The IRS recently issued a long list of cost of living adjustments (COLAs) for various Tax Code provisions related to retirement savings. These COLAs are for the 2015 tax year and are dependent upon the CPI-U index average from September 2013 through August 2014. The Tax Code requires that federal income tax brackets and certain other figures be adjusted annually for inflation. Because of inflation and rounding conventions, many provisions increase for 2015.
Among the many adjustments published by the IRS are these (this is not an exclusive list):
Elective deferrals. The limits on elective deferrals for employees who participate in 401(k)s, 403(b)s, certain 457s, and Thrift Savings Plans increase to $18,000, up from $17,500 for 2014.
Catch-up contributions. Eligible individuals age 50 and above may make catch-up contributions to IRAs, 401(k)s and other savings arrangements. The catch-up amount for 401(k)s, 457s, 403(b)s, and SEPs, increase to $6,000 for 2015. The additional catch-up contribution amount to IRAs remains at $1,000 since it is a non-inflation-adjusted flat amount set by the Tax Code.
Defined contribution plans. The limitation for Code Sec. 415(c)(1)(A) defined contribution plans will increase from $52,000 for 2014 to $53,000 for 2015.
Traditional IRAs. For 2015, the maximum deductible amount under Code Sec. 219(b)(5)(A) for an individual making qualified retirement contributions to traditional IRAs and similar plans will remain $5,500. The allowable IRA deduction will phase out when modified AGI is between $61,000 and $71,000 for single taxpayers who are active participants in an employer-sponsored retirement plan (up from $60,000 and $70,000 in 2014). For married couples filing a joint return, where the spouse making the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $98,000 to $118,000 (up from $96,000 to $116,000 for 2014).
The IRS announcement also included the following figures:
- The Code Sec. 414(q)(1)(B) limit used in the definition of a “highly-compensated employee” is set for 2015 at $120,000, an increase from $115,000 for 2014 and 2013.
- The dollar limit used within the definition of “key employee” in a top heavy plan remains $170,000 for 2015.
- The compensation amounts relevant to the definition of “control employee” for fringe benefit valuation purposes remains $105,000 for 2015. The compensation amount under Reg. §1.61-21(f)(5)(iii) is $215,000 for 2015, up from $210,000 for 2014.
Social Security wage base
At the same time the IRS issued the qualified retirement plan COLAs, the Social Security Administration (SSA) announced that the maximum amount of earnings subject to OASDI Social Security tax will also increase. The 2015 wage base will increase to $118,500, up from $117,000 for 2014. (The $1,500 increase reflects an overall rise in average total wages.)
The SSA figures also included the 2015 domestic employee coverage threshold, which is often called the “nanny tax.” Adjusted for inflation, the amount is $1,900, which is unchanged from the previous year. If a taxpayer pays a domestic household employee more than $1,900 during the year, he or she is responsible for withholding and paying FICA taxes on the employee’s behalf.