Annual Plan Limits
On October 31, 2013 the IRS announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2014. Some pension limitations such as those governing 401k plans and IRAs will remain unchanged because the increase in the Consumer Price Index did not meet the statutory thresholds for their adjustment. However, other pension plan limitations will increase for 2014.
Please download the attached PDF below to learn more about how much can be funded to different types of qualified retirement plans.
Defined Contribution Plans
Defined Contribution Plans, such as profit-sharing and 401(k) plans, contain limits on the amount of annual contributions that can be funded to the plan. These include both participant and plan-wide limits. In determining contributions, employers must exclude salary above the annual Compensation Limit as shown in the chart above.
Participants in defined contribution plans are subject to several specific limits on how much can be allocated to their individual retirement accounts. These limits are indexed annually for inflation.
- Profit-Sharing Plans – No participant can receive annual additions (contributions and forfeitures) from a profit-sharing plan in excess of the IRC §415 Limit of 100% of Salary or $52,000.
- 401(k) Plans – For 2014, no employee can defer more than $17,500 of his own salary into a 401(k) Plan. In addition, no participant can exceed the IRC §415 Limit of 100% of Salary or $52,000, when considering all contributions (e.g., employee, employer-matching, and profit-sharing). Highly Compensated Employees may also be limited in the amount of salary deferrals and matching contributions, because of the ADP and ACP Tests. Safe Harbor 401(k) Plans are not subject to the ADP and ACP Test.
Employers are limited in the amount they can contribute to qualified plans. Employers may claim a tax deduction for contributions (either matching or profit sharing contributions) of up to 25% of eligible payroll. Employee Salary Deferral Contributions are not subject to this limit, and can be claimed as an additional tax deduction by the employer.