Employee Benefits Blog

IRS Announces Pension Plan Limitations and Other Inflation-Adjusted Amounts for 2015

On October 23, 2014, the Internal Revenue Service issued IR-2014-99, a news release announcing the 2015 inflation adjustments affecting pension plans and other retirement-related items.  The following are among the more significant changes (and non-changes) for 2015:

  • The elective deferral limit for employees who participate in 401(k), 403(b), and most 457 plans is increased from $17,500 to $18,000.
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), and certain 457 plans is increased from $5,500 to $6,000. (This limit has been at the $5,500 level since 2009.)
  • The limitation on the annual benefit under a defined benefit plan remains unchanged at $210,000.
  • The limitation on annual contributions to defined contribution plans is increased from $52,000 to $53,000.
  • The limit on the amount of compensation that can be taken into account for purposes of numerous tests is increased from $260,000 to $265,000.
  • The dollar limitation concerning the definition of key employee in a top-heavy plan remains unchanged at $170,000.
  • The limitation used in the definition of highly compensated employee is increased from $115,000 to $120,000.
  • The limitation on elective SIMPLE retirement account contributions is increased from $12,000 to $12,500.
  • The catch-up contribution limit for employees aged 50 and over who participate in a SIMPLE plan is increased from $2,500 to $3,000.
  • The deductible amount for an individual making contributions to an individual retirement account remains unchanged at $5,500. (This is before taking into account the additional contribution of $1,000 available to taxpayers who are at least 50 years of age; this amount is unchanged.)
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Self-Directed Brokerage Accounts in 401(k) Plans

401(k) plans typically allow participants to choose their investments from a limited set of funds (often 12 to 20 choices) that are selected and monitored by the plan sponsor. Some plans, however, choose to offer self-directed brokerage (SDB) accounts, also known as “brokerage windows,” which allow their participants to choose to invest in almost any publicly available investment.

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Tax Court Decision Rocks IRA Rollover World

Earlier this year, the United States Tax Court issued a decision which will create significant new potential traps for individuals who take a distribution from an IRA with the intention of escaping tax by rolling it over to another IRA within 60 days.

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Employer Mandate Under Obamacare Is Delayed (Again)

This week, the Internal Revenue Service issued final regulations under the Patient Protection and Affordable Care Act which, among many other things, provide that employers with 50 to 99 full-time employees will not be subject to the Employer Shared Responsibility provisions (a/k/a the “Employer Mandate”) until 2016.  Therefore, they will not be penalized for failure to provide employer health coverage until 2016.  Employers which have reduced their workforces from 100 or more full-time employees will need to certify that they did so for bona fide business reasons, and not in order to qualify for this transition relief.

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IRS Rules That Failure to Attach 83(b) Election to Form 1040 Did Not Invalidate the Election

In Private Letter Ruling 201405008, the Internal Revenue Service recently ruled that a Section 83(b) election was valid in spite of the fact that it was not attached to the taxpayer’s personal tax return for the year of the election.

In general, under Code Section 83(b), taxpayers can elect to be taxed currently on the excess of the value of property that they receive over the amount that they pay for it, even if their interest in the property has not yet vested.  If the property subsequently increases in value, this election can be very valuable by resulting in appreciation being taxed at capital gains rates that might otherwise be taxed as ordinary income.

Posted Under: section 83(b) elections

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IRS Notice 2013-54 and S Corporation Shareholder-Employees

In a previous post we discussed IRS Notice 2013-54, in which the IRS reversed its previous position by indicating that, when an employer pays for an employee’s individual health insurance policy premiums, the benefit can no longer be provided on a pre-tax basis and must now be treated as taxable wages.  We encountered a situation recently which led us to conclude that, while it is not free from doubt, it appears that S corporation owner employees who directly or indirectly own at least 2% of the shares may now potentially be in a more favorable position than owner-employees of C corporations.

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