The IRS has announced the 2017 cost-of-living adjustments (COLAs) for retirement plans. Many of the limits pertaining to pension and other retirement plans, which are adjusted by reference to Code Sec. 415(d), are changed for 2017 since the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, others remain unchanged. Certain dollar limit changes keyed to Code Sec. 1(f)(3), some of which were previously calculated by Thomson Reuters Checkpoint have also increased.
The following plan limits are increased effective Jan. 1, 2017:
- Defined contribution plans. The limit on the annual additions to a participant’s defined contribution account under Code Sec. 415(c)(1)(A) increases from $53,000 for 2016 to $54,000 for 2017.
- Defined benefit plans. The limitation on the annual benefit under a defined benefit plan under Code Sec. 415(b)(1)(A) increases from $210,000 for 2016 to $215,000 for 2017. For participants who separated from service before Jan. 1, 2017, the 100% of average high-three-years’ compensation under Code Sec. 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2016, by 1.0112.
- Annual compensation limit. The maximum amount of annual compensation that can be taken into account for various qualified plan purposes, including Code Sec. 401(a)(17), Code Sec. 404(l), Code Sec. 408(k)(3)(C), and Code Sec. 408(k)(6)(D)(ii), increases from $265,000 for 2016 to $270,000 for 2017.
- ESOP 5-year distribution period. The dollar amount under Code Sec. 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan (ESOP) subject to a 5-year distribution period increases from $1,070,000 in 2016 to $1,080,000 for 2017, while the dollar amount used to determine the lengthening of the 5-year distribution period increases from $210,000 for 2016 to $215,000 for 2017.
- Government plans. The annual compensation limitation under Code Sec. 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, ’93 allowed COLAs to the plan’s compensation limit under Code Sec. 401(a)(17) to be taken into account, increases from $395,000 for 2016 to $400,000 for 2017.
- Key employee in top-heavy plan. The dollar limit under Code Sec. 416(i)(1)(A)(i) relating to the definition of a key employee in a top-heavy plan increases from $170,000 for 2016 to $175,000 for 2017.
The following plan limits are unchanged:
- Catch-up contributions. The dollar limit under Code Sec. 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Code Sec. 401(k)(11) (SIMPLE 401(k) plan) or Code Sec. 408(p) (SIMPLE IRA) for individuals aged 50 or over remains unchanged at $6,000 for 2017. The dollar limit under Code Sec. 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Code Sec. 401(k)(11) or Code Sec. 408(p) for individuals aged 50 or over remains unchanged at $3,000 for 2017.
- Elective deferrals. The Code Sec. 402(g)(1) limit on the exclusion for elective deferrals described in Code Sec. 402(g)(3) remains unchanged at $18,000 for 2017. This limitation affects elective deferrals to Section 401(k) plans, Section 403(b) plans, and the Federal Government’s Thrift Savings Plan.
- Highly compensated employee. The dollar limit used in defining a highly compensated employee under Code Sec. 414(q)(1)(B) remains unchanged at $120,000 for 2017.
- Simplified employee pensions (SEPs). The compensation limit under Code Sec. 408(k)(2)(C) (amount of compensation above which an employee who meets other requirements must be able to participate in the employer’s SEP plan) remains unchanged at $600 for 2017.
- SIMPLE accounts. The maximum amount of compensation an employee may elect to defer under Code Sec. 408(p)(2)(E) for a SIMPLE plan remains unchanged at $12,500 for 2017.
- Government, etc. deferred compensation plans. The limit on deferrals under Code Sec. 457(e)(15), concerning deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at $18,000 for 2017.
- Control employee. The employee compensation amount used in the definition of “control employee” for purposes of the auto commuting rule of Reg. § 1.61-21(f)(5)(i) remains unchanged at $105,000 for 2017. And, the compensation amount under Reg. § 1.61-21(f)(5)(iii) remains unchanged at $215,000 for 2017.
The following plan limits calculated by reference to Code Sec. 1(f)(3):
- IRA and Roth IRA income limits. The deductible amount under Code Sec. 219(b)(5)(A) for an individual making qualified retirement contributions remains unchanged at $5,500 for 2017. The 2017 figures reported by IRS for the income limits used to determine traditional IRA deductions and Roth IRA contributions are identical to the figures previously calculated by Thomson Reuters Checkpoint and reported at Weekly Alert ¶ 55 09/22/2016.
- Saver’s credit AGI amounts. The 2017 AGI figures reported by IRS for the saver’s credit, under which an eligible lower-income taxpayer can claim a nonrefundable tax credit for the applicable percentage (50%, 20%, or 10%, depending on filing status and AGI) of up to $2,000 of his qualified retirement savings contributions, are identical to the figures previously calculated by Thomson Reuters Checkpoint.
- Excess employee compensation for purposes of determining installment acceleration amounts. The Code Sec. 430(c)(7)(D)(i)(II) limit used to determine excess employee compensation for single-employer defined benefit plans for which the special election under Code Sec. 430(c)(2)(D) has been made, increases from $1,106,000 for 2016 to $1,115,000 for 2017
