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, 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.