The Internal Revenue Service has announced the annual cost-of-living adjustments applicable to dollar limitations for pension plans and other items for Tax Year 2010. For the first time in over ten years, none of the major pension plan limitations have been increased, because the cost-of-living index for the quarter ended September 30, 2009 was less than the cost-of-living index for the quarter ended September 30, 2008. Under the Social Security Act procedures that are used to calculate limitations under Section 415 of the Internal Revenue Code (“Code”), a decline in the index cannot result in the reduction of a limitation. The limitations under Code section 415, therefore, will remain unchanged rather than being reduced for 2010, as will all of the pension plan limitations that are adjusted at the same time and manner as limitations under Section 415. The only limitations that have increased for the 2010 plan year are limitations adjusted under Code sections other than Section 415.
- The adjusted gross income limitation that applies to the 50% level of retirement savings contribution credit for qualified retirement savings contributions is increased as follows:
- For married taxpayers filing a joint return, the limitation is increased from $33,000 to $33,500.
- For a taxpayers filing as head of household, the limitation is increased from $16,500 to $16,750.
- For all other filers, the limitation is increased from $24,750 to $25,125.
The adjusted gross income limitations applying to all three lower percentage levels of the retirement savings contribution credit remain unchanged at their 2009 levels (Code section 25B(b)(1)).
- The applicable dollar amount used for determining the deductible amount of an IRA contribution is increased as follows:
- For a taxpayer who is an active participant, and is neither a qualifying widower nor a married taxpayer filing a separate return, the limitation is increased from $55,000 to $56,000.
- For a taxpayer who is not an active participant but whose spouse is an active participant, the limitation is increased from $166,000 to $167,000.
The applicable dollar amounts for determining the deductible amount of an IRA contribution for all other taxpayers remain unchanged at their 2009 levels (Code sections 219(g)(3) and 219(g)(7)).
- The adjusted gross income limitation used for determining the maximum Roth IRA contribution for married taxpayers filing a joint return and for a taxpayer filing as a qualifying widow(er) is increased from $166,000 to $167,000. The adjusted gross income limitations used for determining the maximum Roth IRA contribution for all other taxpayers remain unchanged at their 2009 levels (Code sections 408A(c)(3)(C)(ii)(I) and 408A(c)(3)(C)(ii)(II)).
Limitations which Remain Unchanged
- The limitation on annual benefits under a defined benefit plan remains unchanged at $195,000. For participants who separated from service before January 1, 2010, the defined benefit limitation is computed by multiplying the participant’s compensation limitation, as adjusted through 2009, by 1.0000 (Code sections 415(b)(1)(A) and (B)).
- The limitation on annual additions under defined contribution plans remains unchanged at $49,000 (Code section 415(c)(1)(A)).
- Other dollar amounts that are adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A), and which therefore remain unchanged, are:
- The maximum amount of elective deferrals that may be made to 401(k) plans, 403(b) annuities, simplified employee pensions (“SEPs”), and 457(b) plans for 2010 remains unchanged $16,500 (Code sections 402(g)(1) and 457(e)(15)).
- The annual limit on compensation for plan purposes remains unchanged at $245,000 (Code sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii)).
- The dollar limitation used for the definition of key employee in a top-heavy plan remains unchanged at $160,000 (Code section 416(i)(1)(A)(i)).
- The dollar amount for determining the maximum account balance in an employee stock ownership plan subject to a 5-year distribution period remains unchanged at $985,000, while the dollar amount used to determine the lengthening of the 5-year distribution period remains unchanged at $195,000 (Code section 409(o)(1)(C)(ii)).
- The limitation used in the definition of highly compensated employee remains unchanged at $110,000 (Code section 414(q)(1)(B)).
- The maximum amount of catch-up contributions that individuals aged 50 or over may make in 2010 to 401(k) plans, 403(b) annuities, SEPs, and 457(b) plans remains unchanged at $5,500 (Code section 414(v)(2)(B)(i)).
- The maximum amount of catch-up contributions that individuals aged 50 or over may make in 2010 to SIMPLE 401(k) Plans or SIMPLE Retirement Accounts remains unchanged at $2,500 (Code section 414(v)(2)(B)(ii)).
- The annual compensation limitation for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limitation under Code section 401(a)(17) to be taken into account, remains unchanged at $360,000.
- The minimum compensation amount used for determining required participation in SEPs remains unchanged at $550 (Code section 408(k)(2)(C)).
- The limitation on the exclusion for elective deferrals to SIMPLE retirement accounts remains unchanged at $11,500 (Code section 408(p)(2)(E)).
- The compensation amounts used in defining “control employee” for fringe benefit valuation remain unchanged at $95,000 for Board or shareholder-appointed, confirmed, or elected officers of the employer and at $195,000 for all other employees of the employer (Reg. sections 1.61–21(f)(5)(i) and 1.61–21(f)(5)(iii)).