IRS Announces Retirement and Other Benefit Plan Limits for 2009

Yesterday, the IRS announced the 2009 cost-of-living adjustments for the various dollar limits that apply to benefits under retirement plans and other employee benefit plans. 

Retirement Plan Limits.  There are increases in most retirement plan limits for next year. 

• The limit on elective deferrals under 401(k) plans, 403(b) plans and 457 plans will increase from $15,500 for 2008 to $16,500 for 2009.
• The limit on extra catch-up contributions by participants age 50 or older also increases from $5,000 for 2008 to $5,500 for 2009.  The maximum total contribution by such participants in 2009 will therefore become $22,000.
• The Section 415 limits increase from $46,000 to $49,000 for 401(k) and other defined contribution plans, and from $185,000 to $195,000 for defined benefit plans. 
• The limit on the annual compensation that can be taken into account by qualified plans increases from $230,000 to $245,000. 
• The dollar level for becoming a highly-compensated employee increases to $110,000 of pay in 2009 for determinations in 2010 (the level for determinations in 2009, based on 2008 pay, is $105,000).

Note that the statutory increases that occurred in years before 2007 due to changes in the law made by the 2001 Tax Act (known as "EGTRRA") have ended.  All of the above increases for 2009 are based only on changes in the cost of living. 

The Social Security Administration also announced that the Social Security wage base will increase from $102,000 in 2008 to $106,800 in 2009.  That is a 5.8 percent increase, and is the largest annual increase since 1982.

A number of other cost of living adjustments for benefit plan limits have also been announced by the IRS.  For example:

• Health Savings Accounts.  The maximum annual contribution to a health savings account (HSA) will increase for 2009.  For single coverage, the limit will increase from $2,900 to $3,000.  For family coverage, the limit will increase from $5,800 to $5,950.  The additional "catch-up" HSA contribution that can be made by individuals age 55 or older will increase by statute from $900 to $1,000 in 2009.  The minimum deductible required to qualify as a high deductible health plan (HDHP) in 2009 for purposes of the HSA rules increases from $1,110 to $1,150 for single coverage and from $2,200 to $2,300 for family coverage.  The corresponding limits on HDHP out-of-pocket maximums will increase from $5,600 to $5,800 for single coverage and from $11,200 to $11,600 for family coverage in 2009. 
• Transportation Fringe Benefits.  The monthly reimbursement limits under qualified transportation fringe benefit plans will increase from $115 in 2008 to $120 in 2009 for mass transit expenses (including bus passes) or commuter van pooling, and will increase from $220 to $230 in 2009 for parking expenses.
• Adoption Assistance.  For 2009, the maximum amounts that can be excluded from an employee's gross income for qualified adoption assistance expenses, and for expenses related to adoption of a child with special needs, will increase from $11,650 to $12,150 per child. In 2009, the exclusion will begin to phase out for taxpayers with adjusted gross income above $182,180, and will be completely phased out at $222,180.