The IRS has issued the 2001 annual dollar limits for cost-of-living adjustments related to pension plans. Several of the indexed dollar limits increased this year, according to the announcement. As expected, the announcement of the annual dollar limits was held up for several weeks pending the fate of end-of-the-year legislation in the last session of Congress.
The IRS released information on annual dollar limits in the following areas:
- Elective deferrals to 401(k) plans - The limit on the amount of compensation employees may defer annually to their 401(k) plans remains unchanged at $10,500 for tax year 2001.
- Annual additions - For 2001, the limit on annual additions to defined contribution plans under Section 415(c)(1)(A) increases from $30,000 to $35,000.
- Annual benefit under defined benefit plan - Under Code Section 415(b)(1)(A), the limit on annual benefits under a defined benefit plan increased from $135,000 to $140,000 for 2001. For participants who separated from service before Jan. 1, 2001, this limit is computed by multiplying the participant''s 2000 compensation limit by 1.0351.
- Annual earnings limit for highly compensated employees - The annual limit used to define a highly compensated employee remains unchanged at $85,000 for 2001.
- Compensation limits - The annual compensation limit under Sections 401(a)(17) and 404(l) remains unchanged at $170,000 for 2001. For eligible participants in some governmental plans already in effect on July 1, 1993, the limit increases from $275,000 to $285,000.
- Employee stock ownership plans (ESOPs) - For 2001, the limit used to determine the lengthening of the five-year distribution period for tax-credited ESOPs increases from $150,000 to $155,000 in 2001.The limit for determining the maximum account balance in an ESOP subject to a five-year distribution period increases from $755,000 to $780,000.
- Compensation limit for simplified employee pension plans (SEPs) - The compensation limit under Section 408(k)(2)(C) regarding SEPs remains at $450 for 2001. The compensation limit under Section 408(k)(3)(C) for SEPs remains unchanged at $170,000.
- SIMPLE retirement accounts - For 2001, the limitation under SIMPLE retirement accounts increases from $6,000 to $6,500.
The new limits for 2001 were announced in IRS News Release 2000-82.
From The 401(k) Handbook, ®Thompson Publishing Group, Inc.