IRS: Retirement plan limits will remain steady in 2016 — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

IRS: Retirement plan limits will remain steady in 2016

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in Compensation and Benefits,Human Resources

For the most part, the annual caps on 401(k) and other defined contribution retirement plans for defined benefit pension plans will stay the same from 2015 to 2016.

Reason: The small rise in the cost-of-living index didn’t meet the legal thresholds that trigger automatic rate adjustments.

For defined contribution plans, the IRS announced the following limits that take effect on Jan. 1, 2016:

  • Elective deferrals for 401(k), 403(b) and profit-sharing plan remain at $18,000.
  • Catch-up contribution limits for participants who are age 50 or older will stay at $6,000. (That catch-up limit applies to employees from the beginning of the year to employees who turn 50 at any time during the year.)
  • Annual defined contribution limit from all sources (employer and employee) remain at either $53,000 (plus $6,000 catch-up if age 50 or older) or 100% of the employee’s compensation, whichever is less.
  • The cap used to define a highly compensated worker for 401(k) non­­­­­­­­­­discrimination testing purposes remains at $120,000.

FICA wage base. The Social Security Administration announced earlier this fall that the 2016 taxable wage base for the Social Security portion of FICA will remain steady at $118,500 next year.

The 6.2% Social Security tax is payable by both employers and employees; in 2016, the maximum tax is $7,347.

Except for pretax medical and tax-free fringe benefits, all wages are subject to the 1.45% Medicare portion of FICA or the 2.35% Medicare portion of FICA for employees earning more than $200,000, since there’s no wage base.

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