IRS Announces Retirement and Other Benefit Plan Limits for 2008

The IRS recently announced the 2008 cost-of-living adjustments for the various dollar limits that apply to benefits under retirement plans and other employee benefit plans.

Retirement Plan Limits. There are increases in some (but not all) of the retirement plan limits for next year.

• The limit on elective deferrals under 401(k) plans, 403(b) plans and 457 plans will remain at $15,500 for 2008.


• The limit on extra catch-up contributions by participants age 50 or older also remains unchanged at $5,000 for 2008. The maximum total contribution by such participants in 2008 will therefore continue to be $20,500.


• The Section 415 limits increase from $45,000 to $46,000 for 401(k) and other defined contribution plans, and from $180,000 to $185,000 for defined benefit plans.


• The limit on the annual compensation that can be taken into account by qualified plans increases from $225,000 to $230,000.


• The dollar level for becoming a highly-compensated employee increases to $105,000 of pay in 2008 for determinations in 2009 (the level for determinations in 2008, based on 2007 pay, is $100,000).

Note that the statutory increases that occurred in years before 2007 due to changes in the law made by the 2001 Tax Act (known as "EGTRRA") have ended. All of the above increases (or lack of increases) for 2008 are based only on changes in the cost of living.

The Social Security Administration also announced that the Social Security wage base will increase from $97,500 in 2007 to $102,000 in 2008.

A number of other cost of living adjustments for benefit plan limits were also announced by the IRS. For example:

• Health Savings Accounts. The maximum annual contribution to a health savings account ("HSA") will increase for 2008. For single coverage, the limit will increase from $2,850 to $2,900. For family coverage, the limit will increase from $5,650 to $5,800. The additional "catch-up" HSA contribution that can be made by individuals age 55 or older increases by statute from $800 to $900 in 2008. The minimum deductible required to qualify as a high deductible health plan ("HDHP") for purposes of the HSA rules remains at $1,110 for single coverage, and $2,200 for family coverage, in 2008. The corresponding limits on HDHP out-of-pocket maximums become $5,600 for single coverage and $11,200 for family coverage in 2008.


• Transportation Fringe Benefits. The monthly reimbursement limits under qualified transportation fringe benefit plans will increase from $110 in 2007 to $115 in 2008 for mass transit expenses (including bus passes) or commuter van pooling, and will increase from $215 to $220 in 2008 for parking expenses.


• Adoption Assistance. For 2008, the maximum amounts that can be excluded from an employee's gross income for qualified adoption assistance expenses, and for expenses related to adoption of a child with special needs, will increase from $11,390 to $11,650 per child. In 2008, the exclusion will begin to phase out for taxpayers with adjusted gross income above $174,730, and will be completely phased out at $214,730.