United States: IRS Announces 2015 Dollar Limits And Thresholds For Benefit Plans And IRAs

Last Updated: October 29 2014
Article by Larry R. Goldstein

Last week, the Internal Revenue Service announced adjustments to various employee benefit plan and individual retirement account (IRA) dollar limits and thresholds for 2015 as a result of increases in the applicable cost-of-living indexes.

Retirement Plans

The following limits and thresholds are effective for plan years and limitation years beginning in 2015:

  • Elective Deferral Contributions. The annual limit on elective deferrals (pre-tax employee contributions) to Section 401(k), 403(b) and 457(b) plans will be $18,000, reflecting an increase of $500 from 2014. The annual limit for salary reductions under a SIMPLE retirement plan will be $12,500, reflecting an increase of $500.
  • Age 50 and Older Catch-Up Contributions. The annual limit under Section 401(k) and 403(b) plans, and Section 457(b) plans sponsored by governmental entities, for catch-up contributions for individuals reaching age 50 or older in 2015 will increase $500, to a new limit of $6,000. For SIMPLE retirement plans, the annual limit also will increase $500, to a new limit of $3,000.
  • Includable Compensation. The annual limit on the amount of a participant's total compensation that can be taken into account under a qualified plan will increase by $5,000 to $265,000. This limit also applies to non-salary-deferral contributions to a Section 403(b) plan.
  • Compensation Limit for Governmental Plans. The annual compensation limit for certain grandfathered governmental plans will be $395,000, reflecting an increase of $10,000 from the 2014 limit.
  • Defined Contribution Plan Annual Addition Limit. The dollar limit on aggregate "annual additions" (including contributions, other than catch-up contributions, and forfeiture allocations) under an employer's qualified defined contribution plans will increase by $1,000, to a limit of $53,000 for 2015.
  • Defined Benefit Plan Maximum. The annual benefit limit under an employer's qualified defined benefit plans will remain at $210,000.
  • Highly Compensated Employees. The dollar threshold on compensation that is used to determine whether one is to be classified as a "highly compensated employee" (HCE) will increase by $5,000, to a new threshold of $120,000. Thus, under the "look-back" rule, an individual earning more than $120,000 in 2015 will be treated as an HCE for 2016. Also under the look-back rule, an individual will be treated as an HCE for 2015 if his or her compensation for 2014 exceeded $115,000. If the employer elects to apply the "top 20 percent" rule for determining HCEs, some individuals with compensation above these limits may not be considered HCEs.
  • ESOPs. The dollar amount for determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period will be $1,070,000, reflecting an increase of $20,000, while the amount used to determine the lengthening of the five-year distribution period will remain at $210,000.
  • Minimum Compensation for Contributions to Simplified Employee Pension Plans. The minimum employee compensation that will require a simplified employee pension plan contribution on his or her behalf will increase by $50, to a new minimum of $600.
  • Key Employees. The dollar threshold on compensation for determining whether an officer is to be classified as a "key employee" for top-heavy plan purposes will remain at $170,000. Thus, an officer earning more than $170,000 in 2015 will be treated as a key employee that year.

IRAs

The IRS also announced the following changes affecting IRAs and Roth IRAs for 2015:

  • Contribution Limit. The limit on annual contributions to an IRA will remain at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
  • Phase-out of Deduction for IRA Contributions. The deduction for taxpayers making contributions to a traditional IRA will be phased out for single persons and heads of household who are covered by an employer-sponsored retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000, an increase of $1,000 at each end. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by an employer-sponsored retirement plan, the phase-out range is $98,000 to $118,000, an increase of $2,000 at each end. For an IRA contributor who is not covered by an employer-sponsored retirement plan and is married to someone who is covered, the deduction is phased out if the couple's modified AGI is between $183,000 and $193,000, also an increase of $2,000 at each end. For a married individual filing a separate return who is covered by a retirement plan, the phase-out range remains zero to $10,000; it is not subject to a cost-of-living adjustment.
  • Phase-out for Roth IRA Contributions. The modified AGI phase-out range for taxpayers making contributions to a Roth IRA is $183,000 to $193,000 for married couples filing jointly, an increase of $2,000 at each end. For single persons and heads of household, the income phase-out range is $116,000 to $131,000, also an increase of $2,000 at each end. For a married individual who is filing a separate return and who is covered by a retirement plan, the phase-out range remains zero to $10,000; it is not subject to a cost-of-living adjustment.

HSAs and HDHPs

The IRS earlier announced the following benefits-related limits and thresholds for 2015 applicable to health savings accounts (HSAs) and high-deductible health plans (HDHPs):

  • HSAs. The 2015 annual deduction limit for contributions to an HSA for an individual with self-only coverage under an HDHP will be $3,350, an increase of $50 over 2014. For an individual with family coverage under an HDHP, the limit will be $6,650, an increase of $100.
  • HDHPs. An HDHP will need to have an annual deductible in 2015 that is not less than $1,300 for self-only coverage, an increase of $50, or $2,600 for family coverage, an increase of $100. In addition, the annual out-of-pocket expenses (deductibles, copayments and other amounts, but not premiums) may not exceed $6,450 for self-only coverage, an increase of $100, or $12,900 for family coverage, an increase of $200. Individuals age 55 and older who are covered by an HDHP can make additional catch-up contributions each year until they enroll in Medicare. By statute, the catch-up contribution limit for individuals who will attain age 55 or older in the 2015 taxable year will remain at $1,000.

Social Security Tax Wage Base

In addition to the above adjustments, the Social Security Administration has announced that the wage base for Social Security taxes for 2015 will be $118,500, an increase of $1,500 over the base for 2014.

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.

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