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2009 Dollar Limits on Benefits and Compensation for Qualified Retirement Plans, SEPs and SIMPLEs - October 20, 2008

By Barry R. Milberg

On October 16, 2008, in IRS News Release IR-2008-118, the IRS announced the 2009 dollar limits on benefits and compensation for qualified retirement plans, SEPs and SIMPLEs.  Increases in the contribution limits for 401(k), 403(b), 457(b), SIMPLE, and the “Catch-up” contribution limits are indexed annually based on cost-of-living adjustments subject to preset minimum increments (except for the Social Security Wage Base).  Each limit applies to different measuring periods as indicated.

Most notable are the defined contribution maximum annual additions limit increase from $46,000 to $49,000, the maximum calendar year 401(k) deferral limit from $15,500 to $16,500, the maximum calendar year 401(k) "catch-up" deferral limit from $5,000 to $5,500, the maximum calendar year SIMPLE deferral limit from $10,500 to $11,500, the defined benefit maximum annual benefit limit increase from $185,000 to $195,000, and the maximum compensation limit increase from $230,000 to $245,000 in 2009 based on cost-of-living adjustments in preset  increments; and the Social Security Wage Base increase from $102,000 to $106,800.  The SIMPLE catch-up limit remains the same as the 2008 limit.

Commentary  For the very small employer (1-20 eligible employees), the increases in the compensation, annual addition/benefit, 401(k) and "catch-up" limits translate into increased contributions/benefits for the small business owner and lower cost to fund benefits for eligible employees.  Look for a case study illustrating this in the coming weeks.

Increase compared to 2008 limit shown in bold.  Access 2005-2009 limits chart via link provided below.

2009 IRS Limits for Qualified Retirement Plans, SEPs and SIMPLEs

 

2009 Limit 

Minimum Increment

for COLA Increase

Applicable

Measuring Period

Defined Contribution

   Annual Additions Limit

 $49,000

$1,000 

Limitation Years

ending in 2009

Defined Benefit

   Annual Benefit Limit

$195,000

$5,000 

Limitation Years

ending in 2009

Social Security

   Taxable Wage Base

$106,800 

 N/A  

For Permitted Disparity,

Plan Years beginning in '09

Qualified Retirement Plan

   Compensation Limit

$245,000 

$5,000 

Plan Years beginning in '09

401(k)/403(b)/457(b)

   Calendar Year Deferral Limit

$16,500 

$500

Calendar Year

SIMPLE Plan

   Calendar Year Deferral Limit

$11,500 

$500

Calendar Year

"Catch-up" Limit (age 50+)

   401(k)/403(b)/457

   SIMPLE

$5,500 

$2,500 

$500

Calendar Year

SEP Contribution Eligibility

   Min. Compensation Required

$550 

$50 

Limitation Years

ending in 2009

HCE Definition

   Compensation Test

$110,000 

$5,000 

Look Back Years

beginning in 2008

Top heavy Key EE Definition

 

 

 

   Top Ten Owner Test

N/A

N/A

 

   Officer Test

$160,000 

$5,000

Plan Year that includes the 2009

 Top heavy determination date

   1% Owner Test

$150,000 

N/A 

2005-2009 IRS Limits on Benefits and Compensation for Qualified Retirement Plans, SEPs and SIMPLEs Chart

IRS News Release IR-2008-118

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© 2008 ERISA Expertise LLC  All Rights Reserved

The information provided is intended as a general resource, not as investment or retirement planning, or legal plan compliance advice or counsel.  If you consider any actions discussed in this update, we suggest that you consult a qualified planning, tax or ERISA professionalERISA Expertise LLC and Barry R. Milberg do not warrant and are not responsible for any errors and omissions from this update.  Any tax advice included in this written or electronic communication is not intended or written to be used, and it cannot be used, by the taxpayer for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency.

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