The Internal Revenue Service has announced the 2015 cost-of-living adjustments (COLAs) for retirement plans. Most of the limits related to retirement plans are increased.
- Annual compensation limit. The compensation limit for calculating benefits and contributions, for general and 401(k) discrimination testing, and for determining tax deductions increases from $260,000 in 2014 to $265,000 for plan years beginning in 2015.
- Elective deferrals (401(k)/Roth). The calendar year elective deferral contribution limit increases from $17,500 in calendar year 2014 to $18,000 in calendar year 2015.
- Catch-up contributions. The calendar year dollar limitation for catch-up elective deferral contributions for individuals who, in 2015, are age 50 or above increases from $5,500 in calendar year 2014 to $6,000 in calendar year 2015.
- Highly compensated employee. For plan years ending in 2015, a “highly compensated employee” is one who (a) was a more-than-five percent owner during the year or the preceding year, or (b) for the preceding year (i) had compensation in excess of $115,000 ($120,000 when the “preceding year” is 2015) 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 increases to $53,000 for plan limitation years ending in 2015. In 2014, the defined contribution plan dollar limitation was $52,000.
- Defined benefit plans. For plan limitation years ending in 2015, the annual dollar benefit limitation under a defined benefit plan remains unchanged at $210,000. For participants who separated from service before January 1, 2015, the 100 percent of average high-three-years’ compensation limit is computed by multiplying the participant’s compensation limitation, as adjusted through 2014, by 1.0178.
- 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 increases to $1,070,000 in 2015 (from $1,050,000 in 2014), while the dollar amount used to determine the lengthening of the five-year distribution period remains unchanged at $210,000.
- Key employee in top-heavy plan. In defining who is a key employee in a top-heavy plan, for plan years ending in 2015, the compensation threshold for an officer remains unchanged at $170,000.
- Social security taxable wage base. The social security taxable wage base for 2015 (applicable to integrated plans with plan years beginning in 2015) increases to $118,500 (from $117,000 in 2014).