CARL WATTS & ASSOCIATES

November 06, 2017

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Pension Plans Adjustments
for Tax Year 2018
In our previous newsletter we informed you about some of the most relevant annual inflation adjustments for tax provisions for tax year 2018.


This time, we would like to bring to your attention the cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2018 for which the IRS issued technical guidance in Notice 2017-64.

The adjustments are made following adjustment procedures similar to those used to adjust benefit amounts under the Social Security Act

Highlights of Changes for 2018

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,000 to $18,500.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all increased for 2018.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income.

(If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.)

Here are the phase-out ranges for 2018:

For single taxpayers covered by a workplace retirement plan, the phase-out range is $63,000 to $73,000, up from $62,000 to $72,000.


For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $101,000 to $121,000, up from $99,000 to $119,000.

For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $189,000 and $199,000, up from $186,000 and $196,000.

For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.


The income phase-out range for taxpayers making contributions to a Roth IRA is $120,000 to $135,000 for singles and heads of household, up from $118,000 to $133,000. For married couples filing jointly, the income phase- out range is $189,000 to $199,000, up from $186,000 to $196,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $63,000 for married couples filing jointly, up from $62,000; $47,250 for heads of household, up from $46,500; and $31,500 for singles and married individuals filing separately, up from $31,000.


Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. Other limitations applicable to deferred compensation plans are also affected by these adjustments under.

Effective Jan. 1, 2018, the limitation on the annual benefit under a defined benefit plan is increased from $215,000 to $220,000.

The limitation for defined contribution plans is increased in 2018 from $54,000 to $55,000.


Highlights of Limitations that Remain Unchanged from 2017

The limit on annual contributions to an IRA remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000.


For more information on adjustments made to retirement plans for 2018, visit the link to Notice 2017-64.

If you look for more information concerning retirement plans, visit the page dedicated to Tax Information for Retirement Plans on the IRS website.

If what you want is just to stay up-to-date with the most relevant news and information concerning taxes, all you need to do is keep up with our newsletters.

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