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Participants’ 401(k) contribution limit unchanged; overall contribution limit rises by $1,000
Update: 2015 401(k) and Other Plan Limits
The Internal Revenue Service announced on Oct. 31, 2013,
cost-of-living adjustments for tax year 2014, also
charted here and
that apply to dollar limits for 401(k) and other defined contribution retirement plans and for defined benefit pension plans.
Some plan limits will remain unchanged because the increase in the Consumer Price Index did not meet the statutory thresholds for their adjustment, while other limits will rise in 2014.
The announcement highlighted the following:
Defined Contribution Plan LimitsFor 401(k), 403(b) and most 457 plans, the COLA increases for dollar limits on benefits and contributions are as follows:
Maximum elective deferral by employee
Catch-up contribution (age 50 and older during year)
Defined contribution maximum deferral (employer and employee combined)
Employee annual compensation limit for calculating contributions
Annual compensation of “key employees” in a top-heavy plan
Annual compensation of “highly compensated employee” in a top-heavy plan (“HCE threshold”)
"A $1,000 increase to the overall defined contribution limit will allow participants to potentially get a little more 'bang' out of their plan—at least if their employer wants to give them more money," noted retirement-planning firm Van Iwaarden Associates in
an online commentary on the 2014 changes.
Defined Benefit Plans
"The primary consequence of this change is that individuals who have very large DB benefits (say, shareholders in a professional firm cash balance plan) could see a deduction increase if their benefits were previously constrained by the [Internal Revenue Code Section 415] dollar limit," the Van Iwaarden posting explained.
Other Workplace Retirement Plan Limits
Non-401(k) Workplace Retirement Plan Limits
SIMPLE employee deferrals
SIMPLE catch-up deferrals
SEP minimum compensation
SEP annual compensation limit
Social Security wage base
Individual Retirement Accounts
Contribution Misperceptions Hinder Savings
Employees often have a skewed perception of retirement plan contribution limits. According to
Mercer Workplace Survey results, the average participant believes that the tax-deferral limit is only $8,532, just under half the actual 2013 limit of $17,500.
Looking at intended savings rates, most appear close to the perceived limit but are still far off from the actual. For those nearing retirement (age 50-plus), the perception gap is even bigger.
The survey represents a national cross section of active 401(k) participants; online interviews were completed with 1,506 respondents between May 28 and June 5, 2013.
By Age: Actual Contribution vs. Perceived Contribution Limit(Average $)
Respondents were asked, "As far as you know, what is the maximum dollar amount you can defer from income taxes this year by contributing it to a 401(k)?," and "Not counting any contributions your employer may make to your 401(k) plan over the next 12 months, how much money, if any, do you expect to put into your 401(k) plan?"
(click on chart to view enlargement)
Source: Mercer Workplace Survey, 2013.
"This data not only points to a troubling disconnect between perception and reality but also points to a false sense of security among 401(k) participants," according to Mercer's analysts. "It also begs the question whether participants are leaving some tax efficiency—knowingly or unknowingly—on the table."
Thirty-four percent said they would increase their 401(k) contribution to the tax-deferred maximum "if they could live the last 12 months over again," the survey found, which highlights the value of effectively communicating maximum contribution limits to employees and conveying how even small annual contribution increases can
substantially boost the size of their retirement nest egg.
is an online editor/manager for SHRM.
Other 2014 Benefit Change Articles:
FICA Adjusts: Income Subject to Payroll Tax Increases in 2014,
SHRM Online Benefits, October 2013
For 2014, Higher Limits for HSA Contributions,
SHRM Online Benefits, May 201
FSA Use-It-or-Lose-It Rule Modified,
SHRM Online Benefits, November 2013
Health Benefit Costs Could Jump in 2014,
SHRM Online Benefits, November 2013
Related External Article:
For 2014, Increase in Some IRS Dollar Limits and Social Security Figures (printer-friendly PDF chart), Sibson Consulting, November 2013
Related SHRM Articles:
Employers Boost 401(k) Match Contributions, Relax Eligibility Rules, SHRM Online Benefits, November 2013
Message to Employees: Saving 1% More Will Boost Retirement Income,
SHRM Online Benefits, August 2013
SHRM Online Retirement Plans Resource Page
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