2015 contribution limits announced

[delawarejen]

2015 contribution limits were just announced yesterday:

401k, 403b, TSP, most 457 plans: will be $18,000 for those under 50, and $24,000 for those 50+ (the catch-up amount also increased)

IRA, ROTH IRA: did not change, will still be $5,500 for those under 50 and $6,500 for those 50+

(note: the "highly compensated employee" cutoff increased from 115K to 120K)

More info: www.irs.gov/uac/Newsroom/IRS-Announces-2015-Pension-Plan-Limitations;-Taxpayers-May-Contribute-up-to-$18,000-to-their-401(k)-plans-in-2015

[Deleted]

Bragplaint I was approaching highly compensated and it was pissing me off. This is amazing news.

[delawarejen]

Oct 24, 2014 17:57:47 GMT -5 @ffbride0813 said:

Bragplaint I was approaching highly compensated and it was pissing me off. This is amazing news.

Well, you may have the problem in the future, they rarely increase this number and I imagine you'll get raises faster than the limit will increase. This is where you push your employer to have an opt-in plan with a automatic minimum contribution so people have to opt out if they don't want to contribute. After all, it doesn't matter if you're highly compensated if you can get the plan to pass.

Edit: rarely is too strong, they last increased it in 2011, but the reasoning still holds.

[WinterWine]

Woohoo! I've been watching for these, thanks for posting! Glad to see the 401k limit up as well as HCE... Maybe I can squeeze in one more year after all.

[hamster]

I'm kind of glad IRA limits didn't increase. We're maxing out, but it's a tough automatic withdrawal!

[juliabug]

Balls. I didn't know this: "For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $183,000 and $193,000, up from $181,000 and $191,000."

Non-deductible contributions for me next year.

[niq]

$1500/month is a nice round number

[AAM2012]

Awesome! Thanks for posting. This is the first time we will hit max contribution for our 401k and Roth (if we're not phased out). So it'll give me another goal for next year.

[cosmos]

Oct 24, 2014 17:57:47 GMT -5 @ffbride0813 said:

Bragplaint I was approaching highly compensated and it was pissing me off. This is amazing news.

Same here. But if I get the promotion I may be out of luck.

I need DH to take over his dad's business already so he can do a SEP IRA. Or implement a 401k plan

[v]

Stupid question, but since it is being discussed here: what difference does being a "highly compensated employee" make to the highly compensated employee?

[WinterWine]

v It depends upon how your employers 401k plan is structured. But for some plans, once you hit $115k ($120k next year) your contributions are limited to 12% of your income. So you can no longer contribute the federal max until your income rises to where 12% is 18k ($150k).

I'm super close this year and may try to take a few unpaid vacation days around the holidays to keep my income under. It's annoying that our plan does this, but really a problem I'm lucky to have.

Edited since apparently I can't spell anything right on my phone.

[v]

That is ridiculous. Who comes up with that shit?

[craftyesq]

I wish they would increase the limits for IRAs!

I have a government pension instead of a 401k and I always worry about it's security.

Stupid question: Can you buy your own 401k? Obviously there wouldn't be any matching, but I think it may be a good way for me to diversify.

[y4m]

Here's a pretty good description of why it is done:

Every year, the IRS requires all 401k plans (except safe-harbor plans, as described below) to take a discrimination test. Most easily pass it. Still, just under 40 percent of plans polled by the Plan Sponsor Council of America reported refunding or restricting HCE contributions in order to pass the test. And, 16.7 percent of plans reported returning excess contributions.

The reason for the test is "Congress didn't want these considerable tax breaks to be only enjoyed by the HCEs. This is the way they encourage employers to let everyone play in the pool," said Martha Priddy Patterson, analyst with Deloitte & Touche LLP's Human Capital Advisory Services group.

The test requires that employees be split into two groups: highly compensated and nonhighly compensated. For the 2013 and 2014 tax years, highly compensated employees are those who earned more than $115,000, or owned more than 5 percent of the business. (The compensation limit is based on the previous year's compensation, while the ownership limit is based on the previous or current year.)

The test is as follows: the average contributions of highly compensated employees, as a group, cannot exceed the average contributions of nonhighly compensated employees, as a group, by more than about 2 percent. (Age-50 catch-up contributions are not included in discrimination testing.) If the HCEs exceed this threshold and the employer fails to correct the imbalance, the plan could lose its tax-qualified status and all contributions and earnings would have to be distributed to all plan participants. In addition to the 2 percent spread, the contributions of all HCEs as a group may not be more than two times the percentage of other employees' contributions.

Consequently, HCE contribution levels are based on the contributions of non-HCEs. By setting up this carrot-and-stick system, Congress made it in the best interest of highly compensated employees to encourage non-HCEs to contribute to the plan.

[rubytue]

Oct 25, 2014 10:12:16 GMT -5 craftyesq said:

I wish they would increase the limits for IRAs!

I have a government pension instead of a 401k and I always worry about it's security.

Stupid question: Can you buy your own 401k? Obviously there wouldn't be any matching, but I think it may be a good way for me to diversify.

I wish they'd raise the IRA limits, too. H has no options except an IRA. No pension, no 401(k), nothing. Just $5500 in an IRA. Alas.

And no, you can't make your own 401(k). If you a self employed, then you have options. But for worker bees without employer options, it's IRA only.

[hamster]

Would HR be able to tell you if limits are in effect for HCE? H is getting a promotion next year that will likely put him close to or just within the limits.

[niq]

I confess that I thought the HCE/NHCE cutoff was calculated by looking at the firm's payroll, not some arbitrary number.

[v]

y4m -- I know about discrimination testing (thank you, law firm, for my safe harbor contribution and "profit sharing" contributions that result from all of that!). Just didn't understand why employees would know or care where they fell on the HCE spectrum and discrimination testing didn't seem to be the answer (or at least, I know about discrimination testing and whether I was above or below that line has never seemed to affect me personally).