On October 27, 2016, the Internal Revenue Service (IRS) released Notice 2016-62 announcing cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2017. Many pension plan limitations will not change in 2017 because the increase in the cost-of-living index did not meet the statutory thresholds that trigger their adjustment. Some items, though, will see minor increases. The following is a summary of the limits for 2017.
For 401(k), 403(b), and most 457 plans and the federal government’s Thrift Savings Plans:
- The elective deferral (contribution) limit remains unchanged at $18,000 for 2017.
- The catch-up contribution limit for employees aged 50 and over who participate in these plans remains at $6,000 for 2017.
For individual retirement arrangements (IRAs):
- The limit on annual contributions remains unchanged at $5,500 for 2017.
- 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 for 2017.
For simplified employee pension (SEP) IRAs and individual/solo 401(k) plans:
- Elective deferrals increase to $54,000 for 2017, based on an annual compensation limit of $270,000 (up from the 2016 amounts of $53,000 and $265,000).
- The minimum compensation that may be required for participation in a SEP remains unchanged at $600 for 2017.
For savings incentive match plan for employees (SIMPLE) IRAs:
- The contribution limit on SIMPLE IRA retirement accounts remains unchanged at $12,500 for 2017.
- The SIMPLE catch-up limit remains unchanged at $3,000 for 2017.
For defined benefit plans:
- The basic limitation on the annual benefits under a defined benefit plan is increased to $215,000 for 2017 (from $210,000 for 2016).
- Highly compensated and key employee thresholds:
- The threshold for determining “highly compensated employees” remains unchanged at $120,000 for 2017.
- The threshold for officers who are “key employees” in a top-heavy plan increases to $175,000 for 2017 (from $170,000 for 2016).
- Social Security cost of living adjustment: In a separate announcement, the Social Security Administration stated that the taxable wage base will increase to $127,200 for 2017, an increase of $8,700 from the 2016 taxable wage base of $118,500. Thus, the maximum Social Security tax liability will increase for both employees and employers.