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IRS: 401k Contribution Limit to Stay the Same in 2016

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Oct 22nd 2015
Staff Writer and Editor AccountingWEB
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The maximum contribution limit for employees who participate in a 401(k) plan will be $18,000 in 2016, the same as in 2015, the IRS announced on Oct. 21.

That $18,000 limit also applies to other retirement plans, such as 403(b), most 457 plans, and the federal government's Thrift Savings Plan. The catch-up contribution limit for employees ages 50 and older who participate in those plans remains unchanged at $6,000.

While most contribution limits will not change for 2016 because the increase in the cost-of-living did not meet the statutory thresholds that trigger their adjustment, some limitations will change because those thresholds were met, according to the IRS.

The following are a few other key limitations that will remain unchanged from 2015:

  • The limit on annual contributions to an IRA will stay at $5,500. The additional catch-up contribution limit for individuals ages 50 and older is not subject to an annual cost-of-living adjustment and remains at $1,000.
  • The deduction for taxpayers making contributions to a traditional IRA is phased out for those who have modified adjusted gross incomes (AGI) within a certain range. For singles and heads of household who are covered by a workplace retirement plan, the income phase-out range remains at $61,000 to $71,000. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range remains at $98,000 to $118,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and stays at $0 to $10,000.
  • The AGI phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Here are highlights of limitations that have changed from 2015 to 2016:

  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple's income is between $184,000 and $194,000, up from $183,000 and $193,000.
  • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $184,000 to $194,000 for married couples filing jointly, up from $183,000 to $193,000.  For singles and heads of household, the income phase-out range is $117,000 to $132,000, up from $116,000 to $131,000.
  • The AGI limit for the saver's credit, also known as the retirement savings contribution credit, for low- and moderate-income workers is $61,500 for married couples filing jointly, up from $61,000; $46,125 for heads of household, up from $45,750; and $30,750 for married individuals filing separately and for singles, up from $30,500.

In addition, the limitation on the annual benefit under a defined benefit pension plan remains unchanged at $210,000. For a participant who separated from service before Jan. 1, 2016, the limitation for defined benefit plans is computed by multiplying the participant's compensation limitation, as adjusted through 2015, by 1.0011, according to the IRS.

The limitation for defined contribution plans will stay at $53,000 in 2016; $18,000 for deferred compensation plans of state and local governments and tax-exempt organizations.

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