Updated 2016 Plan Limitations

The Internal Revenue Service publishes, on a yearly basis, certain Pension Plan Limitations for the coming year. We have outlined the most commonly applied limits for your reference.

Maximum Annual Additions Limit:

In a Defined Contribution Plan, which includes Profit Sharing and 401(k) Plans, the Internal Revenue Code sets limits on contributions made to a participant's account. The Code uses the term "annual additions" which represents both employee and employer contributions as well as reallocated forfeitures. Effective January 1, 2016, the annual dollar limit for defined contribution plans remains at the lesser of 100% of compensation or $53,000.

Maximum Benefit Limit:

In a Defined Benefit Pension Plan, the Internal Revenue Code sets limits on the ultimate benefit that may be funded for at retirement. Effective January 1, 2016, the annual dollar benefit under a defined benefit pension plan remains at the lesser of 100% of compensation or $210,000.

Annual Compensation Limit:

Effective January 1, 2016, the annual compensation limit remains at $265,000. Compensation in excess of the limit will be disregarded for all computation purposes.

Key Employee defined for Top Heavy determination:

1. A 5% owner, without regard to compensation, or
2. 1% owner whose annual compensation is over $150,000, or
3. Officers with annual compensation in excess of $170,000.

Highly Compensated Employee (HCE) defined for 401(k)/401(m) testing:

1. A 5% owner of an Employer or an Affiliate in the current or the immediately preceding plan year, or
2. Any employee who earned more than $120,000 in 2015 ($120,000 for 2016)
Constructive ownership rules apply attributing ownership to spouses and lineal ascendants and descendants (parents, grandparents, children and grandchildren) of the owner in both of the above employee definitions.

Maximum Limit on Elective Deferral Contributions:

A participant's elective deferral contributions under all 401(k) plans in which he or she participates during any taxable year remains unchanged at $18,000 for the 2016 calendar year.

Dollar Limitations for catch-up contributions:

401(k) plans may permit participants who have reached age 50 by the end of the plan year to make annual catch-up contributions once the annual dollar limit or a plan-imposed limit on elective deferrals has been reached. For calendar year 2016, the limit remains at $6,000.

Maximum Limit on SIMPLE 401(k) or SIMPLE IRA Deferral Contributions:

A participant's elective deferral contributions under a SIMPLE 401(k) plan or SIMPLE IRA account in which he or she participates during the year remains at $12,500 for the 2016 Calendar Year. SIMPLE Plans may permit participants who have reached age 50 by the end of the plan year to make annual catch-up contributions once the annual dollar limit  has been reached. For the calendar year 2016, the catch-up limit remains at $3,000.

Taxable Wage Base:

The Taxable Wage Base for 2016 remains at $118,500.

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This information is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor such as an attorney or CPA.

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