2019 IRS Tax Limits

For 2019, 401(k) Contribution Limit for Employees Rises to $19,000

Employee 401(k) contributions for 2019 will top off at $19,000—a $500 increase from 2018—while the "all sources" maximum contribution (employer and employee combined) rises to $56,000, up $1,000, the IRS announced on Nov. 1.

Plan participants who contribute to the limit next year will be able to receive up to $37,000 from match and profit-sharing contributions ($56,000 minus $19,000).

For participants ages 50 and over, the additional "catch-up" contribution limit will stay at $6,000.

2019 Defined Contribution Plan Limits

In Notice 2018-83, the IRS highlighted the following adjustments taking effect on Jan. 1, 2019, for 401(k), 403(b) and most 457 plans:

Defined Contribution Plan Limits 2019 2018 Change
Maximum employee elective deferral $19,000 $18,500 +$500
Employee catch-up contribution (if age 50 or older by year-end) $6,000 $6,000
No
change
Defined contribution maximum limit, all sources $56,000 $55,000 +$1,000
Defined contribution maximum limit (if age 50 or older by year end); maximum contribution all sources plus catch-up $62,000 $61,000 +$1,000
Employee compensation limit for calculating contributions $280,000 $275,000 +$5,000
Compensation limit of "key employees" in a top-heavy plan $180,000 $175,000
+5,000
Compensation limit of "highly compensated employees" in a top-heavy plan (HCE threshold) $125,000 $120,000
+5,000

"Key employees" and "highly compensated employees" are terms used for testing purposes in the annual nondiscrimination testing of a retirement plan.

The $6,000 catch-up contribution limit for participants age 50 or older applies from the start of the year to those turning 50 at any time during the year.

Source: IRS Notice 2018-83.

 

Catch Up Contributions

Most plans allow participants to start making catch-up contributions in the calendar year in which they reach age 50. Catch-up contributions are not included in annual deferral percentage nondiscrimination testing, which prevents plans from favoring high-earning participants. "Catch-up contributions can be used to enable higher total contributions and, as necessary, to re-characterize contributions that would otherwise be returned to participants due to IRS limits, said Jack Towarnicky, executive director at Plan Sponsor Council of America, an employers group.

Complying with Annual Contribution Limits

IRS records show that the vast majority of employees comply with annual limits on the amount of compensation that they can contributed to their 401(k) plans, according to an October 2018 report by the Treasury Inspector General for Tax Administration. Nonetheless, the inspector general identified two areas in which compliance could be improved:

  • Some 401(k) plans did not prevent taxpayers from exceeding the annual limit.
  • Some employees exceed annual limits when contributing to multiple 401(k) plans.

The findings suggest that employers ensure that their payroll systems don't accept participant contributions that exceed the annual dollar limit, and that employers educate plan participants who may be holding more than one job that the annual limit applies to total contributions to all 401(k) plans.

Annual Limit as a Contribution Goal

Employers should convey to employees their plan contribution limits for next year. Not all plan participants will be able to fund their 401(k) accounts up to the maximum, of course, but the contribution cap is a goal they should keep in mind and may encourage those who can defer extra dollars for retirement savings to do so.

Those who have not been contributing enough per paycheck to reach the annual cap and who can afford to do so can increase their contributions before the end of the year so that they reach the full annual limit.

Conversely, participants may want to ensure that they don't hit the annual limit prior to year-end, which could mean losing out on employer matching contributions tied to per-paycheck deferrals, unless the plan sponsor has agreed to "make whole" or "true up" participants who max out their annual contributions prior to their final paycheck.

Defined Benefit Plan Limits

Sponsors of defined benefit pension plans should note that the IRS announced the following cost-of-living adjustments under tax code Section 415, also taking effect on Jan. 1:

  • Annual benefit limit. The maximum annual benefit that may be provided through a defined benefit plan rises to $225,000 from $220,000.
  • Separation from service. For a participant who separates from service before Jan. 1, 2019, the annual benefit limit for defined benefit plans is computed by multiplying the participant's compensation limit, as adjusted through 2018, by 1.0264. This is an increase from the previous year, when the participant's compensation limit, as adjusted through 2017, was multiplied by 1.0197.

Client Lockbox

Contact Details

1060 Maitland Center Commons

Suite 360

Maitland, FL 32751

Phone: 866-625-4611

Fax: 407-740-6113

Email: info@fiduciaryfirst.com