IRS Releases New Pension Plan Contribution Limits for 2008

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The IRS has announced inflation-adjusted 2008 dollar amounts affecting employer-sponsored retirement and fringe benefit plans, traditional and Roth IRAs, and the retirement savings contribution credit.

What’s interesting is that when I researched pension plan contribution limits in connection with writing my book, The Insider’s Guide to Tax-Free Real Estate Investing, the information I found indicated that pension contribution limits were going to increase in 2008. But the IRS announcement says that most plans will remain static at their 2007 contribution levels. The increases weren’t huge – perhaps $500 per year, but I’d be interested in learning why the IRS changed their mind.

In any event, here’s what you’ll be able to sock away in 2008:

  • $45,000 in your tax-deferred Solo 401(k) (of which up to $15,500 in salary can be put into a Solo Roth 401(k) component of your plan;
  • $15,500 limit on elective deferrals to 401(k) plans, 403(b) plans, some 457 plans and the federal government’s Thrift Savings Plan;
  • $10,500 limit on elective contributions to SIMPLE retirement accounts;
  • $5,000 and $2,500 limits on catch-up contributions to employer plans;
  • $500 minimum compensation amount for participation in SEP plans; and
  • $5,000 for traditional and Roth IRAs, plus $1,000 in catch-up contributions for taxpayers who have attained age 50 by the end of the year. The $5,000 limit will be adjusted for inflation beginning in 2009 but the $1,000 catch-up limit will remain the same.

So much for what’s not changing. Now let’s take a look at what does change effective January 1, 2008:

  • The beginning of the phaseout range for deductible IRA contributions increases from $83,000 to $85,000 for active participants in an employer plan filing a joint return; from $52,000 to $53,000 for other active participants (other than married individuals filing separately), and from $156,000 to $159,000 for taxpayers who are not active participants but are married to an active participant;
  • The beginning of the phaseout range for allowable Roth IRA contributions increases from $156,000 to $159,000 for joint filers, and from $99,000 to $101,000 for other taxpayers (other than married individuals filing separately);
  • The limit on annual additions to a defined contribution plan increases from $45,000 to $46,000;
  • The limit on annual benefits under a defined benefit plan increases from $180,000 to $185,000;
  • The limit on compensation that can be taken into account for most purposes increases from $225,000 to $230,000;
  • The amount in the definition of “key employee” for top-heavy plan purposes increases from $145,000 to $150,000;
  • The amount in the definition of “highly compensated employee” increases from $100,000 to $105,000;
  • The amount for determining the maximum ESOP account subject to a five-year distribution period increases from $915,000 to $935,000, while the dollar amount used to determine the lengthening of the five-year distribution period increases from $180,000 to $185,000;
  • The special annual compensation limit for eligible participants in certain governmental plans increases from $335,000 to $345,000; and
  • The adjusted gross income limitations on eligibility for various levels of the retirement savings contribution credit increase slightly.

For fringe benefit valuation purposes, the compensation amount that makes a corporate officer a “control employee” remains $90,000 for 2008. The compensation that makes any other employee a “control employee” increases from $180,000 to $185,000.

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