Retirement plan contribution limits have not changed drastically for several years. However, the IRS has recently made a few alterations with regard to this aspect of retirement savings.
What are retirement plan contribution limits?…Before getting into the changes, it may be helpful to have an understanding of what retirement plan contribution limits are in the first place. What this term denotes, quite simply, is the maximum amount that employers or employees can contribute toward a retirement plan. This may be a 401k, IRA, or defined benefit plans.
Changes made to retirement plan contribution limits 401k – There have been no changes made between 2016 and 2017 to the retirement plan contribution limits of either 401k or 401k catch-up. The latter is available to adults who are 50 years and older.
SEP IRAs and Solo 401k – The retirement plan contribution limits for these plans have increased to $54,000; an increase of $10,000 as compared to 2016. These plans typically cater to the self-employed or small businesses. The compensation limit has also increased by $5,000 to $270,000. This is typically used to calculate savings.
After-tax 401k contributions – Here too the limit has been set at $54,000. This is an overall cap. It thus includes a total of $18,000 pre-tax salary deferral and employer contributions. Catch up contributions, however, are not included.
SIMPLE –The limit on these plans has not changed from 2016. It thus remains at $12,500, with a catch-up limit of $3,000
Defined benefit plans – Benefits limits have increased to $215,000. This denotes a $5,000 increase from 2016. These are some of the best pension plans for individuals to choose.
The IRS has thus made significant changes to the retirement plan contribution limits on certain plans. While limits remain the same for others, it is still important to be a part of one or another retirement plan.