If you’re a small business owner or are a high income earner, or if you put large sums of money into your 401(k) or 403(b) plans, the IRS has just made changes you need to know about, so take note. For qualified retirement plans, the IRA has made cost of living adjustments relating to limits on compensation, limits on contributions and benefits, 401(k) and 403(b) deferral limits, “highly compensated” and “key” employees, Sep thresholds, and taxable wage bases. The changes take effect for 2015 and beyond.
For 401(k) and 403(b) retirement accounts, the amount of money you can contribute annually is increasing from $17,500 to $18,000. That means more of your income can be deferred for later in life, potentially reducing your taxable income right now. Also, if you’re trying to make catch-up deferrals and are 50 or older, the limit for those has been raised from $5,500 annually to $6,000.
There’s new limits on compensation, too. the maximum compensation that can be counted for retirement plans for each plan year increases $5,000, to $265,000. It previously was $260,000. For Social Security purposes, the taxable wage base increased 1.28% to $118,500, up from $117,000
If you have a defined contribution plan, the maximum limit on contributions is increased from $52,000 annually to $53,000. However, the maximum annual benefit that can be accrued under a defined benefit plan remains steady at $210,000. And if you have a SEP (simplified employee pension), the compensation minimum for which compensation is mandated has increased to $600, up from $550.
Finally, if you’re a “highly compensated” or “key” employee, the new threshold for those distinctions will be changing as well. It’s going up to $120,000 from it’s previous mark at $115,000.
So have your eyes glazed over yet? Not to worry. If you have questions or concerns about your retirements accounts, we’re here to help. give us a call, send us an email, or make an appointment for a meeting if you would like to discuss your retirement accounts and strategies.