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2010 cost-of-living adjustments

Law Letter, Issue 3, 2009

December 2009

The Internal Revenue Service (IRS) has announced its annual cost-of-living adjustments for the 2010 tax year. The IRS will not adjust the limitations this year because the cost-of-living index for the quarter ended September 30, 2009 is less than the cost-of-living index for the quarter ended September 30, 2008, and, following procedures under the Social Security Act, any decline in the applicable index cannot result in a reduced limitation. Effective January 1, 2010, the following are some important limitations that apply:

  • Elective Deferrals. The maximum annual elective deferral amount for 401(k) plans and for deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at $16,500.
  • Defined Benefit Limitation. The maximum annual benefit payable under a defined benefit plan remains unchanged at $195,000. For participants who separated from service before January 1, 2010, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2009, by 1.0000.
  • Defined Contribution Limitation. The limitation for defined contribution plans under section 415(c)(1)(A) remains unchanged at $49,000.
  • Annual Compensation. The maximum amount of compensation that employees can take into account for qualified plans remains unchanged at $245,000.
  • Key Employee Definition. The amount of compensation to take into account when defining key employees in a top-heavy plan remains unchanged at $160,000.
  • ESOP Limitations. The dollar amount for determining the maximum account balance in an employee stock ownership plan subject to a 5-year distribution period remains unchanged at $985,000. The dollar amount used to determine the lengthening of the 5-year distribution period remains unchanged at $195,000.
  • Highly Compensated Employee. The definition of highly compensated employee remains unchanged at $110,000.
  • Catch-Up Contributions. The dollar limitation for catch-up contributions to an applicable employer plan, other than a SIMPLE plan, for individuals who turn 50 during the plan year remains unchanged at $5,500. The dollar limitation for catch-up contributions to a SIMPLE plan for individuals who turn 50 during the plan year remains unchanged at $2,500.
  • SEP Compensation. The compensation amount for purposes of determining employer participation in simplified employee pensions remains unchanged at $550.
  • SIMPLE Retirement Accounts. The limitation under 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $11,500.
  • Deductible IRA Amount. The applicable dollar amount for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) remains unchanged at $89,000. The applicable dollar amount for all other taxpayers (other than married taxpayers filing separate returns) has increased from $55,000 to $56,000. The applicable dollar amount for a taxpayer who is not an active participant but whose spouse is an active participant has increased from $166,000 to $167,000.
  • Maximum Roth IRA Contribution. The adjusted gross income limitation for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $166,000 to $167,000. The adjusted gross income limitation for all other taxpayers (other than married taxpayers filing separate returns) remains the same at $105,000. 


A more complete chart with all of the cost-of-living increases for dollar limitations on benefits and contributions for plan years 2002 to 2010 can be found at:www.irs.gov/retirement/article/0,,id=96461,00.html 

  • Partner

    Mary is partner with a focus on employee benefits. Her practice includes design and compliance of qualified retirement plans and employee welfare benefit plans, including COBRA, and nonqualified deferred compensation ...

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