Traditionally, at the end of October the Internal Revenue Service announced cost of living adjustments (COLA) affecting pension and retirement plan limits for 2018. In 2018, COLA will increase by 2%. This adjustment will certainly affect a few key limits.
Highlights of limits that changed
401(k), 403(b), and 457 plans contribution limits increased from $18,000 to $18,500.
SEP IRA maximum employer contributions as well as annual additions limit for defined contribution and profit sharing plans increased by $1,000 to $55,000.
The annual compensation limit used as a basis for Profit Sharing, 401(k), and SEP IRA contribution plans is increased from $270,000 to $275,000.
The SIMPLE IRA maximum employer contribution dollar limit is increased from $5,400 to $5,500.
Annual benefit limit under a defined benefit plan is increased from $215,000 to $220,000.
Highlights of limits that remain unchanged
401(k), 403(b), and 457 plans catch-up contribution remained unchanged at $6,000
Traditional and Roth IRA contribution limits remain unchanged, $5,500 with the catch-up contribution also remaining unchanged at $1,000.
Simple IRA contribution limits remain unchanged, $12,500 with the catch-up contribution also remaining unchanged at $3,000.
Highly compensated employee compensation remains unchanged at $120,000.
The compensation amount regarding SEPs remains unchanged at $600.
Top-heavy plan key employee compensation limitation remained unchanged at $175,000.
Highlights of HSA limits
HSA maximum contribution limit (employer + employee) increased from $3,400 to $3,450 for individuals and from $6,750 to $6,900 for families.
HSA catch-up contribution limit remained unchanged at $1,000.
High-deductible health plan minimum deductibles increased from $1,300 to $1,350 for individuals and from $2,600 to $2,700 for families.
High-deductible health plan minimum maximum out-of-pocket amounts increased from $6,550 to $6,650 for individuals and increased from $13,100 to $13,300 for families.
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. 2018 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 $62,000 - $72,000 to $63,000 - $73,000.
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 $99,000 - $119,000 to $101,000 - $121,000.
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 $186,000 – $196,000 to $189,000 - $199,000.
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 $118,000 - $133,000 to $120,000 - $135,000.
For married couples filing jointly, the new phase-out range is increased from $186,000 - $196,000 to $189,000 - $199,000.
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:
$31,500 for singles and married individuals filing separately, up from $31,000
$47,250 for heads of household, up from $46,500
$63,000 for married couples filing jointly, up from $62,000
Download the PDF file to see all limits.