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IRS Announces 2013 COLA Limits For Qualified Plans

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Many retirement plan contribution and benefit limits will increase slightly in 2013, the IRS has announced. The 2013 cost of living adjustments (COLAs) affect a variety of retirement savings vehicles, including defined contribution plans, defined benefit plans, employee stock ownership plans (ESOPs), and individual retirement arrangements (IRAs).

Benefit plans

  • Elective deferrals. The limits on elective deferrals for employees who participate in 401(k)s, 403(b)s, certain 457s, and the federal government’s Thrift Savings Plan increase from $17,000 for 2012 to $17,500 for 2013.
  • Catch-up contributions.Eligible individuals age 50 and above may make catch-up contributions to IRAs, 401(k)s and other savings arrangements. The catch-up amount for 401(k)s, 457s, 403(b)s, and SEPs, also remains unchanged for 2013 at $5,500.
  • Defined contribution plans.The limitation for Code Sec. 415(c)(1)(A) defined contribution plans will increase in 2013 from $50,000 to $51,000.
  • Defined benefit plans and ESOPs. The annual benefit limit under a Code Sec. 415(b)(1)(A) defined benefit plan (the maximum amount a plan may pay a participant each year) increases from $200,000 for 2012 to $205,000 for 2013. The amount for determining the maximum ESOP account subject to a five-year distribution period increases from $1,015,000 for 2012 to $1,035,000 for 2013. The dollar amount used to determine the lengthening period of the five-year distribution increases from $200,000 for 2012 to $205,000 for 2013.
  • Annual compensation limit.The annual compensation limit under Code Secs. 401(a)(17) (relating to the maximum compensation counted for an eligible employee in a qualifying plan), 404(l) (addressing the deductibility of employer contributions), 408(k)(3)(C) (nondiscrimination rules for simplified employee pensions (SEPs)) and 408(k)(6)(D)(ii) (the deferral percentage for SEPs) will rise from $250,000 in 2012 to $255,000 in 2013. The annual compensation limit under Code Sec. 401(a)(17) for eligible participants in certain governmental plans that allowed COLA adjustments under the plan as in effect on July 1, 1993 has also increased form $375,000 to $380,000.

More amounts

Other official 2013 amounts released include (not an exhaustive list):

  • For 2013, the deductible amount under Code Sec. 219(b)(5)(A) for an individual making qualified retirement contributions will increase from $5,000 to $5,500. The allowable IRA deduction will phase out when modified AGI is between $59,000 and $69,000 for single taxpayers who are active participants in an employer-sponsored retirement plan (up from $58,000 and $68,000 in 2012). For married couples filing a joint return, where the spouse making the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $95,000 to $115,000 (up from $92,000 to $112,000 for 2012).
  • For 2012, the AGI limit for the saver’s credit for single taxpayers increases to $29,500, up from $28,750 in 2012. The AGI limit for married couples filing a joint return increases to $59,000 for 2013, up from $57,500 for 2012.
  • The Code Sec. 414(q)(1)(B) limit used in the definition of a “highly-compensated employee” is at $115,000, remaining unchanged from 2012.
  • The dollar limit concerning the definition of “key employee” in a top heavy plan also remains unchanged from 2012, and is $165,000 for 2013.
  • The compensation amount relevant to the definition of “control employee” for fringe benefit valuation purposes remains $100,000 for 2013. The compensation amount under Reg. §1.61-21(f)(5)(iii) is $205,000.
  • The Code Sec. 408(p)(2)(E) limitation regarding SIMPLEs increases to $12,000 for 2013, up from $11,500 in 2012 and 2011.