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 Defined Contribution 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, 2020, the annual dollar limit for defined contribution plans increases to the lesser of 100% of compensation or $57,000.

 

Maximum Defined Benefit Limit:

 

Ultimate benefit that may be funded for at retirement.  Effective January 1, 2020, the annual dollar benefit under a defined benefit pension plan increases to the lesser of 100% of compensation or $230,000.

Annual Compensation Limit:

Effective January 1, 2020, the annual compensation limit increases to $285,000.

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 $185,000.

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 earning more than $125,000 in 2019 ($130,000 for 2020)
3. 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 401(k) Elective Deferral Contributions:

A participant’s elective deferral contributions under all 401(k) plans in which he or she participates during any taxable year increases to $19,500 for the 2020 Calendar Year. 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 2020, the limit increases to $6,500.

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 is increased to $13,500 for the 2020 Calendar Year. 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 2020, the limit remains at $3,000.

Taxable Wage Base:

The Taxable Wage Base for 2020 increases to $137,700.

Please call us with any questions you may have. To print out the 2019 plan limit EJReynolds report, click here.