2005 Dollar Limits on Benefits and Compensation for Qualified Retirement Plans, SEPs and SIMPLEs - October 21, 2004

The IRS announced the 2005 dollar limits on benefits and compensation for qualified retirement plans, SEPs and SIMPLEs (as published in IRS News Release IR-2004-127). Increases in the contribution limits for 401(k), 403(b), 457(b), SIMPLE, and the “Catch-up” contribution limits are prescribed by EGTRRA through 2006. The remaining 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 $41,000 to $42,000, the defined benefit maximum annual benefit limit increase from $165,000 to $170,000 and maximum compensation limit increase from $205,000 to $210,000 in 2005 which are based on the preset cost-of-living adjustments increments.

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.

View Case Study: "Change in Limits Increases Small Business Owner's Share of Pension Pie"

Increase compared to 2004 limit shown in bold. Access 2001-2005 limits chart via link provided below.

2005 IRS Limits for Qualified Retirement Plans, SEPs and SIMPLEs
	2005 Limit	Minimum Increment for COLA Increase	Applicable Measuring Period
Defined Contribution Annual Additions Limit	$42,000	$1,000	Limitation Years ending in 2005
Defined Benefit Annual Benefit Limit	$170,000	$5,000	Limitation Years ending in 2005
Social Security Taxable Wage Base	$90,000	N/A	For Permitted Disparity, Plan Years beginning in 2005
Qualified Retirement Plan Compensation Limit	$210,000	$5,000	Plan Years beginning in 2005
401(k)/403(b)/457(b) Calendar Year Deferral Limit	$14,000	Preset through 2006, $500 thereafter	Calendar Year
SIMPLE Plan Calendar Year Deferral Limit	$10,000	Preset through 2006, $500 thereafter	Calendar Year
"Catch-up" Limit (age 50+) 401(k)/403(b)/457 SIMPLE	$4,000 $2,000	Preset through 2006, $500 thereafter	Calendar Year
SEP Contribution Eligibility Minimum Compensation Requirement	$450	$50	Limitation Years ending in 2004
HCE Definition Compensation Test	$95,000	$5,000	Look Back Years beginning in 2005
Top-Heavy Key EE Definition
Top Ten Owner Test	N/A	N/A
Officer Test	$135,000	$5,000	Plan Year that includes the 2005 T-H determination date
1% Owner Test	$150,000	N/A	Plan Year that includes the 2005 T-H determination date

2001-2005 IRS Limits on Benefits and Compensation for Qualified Retirement Plans, SEPs and SIMPLEs Chart

IRS News Release IR-2004-127

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We intend the information in this publication as a general resource, not as legal or plan compliance advice or counsel. If you consider any actions discussed in this update, we suggest that you consult a tax or ERISA professional. Milberg Consulting LLC and Barry R. Milberg do not warrant and are not responsible for any errors and omissions from this update.