On October 19th, the IRS issued Notice 2017-64 announcing cost-of-living adjustments affecting pensions and other retirement-related items for tax year 2018.
Starting in 2018, employees will be allowed to contribute $18,500 to their 401(k) accounts. This is a $500 increase from 2017 and the first time in two years that there has been an increase in the contribution amount.
There has also been an increase in the limitation for the maximum contribution total from $54,000 to $55,000. This means that plan participants who contribute to the 2018 limit will be able to receive up to $36,500 from match and profit sharing contributions.
For those aged 50 and over, the catch-up contribution will remain the same at $6,000.
In the Notice, the IRS pointed out the following adjustments which will take effect on Jan. 1, 2018, for 401(k), 403(b) and most 457 plans:
| Defined Contribution Plan Limits | 2018 | 2017 | Change |
|---|---|---|---|
| Defined contribution maximum limit, all sources | $55,000 | $54,000 | $1,000 Increase |
| Defined contribution maximum limit, all sources | $18,500 | $18,000 | $500 Increase |
| Employee compensation limit for calculating contributions | $275,000 | $270,000 | $5,000 Increase |
| Compensation limit of "key employees" in a top-heavy plan | $175,000 | $175,000 | No Change |
| Compensation limit of "highly compensated employees" in a top-heavy plan (HCE threshold) | $120,000 | $120,000 | No Change |
| Employee catch-up contribution (if age 50 or older by year-end) | $6,000 | $6,000 | No Change |
Contact one of our tax advisors with questions regarding how this change might affect you and/or your employees.