[Updated on October 22, 2014. New CPI number confirmed projections made here two months ago.]
The government released the Consumer Price Index for SeptemberÂ 2014. Inflation is higher this year but still low by historical standard. The new inflation number confirmed my projection ofÂ the 2015 contribution limits for 401k/403b/457 plans. The contribution limit for traditional and Roth IRAs was finalized in September, which only depends on the inflation numbers through August.
401k/403b/457 Elective Deferral Limit
401k/403b/457 contribution limit will increase by $500 to $18,000 in 2015. If you are age 50 or over, the catch-up contribution limit will also increase by $500 to $6,000.
If you are self-employed, the total employer plus employee contributions to all defined contribution plans by the same employer will go up by $1,000 from $52,000 to $53,000 in 2015.
SIMPLE 401k and SIMPLE IRA Contribution Limit
SIMPLE 401k and SIMPLE IRA plans have a lower limit than 401k plans. It will also go up by $500 to $12,500 in 2015. If you are age 50 or over, the catch-up contribution limit will also increase by $500 to $3,000.
Traditional and Roth IRA Contribution Limit
Traditional and Roth IRA contribution limit will stay the same at $5,500 in 2015. The age 50 catch up limit is fixed by law at $1,000.
All Together
2014 | 2015 | Increase | |
Limit on employee contributions to 401k, 403b, or 457 plan | $17,500 | $18,000 | $500 |
Limit on age 50+ catchup contributions to 401k, 403b, or 457 plan | $5,500 | $6,000 | $500 |
Traditional and Roth IRA contribution limit | $5,500 | $5,500 | None |
Traditional and Roth IRA age 50+ catchup contribution limit | $1,000 | $1,000 | None |
SIMPLE 401k or SIMPLE IRA contributions limit | $12,000 | $12,500 | $500 |
SIMPLE 401k or SIMPLE IRA age 50+ catchup contributions limit | $2,500 | $3,000 | $500 |
Maximum annual additions to all defined contribution plans by the same employer | $52,000 | $53,000 | $1,000 |
Highly Compensated Employee definition | $115,000 | $120,000 | $5,000 |
[Photo credit: Flickr user SalFalko]
KD says
Thanks for the heads up! Prospect lower take home on account of maximizing contributions to increased 401k limit seems closer.
John says
Don’t forget the Normal Retirement Age/ Pre-Retirement Catch Up provision for the 457b accounts. This will allow up to a $36,000 contribution.
JD says
I have never been able to figure out the actual calculation used to derive the 401k and catch-up contribution limits. On my own I *think* the calculation is based on the following:
1) Uses the 2005 3Q CPI-W average (192.7) as a basis with a 15,000 contribution limit.
2) compares the current 3Q CPI-W average to the basis, and adjust the limit accordingly. However, the limits can only increase in increments of $500, and the limit is not increased unless the calculation is within $50 of the next limit. (In other words, if the exact calculation shows 17,929, the limit would be 17,500, not 18,000.
Is that correct?
In any case I agree that based on the Jul and Aug CPI-W numbers, it virtually guaranteed that we will have 401k contribution limit of 18,000 and Catch-up Provision limit of 6,000.
Harry Sit says
It uses CPI-U, not CPI-W. Then it’s Q3 to Q3 in the base year, rounding down to the nearest $500.
Mathematician says
Here’s a simple calculation for age 50+ catchup contributions. Just take the regular 401k/403b (or 457b) max contribution, divide by 3, and round down to a multiple of $500.
This works because they started at $15000 and $5000 and are scaled up by the same factor, then rounded down.
BTW you can get the CPI-U numbers here
http://data.bls.gov/cgi-bin/surveymost?cu
then select
U.S. All items, 1982-84=100 – CUUR0000SA0
JD says
Thanks for the replies, Harry Sit and Mathemetician. Something still doesn’t look exactly right though. I assume the base year is Tax year 2006, when the 401k limit was first $15,000 and catch-up was $5,000. CPI-U in 3Q 2005 calendar year was 192.767.
Based on your comments, every subsequent year from 2007 to present does agree with your calculation except for the current tax year (2014):
2013 3Q CPI-U was 232.018 average. This would make 401(k) limit at 18,054 (rounded down to 18,000) and the catch-up limit at 6,113 (rounded down to 6,000). However, the actual limits in 2014 are 17,500 and 5,500.
