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IRS Releases 2018 Pension and Retirement COLAs
(Parker Tax Publishing October 2017)
The IRS has announced the 2018 cost-of-living adjustments (COLA) for pension and retirement plans. Notice 2017-64.
The following are the key inflation adjusted numbers, effective January 1, 2018, for pension and retirement plans.
Limitation on Annual Benefit under a Defined Benefit Plan
The limitation on the annual benefit under a defined benefit plan under Code Sec. 415(b)(1)(A) is increased to $220,000 from $215,000. For a participant who separated from service before January 1, 2018, the participant's limitation under a defined benefit plan under Code Sec. 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2017, by 1.0196.
Limitation for Defined Contribution Plans
The limitation for defined contribution plans under Code Sec. 415(c)(1)(A) is increased in 2018 to $55,000 from $54,000.
Limitation on the Exclusion for Elective Deferrals
The limitation under Code Sec. 402(g)(1) on the exclusion for elective deferrals described in Code Sec. 402(g)(3) is increased to $18,500 from $18,000.
Annual Compensation Limit
The annual compensation limit under Code Secs. 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased to $275,000 from $270,000.
Dollar Limitation for Key Employees in a Top-Heavy Plan
The dollar limitation under Code Sec. 416(i)(1)(A)(i) concerning the definition of "key employee" in a top-heavy plan remains unchanged at $175,000.
Maximum Account Balance in an ESOP Subject to Five-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 subject to a five-year distribution period is increased to $1,105,000 from $1,080,000, while the dollar amount used to determine the lengthening of the five-year distribution period is increased to $220,000 from $215,000.
Limitation in Definition of Highly Compensated Employee
The limitation used in the definition of "highly compensated employee" under Code Sec. 414(q)(1)(B) remains unchanged at $120,000.
Dollar Limitations for Catch-Up Contributions for Individuals Aged 50 or Over
The dollar limitation for catch-up contributions to an applicable employer plan other than a plan described in Code Sec. 401(k)(11) or Code Sec. 408(p) for individuals aged 50 or over remains unchanged at $6,000. The dollar limitation 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 unchanged at $3,000. The dollar limitation for catch-up contributions to a ROTH IRA is $1,000 if age 50 or older.
Annual Compensation Limitation for Eligible Participants in Certain Governmental and Tax-Exempt Organization Plans
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, 1993, allowed cost-of-living adjustments to the compensation limitation under the plan under Code Sec. 401(a)(17) to be taken into account, is increased to $405,000 from $400,000.
The limitation on deferrals under Code Sec. 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased to $18,500 from $18,000.
SEPs and SIMPLEs
The compensation amount under Code Sec. 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600.
The limitation under Code Sec. 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $12,500.
Limitation on Qualified Gratuitous Transfer of Qualified Employer Securities to an ESOP
The limitation under Code Sec. 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan is increased to $50,000 from $45,000.
Compensation Amounts for Control Employees
The compensation amounts under Reg. Sec. 1.61-21(f)(5)(i) concerning the definition of "control employee" for fringe benefit valuation purposes is increased to $110,000 from $105,000. The compensation amount under Reg. Sec. 1.61-21(f)(5)(iii) is increased to $220,000 from $215,000.
Retirement Savings Contribution Credit (Saver's Credit) AGI Limits
The AGI limit for the saver's credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $63,000 for married couples filing jointly, up from $62,000 in 2017; $47,250 for heads of household, up from $46,500; and $31,500 for married individuals filing separately and for singles, up from $31,000.
The AGI limitation under Code Sec. 25B(b)(1)(A) (relating to the 50 percent applicable percentage) for determining the saver's credit (also known as the retirement savings contribution credit) for married taxpayers filing a joint return is increased to $38,000 from $37,000 in 2017; the limitation under Code Sec. 25B(b)(1)(B) (relating to the 20 percent applicable percentage) is increased to $41,000 from $40,000; and the limitation under Code Sec. 25B(b)(1)(C) (relating to the 10 percent applicable limitation) and Code Sec. 25B(b)(1)(D) (relating to the zero percent applicable limitation) is increased to $63,000 from $62,000.
The AGI limitation under Code Sec. 25B(b)(1)(A) for determining the saver's credit for taxpayers filing as head of household is increased to $28,500 from $27,750 in 2017; the limitation under Code Sec. 25B(b)(1)(B) is increased to $30,750 from $30,000; and the limitation under Code Secs. 25B(b)(1)(C) and Code Sec. 25B(b)(1)(D) is increased to $47,250 from $46,500.
The AGI limitation under Code Sec. 25B(b)(1)(A) for determining the saver's credit for all other taxpayers is increased to $19,000 from $18,500; the limitation under Code Sec. 25B(b)(1)(B) is increased to $20,500 from $20,000; and the limitation under Code Sec. 25B(b)(1)(C) and Code Sec. 25B(b)(1)(D) is increased to $31,500 from $31,000.
Maximum Deduction for Roth IRA
The deductible amount under Code Sec. 219(b)(5)(A) for an individual making qualified Roth IRA retirement contributions remains unchanged at $5,500.
Limitation on IRA Deductions for Active Participants
The applicable dollar amount under Code Sec. 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) is increased to $101,000 from $99,000. The applicable dollar amount under Code Sec. 219(g)(3)(B)(ii) for all other taxpayers who are active participants (other than married taxpayers filing separate returns) is increased to $63,000 from $62,000. If an individual or the individual's spouse is an active participant, the applicable dollar amount under Code Sec. 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0. The applicable dollar amount under Code Sec. 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased to $189,000 from $186,000.
Accordingly, under Code Sec. 219(g)(2)(A), the deduction for taxpayers making contributions to a traditional IRA is phased out for single individuals and heads of household who are active participants in a qualified plan (or another retirement plan specified in Code Sec. 219(g)(5)) and have adjusted gross incomes between $63,000 and $73,000, increased from between $62,000 and $72,000. For married couples filing jointly, if the spouse who makes the IRA contribution is an active participant, the income phaseout range is between $101,000 and $121,000, increased from between $99,000 and $119,000.
For an IRA contributor who is not an active participant and is married to someone who is an active participant, the deduction is phased out if the couple's income is between $189,000 and $199,000, increased from between $186,000 and $196,000. For a married individual filing a separate return who is an active participant, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The adjusted gross income limitation under Code Sec. 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased to $189,000 from $186,000. The adjusted gross income limitation under Code Sec. 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased to $120,000 from $118,000. The applicable dollar amount under Code Sec. 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0. Accordingly, under Code Sec. 408A(c)(3)(A), the adjusted gross income phase-out range for taxpayers making contributions to a Roth IRA is $189,000 to $199,000 for married couples filing jointly, increased from $186,000 to $196,000. For singles and heads of household, the income phase-out range is $120,000 to $135,000, increased from $118,000 to $133,000. For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.
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