Cost-of-Living Adjustments for 401(k) and Other Retirement Plans

The Internal Revenue Service recently announced cost-of-living adjustments for certain retirement-related plans applicable for the tax year 2018. The Secretary of the Treasury is required by law — Section 415(d) of the Internal Revenue Code — to adjust the dollar limitations for cost-of-living increases on benefits and contributions under qualified retirement plans each year.

Here are highlights of the changes, according to an Oct. 19, 2017, news release from the IRS:

• The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,000 to $18,500.
• The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all increased for 2018.
• Deduction phase-out ranges (based on filing status and income) for traditional IRAs have increased for taxpayers or their spouses covered by a retirement plan at work. (An exception is that of a married individual filing a separate return who is covered by a workplace retirement plan: the phase-out range is not subject to an annual cost-of-living adjustment.)
• The income phase-out range for taxpayers making contributions to a Roth IRA (when subject to cost-of-living adjustment) also has increased.
• The income limit for the Saver’s Credit(also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is up, as well.

Some Contribution Limits Remain Unchanged

The limit on annual contributions to an IRA remains unchanged, as does the catch-up contribution limit for individuals aged 50 and over (which is not subject to an annual cost-of-living adjustment). The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan also remains unchanged.

For a more detailed look at the changes, click here for the complete IRA news release.

Technical guidance detailing these items can be found in Notice 2017-64.