COLA Increases for Dollar Limitations on Benefits and Contributions
The tax law places limits on the dollar amount of contributions to retirement plans, IRAs and the amount of benefits under a pension plan. IRC Section 415 requires the limits to be adjusted annually for cost-of-living increases. The new limits are effective January 1, 2017, and are illustrated below.
Highlights of changes for 2017
The income ranges for determining eligibility to make deductible contributions to traditional IRAs, Roth IRAs, and to claim the saver’s credit all increased for 2017.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.
Changes in Phase-out Ranges
- If covered by a workplace retirement plan:
- Single taxpayers $62,000 to $72,000
- Married Filing Joint: $99,000 to $119,000
- Spouse is covered by a workplace retirement plan:
- Married Filing Joint: $186,000 and $196,000.
- Phase-out range for taxpayers making contributions to a Roth IRA
- Single and Head Of Household :$118,000 to $133,000,
- Married Filing Joint: $186,000 to $196,000
- Income limit for the saver’s credit
- Married Filing Joint: $62,000,
- Head Of Household: $46,500
- Single and Married Filing Separate: $31,000
The limitation for defined contribution plans increased to $54,000.
The limitation on the annual benefit under a defined benefit plan increased to $215,000.
The annual compensation limit increased to $270,000.
The dollar limitation concerning the definition of key employee in a top-heavy plan increased to $175,000
The dollar amount for determining the maximum account balance in an employee stock ownership plan subject to a 5‑year distribution period increased to $1,080,000, while the dollar amount used to determine the lengthening of the 5‑year distribution period increased to $215,000
The annual compensation limitation for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost‑of‑living adjustments to the compensation limitation under the plan to be taken into account, increased to $400,000.