IRS Announces Pension Plan Limitations For 2010

by Glen Shapiro, LawAndTax-News.com, New York

21 October 2009

The US Internal Revenue Service has announced cost-of-living adjustments applicable to dollar limitations for pension plans and other items for tax year 2010.

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Commissioner annually adjust these limits for cost-of-living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415. Under Section 415(d), the adjustments are to be made pursuant to adjustment procedures which are similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.

The limitations that are adjusted by reference to Section 415(d) will remain unchanged for 2010. This is because the cost-of-living index for the quarter ended September 30, 2009, is less than the cost-of-living index for the quarter ended September 30, 2008, and, following the procedures under the Social Security Act for adjusting benefit amounts, any decline in the applicable index cannot result in a reduced limitation. For example, the limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) will be USD16,500 for 2010, which is the same amount as for 2009. This limitation affects elective deferrals to Section 401(k) plans and to the federal government’s Thrift Savings Plan, among other plans.

Effective January 1, 2010, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) remains unchanged at USD195,000. For participants who separated from service before January 1, 2010, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2009, by 1.0000.

The limitation for defined contribution plans under Section 415(c)(1)(A) remains unchanged for 2010 at USD49,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). After taking into account the applicable rounding rules, the amounts for 2010 are as follows:

• The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) remains unchanged at USD16,500.
• The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) remains unchanged at USD245,000.
• The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan remains unchanged at USD160,000.
• The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a five-year distribution period remains unchanged at USD985,000, while the dollar amount used to determine the lengthening of the five-year distribution period remains unchanged at USD195,000.
• The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at USD110,000.
• The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at USD5,500. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at USD2,500.
• The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, remains unchanged at USD360,000.
• The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at USD550.
• The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at USD11,500.
• The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at USD16,500.
• The compensation amounts under Section 1.61-21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes remains unchanged at USD95,000. The compensation amount under Section 1.61-21(f)(5)(iii) remains unchanged at USD195,000.

The Code also provides that several pension-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3). After taking the applicable rounding rules into account, the amounts for 2010 are as follows:

• The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from USD33,000 to USD33,500; the limitation under Section 25B(b)(1)(B) remains unchanged at USD36,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), remains unchanged at USD55,500.
• The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household is increased from USD24,750 to USD25,125; the limitation under Section 25B(b)(1)(B) remains unchanged at USD27,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) remains unchanged at USD41,625.
• The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers is increased from USD16,500 to USD16,750; the limitation under Section 25B(b)(1)(B) remains unchanged at USD18,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) remains unchanged at USD27,750.
• The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions remains unchanged at USD5,000.
• The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) remains unchanged at USD89,000.
• The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) is increased from USD55,000 to USD56,000.
• The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from USD166,000 to USD167,000.
• The adjusted gross income limitation under Section 408A(c)(3)(C)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from USD166,000 to USD167,000.
• The adjusted gross income limitation under Section 408A(c)(3)(C)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) remains unchanged at USD105,000.

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