The Internal Revenue Service has announced a number of adjustments to employee benefit plan dollar limits and thresholds for 2013 as a result of the increase in the applicable cost-of-living indexes. The following limits and thresholds are effective for plan years and limitation years beginning in 2013:
Retirement Plan Cost-of-Living Adjustments
- Elective Deferral Contributions. The annual limit on elective deferrals (pretax employee contributions) to Section 401(k), 403(b) and 457(b) plans and the federal government’s Thrift Savings Plan will increase from $17,000 to $17,500.
- Covered Compensation. The annual limit on the amount of a participant’s total compensation that can be taken into account under a qualified plan will increase from $250,000 to $255,000.
- Defined Contribution Annual Addition Limit. The dollar limit on aggregate “annual additions” (including contributions and forfeiture allocations) under an employer’s qualified defined contribution plans will increase from $50,000 to $51,000.
- Defined Benefit Maximum. The annual benefit limit under an employer’s qualified defined benefit plans will increase from $200,000 to $205,000.
- Contributions to SIMPLE Retirement Plans. The annual limit for salary reductions under a SIMPLE retirement plan will increase from $11,500 to $12,000.
- Compensation Limit for Governmental Plans. The annual compensation limit for certain grandfathered governmental plans is increased from $375,000 to $380,000.
- ESOPs. The dollar amount for determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period will increase from $1,015,000 to $1,035,000, while the amount used to determine the lengthening of the five-year distribution period will increase from $200,000 to $205,000.
Individual Retirement Account (IRA) Adjustments
- The deductible amount for IRAs for an individual making qualified retirement contributions will increase from $5,000 to $5,500.
- The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by an employer-sponsored retirement plan and have modified adjusted gross income (AGI) between $59,000 and $69,000, up from $58,000 and $68,000 in 2012. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by an employer-sponsored retirement plan, the phase-out range is $95,000 to $115,000, up from $92,000 to $112,000. For an IRA contributor who is not covered by an employer-sponsored retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s modified AGI is between $178,000 and $188,000, up from $173,000 and $183,000.
- The modified AGI phase-out range for taxpayers making contributions to a Roth IRA is $178,000 to $188,000 for married couples filing jointly, up from $173,000 to $183,000 in 2012. For singles and heads of household, the income phase-out range is $112,000 to $127,000, up from $110,000 to $125,000. For a married individual filing a separate return who is covered by a retirement plan, the phase-out range remains $0 to $10,000.
Retirement Plan Limits That Are Unchanged
- Age 50 and Older Catch-Up Contributions. The annual limit for catch-up contributions for individuals aged 50 or over under Section 401(k) and 403(b) plans and Section 457(b) plans sponsored by governmental entities will remain unchanged at $5,500. For SIMPLE 401(k) or IRA plans, the annual limit will remain unchanged at $2,500.
- Contributions to Simplified Employee Pension Plans. The minimum compensation that will require a simplified employee pension plan contribution will remain at $550.
- Key Employees. The dollar threshold on compensation for determining whether an officer is to be classified as a “key employee” for top-heavy plan purposes will remain at $165,000. Thus, an officer earning more than $165,000 in 2013 will be treated as a key employee that year.
- Highly Compensated Employees. The dollar threshold on compensation that is used to determine whether one is to be classified as a “highly compensated employee” (HCE) will remain at $115,000. Thus, under the “look-back” rule, an individual earning more than $115,000 in 2013 will be treated as an HCE for 2014. For the year 2013 under the look-back rule, an individual will be treated as an HCE if his or her compensation for 2012 exceeded $115,000. If the employer elects to apply the “top-20%” rule for determining HCEs, some individuals with compensation above these limits may not be considered HCEs.
Other 2013 Benefits-Related Limits
- Health Savings Accounts (HSAs). The 2013 annual deduction limit for contributions to an HSA for an individual with self-only coverage under a high-deductible health plan (HDHP) will be $3,250. For an individual with family coverage under an HDHP, the limit will be $6,450. An HDHP will need to have an annual deductible that is not less than $1,250 for self-only coverage or $2,500 for family coverage. In addition, the annual out-of-pocket expenses (deductibles, copayments and other amounts, but not premiums) may not exceed $6,250 for self-only coverage or $12,500 for family coverage. Individuals age 55 and older who are covered by an HDHP can make additional “catch-up” contributions each year until they enroll in Medicare. By statute, the catch-up contribution limit for individuals who will attain age 55 or older in the 2013 taxable year will remain at $1,000.
- Transportation Fringe Benefits. For taxable years beginning in 2013, the monthly limit for the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass will remain at $125 and the fringe benefit exclusion amount for qualified parking will remain at $240. Efforts in Congress to increase the transit pass limit for 2013 have so far failed.
- Long-Term Care Insurance Premiums. Long-term care insurance premiums qualify as deductible “medical care” costs up to certain limits for a taxable year. The applicable inflation-adjusted limits for 2013 are:
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Social Security Wage Base
In addition to the above cost-of-living adjustments, the Social Security Administration has announced an increase in the Social Security wage base from $110,100 in 2012 to $113,700 in 2013.