IRS 2017 Retirement Plans and HSA Limits

At the end of October, the Internal Revenue Service announced cost of living adjustments (COLA) affecting pension, retirement, and health plan limits for 2017. Unlike last year, where there wasn't change to COLA, starting 2017 the COLA will rise by 0.3%. This will slightly affect a few key limits.

Highlights of limits that remain unchanged

• 401(k), 403(b), and 457(b) contribution limits will remain the same, $18,000 with the catch-up contribution also remaining unchanged at $6,000.

• Simple IRA contribution limits remain unchanged, $12,500 with the catch-up contribution also remaining unchanged at $3,000.

• Traditional and Roth IRA contribution limits remain unchanged, $5,500 with the catch-up contribution also remaining unchanged at $1,000.

• Highly compensated employee compensation remains unchanged at $120,000.

• The compensation amount regarding SEPs remains unchanged at $600.

• Maximum contribution limit for a family under a Health Savings Account (HSA) account as well as catch-up contributions remain unchanged at $6,750 and $1,000 accordingly.

• High-deductible health plan minimum deductibles and maximum out-of-pocket limits under an HSA account remain unchanged for both individuals and families.

Highlights of limits that changed

• SEP IRA maximum employer contributions as well as annual additions limit for defined contribution and profit sharing plans increased by $1,000 to $54,000.

• Top-heavy plan key employee compensation limitation is increased from $170,000 to $175,000.

• The annual compensation limit used as a basis for Profit Sharing, 401(k), and SEP IRA contribution plans is increased from $265,000 to $270,000.

• The SIMPLE IRA maximum employer contribution dollar limit is increased from $5,300 to $5,400.

• Annual benefit limit under a defined benefit plan is increased from $210,000 to $215,000.

• HSA maximum individual contribution limit is increased from $3,350 to $3,400.

Finally, there were a few important changes in Modified Adjusted Gross Income (MAGI) limits that may affect your employees’ ability to contribute to other retirement plans and claim the saver’s credit.

The government allows taxpayers to deduct contributions to a traditional IRA. However, if an employee or their spouse already participates in a retirement plan at work, the deduction may be phased-out or even eliminated depending on their income and filing status.

2017 MAGI ranges to be able to take a full deduction for a contribution to a Traditional IRA

• For singles and heads of households covered by a retirement plan at work, the new phase-out range is increased from $61,000 - $71,000 to $62,000 - $72,000.

• For married couples filing jointly, where the spouse making IRA contributions is covered by a retirement plan at work, the new phase-out range is increased from $98,000 - $118,000 to $99,000 - $119,000.

• For an IRA contributor who is not covered by a retirement plan at work, but is married to an active participant and filing jointly, the new phase-out is increased from $184,000 – $194,000 to $186,000 - $196,000.

Unlike a Traditional IRA, contributions to a Roth IRA are not tax-deductible. However, there are still certain limits imposed by the IRS on who and how much can be contributed to a Roth IRA.

• For singles and heads of household, the new phase-out range is increased from $117,000 - $132,000 to $118,000 - $133,000.

• For married couples filing jointly, the new phase-out range is increased from $184,000 - $194,000 to $186,000 - $196,000.

It's important to remind your participants that even though Roth IRA contributions are not tax-deductible, contributors to the Roth IRA can still claim the Saver’s Credit (up to 50% on the first $2,000, or $4,000 for a married couple filing jointly) depending if their income is below certain limits and their filing status.