How Much Did You Contribute to a Qualified Retirement Plan in 2018?
Having a retirement plan is a great benefit for your employees. They can receive their salary or other compensation as a part of the plan. If they contribute to it, it will be easier for them to get a retirement payout in the future.
Employer contributions
Providing access to workplace retirement savings plans could help to increase retirement security for many small employers. The Department of Labor is considering a rulemaking to clarify the statutory language related to employer contributions to qualified retirement plans. The proposed regulation would allow bona fide employer groups and professional employer organizations to sponsor workplace retirement plans.
Employer groups would act as "named fiduciaries" under the plan, and would be subject to all ERISA provisions applicable to defined contribution retirement plans. In addition, an employer group would be subject to the prohibited transaction provisions in title I of ERISA.
The Department of Labor estimates that expanding access to certain MEPs could lower the costs of providing workplace retirement plans. This would help to encourage the development of collective retirement plans in the private sector. It is also possible that market forces may lead a group of small employers to offer MEPs to their own employees.
The Department of Labor is soliciting comments on the proposed regulation. It asks commenters to include suggestions about regulatory conditions for employee benefit arrangements.
Catch-up contributions
Whether you are 50 years old or have already retired, catch-up contributions to qualified retirement plans can have a big impact on your future wealth. Generally, these contributions are made to workplace retirement plans, such as 401(k), but they can also be made to individual retirement accounts (IRAs), such as the SIMPLE-IRA. They are designed to help middle-aged savers build their nest egg while minimizing taxes.
A "catch-up" contribution is an elective deferral made by a plan participant over his or her plan-imposed limit. Unlike regular contributions, these deferrals are not taxable.
The amount of a catch-up contribution can vary from plan to plan. Generally, the maximum amount is determined by a combination of the participant's compensation and the plan's limits. For example, Tom has compensation of $100,000 for the 2018 plan year. He can defer up to a quarter of his compensation into a 401(k) plan.
There are no guarantees that your employer will match your catch-up contribution. This depends on the terms of your employer's retirement plan.
Cost-of-living adjustments
Several dollar limits on qualified retirement plans have been increased for the tax year 2018. The Internal Revenue Service has released cost-of-living adjustments for benefit plan dollar limits for 2018.
The annual limit on employee contributions to health flexible spending arrangements (FSAs) will increase to $2,650 in 2018. The limit on annual contributions to traditional IRAs will increase to $6,000. The income range for deductible contributions to traditional IRAs will increase for the 2019 tax year.
The annual benefit limit for defined benefit plans will increase from $220,000 to $225,000. The annual compensation limit for tax-qualified plans will also increase to $275,000, up from $270,000. The catch-up contribution limit for employees age 50 or older will remain unchanged. The elective deferral limit will increase from $18,500 to $19,000. The IRS released cost-of-living adjustments for benefit plans in its Notice 2017-64.
Cost-of-living adjustments are annual adjustments that can affect other retirement related items. Cost-of-living adjustments help maintain the purchasing power of benefits in retirement. They can be granted before or after retirement.
