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For 2013, IRS Raises 401(k) and Pension Plan Limits 
Cost-of-living adjustments affect dollar limits for defined contribution and defined benefit retirement plans 

10/19/2012  By Stephen Miller, CEBS 
 
 

updated 10/31/2013

Update:
401(k) Plan Limits Announced for 2014

The IRS released its official defined contriubtion and defined benefit retirement plan limits for 2014 at the end of October 2013.

For 2014, 401(k) elective deferrals remain at $17,500 with the catch-up contribution limit staying at $5,500; the annual contribution limit from all sources rises to $52,000 from $51,000; the amount of employee compensation that can be considered in calculating contributions to defined contribution plans increases to $260,000 from $255,000; and the limit used in the definition of a highly compensated employee for the purpose of 401(k) nondiscrimination testing remains unchanged at $115,000.

See the SHRM Online article "For 2014, IRS Issues 401(k) and Pension Plan Limits."

2013 Plan Limits

The U.S. Internal Revenue Service (IRS) on Oct. 18, 2012, announced cost-of-living adjustments (COLAs) affecting dollar limits for defined contribution and defined benefit retirement plans and other retirement-related items for tax year 2013. Many plan limits on contributions and benefits will rise because increases in the cost-of-living index met the statutory thresholds that trigger their adjustment.

Below are the key changes effective Jan. 1, 2013.

Defined Contribution Plans

  • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b) and most 457 plans, or in the federal government’s Thrift Savings Plan, increases to $17,500 from $17,000.
  • The catch-up contribution limit for those age 50 and older remains unchanged at $5,500. The catch-up contribution may be made beginning Jan. 1, 2013, by participants who will reach age 50 at any time during the year.
  • The overall limit for defined contribution plan deferrals from all sources (employer and employee combined) increases to $51,000 per participant from $50,000.
  • The amount of employee compensation limit that can be considered in calculating contributions to defined contribution plans increases to $255,000 from $250,000.
  • The limit used in the definition of a key employee in a top-heavy plan remains unchanged at $165,000.
  • The limit used in the definition of a highly compensated employee for 401(k) nondiscrimination testing purposes remains unchanged at $115,000.

To help employees take full advantage of their tax-deferred savings opportunities in the coming year, inform them of the increase to the limit on elective deferral contributions before year-end, advises an alert from law firm Drinker Biddle & Reath LLP. "Many employees may have elected to make the maximum deferral amount applying the 2012 limit, and they may wish to make corresponding adjustments before the new year" for 2013 deferrals, the alert noted.

Defined Contribution Plan Limits
For 401(k), 403(b) and most 457 plans, below are the COLA increases for dollar limits on benefits and contributions.

2013

2012

Maximum elective deferral by employee.

$17,500

$17,000

Catch-up contribution (age 50 and older during 2012).

$5,500

$5,500

Defined contribution maximum deferral (employer/employee combined).

$51,000

$50,000

Employee annual compensation limit for calculating contributions.

$255,000

$250,000

Annual compensation of "key employees" in a top-heavy plan.

$165,000

$165,000

Annual compensation of "highly compensated employee" in a top-heavy plan.

$115,000

$115,000

"The Consumer Price Index for all Urban Consumers (CPI-U) is the gauge used to determine if limits increase," Anthony Agbay, president of The Agbay Group, a benefits consultancy, pointed out to SHRM Online. "The challenge with the age 50 and over catch-up is the amount is indexed in increments of $500, which is a large percentage of $5,500 (9 percent). This means the CPI-U has to increase over 9 percent for this limit to be raised. In comparison, for the primary employee deferral limit (known as the section 402(g) limit), the CPI-U only needs to increase by more than 3 percent for that limit to increase."

Defined Benefit Plans

  • The maximum annual benefit that can be funded through a defined benefit plan increases to $205,000 from $200,000.
  • For a participant who separated from service before Jan. 1, 2013, the limit for defined benefit plans is computed by multiplying the participant's compensation limit, as adjusted through 2012, by 1.0170.

Other Workplace Retirement Plan Limits

  • For SIMPLE (savings incentive match plan for employees of small employers) retirement accounts, the maximum contribution limit is increased to $12,000 from $11,500; the catch-up contribution limit remains unchanged at $2,500.
  • For simplified employee pensions (SEPs), the minimum compensation amount remains the same at $550, while the maximum compensation limit increases to $255,000 from $250,000.
  • In an employee stock ownership plan (ESOP), the maximum account balance in the plan subject to a five-year distribution period increases to $1,035,000 from $1,015,000, while the dollar amount used to determine the lengthening of the five-year distribution period increases to $205,000 from $200,000.

Non-401(k) Workplace Retirement Plan Limits

2013

2012

SIMPLE employee deferrals

$12,000

$11,500

SIMPLE catch-up deferrals

$2,500

$2,500

SEP minimum compensation

$550

$550

SEP annual compensation limit

$255,000

$250,000

ESOP maximum account balance subject to the five-year distribution period

$205,000

$200,000

Social Security wage base

$113,700

$110,100

Individual Retirement Accounts

  • The deduction for taxpayers making contributions to a traditional individual retirement account (IRA) is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) from $59,000 to $69,000, up from $58,000 to $68,000 in 2012.
  • For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the AGI phase-out range is $95,000 to $115,000, up from $92,000 to $112,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out for couples with AGI from $178,000 to $188,000, up from $173,000 to $183,000.
  • For a Roth IRA, the AGI phase-out range for taxpayers making contributions is $178,000 to $188,000 for married couples filing jointly, up from $173,000 to $183,000 in 2012. For singles and heads of household, the income phase-out range is $112,000 to $127,000, up from $110,000 to $125,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.
  • The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $59,000 for married couples filing jointly, up from $57,500 in 2012; $44,250 for heads of household, up from $43,125 ; and $29,500 for singles and married couples filing separately, up from $28,750.

Other 2013 Benefit Changes

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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SHRM Online Benefits Discipline

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SHRM Online Retirement Plans Resource Page

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