What am I missing?
EDIT: Nevermind, I was incorrectly using the entire year average for CPI-U, not 3Q CPI-U. So 3Q 2005 was actually 196.867 and 3Q 2014 was 233.874. It all works out now. Thanks again!
JD says
One final correction so I don’t confuse anyone more than I already have:
3Q 2005 CPI-U = 196.867
3Q 2013 CPI-U = 233.874
So now I correctly calculate tax year 2014 401(k) limits to be 17,500 and 5,500 by calculating the percent increase and rounding down to the nearest 500.
As stated in the original article, 2015 limits will almost certainly be 18,000 and 6,000, though this won’t technically be official until the sept CPI-U numbers are released in the upcoming week.
JB says
I’m over 50 and just started a new job with a small business which offers a simple IRA instead of a 401K like I had at my prior job. It looks like I can only contribute $15,500 in 2015 with the simple IRA where in 2014 at my old job I could contribute $23,000. Can I also contribute $6500 to a traditional or Roth IRA?
Harry Sit says
Yes, you can also contribute $6500 to a traditional or Roth IRA (if within income limit). You may or may not be able deduct your traditional IRA contribution depending on your income.
PH says
What is the income limit for 2015 for a full Roth Contribution? That must have also increased from $181,000.00; right?
Harry Sit says
It goes up by $2,000 in 2015 to $183k for married filing jointly and $116k for single.
KC says
I am 50+ single , I contribute 23K in 401K. How much if any can I contribute to traditional IRA that I can deduct?
My income is 75K. I also have a defined contribution pension from my employer.
Harry Sit says
If your $75k income is before your $23k contribution to a traditional pre-tax 401k (not Roth), you are under the income limit for taking a full deduction for your maximum $6,500 contribution to a Traditional IRA.
See 2014 IRA Contribution and Deduction Limits – Effect of Modified AGI on Deductible Contributions If You ARE Covered by a Retirement Plan at Work.
The $60,000 number in the link above will go up to $61,000 in 2015.
Alan Drake says
Does the retirement tax credit for the working poor (Form 8880) – $200 up to $1,000 tax credit for a $2,000 IRA contribution (proportionally less for smaller contributions) – have an inflation adjustment ?
Are there inflation adjustments for either for the maximum credit ($1,000) or the income limits that qualify for this tax credit ?
I have talked a half dozen hard working but minimum wage earners in their 50s and 60s into putting a few dollars aside, using this credit. And my Christmas bonus has been an IRA contribution for one person.
Harry Sit says
The credits don’t but the income limits do. For instance the maximum income to qualify for the 10% tier goes up in 2015 from $60k to $61k for married filing jointly and $30k to $30,500 for singles. The increase for the 50% tier is half as much: from $36k to $36,500 for married filing jointly and from $18k to $18,250 for singles.
Thomas says
Harry Sit,
Love your blog! My wife and I are 40. She is an independent contractor just starting out and will earn approximately $12,000 after expenses this year. I have maxed out all tax advantaged accounts including 403b, 457b and a 401K based on my salary of $300,000. Would she be able to contribute most of her earnings into a solo 401K considering that she is an independent contractor? It appears that this may be a better option for her than a SEP IRA?
Thanks
Thomas
Harry Sit says
She would and it is indeed better than a SEP-IRA. See Solo 401k When You Have Self-Employment Income.
Roger says
Thanks for the nice blog…Q: I’m not sure I understand the “highly compensated employee” (HCE) rule. They hit me with it last year (2013), however, even though I make about 6% more I was not affected this year (2014). Also, I’m starting a new job next month and my salary will be about 20% higher (~40% higher with expected bonus). How do I plan for the HCE rule? Is it different for every company? I’m over 50 so had planedn to contribute the max in 2015, $24K.
Harry Sit says
Earning more than the HCE limit is only a necessary condition. It doesn’t automatically subject you to a reduced contribution limit. If you are under the limit you won’t get hit for sure. If you are over the limit, you may or may not get hit by it. It depends on the company and what other employees do. You just contribute the max as usual. If you get hit, so be it. There isn’t much you can do about it.