The IRS and Social Security administration have announced the limits that apply to retirement plans for 2016. While most of the limits remain unchanged from the 2015 limits, you can still continue to fund your retirement nest egg up to these allowed amounts.

Tutorial: Retirement Planning

In this article, we'll break down the recent plan changes, explain some retirement plan concepts and show you what you need to know to plan for your retirement properly.

Retirement Plan Limits

The following charts showcase the highlights of the 2016 retirement plan announcements, compared to 2015.

TYPE 2016 Limits 2015 Limits
Traditional and Roth IRA contribution $5,500 $5,500
Traditional and Roth IRA catch-up contribution $1,000 $1,000
SIMPLE IRA and SIMPLE 401(k) Salary deferral $12,500 $12,500
SIMPLE IRA and SIMPLE 401(k) catch-up $2,500 $2,500
401(k) , 403(b), Federal Government's Thrift Savings Plan, SARSEP salary deferral contribution $18,000 $18,000
401(k) , 403(b), Federal Government's Thrift Savings Plan, SARSEP catch-up $6,000 $6,000
457(b) salary deferral contribution $18,000 $18,000
457(b) catch-up contribution $6,000 $6,000
SEP Compensation eligibility $600 $600

Saver's Tax Credit

Married filing jointly 50% credit $0- to $37,000 $0- to $36,500
20% credit $37,001-$40,000 $36,501-$39,500
10% credit $40,001-$61,500 $39,501-$61,000
Head of household 50% credit $0- to $27,750 $0- to $27,375
20% credit $27,751 - $30,000 $27,376-$29,625
10% credit $30,001 - $46,125 $29,626-$45,750
All Other Filers [Single; Married, Filing Separately; Qualifying Widow(er)] 50% credit $-0- to $18,500 $-0- to $18,250
20% credit $18,501 - $20,000 $18,251 - $19,750
10% credit $20,001 - $30,750 $19,751 - $30,500
Roth IRA Eligibility Compensation Married Filing Jointly or Qualified Widow(er) 100% Less than $184,000 Less than $183,000
Partial $184,00 - less than $194,000 $183,00 - less than $193,000
None $194,000 + $193,000 +
Married filing separately Partial Less than $10,000 Less than $10,000
None $10,000 or more $10,000 or more
Single or Head of Household 100% Less than $117,000 Less than $116,000
Partial $117,000- less than $132,000 $116,000- less than $131,000
None $132,000 or more $131,000 or more
IRA Deductibility Compensation Married filing jointly or a qualifying widow(er) and active 100% $98,000 or less $98,000 or less
Partial $98,000- less than $118,000 $98,000- less than $118,000
None $118,000 or more $118,000 or more
Married filing jointly. Not active, but spouse is active 100%

$184,000 or less

$183,000 or less
Partial

$184,000 - less than $194,000

$183,000 - less than $194,000
None $194,000 or more $193,000 or more
Married filing separately Partial Less than $10,000 Less than $10,000
None $10,000 or more $10,000 or more

Single

100% $61,000 or less $61,000 or less
Partial $61,000 - less than $71,000 $61,000 - less than $71,000
None $71,000 or more $71,000 or more
Annual addition/contribution limit under a defined contribution plan or SEP IRA $53,000 $53,000
Annual benefit under a defined benefit plan $210,000 $210,000
Compensation cap $265,000 $265,000
Key Employee definition $170,000 $170,000
Highly compensated employee definition $120,000 $120,000
Social Security Wage base $118,500 $118,500

Other Numbers

[If not also listed above, these figures are for 2015.]

  • Limited Distribution Period for ESOPs
    The dollar amount, under the limited distribution period for determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period, is at $1,070,000; the dollar amount used to determine the lengthening of the five-year distribution period is at $210,000.
  • Compensation Cap for Governmental Plans
    The annual compensation cap 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 cap to be taken into account, is at $395,000.

Reminders

[If not also listed above, these figures are for 2015.]

  • The salary deferral limit applies across all 401(k), 403(b), the federal government's Thrift Savings Plan, SARSEP and SIMPLE plans. Therefore, regardless of the number of plans in which you participate, you salary deferral contribution cannot be more than $18,000 for the year. Additionally, your catch-up contribution cannot be more than $6,000 for the year.
  • Contributions to 457(b) plans are not aggregated with contributions to 401(k), 403(b), the federal government's Thrift Savings Plan, SARSEP and SIMPLE plans. For instance, if you participate in a 457(b) plan and a 403(b) plan, you could make salary deferral contributions of $18,000 catch-ups to each plan, bringing the total to $36,000 + catch-up of $12,000. (For more insight on 457 plans, check out The 4-1-1 On 457 Plans.)
  • The annual addition limit of $53,000 does not include catch-up contributions. Therefore, if you participate in a plan with a salary deferral feature, your contribution for the year can be up to $53,000 + catch-up contribution of $6,000.
  • If you contribute to more than one traditional or Roth IRA, or to both a traditional and Roth IRA, your contribution to all your IRAs cannot exceed $5,500 + $1,000 catch-up contribution for the year.

The Bottom Line

Be aware of these limitations when you meet with your financial planner to review your retirement planning for the year. This is especially important if you participate in multiple employer-sponsored plans or contribute to more than one traditional/Roth IRA. Contributions in excess of these limits can result in excess contributions, which are subject to excise tax unless they are corrected in time.

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