The IRS has just issued the cost of living adjustments for various retirement plan limitations that will take effect either on January 1, 2018, or for the 2018 plan year. These 2018 plan limitations are important to both plan sponsors, plan participants and individuals with respect to tax planning and plan administration for 2018.

There are changes to some but not all of the limits. This is due to the Cost of Living Adjustment (COLA) rounding rules. Below are the 2018 limits, as compared to the 2017 limits:

For calendar year
2017 2018
Maximum compensation for retirement plan purposes (IRC §401(a)(17)) – in effect for plan years beginning in referenced calendar year US$270,000 US$275,000
Salary deferral limit (IRC §402(g)) US$18,000 US$18,500
Catchup limit for 401(k), 403(b), 457 plans – for calendar year US$6,000 US$6,000
HCE compensation – applies to lookback years in referenced year US$120,000 US$120,000
Maximum defined benefit plan benefit (IRC §415(b)) – for limitation years ending in referenced calendar year US$215,000 US$220,000
Maximum defined contribution annual addition (IRC §415(c)) – for limitation years ending in referenced calendar year US$54,000 US$55,000
Key employee: officer US$175,000 US$175,000
457(b) contribution limit US$18,000 US$18,500
SIMPLE salary deferral limit US$12,500 US$12,500
SIMPLE catchup limit US$3,000 US$3,000
IRA contribution limit US$5,500 US$5,500
IRA catchup limit US$1,000 US$1,000
SEP minimum compensation threshold US$600 US$600
ESOP: five-year distribution factor US$215,000 US$220,000
ESOP: account balance US$1,080,000 US$1,105,000
Taxable wage base US$127,200 US$128,700

Although income tax rates and other tax provisions for 2018 are unclear at this time, we believe the value of retirement plans and their tax deductible contributions will continue to offer advantageous ways for tax favored retirement savings. We are available to consult with you regarding retirement plan design and implementation to the extent you have this need.