United States

IRS announces retirement plan limits for 2016

TAX ALERT  | 

In IR-2015-118 news release, the IRS published applicable limitations for various benefits and contributions to qualified retirement plans for 2016. The notice fulfills the IRS’s annual requirement to adjust certain limits for cost of living changes. The following chart summarizes the most commonly used limitations. The cost of living adjustment did not rise to thresholds that caused any of the limitations to actually change from the 2015 levels. Refer to the news release for other applicable limitations not shown here.

Limitation

2015

2016

Elective deferrals to sections 401(k) and 403(b), certain section 457, and thrift savings plans

 $18,000

 $18,000

Catch-up contribution for those 50 and over (in sections 401(k) and 403(b), certain section 457, and thrift savings plan)

 $6,000

 $6,000

Catch-up contribution for those 50 and over for section 401(k)(11) or section 408(p) plan

 $3,000

 $3,000

Defined contribution plan annual addition (or limited to compensation, if less)

 $53,000

 $53,000

Defined benefit plan annual benefit (or limited to 100% of average compensation in three highest paid years, if less)

 $210,000

 $210,000

Annual compensation limit (generally applicable to section 415 benefit and allocation calculations)

 $265,000

 $265,000

Compensation for SEP inclusion

 $600

 $600

SIMPLE account contribution limitation

 $12,500

 $12,500

Maximum IRA contribution

 $5,500

 $5,500

IRA catch-up contribution for those 50 and over

 $1,000

 $1,000


While these limits remain unchanged and will not require any action, employers should be preparing to distribute various annual notices required for calendar year retirement plans, as applicable. The following notices are due soon:

  • Qualified default investment alternative notice – at least 30 days in advance of subsequent plan year
  • Qualified automatic contribution arrangement and eligible automatic contribution arrangement notice – between 30 and 90 days before beginning of plan year
  • SIMPLE IRA notice – before Nov. 2, which begins the 60-day election period
  • Safe harbor 401(k) notice – between 30 and 90 days before beginning of plan year

Where appropriate, employers should review the news release in full and coordinate internal efforts with those of their external plan administrator to ensure processes are updated to reflect any applicable limitation changes by Jan. 1 and to comply with upcoming disclosure deadlines.

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