2016 Pension Plan Limits, 401(k) Deferral Limit Unchanged
Author: Rena Pirsos, XpertHR Legal Editor
October 22, 2015
The Internal Revenue Service (IRS) has announced the tax year 2016 cost-of-living adjustments affecting dollar limitations on benefits and contributions under qualified retirement plans and other inflation-adjusted amounts. The pension plan limitations will not change for 2016 because the increase in the cost-of-living index did not meet the statutory thresholds that trigger their adjustment.
The following are the 2016 limitation amounts:
- The elective deferral (contribution) limit for employees who participate in Internal Revenue Code §§ 401(k), 403(b) and most 457 plans remains $18,000.
- The catch-up contribution limit for employees aged 50 and older who participate in §§ 401(k), 403(b) and most 457 plans remains $6,000.
- The limitation for annual additions to defined contribution plans under § 415(c)(1)(A) remains $53,000.
- The limitation under § 402(g)(1) on the exclusion for elective deferrals described in § 402(g)(3) remains $18,000.
- The annual compensation limit for calculating contributions under §§ 401(a)(17), 404(I), 408(k)(3)(C) and 408(k)(6)(D)(ii) remains $265,000.
- The limitation used in the definition of "highly compensated employee" under § 414(q)(1)(B) remains $120,000.
- The dollar limitation under § 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan, other than a plan described in §§ 401(k)(11) or 408(p), for individuals aged 50 or older remains $6,000.
- The dollar limitation under IRC § 414(v)(2)(B)(ii) for catch-up contributions to an employer's SIMPLE plan for individuals aged 50 or older remains $3,000.
- The annual compensation limitation under § 401(a)(17) for eligible participants in certain governmental plans which, under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limitation under the plan under § 401(a)(17) to be taken into account, remains $395,000.
- The compensation amount under § 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains $600.
- The limitation under § 408(p)(2)(E) for elective deferrals to SIMPLE retirement accounts remains $12,500.
- The limitation on elective deferrals under § 457(e)(15) to deferred compensation plans of state and local governments and tax-exempt organizations (§ 457(b) plans) remains $18,000.
- The dollar amount under § 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan that is subject to a five-year distribution period is increased from $1,050,000 to $1,070,000.
- The compensation amount under federal income tax regulation § 1.61-21(f)(5)(iii), concerning the definition of "control employee" for fringe benefit valuation purposes, remains $215,000.
- The limitation on the annual benefit under a defined benefit plan under § 415(b)(1)(A) remains $210,000. For a participant who separated from service before January 1, 2016, the limitation for defined benefit plans under § 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2015, by 1.0011 (was 1.0178, as adjusted through 2014).
- The compensation amount under federal income tax regulation § 1.61-21(f)(5)(i), concerning the definition of "control employee" for fringe benefit valuation purposes, remains $105,000.
- The dollar limitation under § 416(i)(1)(A)(i) concerning the definition of "key employee" in a top-heavy plan remains $170,000.
- The dollar amount under § 409(o)(1)(C)(ii) for determining the lengthening of the five-year distribution period in an employee stock ownership plan remains unchanged at $210,000.
- The limit on annual contributions to an Individual Retirement Account remains $5,500. The additional catch-up contribution limit for individuals aged 50 and older is not subject to an annual cost-of-living adjustment and remains $1,000.