The Internal Revenue Service has announced the cost-of-living adjustments applicable to dollar limitations for pension plans and other amounts for 2005. Several of the limits are changed for 2005.

This article contains a table showing the 2005 and 2004 amounts so that you can easily determine those values that have changed.

Changes affecting 401(k) elective deferrals include: The individual annual dollar limitation increases from $13,000 per year to $14,000; the catch-up contribution limit for those over age 50 goes from $3,000 to $4,000; the annual compensation limit increases from $205,000 to $210,000; and the maximum annual addition to defined contribution plans, generally, increases from $41,000 to $42,000.

As in previous years, the IRS advises that administrators of defined benefit or defined contribution plans that have received favorable determination letters should not request new determination letters solely because of yearly amendments to adjust maximum limitations in the plan.

2005 LIMITATIONS FOR EMPLOYEE BENEFIT PLANS

 

2004

2005

§401(k) Deferrals (§402(g)(1))

$ 13,000

$ 14,000

Catch-up contributions for individuals age 50 or older (§414(v)(2)(b)(i))

$ 3,000

$ 4,000

Compensation Limit (§401(a)(17))

$205,000

$210,000

Defined Benefit Limit (§415(b)(1)(A))

$165,000

$170,000

Defined Contribution Limit (§415(c)(1)(A))

$ 41,000

$ 42,000

Highly Compensated Employees (HCEs) Nondiscrimination Testing Threshold (414(q)(1)(B)) Pay Exceeding *

$ 90,000 *

$ 95,000 *

Key Employee Officer Compensation Threshold (§416(i)(1)(A))

$130,000

$135,000

Social Security Limits:

   

OASDI Tax Rate

6.2%

6.2%

OASDI Taxable Wage Base

$ 87,900

$ 90,000

Medicare Tax Rate

1.45%

1.45%

Medicare Taxable Wage Base

All Wages

All Wages

Self-employed Combined Rate

15.3%

15.3%

Other Indexed Limits

   

§403(b) Elective Deferrals (§402(g)(1)(A))

$ 13,000

$ 14,000

§457 Deferrals (§457(c)(15))

$ 13,000

$ 14,000

SEP Maximum Pay (§408(k)(3)(C))

$205,000

$210,000

SEP Eligibility Pay Threshold (§408(k)(2)(C))

$ 450

$ 450

SIMPLE Salary Reduction Maximum(§408(p)(2)(E))

$ 9,000

$ 10,000

ESOP Payouts in Excess of 5 Years (§409(o)(1)(C))

   

  • One Year for Each:

$165,000

$170,000

  • In Excess Of:

$830,000

$850,000

* Current year classification is based on prior year compensation and limit. This means that 2005 nondiscrimination testing will generally rely on the 2004 limitation of $90,000 for determining HCEs and the new limitation of $95,000 will initially apply for 2006 nondiscrimination testing. Employers may, but are not required to, apply the top-paid 20% test in conjunction with this compensation limit.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.