The IRS has announced the 2016 dollar limits for pension plans and other retirement-related items, so your Payroll staffers can start checking some tasks off their to-do list.
Aside from a few cost-of-living adjustments that will affect employees when they file Forms 1040, there are no big changes. But there’s still some prep work to be done:
What to keep an eye on
For 2016, the salary deferral limit for 401(k), 403(b) and most 457 plans will remain $18,000.
Employees age 50 or older who participate in those plans will be able to make catch-up contributions of $6,000 maximum, same as 2015.
Elective deferrals to SIMPLE retirement accounts will again be maxed out at $12,500.
The limit on catch-up contributions to SIMPLE plans for individuals age 50 or over will remain $3,000.
What Finance can do: Make sure others at your company understand the IRS rules – employees who will turn 50 at any point during the year, even on Dec. 31, 2016, will be eligible for catch-up contributions.
The defined contribution plan limit for new additions will remain $53,000. As for defined benefit plans, the limit will also be unchanged at $210,000.
What Finance can do: When you calculate new additions, include both employee and employer contributions, but not catch-up contributions.
Here are some other numbers that have been set for 2016:
- limit for a “key employee” in a top-heavy plan under IRC Sec. 416(i)(1)(A)(i), $170,000
- limit for a “highly compensated employee” under IRC Sec. 414(q)(1)(B), $120,000, and
- compensation amount for a “control employee” for fringe benefit valuation under Income
Tax Regs Sec. 1.61-21(f)(5)(i), $105,000.
What Finance can do: Find out if your company is taking all individuals into account – e.g., leased employees may be considered employees.