2005 Retirement Plan Limits Unveiled

October 20, 2004 (PLANSPONSOR.com) - The Internal Revenue Service on Wednesday release the cost of living adjustments applicable to dollar limitation for pension plans and other items for tax year 2005.

>Many of the pension plan limitations will change for 2005, according to the IRS, because for most of the limitations, the increase in cost-of-living adjustments met the thresholds that trigger their adjustments. Also, some limitations that are set by the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) are scheduled to increase next year.

>Changes include:

  • Under EGTRRA, the limit under section 402(g)(1) on the exclusion for elective deferrals described in section 402(g)(3) will increase from $13,000 to $14,000 . This limitation most significantly effects 401(k) plans, as well as the federal governments Thrift Savings Plans (TSP).
  • Under defined benefit plans, which fall under section 415(b)(1)(A), the maximum annual benefit will increase from $165,000 to $170,000 .
  • The limitation for combined contribution plans under section 415(c)(1)(B) will be raised from $41,000 to $42,000 .
  • The annual compensation limit under Section 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $205,000 to $210,000 , while the dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $130,000 to $135,000 .
  • The compensation limit used in the definition of highly compensated will increase from $90,000 to $95,000 .
  • The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $450.

>The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5 year distribution period is increased from $830,000 to $850,000, while the dollar amount used to determine the lengthening of the 5 year distribution period is increased from $165,000 to $170,000 .  The limitations regarding SIMPLE retirement accounts have increased from $9,000 to $10,000 .

>The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or 408(p) for individuals aged 50 or over is increased from $3,000 to $4,000, while the dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or 408(p) for individuals aged 50 or over is increased from $1,500 to $2,000.

>The IRS also stated 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 plans.

>A table of the changes is  HERE .

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