Each October brings three wonderful things - (1) Oktoberfest which according to Wikipedia is "the world's largest fun fair held annually in Munich, Bavaria, Germany. (2) Halloween which also according to Wikipedia is "a yearly celebration observed in a number of countries on 31 October, the eve of the Western Christian feast of All Hallows' Day. And (3) usually sandwiched somewhere in between these two annual diversions from working world drudgery is what I call the "Annual Cost-of-Living Announcement Fest". This is the time of the year when the IRS announces the various retirement plan limits and then every online newsletter writer and every retirement plan blogger races to be among the first to publish the limits in various places to be seen by their target audiences.
Yep, the limits have been announced for 2015 and the Announcement Fest is in full swing - unfortunately it is just a bunch of boring numbers and no beer or chocolate included. So what do some of these numbers really mean and what relevance do they have to the real world. I won't bother to list all the limits here because by now you have saved 10 different charts of these. Oh, okay, if you really need another chart to print go here: http://401kacademy.com/materials/ and then click on the Retirement Plans Limitations Chart.
Back to what these limits mean... The first one I will discuss must depress the heck out of the great majority of 401(k) and 403(b) participants - they are now being told that they can save $18,000 in salary deferrals in 2015. Must be like an annual slap in the face to remind them how much the special, smart, successful top 1% of people in the old USA can save when they can barely afford to save anything at all. Then to add insult to injury, they are told if they are old enough (age 50 by 12/31/15) then they can save $24,000 ($18,000 plus $6,000 catch-up).
There is another group that must get frustrated as well when they see these annual salary deferrals limits and that is the group of so called Highly Compensated Employees (HCEs) who are not in a Safe Harbor Plan and so are not allowed to save the maximums either and in fact they keep getting money kicked back to them with some sort of innocuous explanation from HR about something called the "failed ADP test."
In a nutshell, some of the most pertinent limits are: Salary Deferrals $18,000; Catch-up Deferrals $6,000; Total Limit from All Contributions (deferral, match, Profit Sharing, forfeitures allocated, etc. $53,000 (add $6,000 Catch-up if over 50); amount of compensation that can be counted $265,000; amount of compensation in 2015 that will make you a Highly Compensated Employee in 2016 is $120,000 and the new Social Security Taxable Wage Base $118,500. Hey at 15.3% combined for employee and employer, that's over $18,000 being paid into Social Security in one year.
Again, see the link in my second paragraph above for all the limits in a nice, organized chart form. Heck, we even colored every other line for your viewing pleasure.
