The IRS Announces Updated Limitations Related to Employer Plans; 401(k) Contribution Limit Increases to $18,500 for 2018

The Internal Revenue Service (“IRS”) announced cost of living adjustments affecting dollar limitations for employer plans for tax year 2018. The IRS issued technical guidance detailing these items in Notice 2017-64, in addition to previous guidance in Rev. Proc. 2017-37 and Rev. Proc. 2017-58. Many of the limitations will change because the increase in the cost-of-living index met the legal thresholds that trigger their adjustment. Some limitations remain unchanged because the increase in the index did not meet the statutory thresholds that give rise to their adjustment. Retirement Plan Limitation Highlights for 2018 The following will likely be of the greatest interest to employers who sponsor retirement plans: The contribution limit for employees who participate in 401(k), 403(b), and most 457 plans is increased from $18,000 to $18,500. The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), and most 457 plans remains unchanged at $6,000. The limitation for defined contribution plans under Code §415(c)(1)(A) is increased in 2018 from $54,000 to $55,000. Effective Jan. 1, 2018, the limitation on the annual benefit under a defined benefit plan under Internal Revenue Code (“Code”) §415(b)(1)(A) is increased from $215,000 to $220,000. For a participant who separated from service before Jan. 1, 2018, the limitation for defined benefit plans under Code §415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2017, by 1.0196....

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