2018 Retirement Plan Contribution Limits

By McClintock & Associates | May 23, 2018

After three years of holding steady at $18,000, the amount you can contribute to your 401(k) workplace retirement plan rises up for 2018 to $18,500. The Treasury Department has announced inflation-adjusted figures for retirement account savings for 2018, and that’s one of the changes that will help savers. Much stays the same, but in addition to the jump in the 401(k) limits, there are increases to income phase-outs for IRA contributors, and to the adjusted gross income limits for securing the saver’s credit. The overall defined contribution plan moves up to $55,000, an increase for self-employed and small business owners as well as workers who have the option of adding to their retirement nest egg with after-tax dollars.  Congress awards these tax breaks to encourage retirement savings, and the cost-of-living index changes give a little extra room for more savings. We outline the numbers below; but, see IRS Notice 2017-64 for technical guidance.

401(k)s. The annual contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan, is $18,500 for 2018, a $500 increase over 2017. Note, you can make changes to your 401(k) elections at any time during the year, not just during open enrollment season when most employers send you a reminder to update your elections for the next plan year.  For participants who will be 50 and older by December 31, 2018, the catch-up contribution amount of $6,000 hasn’t changed, meaning the older savers can choose to defer up to $24,500 of their compensation into their accounts. for 2018.

SEP IRAs and Solo 401(k)s. For the self-employed and small business owners, the amount they can save in a SEP IRA or a solo 401(k) goes up from $54,000 in 2017 to $55,000 in 2018. That’s based on the amount they can contribute as an employer, as a percentage of their salary; the compensation limit used in the savings calculation also goes up from $270,000 in 2017 to $275,000 in 2018.

After-tax 401(k) contributions. If your employer allows after-tax contributions to your 401(k), you also get the advantage of the $55,000 limit for 2018. It’s an overall cap, including your $18,500 (pre-tax or Roth) salary deferrals plus any employer contributions (but not catch-up contributions).

The SIMPLE. The limit on SIMPLE retirement accounts for 2018 is $12,500, the same as in 2017. The SIMPLE catch-up limit is still $3,000.  From the employer’s side, there are two choices.  The employer can choose to match their employees’ contributions dollar-for-dollar up to 3% of their salaries with no limit, or can contribute 2% of every employee’s salary regardless of whether the employees contribute or not, up to $5,000.  The first option is potentially more lucrative for higher earning employees as it implies and overall maximum annual SIMPLE IRA contribution limit of $25,000 for employees under 50 or $31,000 for employees 50 or older.

Defined Benefit Plans. The limitation on the annual benefit of a defined benefit plan goes up from $215,000 in 2017 to $220,000 in 2018. These are powerful pension plans (an individual version of the kind that used to be more common in the corporate world before 401(k)s took over) for high-earning self-employed folks.

Retirement savings contribution limits are quite generous in 2018 and you may be surprised at the difference a slight increase in your retirement savings in 2018 could make over time. If you have any questions regarding retirement contribution limits for 2018, please contact a member of the McClintock & Associates tax department.

Need help?

Schedule an appointment with one of our industry experts.