Compliance October 18, 2006

IRS Puts Out 2007 Plan Limit Changes

October 18, 2006 (PLANSPONSOR.com) - The Internal Revenue Service (IRS) on Wednesday unveiled the maximum benefit and contribution limits on qualified retirement plans for 2007.
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According to an  IRS news release , for most of the limitations, the increase in the cost-of-living index met the legal thresholds to trigger the changes announced.

The limit under Section 402(g) (1) on the exclusion for elective deferrals described in Section 402(g) (3) is being increased from $15,000 to $15,500.  This limit involves elective deferrals to 401(k) plans and to the Federal Government’s Thrift Savings Plan, among others.

Effective January 1, 2007, the limit on the annual benefit under a defined benefit plan under Section 415(b) (1) (A) is being bumped up from $175,000 to $180,000.  For participants who separated from service before January 1, 2007, the limit for defined benefit plans under Section 415(b) (1) (B) is computed by multiplying the participant’s compensation limit, as adjusted through 2006, by 1.0334.

The limit for additions to defined contribution plans under Section 415(c) (1) (A) is increased from $44,000 to $45,000.

According to the IRS announcement, other limits include:

  • The annual compensation limit under Sections 401(a) (17), 404(l), 408(k) (3) (C), and 408(k) (6) (D) (ii) is going up from $220,000 to $225,000.
  • The dollar limit under Section 416(I) (1) (A) (I) concerning the definition of key employee in a top-heavy plan is increased from $140,000 to $145,000.
  • The dollar amount under Section 409(o)(1)(C)(ii) for figuring out the maximum account balance in an employee stock ownership plan subject to a five-year distribution period is increased from $885,000 to $915,000, while the dollar amount used to determine the lengthening of the five-year distribution period is going up from $175,000 to $180,000.
  • The limit used in the definition of highly compensated employee under Section 414(q) (1) (B) remains unchanged at $100,000.
  • The dollar limit 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 Section 408(p) for individuals aged 50 or over remains unchanged at $5,000. 
  • The dollar limit under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $2,500.
  • The annual compensation limit under Section 401(a) (17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limit under the plan under Section 401(a) (17) to be taken into account is increased from $325,000 to $335,000.
  • The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) is increased from $450 to $500.
  • The limit on deferrals under 457(e)(15) deferred compensation plans of state and local governments and tax-exempt organizations is increased from $15,000 to $15,500.
  • The compensation amounts under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes is increased from $85,000 to $90,000.  The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $175,000 to $180,000.
  • The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts is increased from $10,000 to $10,500.

A chart of maximum benefit and contribution limits for 2000 through 2007 is here .

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