The Internal Revenue Service (IRS) announced cost of living adjustments affecting 401(k) pension plans and other retirement-related items for tax year 2018 — including an increase in the amount employees can contribute to their 401(k) plans.
Some pension plan limitations, including those governing 401(k) plans, changed this year because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment.
Other limits remain unchanged because they did not meet the thresholds.
Highlights for 2018 include:
- The elective deferral (contribution) limit for employees who participate in 401(k) plans increased from $18,000 to $18,500. This also applies to 403(b) plans, most 457 plans and the federal government’s Thrift Savings Plan.
- Employees aged 50 and over have the same “catch-up” contribution limit of $6,000.
- The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged 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.
The IRS also updated its cost of living adjustment (COLA) charts for retirement plan contribution limits.
Employers may want to consider communicating these maximum contribution rates to employees. Retirement plan participants given access to professional advice are more likely to contribute the maximum amount than those without advice (45 percent to 36 percent), according to Natixis Global Asset Management’s 2016 Survey of Defined Contribution Plan Participants.