OUR THOUGHTS ON:

2019 Retirement Plan Limitations

401(k) Plans|Internal Revenue Service|Tax

By Donna Wolfson

On November 1, 2018, the Internal Revenue Service announced the cost-of-living adjustments (COLA) that will take effect January 1, 2019 (IRS Notice 2018-83). These COLAs affect various contribution and deduction limits for qualified retirement plans, as well as the deductible contribution limits for traditional Individual Retirement Arrangements (IRAs).

Internal Revenue Code Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost-of-living increases. These adjustment procedures are similar to those used to adjust benefit amounts under IRC Section 215(i)(2)(A) or the Social Security Act.

Some limitations increased, while others remain unchanged from the 2018 limits.  The more common limitations are summarized below, along with the applicable Code Section and/or Treasury Regulations Section (Regs).

Increased Limits

  • The annual deferral limit for 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan increases from $18,500 to $19,000 (Code Sections 402(g)(1),402(g)(3)).
     
  • The annual contribution limitation for defined contribution plans increases from $55,000 to $56,000 (Code Section (415(c)(1)(A)).
     
  • The annual maximum considered compensation limit increases from $275,000 to $280,000 (Code Sections 401(a)(17), 404(l),408(k)(3)(C) and 408(k)(6)(D)(ii)).
     
  • The annual deferral limit for deferred compensation plans of state and local governments, and tax-exempt organizations increases from $18,000 to $18,500 (Code Section 457(e)(15)).
     
  • The limitation on the annual benefit under a defined benefit plan increases from $220,000 to $225,000. (Code Section 415(b)(1)(A)).
     
  • The dollar limitation for determining the maximum account balance in an Employee Stock Ownership Plan (ESOP), subject to a five-year distribution period, increases from $1,105,000 to $1,130,000; and the dollar amount used to determine the lengthening of the five-year distribution period increases from $220,000 to $225,000 (Code Section 409(o)(1)(C)(ii)).
     
  • The annual “look-back” compensation income limit for purposes of the definition of “Highly Compensated Employee” increases from $120,000 to $125,000 (Code Section 414(q)(1)(B)).
     
  • The annual compensation threshold for purposes of the definition of “Key Employee” increases from $175,000 to $180,000 (Code Section 416(i)(1)(A)(i)).
     
  • The annual deferral limitation for SIMPLE retirement accounts increases from $12,500 to $13,000 (Code Section 408(p)(2)(E)).
     
  • The maximum amount that can be contributed to an IRA increases from $5,500 to $6,000 (Code Section 219(b)(5)(A)).
     
  • The Social Security Taxable Wage Base increases from $128,400 to $132,900.

Unchanged Limits

  • The maximum amount of catch-up contributions that individuals age 50 or over may make to 401(k) plans, 403(b) plans, SEPs and governmental 457(b) plans remains at $6,000 (Code Section 414(v)(2)(B)(i)).
     
  • The IRA catch-up contribution limit for IRAs remains unchanged at $1,000 (Code Section 219(b)(5)(A)).
     
  • The dollar limitation on premiums paid with respect to a Qualifying Longevity Annuity Contract (QLAC) remains at $130,000. (Code Section 1.401(a)(9)-6 and Regs. Section A-17(b)(2)(ii)).
     
  • The limitation concerning the qualified gratuitous transfer of qualified employer securities to an ESOP remains at $50,000 (Code Section 664(g)(7)).
     
  • The maximum amount of catch-up contributions that individuals age 50 or over may make to SIMPLE 401(k) plans or SIMPLE retirement accounts remains at $3,000 (Code Section 414(v)(2)(B)(ii)).
     
  • The compensation threshold for simplified employee pensions (SEPs) remains at $600 (Code Section 408(k)(2)(C)).

Quick reference guide to key limitations for 2018 and 2019:

                        Item                                         2018 Limit                               2019 Limit

 

            401(k)/403(b)/457                                   $18,500                                     $19,000

            Elective Deferral Limit

            ____________________________________________________________________

            Defined Contribution Plan                      $55,000                                     $56,000

            Annual Limit

            ____________________________________________________________________

            Defined Benefit Plan                              $220,000                                   $225,000

            Annual Limit

            _____________________________________________________________________     

            Annual Compensation Limit                   $275,000                                   $280,000

            _____________________________________________________________________

            Catch-Up Contribution Limit                   $    6,000                                   $    6,000

            401(k)/403(b)/457(b)/SEP

            _____________________________________________________________________

            Highly Compensated Employee             $120,000                                   $125,000

            Compensation Threshold

            _____________________________________________________________________

            Key Employee                                       $175,000                                   $180,000

            Compensation Threshold

            ______________________________________________________________________

            Social Security Taxable                          $128,400                                   $132,900

            Wage Base

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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