The IRS recently announced (IR-2012-77) cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for the 2013 tax year.

Many of the pension plan limitations changed for 2013 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. Other limitations will remain unchanged, however, because the index increase did not meet the statutory thresholds.

Here are the details for 2013:

  • Elective deferral annual dollar cap — The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) increased from $17,000 to $17,500 for 2013. This limitation affects elective deferrals to Section 401(k) plans, Section 403(b) plans and the federal government's Thrift Savings Plan. The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations also rose from $17,000 to $17,500.
  • Section 415 limitations — Effective Jan. 1, 2013, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) increased from $200,000 to $205,000. For a participant who separated from service before Jan. 1, 2013, the limitation for defined benefit plans under Section 415(b)(1)(B) is figured by multiplying the participant's compensation limitation, as adjusted through 2012, by 1.0170. The limitation for defined contribution plans under Section 415(c)(1)(A) increased from $50,000 to $51,000 in 2013.
  • Considered compensation limitations — The annual compensation limit under sections 401(a)(17), 404(l), 408(k)(3)(C) and 408(k)(6)(D)(ii) rose from $250,000 to $255,000. For certain governmental plans that as of July 1, 1993, allowed cost-of-living adjustments to the Section 401(a)(17) compensation limit, that limit is increased from $375.000 to $380,000.
  • Definitions of key employee and highly compensated employee — The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan remains unchanged at $165,000. The limitation used in the definition of a highly compensated employee under Section 414(q)(1)(B) remains unchanged at $115,000.
  • ESOPs — The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period increased from $1,015,000 to $1,035,000. The dollar amount used to determine the lengthening of the five year distribution period rose from $200,000 to $205,000.
  • Catch-up contribution limits — The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals 50 or over remains unchanged at $5,500. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) (SIMPLE plans and retirement accounts) for individuals 50 or over remains unchanged at $2,500.
  • SEPs and SIMPLE plans — The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $550. The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts increased from $11,500 to $12,000.
  • Saver's credit limitations
    • Married taxpayers filing a joint return — The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit increased from $34,500 to $35,500, the limitation under Section 25B(b)(1)(B) increased from $37,500 to $38,500, and the limitation under sections 25B(b)(1)(C) and 25B(b)(1)(D) increased from $57,500 to $59,000.
    • Taxpayers filing as head of household — The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit increased from $25,875 to $26,625, the limitation under Section 25B(b)(1)(B) increased from $28,125 to $28,875, and the limitation under sections 25B(b)(1)(C) and 25B(b)(1)(D) increased from $43,125 to $44,250
    • All other taxpayers — The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit increased from $17,250 to $17,750, the limitation under Section 25B(b)(1)(B) increased from $18,750 to $19,250, and the limitation under sections 25B(b)(1)(C) and 25B(b)(1)(D) increased from $28,750 to $29,500.
  • IRA contributions — The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions increased from $5,000 to $5,500. The IRA catch-up contribution limit for individuals 50 and older is not adjusted for inflation and remains at $1,000. The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow or widower increased from $92,000 to $95,000. The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) increased from $58,000 to $59,000. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant increased from $173,000 to $178,000.
  • Roth IRA contributions — The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow or widower increased from $173,000 to $178,000. The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) rose from $110,000 to $112,000.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.