Every year the IRS adjusts certain limitations with respect to retirement plans, IRAs, Archer Medical Savings Accounts and other matters to reflect the change in cost of living for the year.  The IRS recently released the cost of living adjustment for 2009.  This article highlights adjustments we believe may be of general interest to our clients, including IRA deductions, 401(k) deferrals, and employer contributions to qualified retirement plans.

Retirement Plans

• The maximum contribution to a defined contribution (profit sharing, 401(k),and 403(b) plans) for 2009 is increased from $46,000 to $49,000.
• The maximum annual benefit that may be considered for contributions to a defined benefit pension plan is increased from $185,000 to $195,000.
• The maximum elective deferral (401(k), 403(b), SIMPLE plans) contribution is increased from $15,500, to $16,500.
• The maximum age 50 catch-up contribution (401(k), 403(b) plans) is increased from $5,000 to $5,500.
• The maximum age 50 catch-up contribution to a SIMPLE plan remains $2,500.
• The maximum annual compensation that may be taken into account for qualified retirement plan limitations and benefits is increased from $230,000 to $245,000.
• The compensation test to be considered a "highly compensated employee" is raised from $105,000 to $110,000.
• The compensation test to be considered a "key employee" in a top heavy plan is raised from $150,000 to $160,000.

IRAs

The maximum deductible IRA contribution for 2009 remains $5,000, but not more than your compensation for the year.  If you participate in an employer sponsored retirement plan, the $5,000 deduction is reduced based on your adjusted gross income (AGI), and no deduction is allowed if AGI is over $176,000.  The AGI levels are generally increased for 2009 at any AGI less than $176,000.  The following table illustrates the deduction limits.  The deduction at any specific AGI is a % of the limit shown.

The Age 50 catch-up IRA contribution limit remains $1,000.  So, if you are 50 or over and married with an AGI less than $166,000, you could contribute $6,000 to an IRA even if you participate in an employer sponsored retirement plan. 

  Roth IRAs

Roth IRA contributions are not deductible.  The maximum Roth IRA contribution permitted for 2009 remains $5,000, and Age 50 catch-up contribution limit remains $1,000.  The $5,000 permitted contribution is reduced ratably if AGI is between $105,000 and $120,000 for Single taxpayers, and between $166,000 and $176,000 for Married taxpayers.  These limits are up from $101,000 and $116,000, and $159,00 to $169,00 respectively.

Planning Ideas

• Age 50 catch-up contributions can be made when you are 49, if you will turn 50 during that calendar year.
• If you have school age children with part-time jobs, consider forming a SIMPLE plan and contributing an amount equal to some or all of their wages, to take advantage of long-term tax deferred compounding. 
• Self-employed persons should consider a Defined Benefit Plan for maximum tax deferral.  

For more information call: Jeff Bragdon (412) 454-0233 or Mike Lloyd (412) 454-0225