The IRS has provided 2017 inflation adjustments that could impact certain dollar limits that apply to 401(k) plans. An overview of the guidance on the 2017 401(k) plan limits is provided below.
Limits on Participant Contributions:
The maximum and catch-up contribution limits remain unchanged for 2017. A 401(k) plan participant may make 401(k) deferrals up to a maximum of $18,000 during 2017. This limit is sometimes referred to as the “elective deferral limit” or the “402(g) limit.” The law also allows participants who are or will be age 50 by the end of the 2016 to elect to make additional deferrals, referred to as “catch-up contributions,” to a 401(k) plan up to a maximum of $6,000 during 2017.
Limit on Compensation Considered When Determining Employer Contributions:
Employer contributions under a 401(k) plan may not be calculated based on compensation received by a participant that is in excess of the annual compensation limit. For 2017, the annual compensation limit has been increased from $265,000 in 2016 to $270,000 in 2017. It is important to note that most 401(k) plans allow a participant to continue making 401(k) deferrals after they have reached the annual compensation limit; however, a 401(k) plan may be written to apply the compensation limit to all contributions under the plan, including 401(k) deferrals.
Maximum Contributions to 401(k) Plan:
In addition to limiting the amount of 401(k) deferrals and catch-up contributions that a participant may make under a 401(k) plan, the IRS puts a limit on the total contributions that may be made to a 401(k) plan for each participant. For 2017, the annual contribution limit will be the lesser of 100% of the participant’s 2017 compensation or $54,000. This limit is up $1,000 from $53,000 in 2016.
Compliancedashboard will continue to be updated as new guidance is released.