When determining the salary deferral limits in defined contribution plans, it’s important to remember the following rules:
CONTRIBUTION LIMITS ARE AGGREGATED ACROSS PLANS
The 2018 contribution limit for salary deferrals is $18,500 and includes both pre-tax and after-tax Roth deferrals. This is an individual limit determined each calendar year and is aggregated across 401(k) plans, 403(b) plans, SIMPLE plans and SARSEP.
WHY IS THIS IMPORTANT?
This is important to remember for mid-year new hires or rehires. For example, if your plan allows immediate entry and you hire someone mid-year, you will need to verify how much they contributed during that calendar year to their prior plan to accurately calculate the amount they can contribute to your plan.
AGE 50 CATCH-UP CONTRIBUTIONS
The salary deferral limit is increased by $6,000 for participants who are age 50 or older by the end of the year. This means that participants age 50 or older by year-end can contribute $24,500 in 2018.
Additional information about the salary deferral limits can be read in the IRS’ article How much Salary Can You Defer if You’re Eligible for More Than One Retirement Plan.
Please contact your Watkins Ross associate if you have specific questions regarding the salary deferrals applicable to your plan and employees.