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Retirement Limits for 2006 Take a Jump
Good news: The retirement plan limits for 2006 are going up. Better news: The increases may be more than you expected.
The IRS makes annual cost-of-living adjustments (COLAs) affecting the amounts that may be set aside in different types of qualified retirement plans. Due to relatively low inflation rates, the adjustments for qualified retirement plans have been minor the last few years. However, the increases for 2006 are much larger than usual.
Other qualified plan increases are mandated by law. For instance, the dollar limit for 401(k) plan deferrals jumps from $14,000 to $15,000 under a provision in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).
The table below is a summary of the most important retirement plan changes taking effect in 2006.
Note: The annual limit for contributions to individual retirement accounts (IRAs; both traditional and Roth IRAs) remains at $4,000 for 2006. The next scheduled increase to $5,000 will occur in 2008.
2005 limit |
2006 limit |
|
Maximum annual dollar benefit for a defined benefit plan |
$170,000 |
$175,000 |
Maximum dollar limit on contributions to a defined contribution plan |
$42,000 |
$44,000 |
Maximum amount of compensation taken into account for qualified retirement plans |
$210,000 |
$220,000 |
Dollar limit for definition of “key employee” in top-heavy retirement plan |
$135,000 |
$140,000 |
Dollar limit for definition of highly compensated employee in qualified plan |
$95,000 |
$100,000 |
Dollar limit for elective deferrals to a 401(k) plan |
$14,000 |
$15,000 |
Dollar limit for contributions to a SIMPLE (Savings Incentive Match Plan for Employees) plan |
$10,000 |
$10,000 |
Dollar limit for elective deferrals to deferred compensation plans of state and local governments, and tax-exempt organizations |
$14,000 |
$15,000 |
Dollar limit for catch-up contributions to 401(k) plan* |
$4,000 |
$5,000 |
Dollar limit for catch-up contributions to a SIMPLE plan* |
$2,000 |
$2,500 |
*Catch-up contributions only permitted for individuals age 50 years or older.
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