The I.R.S. recently issued its annual cost-of-living adjustments applicable in 2008 to qualified retirement (pension, profit-sharing, § 401(k), money purchase and stock bonus) plans.
Beginning in 2008, the maximum amount of annual compensation which may be considered for any single employee participating in such a retirement plan is increased to $230,000 (up from $225,000). The aggregate annual limit on employer and employee contributions to a retirement plan on behalf of a single employee is increased in 2008 to a level of $46,000 (up from $45,000) for defined contribution (profit-sharing, § 401(k) and money purchase) plans. Further, the maximum annual benefit which may be funded under a defined benefit pension plan (based on actuarial computations) is increased in 2008 to a level of $185,000 (up from $180,000).
The maximum annual salary reduction contribution available to a single employee under a § 401(k) plan remains unchanged at $15,500, and the extra catch-up contribution available to individuals age 50 or over also remains unchanged at $5,000. In contrast, § 401(k) plans permitting after-tax Roth contributions will continue to accept such contributions up to the same respective $15,500 and $5,000 catch-up levels as an alternative to pre-tax salary reduction contributions. Further, in determining the group of “highly compensated employees” in 2008 for purposes of testing retirement plans under the nondiscrimination rules, the group continues to include 5% owners and employees in the top 20% highest paid group who earn a salary of more than $105,000.
With respect to the simplified incentive match plan for employees (“SIMPLE”) retirement accounts, the maximum annual salary reduction contribution available for a single employee in 2008 remains unchanged at $10,500. As to the comparable simplified employee pension (“SEP”) retirement account, employers will continue to be required in 2008 to cover all employees over age 21 who have worked for the employer for 3 of the last 5 years, and who are paid more than $500 in salary for the year.
In addition, the Social Security Administration has announced that the maximum amount of earnings subject to most Social Security taxes will be increased in 2008 to $102,000 (up from $97,500).
If you have any questions regarding the applicability of these new cost-of-living adjustments, please contact James Montgomery.