IRS Announces Retirement Plan Limits for 2007

Today, the IRS announced the 2007 cost-of-living adjustments for the various dollar limits that apply to benefits under retirement plans. There are increases in many (but not all) of the limits for next year.

• The limit on elective deferrals under 401(k) plans, 403(b) plans and 457 plans will increase from $15,000 to $15,500.
  
• The limit on extra catch-up contributions by participants age 50 or older stays at $5,000 for 2007. The total contribution by such participants in 2007 will therefore be $20,500.
  
• The Section 415 limits increase from $44,000 to $45,000 for 401(k) and other defined contribution plans, and from $175,000 to $180,000 for defined benefit plans.
  
• The limit on the annual compensation that can be taken into account by qualified plans increases from $220,000 to 225,000.
  The dollar level for becoming a highly-compensated employee stays at $100,000 of pay in 2007 for determinations in 2008 (the same level as applies for determinations in 2007 based on 2006 pay).

Note that the statutory increases that have been occurring in the past five years due to changes in the law made by the 2001 Tax Act (EGTRRA) have now ended. All of the above increases for 2007 are based only on changes in the cost of living.

The limits on contributions to IRAs and SIMPLE plans will also increase next year.

The Social Security Administration also announced today that the Social Security wage base will increase from $94,200 in 2006 to $97,500 in 2007.

There are a number of other cost of living adjustments for benefit plan limits that will be announced separately. That includes the 2007 limits for Health Savings Accounts and the monthly reimbursement limits under qualified transportation fringe benefit plans for mass transit expenses (including bus passes) or commuter van pooling, and for parking expenses.