The Internal Revenue Service (IRS) announced in late 2016 that several key 401(k) limitations would remain unchanged going into 2017.
The lack of changes is due to the cost-of-living index, which did not increase because many of the required thresholds to justify a change were simply not met.
The most significant limitations that remain unchanged are as follows:
- Employees that are over 50 years old can still play “catch-up” in their 401(k) contributions. Their limit is $6,000.
- The contribution limit for employees remains at $18,000 per year. This limit also applies to most 457 plans, 403(b) plans and the Thrift Savings Plan.
- The annual contribution limit for Individual Retirement Arrangements (IRAs) is $5,500. Employees over the age of 50 can contribute an additional $1,000.
Employers should provide employees with information every year about contribution limits. Studies have shown that employees often do not understand limits and are ill-informed about how much they can contribute to their retirement accounts on an annual basis. Consider having a professional financial advisor from the company that manages retirement plans come in to meet with employees in a large group. If employees have specific questions, they can set up one-on-one meetings with advisors. This helps ensure that employees are receiving information from qualified advisors that can answer their questions.
The IRS updated its Cost of Living Adjustment (COLA) charts for specific retirement plan contribution limits. It is recommended that employers check this information out on their website. They also provide a detailed chart comparing differences from 2015, 2016 and 2017. The chart also explains IRAs, IRA, AGI Deduction Phase-Out, SEP, SIMPLE Plans, 401(k), 403(b), Profit Sharing and other types of retirement plans.
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