The Internal Revenue Service has announced various adjustments to employee benefit plan and individual retirement account (IRA) dollar limits and thresholds for 2014, principally as a result of the increase in the applicable cost-of-living indexes. The following limits and thresholds are effective for plan years and limitation years beginning in 2014:

Retirement Plans

  • Elective Deferral Contributions. The annual limit on elective deferrals (pre-tax employee contributions) to Section 401(k), 403(b) and 457(b) plans and the federal government's Thrift Savings Plan will remain at $17,500. The annual limit for salary reductions under a SIMPLE retirement plan will remain at $12,000.
  • Age 50 and Older Catch-Up Contributions. The annual limit for catch-up contributions for individuals aged 50 or over under Section 401(k) and 403(b) plans and Section 457(b) plans sponsored by governmental entities will remain unchanged at $5,500. For SIMPLE 401(k) or IRA plans, the annual limit will remain unchanged at $2,500.
  • Covered Compensation. The annual limit on the amount of a participant's total compensation that can be taken into account under a qualified plan will increase from $255,000 to $260,000.
  • Compensation Limit for Governmental Plans. The annual compensation limit for certain grandfathered governmental plans is increased from $380,000 to $385,000.
  • Defined Contribution Annual Addition Limit. The dollar limit on aggregate "annual additions" (including contributions and forfeiture allocations) under an employer's qualified defined contribution plans will increase from $51,000 to $52,000.
  • Defined Benefit Maximum. The annual benefit limit under an employer's qualified defined benefit plans will increase from $205,000 to $210,000.
  • Highly Compensated Employees. The dollar threshold on compensation that is used to determine whether one is to be classified as a "highly compensated employee" (HCE) will remain at $115,000. Thus, under the "look-back" rule, an individual earning more than $115,000 in 2014 will be treated as an HCE for 2015. Also under the look-back rule, an individual will be treated as an HCE for 2014 if his or her compensation for 2013 exceeded $115,000. If the employer elects to apply the "top-20%" rule for determining HCEs, some individuals with compensation above these limits may not be considered HCEs.
  • ESOPs. The dollar amount for determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period will increase from $1,035,000 to $1,050,000, while the amount used to determine the lengthening of the five-year distribution period will increase from $205,000 to $210,000.
  • Contributions to Simplified Employee Pension Plans. The minimum compensation that will require a simplified employee pension plan contribution will remain at $550.
  • Key Employees. The dollar threshold on compensation for determining whether an officer is to be classified as a "key employee" for top-heavy plan purposes is increased from $165,000 to $170,000. Thus, an officer earning more than $170,000 in 2014 will be treated as a key employee that year.

IRAs

  • The deductible amount for IRAs for an individual making qualified retirement contributions will remain at $5,500.
  • The deduction for taxpayers making contributions to a traditional IRA is phased out for single persons and heads of household who are covered by an employer-sponsored retirement plan and have modified adjusted gross incomes (AGI) between $60,000 and $70,000, up from $59,000 and $69,000. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by an employer-sponsored retirement plan, the phase-out range is $96,000 to $116,000, up from $95,000 to $115,000. For an IRA contributor who is not covered by an employer-sponsored retirement plan and is married to someone who is covered, the deduction is phased out if the couple's modified AGI is between $181,000 and $191,000, up from $178,000 and $188,000. For a married individual filing a separate return who is covered by a retirement plan, the phase-out range remains $0 to $10,000; it is not subject to a cost-of-living adjustment.
  • The modified AGI phase-out range for taxpayers making contributions to a Roth IRA is $181,000 to $191,000 for married couples filing jointly, up from $178,000 to $188,000. For single persons and heads of household, the income phase-out range is $114,000 to $129,000, up from $112,000 to $127,000. For a married individual filing a separate return who is covered by a retirement plan, the phase-out range remains $0 to $10,000; it is not subject to a cost-of-living adjustment.

Other Benefits-Related Limits

  • Health Savings Accounts (HSAs). The 2014 annual deduction limit for contributions to an HSA for an individual with self-only coverage under a high-deductible health plan (HDHP) will be $3,300, up from $3,250. For an individual with family coverage under an HDHP, the limit will be $6,550, up from $6,450. An HDHP will need to have an annual deductible that is not less than $1,250 for self-only coverage or $2,500 for family coverage, the same as in 2013. In addition, the annual out-of-pocket expenses (deductibles, copayments and other amounts, but not premiums) may not exceed $6,350 for self-only coverage or $12,700 for family coverage, up from $6,250 and $12,500. Individuals age 55 and older who are covered by an HDHP can make additional "catch-up" contributions each year until they enroll in Medicare. By statute, the catch-up contribution limit for individuals who will attain age 55 or older in the 2014 taxable year will remain at $1,000.
  • Transportation Fringe Benefits. For taxable years beginning in 2014, the monthly limit for the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass will be $130, a decrease from the $240 limit for 2013, and the fringe benefit exclusion amount for qualified parking will be $250, an increase from the $245 limit for 2013. The 2014 limits reflect the expiration of the modifications to Section 132(f)(2) of the Internal Revenue Code by the American Taxpayer Relief Act.
  • Long-Term Care Insurance Premiums. Long-term care insurance premiums qualify as deductible "medical care" costs up to certain limits for a taxable year. The applicable inflation-adjusted limits for 2014 are:

Social Security Tax Wage Base

In addition to the above adjustments, the Social Security Administration has announced an increase in the wage base for Social Security taxes from $113,700 in 2013 to $117,000 in 2014.

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