Last week, the Internal Revenue Service announced adjustments to various employee benefit plan and individual retirement account (IRA) dollar limits and thresholds for 2015 as a result of increases in the applicable cost-of-living indexes.
The following limits and thresholds are effective for plan years and limitation years beginning in 2015:
- Elective Deferral Contributions. The annual limit on elective deferrals (pre-tax employee contributions) to Section 401(k), 403(b) and 457(b) plans will be $18,000, reflecting an increase of $500 from 2014. The annual limit for salary reductions under a SIMPLE retirement plan will be $12,500, reflecting an increase of $500.
- Age 50 and Older Catch-Up Contributions. The annual limit under Section 401(k) and 403(b) plans, and Section 457(b) plans sponsored by governmental entities, for catch-up contributions for individuals reaching age 50 or older in 2015 will increase $500, to a new limit of $6,000. For SIMPLE retirement plans, the annual limit also will increase $500, to a new limit of $3,000.
- Includable 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 by $5,000 to $265,000. This limit also applies to non-salary-deferral contributions to a Section 403(b) plan.
- Compensation Limit for Governmental Plans. The annual compensation limit for certain grandfathered governmental plans will be $395,000, reflecting an increase of $10,000 from the 2014 limit.
- Defined Contribution Plan Annual Addition Limit. The dollar limit on aggregate “annual additions” (including contributions, other than catch-up contributions, and forfeiture allocations) under an employer’s qualified defined contribution plans will increase by $1,000, to a limit of $53,000 for 2015.
- Defined Benefit Plan Maximum. The annual benefit limit under an employer’s qualified defined benefit plans will remain at $210,000.
- 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 increase by $5,000, to a new threshold of $120,000. Thus, under the “look-back” rule, an individual earning more than $120,000 in 2015 will be treated as an HCE for 2016. Also under the look-back rule, an individual will be treated as an HCE for 2015 if his or her compensation for 2014 exceeded $115,000. If the employer elects to apply the “top 20 percent” rule for determining HCEs, some individuals with compensation above these limits may not be considered HCEs.
- ESOPs. The dollar amount for determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period will be $1,070,000, reflecting an increase of $20,000, while the amount used to determine the lengthening of the five-year distribution period will remain at $210,000.
- Minimum Compensation for Contributions to Simplified Employee Pension Plans. The minimum employee compensation that will require a simplified employee pension plan contribution on his or her behalf will increase by $50, to a new minimum of $600.
- 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 $170,000. Thus, an officer earning more than $170,000 in 2015 will be treated as a key employee that year.
The IRS also announced the following changes affecting IRAs and Roth IRAs for 2015:
- Contribution Limit. The limit on annual contributions to an IRA will remain at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
- Phase-out of Deduction for IRA Contributions. The deduction for taxpayers making contributions to a traditional IRA will be phased out for single persons and heads of household who are covered by an employer-sponsored retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000, an increase of $1,000 at each end. 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 $98,000 to $118,000, an increase of $2,000 at each end. 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 $183,000 and $193,000, also an increase of $2,000 at each end. For a married individual filing a separate return who is covered by a retirement plan, the phase-out range remains zero to $10,000; it is not subject to a cost-of-living adjustment.
- Phase-out for Roth IRA Contributions. The modified AGI phase-out range for taxpayers making contributions to a Roth IRA is $183,000 to $193,000 for married couples filing jointly, an increase of $2,000 at each end. For single persons and heads of household, the income phase-out range is $116,000 to $131,000, also an increase of $2,000 at each end. For a married individual who is filing a separate return and who is covered by a retirement plan, the phase-out range remains zero to $10,000; it is not subject to a cost-of-living adjustment.
HSAs and HDHPs
The IRS earlier announced the following benefits-related limits and thresholds for 2015 applicable to health savings accounts (HSAs) and high-deductible health plans (HDHPs):
- HSAs. The 2015 annual deduction limit for contributions to an HSA for an individual with self-only coverage under an HDHP will be $3,350, an increase of $50 over 2014. For an individual with family coverage under an HDHP, the limit will be $6,650, an increase of $100.
- HDHPs. An HDHP will need to have an annual deductible in 2015 that is not less than $1,300 for self-only coverage, an increase of $50, or $2,600 for family coverage, an increase of $100. In addition, the annual out-of-pocket expenses (deductibles, copayments and other amounts, but not premiums) may not exceed $6,450 for self-only coverage, an increase of $100, or $12,900 for family coverage, an increase of $200. 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 2015 taxable year will remain at $1,000.
Social Security Tax Wage Base
In addition to the above adjustments, the Social Security Administration has announced that the wage base for Social Security taxes for 2015 will be $118,500, an increase of $1,500 over the base for 2014.