The Internal Revenue Service announced today that contribution limits for 401(k) plans and individual retirement accounts will increase due to cost-of-living adjustments.  The maximum amount of contributions an employee can make to their 401(k) plan is determined each year by the IRS.  “Many of the pension plan limitations will change for 2015 because the increase in the cost-of-living index met the statutory thresholds that trigger the adjustment” according to a release from the Internal Revenue Service.  

For the 2015 plan year, employees can contribute up to $18,000 as an elective payroll deduction to their 401(k) plan.  In addition, if the employee is age 50 or older, they can contribute an additional ‘catch-up’ contribution of $6,000, resulting in a maximum contribution of $24,000 (if age 50 or older).  This limit applies only to the employee’s contribution, and does not include any employer paid matching amounts. Employees wishing to contribute the maximum contribution allowed may find it easiest to break the annual limit into equal amounts per pay period, to ensure that they don’t contribute over the limit. 

2015’s 401(k) limit of $18,000 applies to both Traditional and ROTH 401(k) plans. In a Traditional 401(k) plan, employees make tax-deductible (pre-tax) contributions. These contributions grow without being taxed on dividends or earnings until after the money is withdrawn for the employee’s retirement account.  As those funds are withdrawn, they are then taxed at the employee’s income tax rate. In a ROTH 401(k) plan, employees make contributions with after-tax dollars. These contributions grow without being taxed and can be withdrawn at retirement without being taxed. The decision for which 401(k) plan to participate in is up to the employee – pay taxes up front with a ROTH 401(k) or at retirement with a Traditional 401(k).

StaffScapes provides and manages a 401(k) retirement plan for our clients. Please contact us to see how we can benefit your employee’s futures with our retirement plans!