Tax News Highlights

IRS Announces Pension Plan and Other Contribution Limitations for 2016

Oct. 29, 2015

On Oct. 21, 2015, the IRS issued a news release announcing the annual inflation adjustments to pension plan contribution limits for 2016. As noted below, the limitations remain unchanged from 2015.

The following chart summarizes the limits.

Limits 2016 2015
Annual compensation1
$265,000 (no change from 2015) $265,000
Highly compensated employee2
$120,000 (no change from 2015) $120,000
Annual additions3
$53,000 (no change from 2015) $53,000
401(k), 403(b), and 457 deferral4
$18,000 (no change from 2015) $18,000
401(k), 403(b), and 457 catch-up (50 and older)4
$6,000 (no change from 2015) $6,000
Employee stock ownership plan (ESOP) five-year distribution payout period threshold
$1.07 million (no change from 2015) $1.07 million
Incremental lengthening of five-year ESOP payout period by additional year (up to maximum of five additional years)
$210,000 (no change from 2015) $210,000

1 Compensation above this limit cannot be used for any retirement plan purpose. The annual compensation limit is based on the limit for the year in which the plan year begins. For example, the 2015 limit would apply to a plan year that begins on July 1, 2015.
2 Any employee earning more than this amount in the prior plan year is considered a highly compensated employee for the current plan year. For example, for plan years beginning in 2016, the 2015 limit is used to determine who is a highly compensated employee.
3
The annual additions limit is based on the limit in effect for the year in which the plan year ends.
4 The deferral limit and catch-up limit are based on the calendar year.

The news release also announces updates to the annual contribution limits for individual retirement accounts (IRAs) and Roth IRAs:

  • The 2016 limit on annual contributions to an IRA remains at $5,500.
  • Income limitations for contributions to certain IRAs increased slightly for 2016. Married taxpayers with adjusted gross income of less than $184,000 (up from $183,000) in 2016 can contribute up to $5,500 to a Roth IRA. For married taxpayers, the maximum Roth IRA contribution is phased out from $5,500 to zero as adjusted gross income increases from $184,000 to $194,000 (up from $183,000 to $193,000). For single taxpayers, the $5,500 contribution is available if income is less than $117,000 (up from $116,000) and is phased out from $5,500 to zero as adjusted gross income rises from $117,000 to $132,000 (up from $116,000 to $131,000).
  • The additional catch-up contribution for IRAs and Roth IRAs available to individuals age 50 and older will remain at $1,000 for 2016.


Authors
Pete Shuler - 150
Pete Shuler
Principal
Mark Swanson