On October 21, 2015, the Internal Revenue Service (IRS) announced cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2016. In general, the pension plan limitations will not change in 2016 because the increase in the cost-of-living index did not meet the statutory thresholds that trigger their adjustment. The following is a summary of the limits for 2016.
For 401(k), 403(b), and most 457 plans and the federal government’s Thrift Savings Plans:
- The elective deferral (contribution) limit remains unchanged at $18,000 for 2016.
- The catch-up contribution limit for employees aged 50 and over who participate in these plans remains at $6,000 for 2016.
For individual retirement arrangements (IRAs):
- The limit on annual contributions remains unchanged at $5,500 for 2016.
- The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000 for 2016.
For simplified employee pension (SEP) IRAs and individual/solo 401(k)s:
- Elective deferrals remains unchanged at $53,000 in 2016, based on an annual compensation limit of $265,000.
- The minimum compensation that may be required for participation in a SEP remains unchanged at $600 for 2016.
For savings incentive match plan for employees (SIMPLE) IRAs:
- The contribution limit on SIMPLE IRA retirement accounts remains unchanged at $12,500 for 2016.
- The SIMPLE catch-up limit remains unchanged at $3,000 for 2016.
For defined benefit plans:
- The basic limitation on the annual benefits under a defined benefit plan is unchanged at $210,000 for 2016.
- Highly-compensated and key employee thresholds: The threshold for determining “highly compensated employees” remains unchanged at $120,000 for 2016; the threshold for officers who are “key employees” remains at $170,000 for 2016.
- Social Security cost of living adjustment: In a separate announcement, the Social Security Administration stated that the taxable wage base will remain at $118,500 for 2016. In addition:
- The maximum Old Age, Survivor and Disability Insurance (OASDI) tax remains at $7,347 for both employers and employees.
- Hospitalization insurance (Medicare) tax continues to apply to all wages.