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IRS Announces 2017 Benefit Plan Limit Adjustments
Practical Law Legal Update w-004-1836 (Approx. 5 pages)
IRS Announces 2017 Benefit Plan Limit Adjustments
by Practical Law Employee Benefits & Executive Compensation
| Published on 27 Oct 2016 • USA (National/Federal) |
The Internal Revenue Service (IRS) announced cost-of-living adjustments affecting the 2017 dollar limits for tax-qualified retirement plans.
On October 27, 2016, in Notice 2016-62, the IRS announced cost-of-living adjustments affecting dollar limitations for tax-qualified retirement plans and other retirement-related items for the 2017 tax year. For the 2017 tax year:
- The elective deferral limit under Section 402(g)(1) of the Internal Revenue Code (Code) will remain unchanged at $18,000 for employees who participate in:
- Code Section 401(k) plans (see Practice Note, Contributions to a Defined Contribution Plan: Limits on Contributions).
- Code Section 403(b) plans (see Practice Note, Code Section 403(b) Plans: Overview).
- Most Code Section 457 plans (see Practice Note, Executive Compensation for Tax-Exempt Organizations).
- The catch-up contribution limit for those age 50 and over under Code Section 414(v)(2)(B)(i) (26 U.S.C. § 414(v)(2)(B)(i)) will remain unchanged at $6,000. The catch-up contribution limit for those age 50 and over under Code Section 414(v)(2)(B)(ii) (26 U.S.C. § 414(v)(2)(B)(ii)) will remain unchanged at $3,000 (see Practice Note, Contributions to a Defined Contribution Plan: Limits on Contributions).
- The limitation on the annual benefit for a defined benefit plan under Code Section 415(b)(1)(A) (26 U.S.C. § 415(b)(1)(A)) will increase from $210,000 to $215,000.
- The limitation on annual additions to a participant's defined contribution plan under Code Section 415(c)(1)(A) (26 U.S.C. § 415(c)(1)(A)) will increase from $53,000 to $54,000 (see Practice Note, Contributions to a Defined Contribution Plan: Limits on Contributions).
- The annual compensation limit under Code Section 401(a)(17) (26 U.S.C. § 401(a)(17)) will increase from $265,000 to $270,000.
- The limitation used in the definition of highly compensated employees (HCEs) under Code Section 414(q)(1)(B) (26 U.S.C. § 414(q)(1)(B)) will remain unchanged at $120,000 (see Standard Clause, Plan Language, Definition of Highly Compensated Employee).
- The limitation used in the definition of a key employee in a top-heavy plan under Code Section 416(i)(1)(A)(i) (26 U.S.C. § 416(i)(1)(A)(i)) will increase from $170,000 to $175,000.
- The dollar amount under Code Section 409(o)(1)(c)(ii) (26 U.S.C. § 409(o)(1)(c)(ii)) for determining the maximum account balance in an employee stock ownership plan (ESOP) subject to a five-year distribution period will increase from $1,070,000 to $1,080,000. The dollar amount used to determine the lengthening of the five-year distribution period will increase from $210,000 to $215,000 (see Practice Note, Employee Stock Ownership Plans (ESOPs)).
Notice 2016-62 provides that the threshold used to determine whether a multiemployer plan is a systematically important plan under Code Section 432(e)(9)(H)(v)(III)(aa) (26 U.S.C. § 432(e)(9)(H)(v)(III)(aa)) will remain unchanged at $1,012,000,000 (see Practice Note, Multiemployer Pension Plans).
Notice 2016-62 also discusses the increases in the adjusted gross income limitation under Code Section 25B(b)(1)(A) (26 U.S.C. § 25B(b)(1)(A)) for determining the retirement savings contribution credit.
The IRS has provided a chart that shows the cost-of-living increases in the dollar limitations on benefits and contributions since 2015.
For more information on dollar limits for retirement plans, see Practice Note, Requirements for Qualified Retirement Plans.