

The following plan limits are calculated by reference to Code Sec. 1(f)(3):

…IRA and Roth IRA income limits. The deductible amount under Code Sec. 219(b)(5)(A) for an individual making qualified retirement contributions increases from $5,500 to $6,000 for 2019. The 2019 figures reported by IRS for the income limits used to determine traditional IRA deductions and Roth IRA contributions are identical to the figures previously calculated by Thomson Reuters Checkpoint (see “Key 2019 individual tax items as calculated by Thomson Reuters Checkpoint based on inflation data”).

…Saver’s credit AGI amounts. The adjusted gross income (AGI) figures for the saver’s credit increased as indicated below. Under the credit, 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 or her qualified retirement savings contributions.

For 2019, the AGI limitation under Code Sec. 25B(b)(1)(A) for determining the retirement savings contributions credit for married taxpayers filing a joint return increased from $38,000 to $38,500; the limitation under Code Sec. 25B(b)(1)(B) increased from $41,000 to $41,500; and the limitation under Code Sec. 25B(b)(1)(C) and Code Sec. 25B(b)(1)(D) increase from $63,000 to $64,000.

For 2019, the AGI limitation under Code Sec. 25B(b)(1)(A) for determining the retirement savings contributions credit for taxpayers filing as head of household is increased from $28,500 to $28,875; the limitation under Code Sec. 25B(b)(1)(B) is increased from $30,750 to $31,125; and the limitation under Code Sec. 25B(b)(1)(C) and Code Sec. 25B(b)(1)(D) is increased from $47,250 to $48,000.

For 2019, the AGI limitation under Code Sec. 25B(b)(1)(A) for determining the retirement savings contributions credit for all other taxpayers is increased from $19,000 to $19,250; the limitation under Code Sec. 25B(b)(1)(B) is increased from $20,500 to $20,750; and the limitation under Code Sec. 25B(b)(1)(C) and Code Sec. 25B(b)(1)(D) is increased from $31,500 to $32,000.

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