NOTE: INCLUDES 11/28/2017 UPDATE TO 2018 SOCIAL SECURITY TAXABLE WAGE BASE
By Compensation Planning & Employee Benefits Group
The Internal Revenue Service has announced the 2018 cost-of-living adjustments (COLAs) for retirement plans. Some limits have increased, and some have remained the same.
- Annual compensation limit. The compensation limit for calculating benefits and contributions, for general and 401(k) discrimination testing, and for determining tax deductions has increased to $275,000 for plan years beginning in 2018.
- Elective deferrals (401(k)/Roth/403(b)/457). The calendar year elective deferral contribution limit has increased to $18,500 in calendar year 2018.
- Catch-up contributions. The calendar year dollar limitation for catch-up elective deferral contributions for individuals who, in 2018, are age 50 or above remains at $6,000 in calendar year 2018.
- Highly compensated employee. For plan years ending in 2018, a “highly compensated employee” is one who (a) was a more-than-5% owner during the year or the preceding year, or (b) for the preceding year (i) had compensation in excess of $120,000 (whether using 2017 or 2018 as the “preceding year”) and (ii) if the employer elects for the plan year, was in the top-paid group of employees. (The top-paid group is the top 20 percent of the employees based on compensation.)
- Defined contribution plans. The annual dollar limitation on additions to defined contribution plans has increased to $55,000 for plan limitation years ending in 2018.
- Defined benefit plans. For plan limitation years ending in 2018, the annual dollar benefit limitation under a defined benefit plan has increased to $220,000. For participants who separated from service before January 1, 2018, the 100 percent of average high-three-years’ compensation limit is computed by multiplying the participant’s compensation limitation, as adjusted through 2017, by 1.0197.
- ESOP five-year distribution period. The dollar amount used in determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period has increased to $1,105,000 in 2018, while the dollar amount used to determine the lengthening of the five-year distribution period has increased to $220,000.
- Key employee in top-heavy plan. In defining who is a key employee in a top-heavy plan, for plan years ending in 2018, the compensation threshold for an officer remains at $175,000.
- Social security taxable wage base. The social security taxable wage base for 2018 (applicable to integrated plans with plan years beginning in 2018) has increased to $128,400.
For more information:
Debra J. Linder
Thomas B. Henke