New Benefit Limits for 2007

The Internal Revenue Service has announced the cost-of-living adjustments applicable to dollar limitations for retirement plans for 2007.  They are as follows:

• The limitation on the exclusion for elective deferrals, which applies to 401(k) plans and 403(b) annuities, is increased from $15,000 to $15,500.  The limitation on deferrals under Code Section 457 deferred compensation plans of state and local governments and tax-exempt organizations is also increased from $15,000 to $15,500.
• The annual addition limitation for defined contribution plans is increased from $44,000 to $45,000.  For defined benefit plans, the limitation on the annual benefit amount is increased from $175,000 to $180,000.
• The annual compensation limit on maximum compensation that may be considered is increased from $220,000 to $225,000.  The dollar limitation for a key employee in a top-heavy plan is increased from $140,000 to $145,000.
• For employee stock ownership plans, the dollar amount for determining the maximum account balance subject to a 5-year distribution period is increased from $885,000 to $915,000, while the dollar amount used to determine the lengthening of the 5-year distribution period changes from $175,000 to $180,000.
• The annual compensation limitation for eligible participants in certain governmental plans that allowed cost-of-living adjustments to the compensation limitation under the plan to be taken into account is increased from $325,000 to $335,000.
• The $10,000 limitation for SIMPLE retirement accounts changes to $10,500, and the $450 compensation amount for simplified employee pensions (SEPs) changes to $500.

The following limits remain unchanged for 2007:

• The limitation used in the definition of highly compensated employee remains at $100,000.
• The dollar limitation for catch-up contributions to an applicable employer plan for individuals aged 50 or over remains at $5,000 ($2,500 for a SIMPLE plan).

Lastly, the Social Security Administration has announced that the taxable wage base for computing the Social Security tax (OASDI) in 2007 rises to $97,500 from $94,200--an increase of 3.3%. 

Other cost-of-living changes will be announced later including the 2007 limits for health savings accounts and the monthly reimbursement limits for qualified transportation fringe benefit plans.