If your company offers IRA or 401(k) plans, you and your employees have likely noticed recent increases to the 2019 contribution limits thanks to a cost of living adjustment made by the Internal Revenue Service. Here is a brief summary of the changes to 401(k) plans that took effect in 2019.
Contribution Limits:
Employees Under 50
- The 401(k) employee contributions limit has been raised from $18,500 to $19,000.
- The total 401(k) retirement contribution limit (employee elective deferrals + employer contributions) has increased from $55,000 to $56,000.
- IRA contribution limits increased $500 from $5,500 to $6,000.
Employees Over 50
- Employee 401(k) contribution limits rose from $24,500 to $25,000.
- The total 401(k) retirement contribution limit (employee elective deferrals + employer contributions) has increased to $62,000.
- The 401(k) Catch-Up – Unchanged: The catch-up contribution limits for employees age 50 and older who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan have not changed and remain at $1,000 for IRAs and $6,000 for workplace retirement accounts. If you don’t turn 50 until December 31, 2019, you can still make the additional $6,000 catch-up contribution for the year.
Employer Match and the Employee’s 401(k) Contribution
We are frequently asked if the employer match counts toward the employee’s 401(k) maximum contribution and the answer is no. For example, an employee can contribute up to $19,000 (or up to $25,000 if they are 50 or over as outlined above) regardless of the employer’s contribution amount.
Compensation Thresholds
For the first time in several years, the compensation thresholds have changed for Key and Highly-Compensated Employees. With the 2019 income limit updates, employees are now required to earn $5,000 more to be considered a Highly-Compensated (HCEs) or Key Employee. It’s important to note that this increase may trigger changes to your ADP, ACP or Top-Heavy nondiscrimination tests.
SEP IRAs and Solo 401(k)s
There’s good news for small business owners and other self-employed taxpayers. The amount self-employed and small business owners can save in a SEP IRA or Solo 401(k) increased from $55,000 in 2018 to $56,000 in 2019. This is based on the amount they can contribute as an employer, as a percentage of their salary; the compensation limit used in the savings calculation also increases from $275,000 in 2018 to $280,000 in 2019.
Informing Employees
It’s important to notify employees of these changes to annual contribution limits and explain how it impacts their financial plans. As you, your company’s human resources director and payroll managers adjust your systems and educate employees about the new contribution limits, we can help. Whether you’re looking to automate your payroll and benefits systems, explain complex options or changes to your employees, our expert advisors will provide onboarding assistance, ongoing education and support.
Considering Offering A Retirement Plan?
If your company currently does not offer retirement plans to your employees, these limit increases signal an ideal time to consider adding a retirement savings program to your menu of benefits. For employees, the increases in contribution limits may lead to an increase in your employee’s savings rate and readiness for retirement. For you as the employer, HR or benefits director the addition of retirement plans can help you attract and retain quality talent while you increased current employee satisfaction, engagement and retention.
Have questions? Our advisors can help when it comes to building, implementing and communicating your 401k plan benefits to your employees. Just email or call us at (561) 288-1111.