IRS Announces 2016 Retirement Plan Contribution Limits

 

                 

 

  IRS Announces 2016 Retirement Plan Contribution Limits

 

The Internal Revenue Service recently announced cost‑of‑living adjustments affecting retirement plan contributions for tax year 2016. In general, allowable contributions will not change for 2016 because the increase in the cost-of-living index did not meet the thresholds that trigger adjustment. However, other certain phase-out ranges have been adjusted due to the cost-of-living index.

Generally, many IRA and retirement plan limits are indexed for inflation each year. On October 21, 2015, the IRS (in IR-2015-118) issued the inflation-adjusted numbers for 2016, and most remain unchanged from 2015.

Highlights include the maximum IRA contribution for 2016 being $5,500, unchanged from 2015 (the catch-up limit also remains unchanged at $1,000). However, certain phase-out ranges for determining the deductibility of traditional IRA contributions, and for determining whether an individual can contribute to a Roth IRA, have increased for 2016.

Additionally, employer retirement plan limits remain generally unchanged from 2016. For example, the elective deferral limit for 401(k), 403(b), and 457(b) plans remains at $18,000, and the catch-up limit remains at $6,000. Similarly, the maximum amount that can be contributed to a defined contribution plan in 2016 is $53,000, unchanged from 2015.

 

IRA contribution limits

The maximum amount you can contribute to a traditional IRA or Roth IRA in 2016 is $5,500 (or 100% of your earned income, if less), unchanged from 2015. The maximum catch-up contribution for those age 50 or older remains at $1,000. (You can contribute to both a traditional and Roth IRA in 2016, but your total contributions can't exceed these annual limits.)

Traditional IRA deduction limits for 2016

The income limits for determining the deductibility of traditional IRA contributions in 2016 are unchanged, except for one instance: if you're not covered by an employer plan but your spouse is, and you file a joint return, you can fully deduct your IRA contribution in 2016 if your MAGI is $184,000 or less (up from $183,000 in 2015).

 

If your 2016 federal income tax filing status is:	Your IRA deduction is reduced if your MAGI is between:	Your deduction is eliminated if your MAGI is:
Single or head of household	$61,000 and $71,000	$71,000 or more
Married filing jointly or qualifying widow(er)*	$98,000 and $118,000 (combined)	$118,000 or more (combined)
Married filing separately	$0 and $10,000	$10,000 or more

*If you're not covered by an employer plan but your spouse is, your deduction is limited if your MAGI is $184,000 to $194,000, and eliminated if your MAGI exceeds $194,000.

Roth IRA contribution limits for 2016

The income limits for determining how much you can contribute to a Roth IRA have increased for 2016. If your filing status is single or head of household, you can contribute the full $5,500 to a Roth IRA in 2016 if your MAGI is $117,000 or less (up from $116,000 in 2015). And if you're married and filing a joint return, you can make a full contribution in 2016 if your MAGI is $184,000 or less (up from $183,000 in 2015). (Again, contributions can't exceed 100% of your earned income.)

 

If your 2016 federal income tax filing status is:	Your Roth IRA contribution is reduced if your MAGI is:	You cannot contribute to a Roth IRA if your MAGI is:
Single or head of household	More than $117,000 but less than $132,000	$132,000 or more
Married filing jointly or qualifying widow(er)	More than $184,000 but less than $194,000 (combined)	$194,000 or more (combined)
Married filing separately	More than $0 but less than $10,000	$10,000 or more

 

 

Employer retirement plans

All of the significant employer retirement plan limits for 2016 remain unchanged from 2015. The maximum amount you can contribute (your "elective deferrals") to a 401(k) plan in 2016 is $18,000. This limit also applies to 403(b), 457(b), and SAR-SEP plans, as well as the Federal Thrift Plan. If you're age 50 or older, you can also make catch-up contributions of up to $6,000 to these plans in 2016. (Special catch-up limits apply to certain participants in 403(b) and 457(b) plans.)

 

If you participate in more than one retirement plan, your total elective deferrals can't exceed the annual limit ($18,000 in 2016 plus any applicable catch-up contribution). Deferrals to 401(k) plans, 403(b) plans, SIMPLE plans, and SAR-SEPs are included in this aggregate limit, but deferrals to Section 457(b) plans are not. For example, if you participate in both a 403(b) plan and a 457(b) plan, you can defer the full dollar limit to each plan--a total of $36,000 in 2016 (plus any catch-up contributions).

The amount you can contribute to a SIMPLE IRA or SIMPLE 401(k) plan in 2016 is $12,500, and the catch-up limit for those age 50 or older remains at $3,000.

Plan type:	Annual dollar limit:	Catch-up limit:
401(k), 403(b), governmental 457(b), SAR-SEP, Federal Thrift Plan	$18,000	$6,000
SIMPLE plans	$12,500	$3,000

Note: Contributions can't exceed 100% of your income.

The maximum amount that can be allocated to your account in a defined contribution plan (for example, a 401(k) plan or profit-sharing plan) in 2016 is $53,000, plus age-50 catch-up contributions. (This includes both your contributions and your employer's contributions. Special rules apply if your employer sponsors more than one retirement plan.)

Finally, the maximum amount of compensation that can be taken into account in determining benefits for most plans in 2016 is $265,000, and the dollar threshold for determining highly compensated employees (when 2016 is the look-back year) is $120,000, both unchanged from 2015.